10-K 1 a2203505z10-k.htm 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

(Mark One)

    ý
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the fiscal year ended February 26, 2011

    OR

    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



LOGO

BEST BUY CO., INC.
(Exact name of registrant as specified in its charter)

Minnesota   41-0907483
State or other jurisdiction of
incorporation or organization
  (I.R.S. Employer
Identification No.)

7601 Penn Avenue South
Richfield, Minnesota

 

55423

(Zip Code)
(Address of principal executive offices)    

Registrant's telephone number, including area code 612-291-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Name of each exchange on which registered
Common Stock, par value $.10 per share   New York Stock Exchange

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. ý 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 ý 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. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's 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, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) o Yes ý No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of August 28, 2010, was approximately $8.8 billion, computed by reference to the price of $31.86 per share, the price at which the common equity was last sold on August 28, 2010, as reported on the New York Stock Exchange-Composite Index. (For purposes of this calculation all of the registrant's directors and executive officers are deemed affiliates of the registrant.)

As of April 20, 2011, the registrant had 389,520,245 shares of its Common Stock issued and outstanding.


Table of Contents


DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement dated on or about May 9, 2011 (to be filed pursuant to Regulation 14A within 120 days after the registrant's fiscal year-end of February 26, 2011), for the regular meeting of shareholders to be held on June 21, 2011 ("Proxy Statement"), are incorporated by reference into Part III.


CAUTIONARY STATEMENT PURSUANT TO THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Section 27A of the Securities Act of 1933, as amended ("Securities Act"), 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 "anticipate," "believe," "estimate," "expect," "intend," "foresee," "plan," "project," "outlook," and other words and terms of similar meaning. 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 our future results to differ materially from those contemplated by the forward-looking statements made in this Annual Report on Form 10-K. Among the factors that could cause our actual future results and outcomes to differ materially from those projected in such forward looking statements are the following: general economic conditions, changes in consumer preferences, credit market constraints, acquisitions and development of new businesses, divestitures, product availability, sales volumes, pricing actions and promotional activities of competitors, profit margins, weather, changes in law or regulations, foreign currency fluctuations, availability of suitable real estate locations, our ability to react to a disaster recovery situation, the impact of labor markets and new product introductions on our overall profitability, failure to achieve anticipated benefits of announced transactions and integration challenges relating to new ventures.


BEST BUY    FISCAL    2011    FORM    10-K

TABLE OF CONTENTS

PART I         4  
Item 1.   Business.     4  
Item 1A.   Risk Factors.     14  
Item 1B.   Unresolved Staff Comments.     21  
Item 2.   Properties.     22  
Item 3.   Legal Proceedings.     25  
Item 4.   Reserved.     28  

PART II

       
29
 
Item 5.   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.     29  
Item 6.   Selected Financial Data.     32  
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations.     34  
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.     65  
Item 8.   Financial Statements and Supplementary Data.     66  
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.     130  
Item 9A.   Controls and Procedures.     130  
Item 9B.   Other Information.     130  

PART III

       
131
 
Item 10.   Directors, Executive Officers and Corporate Governance.     131  
Item 11.   Executive Compensation.     132  
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.     132  
Item 13.   Certain Relationships and Related Transactions, and Director Independence.     132  
Item 14.   Principal Accounting Fees and Services.     132  

PART IV

       
133
 
Item 15.   Exhibits, Financial Statement Schedules.     133  

 

 

Signatures

 

 

137

 


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PART I

Item 1.  Business.

Description of Business

Unless the context otherwise requires, the use of the terms "we," "us" and "our" in this Annual Report on Form 10-K refers to Best Buy Co., Inc. and, as applicable, its consolidated subsidiaries. We are a multinational retailer of consumer electronics, home office products, entertainment products, appliances and related services. We operate retail stores and call centers and conduct online retail operations under a variety of brand names such as Best Buy (BestBuy.com, BestBuy.ca, BestBuy.co.uk), Best Buy Mobile (BestBuyMobile.com), The Carphone Warehouse (CarphoneWarehouse.com), Five Star (Five-Star.cn), Future Shop (FutureShop.ca), Geek Squad, Magnolia Audio Video, Napster (Napster.com), Pacific Sales and The Phone House (PhoneHouse.com). References to our Web site addresses do not constitute incorporation by reference of the information contained on the Web sites.

Information About Our Segments

During fiscal 2011, we operated two reportable segments: Domestic and International. The Domestic segment is comprised of the operations in all states, districts and territories of the U.S., operating under various brand names including, but not limited to, Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video, Napster and Pacific Sales.

The International segment is comprised of: (i) all Canada operations, operating under the brand names Best Buy, Best Buy Mobile, Cell Shop, Connect Pro, Future Shop and Geek Squad; (ii) all Europe operations, operating under the brand names Best Buy, The Carphone Warehouse, The Phone House and Geek Squad; (iii) all China operations, operating under the brand names Best Buy, Geek Squad and Five Star; (iv) all Mexico operations, operating under the brand names Best Buy and Geek Squad and (v) all Turkey operations, operating under the brand names Best Buy and Geek Squad.

Financial information about our segments is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 12, Segment and Geographic Information, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Domestic Segment

We were incorporated in the state of Minnesota in 1966 as Sound of Music, Inc. 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 changed our name to Best Buy Co., Inc. 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 a variety of brands and more control over the purchasing process. Today, our U.S. Best Buy stores operate a model whereby we offer our customers a wide variety of consumer electronics, home office products, entertainment products, appliances and related services with variations on product assortments, staffing, promotions and store design to address specific customer groups and local market needs.

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. In fiscal 2005, we began operating Magnolia Home Theater store-within-a-store experiences in U.S. Best Buy stores, offering customers high-end electronics with specially trained employees.

In fiscal 2003, we acquired Geek Squad Inc. Geek Squad provides repair, support and installation services. We acquired Geek Squad to further our plans of providing technology support services to customers. Geek Squad service is available in all U.S. Best Buy branded stores.

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In fiscal 2007, we acquired California-based Pacific Sales Kitchen and Bath Centers, Inc. ("Pacific Sales"). Pacific Sales specializes in the sale and installation of high-end and mass-market premium brand kitchen appliances, plumbing fixtures and home entertainment products, with a focus on builders and remodelers.

In fiscal 2007, we also developed the Best Buy Mobile concept through a management consulting agreement with U.K.-based The Carphone Warehouse Group PLC ("CPW"). Best Buy Mobile provides a comprehensive assortment of mobile phones, accessories and related services using experienced sales personnel, now in all U.S. Best Buy stores, as well as stand-alone stores.

In fiscal 2008, we acquired Speakeasy Inc. ("Speakeasy"). Speakeasy provides broadband, voice, data and information technology services to small businesses. During the second quarter of fiscal 2011, we completed the sale of our Speakeasy business to Covad Communications Group.

In fiscal 2009, we acquired Napster, Inc. Napster provides a comprehensive digital music service offering, including digital music downloads and on-demand streaming capabilities.

International Segment

Our International segment was established in fiscal 2002 in connection with our acquisition of Future Shop Ltd., Canada's largest consumer electronics retailer.

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 Shop's brand equity and attract more customers by offering a choice of distinct store experiences.

In fiscal 2007, we acquired a 75% interest in Jiangsu Five Star Appliance Co., Ltd. ("Five Star"), one of China's largest appliance and consumer electronics retailers. We made the investment in Five Star to further our international growth plans, to increase our knowledge of Chinese customers and to obtain an immediate retail presence in China. We also opened our first Best Buy branded store in China, located in Shanghai, in fiscal 2007. In the fourth quarter of fiscal 2009, we completed the acquisition of the remaining 25% interest in Five Star.

In fiscal 2009, we acquired a 50% share in Best Buy Europe Distributions Limited ("Best Buy Europe"). Best Buy Europe is a venture with CPW, consisting of CPW's former retail and distribution business with over 2,400 small-format The Carphone Warehouse and The Phone House stores, online channels, device insurance operations, and mobile and fixed-line telecommunication services. The transaction also included CPW's economic interest in both Best Buy Mobile in the U.S. and Geek Squad in the U.K. and Spain. We made the investment in Best Buy Europe to further our international growth plans, to increase our knowledge of European customers and to obtain an immediate retail presence in Europe. During fiscal 2011, we launched large-format Best Buy branded stores in the U.K. and a related online channel in the European market.

In fiscal 2009, we also expanded our Best Buy Mobile operations to Canada by opening stand-alone stores. We now also offer the Best Buy Mobile store-within-a-store experience in all Canadian Best Buy branded stores. Also in fiscal 2009, we opened our first Best Buy branded store in Mexico, located in Mexico City.

In fiscal 2010, we opened our first Best Buy branded store in Turkey, located in Izmir.

In the fourth quarter of fiscal 2011, we announced plans to exit the Turkey market and restructure the Best Buy branded stores in China during fiscal 2012. The exit from the Turkey market includes exiting of all current operations in that country, including its two Best Buy branded stores. Restructuring activities in China include closing all eight Best Buy branded stores. We also intend to explore other more profitable growth options for the Best Buy brand in China, including the option to reopen two of the closed stores at a later date.

In order to align our fiscal reporting periods and comply with statutory filing requirements in certain foreign jurisdictions, we consolidate the financial results of our Europe, China, Mexico and Turkey operations on a two-month lag. Consistent

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with such consolidation, the financial and non-financial information presented in this Annual Report on Form 10-K relative to our Europe, China, Mexico and Turkey operations is also presented on a two-month lag.

Operations

Domestic Segment

Our Domestic segment store operations are organized by store brand. U.S. Best Buy store operations are divided into districts and are under the management of a retail field officer who oversees store performance through district managers. District managers monitor U.S. Best Buy 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.

Our U.S. Best Buy, U.S. Best Buy Mobile, Magnolia Audio Video, Pacific Sales and Geek Squad stores have developed procedures for inventory management, transaction processing, customer relations, store administration, product sales and services, staff training and merchandise display that are standardized within each store brand. Corporate retail management for each store brand generally controls advertising, merchandise purchasing and pricing, as well as inventory policies. All stores within each store brand generally operate in the same manner under the standard procedures adjusted to local customer needs.

International Segment

Located throughout nine European countries, The Carphone Warehouse and The Phone House stores are significantly smaller than our Best Buy branded stores and employ sales associates that provide independent advice on the best service and hardware suited to each customer. Most phone sales require in-store registration with the mobile phone network operator facilitated by our employees, allowing the customer to leave the store with a fully active phone and a service contract. Advertising, merchandise purchasing and pricing and inventory policies for these stores are controlled by corporate retail management in each respective local market.

Canada store operations are organized to support two principal brands. Future Shop stores have predominantly commissioned sales associates who take a proactive role in assisting customers and driving the transaction, whereas employees in Best Buy branded stores in Canada, like employees in U.S. Best Buy stores, are noncommissioned, allowing the customers to drive the transaction through interactive displays and grab-and-go merchandising. Each brand has national management that closely monitors store operations. All Canada stores use a standardized operating system that includes procedures for inventory management, transaction processing, customer relations, store administration, staff training and merchandise display. Advertising, merchandise purchasing and pricing and inventory policies are centrally controlled. Our Best Buy Mobile stores in Canada employ an operating model similar to that used in our U.S. Best Buy Mobile stores.

China store operations are also organized to support two principal brands. Our Five Star stores primarily utilize vendor employees and full-time sales associates to sell our products. Our Best Buy branded stores in China have employed an operating model similar to Best Buy branded stores in the U.S. However, in the fourth quarter of fiscal 2011, we announced plans to restructure the Best Buy branded stores in China during fiscal 2012. Corporate retail management for each store brand generally controls advertising, merchandise purchasing and pricing, and inventory policies, although management for individual regions within our Five Star brand may vary these operations locally to adapt to customer needs. We anticipate consolidating the support operations for the Best Buy branded stores in China with the existing Five Star business as a part of the announced restructuring of such stores.

Our Best Buy branded stores in the U.K., Mexico and Turkey employ an operating model similar to that used in our U.S. Best Buy stores. In the fourth quarter of fiscal 2011, we announced plans to exit the Turkey market during fiscal 2012.

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Merchandise and Services

Domestic Segment

U.S. Best Buy stores and the related online channel have offerings in six revenue categories: consumer electronics, home office, entertainment, appliances, services and other. Consumer electronics consists of video and audio products. Video products include televisions, navigation products, digital cameras and accessories, digital camcorders and accessories, e-Readers and DVD and Blu-ray players. Audio products consist of MP3 players and accessories, home theater audio systems and components, musical instruments and mobile electronics such as car stereo and satellite radio products. The home office revenue category includes notebook and desktop computers, tablets, monitors, mobile phones and related subscription service commissions, hard drives, networking equipment and related accessories such as printers. The entertainment revenue category includes video gaming hardware and software, DVDs, Blu-rays, CDs, digital downloads and computer software. The appliances revenue category includes major appliances as well as small electrics. The services revenue category consists primarily of service contracts, extended warranties, computer-related services, product repair, and delivery and installation for home theater, mobile audio and appliances. The other revenue category includes non-core offerings such as snacks and beverages.

U.S. Best Buy Mobile offerings are included in our home office revenue category. Revenue from U.S. Best Buy Mobile stand-alone stores is primarily derived from mobile phone hardware, subscription service commissions from mobile phone network operators and associated mobile phone accessories.

Magnolia Audio Video stores have offerings in two revenue categories: consumer electronics and services. Consumer electronics consists of video and audio products. Video products include televisions, DVD and Blu-ray players and accessories. Audio products include home theater audio systems and components, mobile electronics and accessories. The services revenue category consists primarily of home theater system installation as well as extended warranties.

Pacific Sales stores have offerings in three revenue categories: appliances, consumer electronics and services. Appliances consists of major appliances, evenly split between high-end and mass-market premium brands, and plumbing, which consists of kitchen and bath fixtures including faucets, sinks, toilets and bath tubs. Consumer electronics consists of video and audio products, including televisions and home theater systems. The services revenue category consists primarily of extended warranties, installation and repair services.

International Segment

Our small-format The Carphone Warehouse and The Phone House stores in Europe have offerings in two revenue categories: home office and services. Home office consists primarily of mobile phone hardware, subscription service commissions from mobile phone network operators and associated mobile phone accessories. Services consists of device insurance operations, providing protection primarily for the replacement of a lost, stolen or damaged handset, as well as mobile and fixed-line telecommunication services, billing management services and Geek Squad repair services.

Our large-format Best Buy branded stores in the U.K. have offerings in six revenue categories: consumer electronics, home office, entertainment, appliances, services and other, with products and services similar to those of our U.S. Best Buy stores.

In Canada, the Future Shop and Best Buy branded stores have offerings in five revenue categories: consumer electronics, home office, entertainment, services and other, and at Future Shop only, a sixth revenue category, appliances. Consumer electronics consists of video and audio products. Video products include televisions, navigation products, digital cameras and accessories, digital camcorders and accessories, e-Readers, and DVD and Blu-ray players. Audio products encompass MP3 players and accessories, home theater audio systems and components, mobile electronics such as car stereo and accessories. The home office revenue category includes notebook and desktop computers, tablets, monitors, mobile phones and related subscription service commissions, hard drives, networking equipment and related accessories such as printers. The entertainment revenue category includes video game hardware and software, DVDs, Blu-rays, CDs and computer software. The appliances revenue category includes major appliances as well as small electrics. The services

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revenue category includes extended warranties, repair, delivery, computer-related services and home theater installation. The other revenue category includes non-core offerings such as snacks and beverages.

Although Future Shop and Best Buy branded stores in Canada offer similar revenue categories (except for appliances, which are only offered at Future Shop stores), there are differences in product brands and depth of selection within revenue categories. On average, approximately 30% of the product assortment (excluding entertainment) overlaps between the two store brands. Further, Geek Squad services are only available in the Best Buy branded stores with Future Shop's service offerings branded as Connect Pro.

Canada Best Buy Mobile offerings are included in our home office revenue category. Revenue from Canada Best Buy Mobile stand-alone stores is primarily derived from mobile phone hardware, subscription service commissions from mobile phone network operators and related mobile phone accessories.

In China, our Five Star and Best Buy branded stores have offerings in four revenue categories: appliances, consumer electronics, home office and services. Our China stores do not carry products in our entertainment revenue category. Appliances includes major appliances, air conditioners, small electrics and housewares. The consumer electronics revenue category consists of video and audio products, including televisions, digital cameras, MP3 players and accessories. The home office revenue category includes desktop and notebook computers, tablets, mobile phones, traditional telephones and accessories. The services revenue category includes extended warranties, repair, delivery, computer-related services and installation.

Our Best Buy branded stores in Mexico and Turkey have offerings in six revenue categories: consumer electronics, home office, entertainment, appliances, services and other, with products and services similar to those of our U.S. Best Buy stores.

Distribution

Domestic Segment

Generally, U.S. Best Buy, U.S. Best Buy Mobile, Magnolia Audio Video and Pacific Sales stores' merchandise, except for major appliances and large-screen televisions, is shipped directly from manufacturers to our distribution centers located throughout the U.S. Major appliances and large-screen televisions are shipped to satellite warehouses in each major market. These 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 our stores from manufacturers and distributors. Contract carriers ship merchandise from the distribution centers to stores, though Pacific Sales stores' merchandise is generally fulfilled directly to customers through two distribution centers in California. Generally, U.S. Best Buy online merchandise sales are either picked up at U.S. Best Buy stores or fulfilled directly to customers through our distribution centers.

International Segment

Our small-format The Carphone Warehouse and The Phone House stores' merchandise is shipped directly from our suppliers to our distribution centers across Europe. Contract carriers ship merchandise from the distribution centers to stores. Stores hold the immediate stock requirement and the distribution center in each market holds additional inventory. Our large-format Best Buy branded stores in the U.K. have distribution methods similar to that of our U.S. Best Buy stores.

Our Canada stores' merchandise is shipped directly from our suppliers to our distribution centers in British Columbia and Ontario. Our Canada 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 our stores from manufacturers and distributors. Contract carriers ship merchandise from the distribution centers to stores.

We receive our Five Star stores' merchandise at more than 40 distribution centers and warehouses located throughout the Five Star retail chain, the largest of which is located in Nanjing, Jiangsu Province. Our Five Star stores are dependent

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upon the distribution centers for inventory storage and the shipment of most merchandise to our stores or customers. Large merchandise, such as major appliances, is generally fulfilled directly to customers through our distribution centers and warehouses.

Merchandise for our Best Buy branded stores in China is shipped directly from our suppliers to our distribution center in Shanghai. Our Best Buy branded stores in China are dependent upon the distribution center 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 our stores from manufacturers and distributors. In certain circumstances, merchandise is shipped directly to our customers from manufacturers and distributors.

Our Best Buy branded stores in Mexico and Turkey have distribution methods similar to that of our U.S. Best Buy stores.

Suppliers

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. In fiscal 2011, our 20 largest suppliers accounted for just under 65% of the merchandise we purchased, with five suppliers — Apple, Samsung, Sony, Hewlett-Packard and Toshiba — representing 39% 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 plan to 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 we sell.

We operate a global sourcing office in China in order to design, develop, test and contract manufacture our own line of exclusive brand products in association with factories in Asia.

Store Development

The addition of new stores has played a significant role in our growth and success. Our store development program has historically focused on testing stores in new markets; adding stores within existing markets; and relocating, remodeling and expanding existing stores in order to offer new products and services to our customers. We actively monitor our existing store portfolio, and where necessary, take steps to grow, modify, enhance, relocate or close those stores based on our judgment of future potential returns.

In our Domestic segment, we will continue to focus on enhancing existing stores to target high growth value propositions, increasing our presence in small-format stores like Best Buy Mobile, and moderating large-format store square footage growth. In our International segment, store investments will focus on growth areas such as Five Star in China, as well as selectively expanding the number of Best Buy branded stores in the relatively new markets of the U.K. and Mexico.

Domestic Segment

During fiscal 2011, we opened 134 new stores and closed seven stores in our Domestic segment. We offer Geek Squad support services and the Best Buy Mobile store-within-a-store experience in all U.S. Best Buy stores.

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The following tables show our Domestic segment stores open at the beginning and end of each of the last three fiscal years:

 
  U.S. Best Buy
Stores

  U.S. Best Buy
Mobile Stores

  Pacific Sales
Stores

  Magnolia Audio
Video Stores

  Geek Squad
Stores

 
   

Total stores at end of fiscal 2010

    1,069     74     35     6     6  

Stores opened

    31     103              

Stores closed

    (1 )               (6 )
                       

Total stores at end of fiscal 2011

    1,099     177     35     6      
                       

 

 
  U.S. Best Buy Stores
  U.S. Best Buy
Mobile Stores

  Pacific Sales Stores
  Magnolia Audio
Video Stores

  Geek Squad Stores
 
   

Total stores at end of fiscal 2009

    1,023     38     34     6     6  

Stores opened

    46     36     1          

Stores closed

                     
                       

Total stores at end of fiscal 2010

    1,069     74     35     6     6  
                       

 

 
  U.S. Best Buy Stores
  U.S. Best Buy
Mobile Stores

  Pacific Sales Stores
  Magnolia Audio
Video Stores

  Geek Squad Stores
 
   

Total stores at end of fiscal 2008

    923     9     19     13     7  

Stores opened

    100     32     15          

Stores closed

        (3 )       (7 )   (1 )
                       

Total stores at end of fiscal 2009

    1,023     38     34     6     6  
                       

International Segment

During fiscal 2011, we opened 123 new stores and closed 103 stores in our International segment, primarily within our Best Buy Europe business. We offer Geek Squad support services in all Best Buy branded stores and within select The Carphone Warehouse and The Phone House stores in the U.K and Spain, as well as similar Connect Pro branded services in Future Shop stores. We offer the Best Buy Mobile store-within-a-store experience in all Best Buy branded stores in Canada, with a similar Cell Shop branded concept in the majority of Future Shop stores.

The following tables show our International segment stores open at the beginning and end of each of the last three fiscal years:

 
  Europe   Canada   China   Mexico   Turkey  
 
  Best Buy Stores
  The
Carphone
Warehouse
and The Phone
House Stores

  Future
Shop
Stores

  Best Buy
Stores

  Best Buy
Mobile
Stores

  Best Buy
Stores(1)

  Five Star
Stores

  Best Buy
Stores

  Best Buy
Stores(1)

 
   

Total stores at end of fiscal 2010

        2,453     144     64     4     6     158     5     1  

Stores opened

    6     86     2     7     6     2     12     1     1  

Stores closed

        (99 )                   (4 )        
                                       

Total stores at end of fiscal 2011

    6     2,440     146     71     10     8     166     6     2  
                                       
(1)
On February 21, 2011, we announced plans to exit the Turkey market and restructure the Best Buy branded stores in China during fiscal 2012.

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  Europe   Canada   China   Mexico   Turkey  
 
  Best Buy
Stores

  The
Carphone
Warehouse
and The Phone
House Stores

  Future Shop Stores
  Best Buy Stores
  Best Buy Mobile Stores
  Best Buy Stores
  Five Star Stores
  Best Buy Stores
  Best Buy Stores
 
   

Total stores at end of fiscal 2009

        2,465     139     58     3     5     164     1      

Stores opened

        82     5     6     1     1     6     4     1  

Stores closed

        (94 )                   (12 )        
                                       

Total stores at end of fiscal 2010

        2,453     144     64     4     6     158     5     1  
                                       

 

 
  Europe   Canada   China   Mexico   Turkey  
 
  Best Buy
Stores

  The
Carphone
Warehouse and
The Phone
House Stores

  Future Shop Stores
  Best Buy Stores
  Best Buy Mobile Stores
  Best Buy Stores
  Five Star Stores
  Best Buy Stores
  Best Buy Stores
 
   

Total stores at end of fiscal 2008

            131     51         1     160          

Stores acquired(1)

        2,414                              

Stores opened

        105     9     7     3     4     9     1      

Stores closed

        (54 )   (1 )               (5 )        
                                       

Total stores at end of fiscal 2009

        2,465     139     58     3     5     164     1      
                                       
(1)
Acquired on June 28, 2008.

Fiscal 2012 Store Opening Plans

For fiscal 2012, our new store opening plans include the opening of approximately 150 Best Buy Mobile small-format stand-alone stores in the U.S. We also plan to open 40-50 Five Star stores in growing markets in China. Finally, we plan to open approximately six to eight U.S. Best Buy stores and approximately 18 large-format Best Buy branded stores throughout Canada, the U.K. and Mexico.

Intellectual Property

We own or have the right to use valuable intellectual property such as trademarks, service marks and tradenames, including, but not limited to, "Best Buy," "Best Buy Mobile," "The Carphone Warehouse," "Dynex," "Five Star," "Future Shop," "Geek Squad," "Init," "Insignia," "Magnolia," "Napster," "Pacific Sales," "The Phone House," "Rocketfish," and our "Yellow Tag" logo.

We have secured domestic and international trademark and service mark registrations for many of our brands. We have also secured patents for many of our inventions. We believe our intellectual property has significant value and is an important factor in the marketing of our company, our stores, our products and our Web sites.

Seasonality

Our business, like that of many retailers, is seasonal. Historically, we have realized more of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Europe and Canada, than in any other fiscal quarter.

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Working Capital

We fund our business operations 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 and investment opportunities. Our working capital needs are typically greatest in the months leading up to the holiday shopping season as we purchase inventories in advance of expected sales.

Customers

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.

Backlog

Our stores, call centers and online shopping sites do not have a material amount of backlog orders.

Government Contracts

No material portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of any government or government agencies or affiliates.

Competition

Our primary competitors are discount chains, consumer electronics retailers including vendors who offer their products direct to the consumer, wholesale clubs, home-improvement superstores and internet-based businesses.

We believe our dedicated and knowledgeable people, store and online experience, broad product assortment, distinct store formats and brand marketing strategies differentiate us from our competitors by positioning our stores and Web sites as the preferred destination for new technology and entertainment products in a fun and informative shopping environment.

Research and Development

We have not engaged in any material research and development activities during the past three fiscal years.

Environmental Matters

While seeking and discovering new and innovative ways to engage our customers in the connected world, we also strive to lessen our impact on the environment. Our energy efficiency strategy includes end-to-end efforts to reduce energy use in our own internal operations and of the products and services we offer our customers. And with an expanding selection of our internally developed exclusive brand products, we continue to make efforts to provide products that use less energy, are made of non-toxic materials and are packaged in more responsible ways.

Our energy efficient practices include a centralized automated energy management system for our U.S. Best Buy stores and retail energy reports by store. Lighting and HVAC upgrades, as well as aiming to build new stores to Leadership in Energy & Environmental Design ("LEED") standards, are also part of our continuing efforts. These energy efficiency improvements have helped us reduce our own carbon footprint. In calendar 2010, we set a new long-term goal of reducing our carbon dioxide emissions by 20% by 2020 (over a 2009 baseline). During calendar 2010, we reduced our total carbon dioxide emissions by approximately 0.5% in our U.S. Best Buy stores over the previous year. However, given that our total square footage increased by 2.9% in calendar 2010, the 0.5% reduction represented a 3.2% reduction on a per square foot basis.

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Increasing consumer demand for environmentally friendly products and services has led us to provide new energy efficient products and a means to recycle old products. We helped our U.S. Best Buy customers purchase over 22 million ENERGY STAR® qualified products in calendar 2010 and encouraged our vendors to participate in the ENERGY STAR program. The U.S. Environmental Protection Agency estimated that our sales of these products in calendar 2010 resulted in customer savings of 1.12 billion kilowatt hours of energy, generating over $120 million in electric utility bill savings, while preventing over 1.7 billion pounds of carbon dioxide from entering the atmosphere. As part of our strategy, we are also investing in emerging technologies such as home energy management systems for all the connected devices in a home, renewable energy technologies and electric transportation.

In addition, in calendar 2009, we launched a nationwide consumer electronics take-back program where customers can bring many consumer electronics products to our stores for free recycling. This recycling program is available in all U.S. Best Buy stores. We also collect old, inefficient appliances for recycling through a haul-away program. In fiscal 2011, our recycling program collected approximately 83 million pounds of consumer electronics and approximately 73 million pounds of old appliances, reducing the amount of electronic waste that would otherwise have been sent to landfills. These efforts marked an 11% increase over the 140 million combined pounds of consumer electronics and appliances collected in fiscal 2010.

Continued efforts to be more environmentally conscious in our exclusive brands packaging focused on the use of recycled materials, non-solvent coatings and organic inks where possible. Through a variety of opportunities, we reduced plastic usage by 745 tons and eliminated 890 tons of PVC within our exclusive brands packaging during fiscal 2011.

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 are reasonably expected to materially affect, our net earnings or competitive position, or have resulted or are reasonably expected to result in material capital expenditures. See Item 1A, Risk Factors, for additional discussion.

We believe we can continue to reduce energy consumption and carbon emissions in cost effective ways that deliver value to our shareholders, customers, employees and the communities we serve, whether it's in our own internal operations or through our work to connect customers with more energy efficient solutions.

Number of Employees

At the end of fiscal 2011, we employed approximately 180,000 full-time, part-time and seasonal employees worldwide. We consider our employee relations to be good. We offer our employees a wide array of company-paid benefits that vary within our company due to customary local practices and statutory requirements, which we believe are competitive in the aggregate relative to others in our industry.

Financial Information About Geographic Areas

We operate two reportable segments: Domestic and International. Financial information regarding the Domestic and International geographic areas is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 12, Segment and Geographic Information, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Available Information

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 U.S. Securities and Exchange Commission ("SEC"). Copies of these reports, proxy statements and other information can be read and copied at:

SEC Public Reference Room
100 F Street NE
Washington, D.C. 20549

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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 SEC's Web site at 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.bby.com — select the "Investor Relations" link and then the "SEC Filings" link.

We also make available, free of charge on our Web site, 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, as well as the charters of all of our Board's committees: Audit Committee, Compensation and Human Resources Committee, Finance and Investment Policy Committee, Global Strategy Committee and Nominating, Corporate Governance and Public Policy Committee. These documents are posted on our Web site at www.bby.com — select the "Investor Relations" link and then the "Corporate Governance" link.

Copies of any of the above-referenced documents will also be made available, free of charge, upon written request to:

Best Buy Co., Inc.
Investor Relations Department
7601 Penn Avenue South
Richfield, MN 55423-3645


Item 1A. Risk Factors.

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. 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 occurs, 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. The following risks 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. All forward-looking statements made by us or on our behalf are qualified by the risks described below.

Economic conditions in the U.S. and key international markets, a decline in consumer discretionary spending or other conditions may materially adversely impact our operating results.

We sell certain products and services that consumers may view as discretionary items rather than necessities. As a result, our results of operations tend to be more sensitive to changes in macroeconomic conditions that impact consumer spending, including discretionary spending. Challenging macroeconomic conditions also impact our customers' ability to obtain consumer credit in a timely manner, if at all. Other factors, including consumer confidence, employment levels, interest rates, tax rates, consumer debt levels, and fuel and energy costs could reduce consumer spending or change consumer purchasing habits. In the past three fiscal years, many of these factors adversely affected consumer spending and, consequently, our business and results of operations. A slowdown in the U.S. or global economy, or an uncertain economic outlook, could materially adversely affect consumer spending habits and our operating results in the future.

The domestic and international political situation also affects consumer confidence. The threat or outbreak of domestic or international terrorism or other hostilities could lead to a decrease in consumer spending. Any of these events and factors

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could cause a decrease in revenue or an increase in inventory markdowns or certain operating expenses, which could materially adversely affect our results of operations.

Other conditions or factors that may impact our results of operations include disruptions to the availability of content such as sporting events or other televised content. Such disruptions may influence the demand for hardware that our customers purchase to access such content, as well as the commissions we receive from subscription services. Accordingly, such disruptions could cause a material adverse effect on our revenue and results of operations.

If we do not anticipate and respond to changing consumer preferences in a timely manner, our operating results could materially suffer.

Our business depends, in large part, on our ability to successfully introduce 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 accurately predict constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions, or to effectively address consumer concerns, could have a material adverse effect on our revenue, results of operations and reputation with our customers.

Our results of operations could materially deteriorate if we fail to attract, develop and retain qualified employees.

Our performance is dependent on attracting and retaining qualified employees who are able to meet the wants and needs of our customers. 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. Our inability to recruit a sufficient number of qualified individuals in the future may delay planned openings of new stores or affect the speed with which we expand initiatives related to the connected world, our exclusive brands and our international operations. 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-based businesses, our vendors and other forms of retail commerce, which could materially adversely 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, as well as our vendors who offer their products and services direct to the consumer. Pressure from our competitors, some of which have greater market presence and financial resources than we do, could require us to reduce our prices or increase our costs of doing business. Furthermore, our business model includes offering our customers packaged value propositions that take the complexity out of managing devices, content and connectivity. Some of our vendors also continue to interact directly with customers by embedding their services into the products we sell. As a result of this competition and potential product disintermediation, we may experience lower revenue and/or higher operating costs, which could materially adversely affect our results of operations.

Our results of operations could materially deteriorate if we fail to maintain positive brand perception and recognition.

We operate a global portfolio of brands with a commitment to customer service and innovation. We believe that recognition and the reputation of our brands continue to drive our growth. Damage to the perception or reputation of our brands could result in declines in customer loyalty, lower employee morale and productivity concerns, and vendor relationship issues, and could ultimately have a material adverse effect on our business, financial condition and results of operations.

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The failure to control our costs could have a material adverse impact on our profitability.

Consumer spending remains uncertain, which makes it more challenging for us to maintain or grow our operating income rate. As a result, we must continue to control our expense structure. Failure to manage our labor and benefit rates, advertising and marketing expenses, operating lease costs, other store expenses or indirect spending could delay or prevent us from achieving increased profitability or otherwise have a material adverse impact on our results of operations.

Our liquidity may be materially adversely affected by constraints in the capital markets.

We must have sufficient sources of liquidity to fund our working capital requirements, service our outstanding indebtedness and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue promising business opportunities. The principal sources of our liquidity are funds generated from operating activities, available cash and cash equivalents, and borrowings under credit facilities and other debt financings.

If our sources of liquidity do not satisfy our requirements, we may have to seek additional financing. The future availability of financing will depend on a variety of factors, such as economic and market conditions, the availability of credit and our credit ratings, as well as the possibility that lenders could develop a negative perception of us or the retail industry generally. If required, we may not be able to obtain additional financing, on favorable terms, or at all.

Changes in our credit ratings may limit our access to capital markets and materially increase our borrowing costs.

In fiscal 2011, Moody's Investors Service, Inc. and Standard & Poor's Ratings Services maintained their ratings and outlook of our debt securities at above investment grade level, while Fitch Ratings Ltd. reaffirmed its rating of our debt securities as BBB+ but raised its outlook to stable. Subsequent to the end of fiscal 2011, Fitch Ratings Ltd. reaffirmed its rating of our debt securities, but revised its outlook to negative.

Future downgrades to our long-term credit ratings and outlook could negatively impact our access to the capital markets and the perception of us by lenders and other third parties. Our credit ratings are based upon information furnished by us or obtained by a rating agency from its own sources and are subject to revision, suspension or withdrawal by one or more rating agencies at any time. Rating agencies may review the ratings assigned to us due to developments that are beyond our control, including as a result of new standards requiring the agencies to re-assess rating practices and methodologies.

Any downgrade to our debt securities may result in higher interest costs for certain of our credit facilities and other debt financings, and could result in higher interest costs on future financings. Further, in the event of such a downgrade, we may not be able to obtain additional financing, if necessary, on favorable terms, or at all.

Our growth is dependent on the success of our strategies.

Our growth is dependent on our ability to identify, develop and execute our strategies. Our failure to properly deploy and utilize capital and other resources may adversely affect our initiatives designed to assist our customers connect to a digital lifestyle, while expanding our footprint globally. While we believe our customer centricity and connected world initiatives, as well as the pursuit of international growth opportunities, will enable us to grow our business, misjudgments or flaws in our execution could have a material adverse effect on our business, financial condition and results of operations.

Our growth strategy includes expanding our business by opening stores in both existing markets and new markets.

Our future growth is dependent, in part, on our ability to build, buy 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 building, buying and leasing our stores. We also may have difficulty negotiating real estate purchase agreements and leases on acceptable terms. Failure to manage effectively these and other similar factors will affect our ability to build, buy and lease new stores, which may have a material adverse effect on our future profitability.

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We may 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 customer traffic and comparable store sales performance to decline at those existing stores.

We also open stores in new markets from time to time. The risks associated with entering a new market include difficulties in attracting customers where there is a lack of customer familiarity with our brands, our lack of familiarity with local customer preferences, seasonal differences in the market and our ability to obtain the necessary governmental approvals. In addition, entry into new markets may bring us into competition with new competitors or with existing competitors with a large, established market presence. We cannot ensure that our new stores will be profitably deployed. As a result, our future profitability may be materially adversely affected.

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 also includes expansion via new business ventures, strategic alliances and acquisitions. Assessing a potential growth opportunity involves extensive due diligence. However, the amount of information we can obtain about a potential growth opportunity may be limited, and we can give no assurance that new business ventures, strategic alliances and acquisitions will positively affect our financial performance or will perform as planned. Integrating new businesses, stores and concepts can be a difficult task. Cultural differences in some markets into which we expand or into which we introduce new retail concepts may result in customers in those markets being less receptive than originally anticipated. These types of transactions may divert our capital and our management's attention from other business issues and opportunities. Further, implementing new strategic alliances or business ventures may also impair our relationships with our vendors or strategic partners. We may not be able to successfully assimilate or integrate companies that we acquire, including their personnel, financial systems, distribution, operations and general operating procedures. We may also encounter challenges in achieving appropriate internal control over financial reporting in connection with the integration of an acquired company. If we fail to assimilate or integrate acquired companies successfully, our business, reputation and operating results could suffer materially. Likewise, our failure to integrate and manage acquired companies successfully may lead to impairment of the associated goodwill and intangible asset balances.

Failure to protect the integrity, security and use of our customers' information and media could expose us to litigation and materially damage our standing with our customers.

The use of individually identifiable data by our business and our business associates is regulated at the state, federal and international levels. 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 have taken significant steps 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, operating results and financial condition. Any compromise of our data security may materially increase the costs we incur to protect against such breaches and could subject us to additional legal risk.

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. Our 20 largest suppliers account for just under 65% of the merchandise we purchase. If any of our key vendors fails to supply us with products or continue to develop new technologies that create consumer demand, we may not be able to meet the demands of our customers and our revenue could materially decline. We require all of our vendors to comply with applicable laws,

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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 U.S. Political or financial instability, merchandise quality issues, product safety concerns, trade restrictions, work stoppages, tariffs, foreign currency exchange rates, transportation capacity and costs, inflation, civil unrest, natural disasters, outbreaks 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.

Our exclusive brands products are subject to several additional product, supply chain and legal risks, which could have a material adverse impact on our business.

Sales of our exclusive brands, which primarily include Insignia, Dynex, Init, Geek Squad and Rocketfish branded products, represent a growing component of our revenue. Most of these products are manufactured under contract by vendors based in southeastern Asia. This arrangement exposes us to the following additional potential risks, which could materially adversely affect our reputation, financial condition and operating results:

    We have greater exposure and responsibility to the consumer for warranty replacements and repairs as a result of product defects, as we generally have no recourse to contracted manufacturers for such warranty liabilities;

    We may be subject to regulatory compliance and/or product liability claims relating to personal injury, death or property damage caused by such products, some of which may require us to take significant actions such as product recalls;

    We may experience disruptions in the manufacturing or the logistics within the manufacturing environment in southeastern Asia caused by inconsistent and unanticipated order patterns or if we are unable to develop long-term relationships with key factories;

    We are subject to developing and often-changing labor and environmental laws for the manufacture of products in foreign countries and we may be unable to conform to new rules or interpretations in a timely manner;

    We may be subject to claims by technology owners if we inadvertently infringe upon their patents or other intellectual property rights, or if we fail to pay royalties owed on our products; and

    We may be unable to obtain or adequately protect our patents and other intellectual property rights on our products, the new features of our products and/or our processes.

We are subject to certain statutory, regulatory and legal developments which could have a material adverse impact on our business.

Our statutory, regulatory and legal environment exposes us to complex compliance and litigation risks that could materially adversely affect our operations and financial results. The most significant compliance and litigation risks we face are:

    The difficulty of complying with sometimes conflicting statutes and regulations in local, national or international jurisdictions;

    The impact of new or changing statutes and regulations including, but not limited to, financial reform, environmental requirements, labor reform, health care reform, corporate governance matters and/or other as yet unknown legislation, that could affect how we operate and execute our strategies as well as alter our expense structure;

    The impact of changes in tax laws (or interpretations thereof by courts and taxing authorities) and accounting standards; and

    The impact of litigation trends, including class action lawsuits involving consumers and shareholders, and labor and employment matters.

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Defending against lawsuits and other proceedings may involve significant expense and divert management's attention and resources from other matters.

Changes to the National Labor Relations Act or other labor-related statutes or regulations could have a material adverse impact on our business.

The National Labor Relations Board is considering changes to labor regulations which could significantly impact the nature of labor relations in the U.S. and how union elections and contract negotiations are conducted. At February 26, 2011, none of our U.S. stores had employees represented by labor unions or working under collective bargaining agreements. Changes in labor-related statutes or regulations could make it easier for unions to be formed, and employers of newly unionized employees may face mandatory, binding arbitration of labor scheduling, costs and standards, which could increase our costs of doing business and materially adversely affect our results of operations.

Additional legislation or rulemaking relating to environmental matters, including but not limited to, energy emissions, could have a material adverse impact on our business.

Environmental legislation or rulemaking efforts could impose unexpected costs or impact us more directly than other companies due to our operations as a global consumer electronics retailer with over 4,000 stores and 90 distribution centers worldwide.

Specifically, legislation that aims to control and reduce energy emissions has been considered by the U.S. Congress as well as governing bodies internationally, particularly in Europe. Should such legislation pass, we anticipate that energy costs within our operations would increase such as the expense to power our stores. In addition, rulemaking is being considered that could impose higher safety and compliance standards on transporting certain goods. Any significant rulemaking could increase the cost to transport our goods. Passage of any such legislation or rulemaking could materially adversely affect our results of operations.

Regulatory developments in the U.S. could impact the promotional financing offers available to our credit card customers and have a material adverse impact on our revenue and profitability.

We offer promotional financing in the U.S. through credit cards issued by third party banks that manage and directly extend credit to our customers. The cardholders can receive low- or no-interest promotional financing on qualifying purchases. Promotional financing credit card sales accounted for 18%, 17% and 18% of our Domestic segment's revenue in fiscal 2011, 2010 and 2009, respectively.

Recent economic developments, particularly in the financial markets, have resulted in increased legislative and regulatory actions affecting credit cards. Recently enacted legislative and regulatory changes that focus on a variety of credit-related matters, such as the Credit Card Accountability, Responsibility and Disclosure Act of 2009 ("Credit CARD Act"), included new rules and restrictions affecting interest rates, penalties and fees, contract terms, credit limits, billing practices and payment application. While we believe that neither the Credit CARD Act nor other recently enacted legislation or regulation related to credit matters have had a material adverse impact on our operations to date, if future legislative or regulatory restrictions or prohibitions arise that affect our ability to offer promotional financing and we are unable to adjust our operations in a timely manner, our revenue and profitability may be materially adversely affected.

Changes to our credit card agreements could adversely impact our ability to facilitate the provision of consumer credit to our customers and could materially adversely impact our results of operations.

We have agreements with third party banks for the issuance of promotional financing and customer loyalty credit cards bearing the Best Buy brand. Under the agreements, the banks manage and directly extend credit to our customers. The banks are the sole owner of the accounts receivable generated under the credit card programs and absorb losses associated with non-payment by the cardholders and fraudulent usage of the accounts. We earn revenue from fees the banks pay to us based on the number of credit card accounts activated and card usage. The banks also reimburse us for

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certain costs associated with our credit card programs. Financing fees are paid by us to the banks and are variable based on certain factors such as the London Interbank Offered Rate ("LIBOR"), charge volume and/or the types of promotional financing offers.

Given the continuing changes in the economic and regulatory environment for banks, as well as a continuing period of consumer credit delinquencies, banks continue to re-evaluate their lending practices and terms, including, but not limited to, the levels at which consumer credit is granted. If any of our credit card programs ended prematurely or the terms and provisions, or interpretations thereof, were substantially modified, our results of operations and financial condition may be materially adversely impacted.

Our International activities subject us to risks associated with the legislative, judicial, accounting, regulatory, political and economic conditions specific to the countries or regions in which we operate, which could materially adversely affect our financial performance.

We have a presence in various foreign countries including Belgium, Bermuda, Canada, China, France, Germany, Hong Kong, India, Ireland, Japan, Luxembourg, Mexico, the Republic of Mauritius, the Netherlands, Portugal, Spain, Sweden, Switzerland, Taiwan, Turkey, Turks and Caicos, and the U.K. During fiscal 2011, our International segment's operations generated 26% of our revenue. Our growth strategy includes expansion of existing international markets and possible expansion into new international markets. Accordingly, our International segment's operations may account for a larger portion of our revenue in the future. Our future operating results in these countries and in other countries or regions throughout the world where we may operate in the future could be materially adversely affected by a variety of factors, many of which are beyond our control, including political conditions, economic conditions, legal and regulatory constraints and foreign currency regulations.

In addition, foreign currency exchange rates and fluctuations may have an impact on our future earnings and cash flows from our International segment's operations, and could materially adversely affect our financial performance. Moreover, the economies of some of the countries in which we have operations have in the past suffered from high rates of inflation and currency devaluations, which, if they were to occur again, could materially adversely affect our financial performance. Other factors which may materially adversely impact our International segment's operations include foreign trade, monetary, tax and fiscal policies both of the U.S. and of other countries; laws, regulations and other activities of foreign governments, agencies and similar organizations; and maintaining facilities in countries which have historically been less stable than the U.S.

Additional risks inherent in our International segment's operations generally include, among others, the costs and difficulties of managing international operations, adverse tax consequences and greater difficulty in enforcing intellectual property rights in countries other than the U.S. The various risks inherent in doing business in the U.S. generally also exist when doing business outside of the U.S., and may be exaggerated by the difficulty of doing business in numerous sovereign jurisdictions due to differences in culture, laws and regulations.

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, or to meet the continuously evolving needs of our business, 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.

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A disruption in relationships with key third-party business partners could materially adversely affect our business and results of operations.

We have engaged Accenture LLP ("Accenture"), a global management consulting, technology services and outsourcing company, to manage significant portions of our information technology and human resources operations as well as to conduct certain procurement activities. 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. We also use Accenture to provide procurement support to research and purchase certain non-merchandise products and services. Furthermore, we have engaged other key third-party business partners to manage various functions of our business, including but not limited to, customer loyalty programs, promotional financing and customer loyalty credit cards, customer warranty and insurance programs, and other outsourced functions. Any material disruption in our relationship with Accenture or other key third-party business partners could result in decreased revenue and increased overhead costs, causing our business and results of operations to suffer materially.

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 shopping season in the U.S., Europe and Canada. Unexpected events or developments such as natural or man-made disasters, product sourcing issues or adverse economic conditions in our fourth fiscal quarter could have a material adverse effect on our results of operations.


Item 1B. Unresolved Staff Comments.

Not applicable.

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Item 2. Properties.

Stores, Distribution Centers and Corporate Facilities

Domestic Segment

The following table summarizes the location of our Domestic segment stores at the end of fiscal 2011:

 
  U.S. Best Buy
Stores

  U.S. Best Buy
Mobile Stores

  Pacific Sales
Stores

  Magnolia
Audio
Video Stores

 
   

Alabama

    15     4          

Alaska

    2              

Arizona

    27     1     2      

Arkansas

    9              

California

    126     20     32     4  

Colorado

    22     3          

Connecticut

    12     3          

Delaware

    4              

District of Columbia

    2     1          

Florida

    66     20          

Georgia

    30     5          

Hawaii

    2              

Idaho

    5              

Illinois

    58     10          

Indiana

    22     8          

Iowa

    13              

Kansas

    10     1          

Kentucky

    9     2          

Louisiana

    16     3          

Maine

    6              

Maryland

    25     8          

Massachusetts

    29     8          

Michigan

    34     1          

Minnesota

    28     8          

Mississippi

    9              

Missouri

    22     1          

Montana

    3              

Nebraska

    6     2          

Nevada

    10         1      

New Hampshire

    6     2          

New Jersey

    27     3          

New Mexico

    5              

New York

    54     7          

North Carolina

    34     12          

North Dakota

    4              

Ohio

    39     4          

Oklahoma

    13     1          

Oregon

    12     3          

Pennsylvania

    37     6          

Puerto Rico

    5              

Rhode Island

    2              

South Carolina

    14     4          

South Dakota

    2     1          

Tennessee

    17     2          

Texas

    109     13          

Utah

    10              

Vermont

    1              

Virginia

    37     3          

Washington

    20     2         2  

West Virginia

    5              

Wisconsin

    23     5          

Wyoming

    1              
   

Total

    1,099     177     35     6  
   

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The following table summarizes the ownership status and total square footage of our Domestic segment store locations at the end of fiscal 2011:

 
  U.S. Best Buy
Stores

  U.S. Best Buy
Mobile Stores

  Pacific Sales
Stores

  Magnolia
Audio
Video Stores

 
   

Owned store locations

    24              

Owned buildings and leased land

    37              

Leased store locations

    1,038     177     35     6  
   

Square footage (in thousands)

    42,388     250     944     78  
   

The following table summarizes the location, ownership status and total square footage of space utilized for distribution centers, service centers and corporate offices by our Domestic segment at the end of fiscal 2011:

 
   
  Square Footage (in thousands)  
 
  Location
  Leased
  Owned
 
   

Distribution centers

  24 locations in 17 U.S. states     7,932     3,182  

Geek Squad service centers(1)

  Louisville, Kentucky     237      

Principal corporate headquarters(2)

  Richfield, Minnesota         1,452  

Territory field offices

  28 locations throughout the U.S.     156      

Pacific Sales corporate office space

  Whittier, California     15      

Napster corporate office space

  Los Angeles, California     15      
(1)
The leased space utilized by our Geek Squad operations is used primarily to service notebook and desktop computers.

(2)
Our principal corporate headquarters is an owned facility consisting of four interconnected buildings. Accenture, who manages our information technology and human resources operations and conducts certain procurement activities for us, and certain other of our vendors who provide us with a variety of corporate services, occupy a portion of our principal corporate headquarters.

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Table of Contents

International Segment

In order to align our fiscal reporting periods and comply with statutory filing requirements in certain foreign jurisdictions, we consolidate the financial results of our Europe, China, Mexico and Turkey operations on a two-month lag.

The following table summarizes the location of our International segment stores at the end of fiscal 2011:

 
  Europe   Canada   China   Mexico   Turkey  
 
  Best Buy
Stores

  The
Carphone
Warehouse
Stores

  The Phone
House
Stores

  Future
Shop
Stores

  Best Buy
Stores

  Best Buy
Mobile
Stores

  Best Buy
Stores(1)

  Five Star
Stores

  Best Buy
Stores

  Best Buy
Stores(1)

 
   

Europe

                                                             
 

Belgium

            83                              
 

France

            335                              
 

Germany

            225                              
 

Ireland

        77                                  
 

Netherlands

            190                              
 

Portugal

            145                              
 

Spain

            465                              
 

Sweden

            112                              
 

United Kingdom

    6     808                                  

Canada

                                                             
 

Alberta

                18     11     2                  
 

British Columbia

                23     12                      
 

Manitoba

                5     2                      
 

New Brunswick

                3                          
 

Newfoundland

                1                          
 

Nova Scotia

                6     1                      
 

Ontario

                57     32     7                  
 

Prince Edward Island

                1                          
 

Quebec

                29     11     1                  
 

Saskatchewan

                3     2                      

China

                                                             
 

Anhui

                                13          
 

Hangzhou

                            1              
 

Henan

                                9          
 

Jiangsu

                                107          
 

Shandong

                                8          
 

Shanghai

                            6              
 

Sichuan

                                6          
 

Suzhou

                            1              
 

Yunnan

                                5          
 

Zhejiang

                                18          

Mexico

                                                             
 

Estado de Mexico

                                    2      
 

Distrito Federal

                                    2      
 

Guadalajara

                                    2      

Turkey

                                                             
 

Izmir

                                        1  
 

Ankara

                                        1  
   

Total

    6     885     1,555     146     71     10     8     166     6     2  
   
(1)
On February 21, 2011, we announced plans to exit the Turkey market and restructure the Best Buy branded stores in China during fiscal 2012.

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The following table summarizes the ownership status and total square footage of our International segment store locations at the end of fiscal 2011:

 
  Europe   Canada   China   Mexico   Turkey  
 
  Best Buy
Stores

  The
Carphone
Warehouse
Stores

  The Phone
House
Stores

  Future Shop
Stores

  Best Buy
Stores

  Best Buy
Mobile
Stores

  Best Buy
Stores(1)

  Five Star
Stores

  Best Buy
Stores

  Best Buy
Stores(1)

 
   

Owned store locations

            2         3         1     6          

Leased store locations

    6     885     1,553     146     68     10     7     160     6     2  
   

Square footage (in thousands)

    196     695     810     3,864     2,250     13     279     5,931     327     80  
   
(1)
On February 21, 2011, we announced plans to exit the Turkey market and restructure the Best Buy branded stores in China during fiscal 2012.

The following table summarizes the location, ownership status and total square footage of space utilized for distribution centers and corporate offices by our International segment at the end of fiscal 2011:

 
   
  Square Footage (in thousands)    
  Square Footage (in thousands)  
 
  Distribution Centers
  Leased
  Owned
  Principal Corporate Offices
  Leased
  Owned
 
   
Europe   Throughout seven European countries     232       Acton, West London and throughout Europe     773      
Canada   Brampton and Bolton, Ontario     1,763       Burnaby, British Columbia     141      
    Vancouver, British Columbia     639                
Five Star   Jiangsu Province, China     1,320       Corporate headquarters, Jiangsu Province, China     26     46  
    Throughout the Five Star retail chain     527       District offices throughout the Five Star retail chain     181     5  
Best Buy China   Shanghai, China     129       Shanghai, China     81      
Mexico   Estado de Mexico, Mexico     45       Distrito Federal, Mexico     21      
Turkey   Gebze-Kocaeli, Turkey     11       Istanbul, Turkey     23      

Exclusive Brands

We lease approximately 32,000 square feet of office space in China to support our exclusive brands operations.

Operating Leases

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 rent escalation clauses.

Additional information regarding our operating leases is available in Note 9, 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.


Item 3. Legal Proceedings.

In December 2005, a purported class action lawsuit captioned, Jasmen Holloway, et al. v. Best Buy Co., Inc., was filed against us in the U.S. District Court for the Northern District of California. This federal court action alleges that we discriminate against women and minority individuals on the basis of gender, race, color and/or national origin in our stores with respect to our employment policies and practices. The action seeks an end to alleged discriminatory policies and practices, an award of back and front pay, punitive damages and injunctive relief, including rightful place relief for all class members. The plaintiffs have filed a class certification motion which we have opposed. All proceedings have been stayed pending a decision by the U.S. Supreme Court in Dukes, et al. v. Wal-Mart Stores, Inc., a gender discrimination class action lawsuit.

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In February 2011, a purported class action lawsuit captioned, IBEW Local 98 Pension Fund, individually and on behalf of all others similarly situated v. Best Buy Co., Inc., et al., was filed against us and certain of our executive officers in the U.S. District Court for the District of Minnesota. This federal court action alleges, among other things, that we and those officers violated Sections 10(b) and 20A of the Exchange Act and Rule 10b-5 under the Exchange Act in connection with press releases and other statements relating to our fiscal 2011 earnings guidance that had been made available to the public. Additionally, in March 2011, a similar purported class action was filed by a single shareholder, Rene LeBlanc, against us and certain of our executive officers in the same court.

The plaintiffs in the above actions seek damages, including interest, equitable relief and reimbursement of the costs and expenses they incurred in the lawsuits. We believe the above allegations are without merit, and we intend to defend these actions vigorously. Based on our assessment of the facts underlying the claims in the above actions, their respective procedural litigation history (including the status of class certification in the Holloway lawsuit), and the degree to which we intend to defend our company in these matters, we are unable to provide meaningful quantification of how the final resolution of these claims may impact our future consolidated financial position or results of operations.

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 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.

Executive Officers of the Registrant
(As of February 26, 2011)

Name
  Age
  Position With the Company
  Years
With the
Company

 
   

Shari L. Ballard

    44   Executive Vice President, President — Americas     18  

Brian J. Dunn

    50   Chief Executive Officer     26  

Christopher K.K. Gould(1)

    41   Vice President, Treasurer      

Susan S. Grafton

    54   Vice President, Controller and Chief Accounting Officer     10  

Joseph M. Joyce

    59   Senior Vice President, General Counsel and Assistant Secretary     20  

Barry Judge

    48   Executive Vice President, Chief Marketing Officer     11  

James L. Muehlbauer

    49   Executive Vice President, Finance and Chief Financial Officer     9  

Kalendu Patel

    47   Executive Vice President, President — Asia     8  

Ryan D. Robinson

    45   Senior Vice President, Chief Financial Officer — U.S.     9  

Richard M. Schulze

    70   Founder and Chairman of the Board     45  

Timothy R. Sheehan

    46   Executive Vice President, Chief Administrative Officer     26  

Carol A. Surface

    45   Executive Vice President, Chief Human Resources Officer     1  

Michael A. Vitelli

    55   Executive Vice President, President — Americas     7  
(1)
Mr. Gould joined us as Vice President, Treasurer, effective November 2010.

Shari L. Ballard was named Executive Vice President, President — Americas in March 2010. Previously, she served as Executive Vice President — Retail Channel Management from 2007 until being appointed to her current role, and as Executive Vice President — Human Resources and Legal from 2004 to 2007. Ms. Ballard joined us in 1993 and has served as Senior Vice President, Vice President, and General and Assistant Store Manager. Ms. Ballard is a member of the University of Minnesota Foundation board of trustees and sits on its executive and human resources committees.

Brian J. Dunn was named our Chief Executive Officer in 2009 when he was also appointed as a director. A 26-year veteran of our company, Mr. Dunn began his career with us as a store associate in 1985 when we operated only a dozen stores. From 2006 until being named to his current position, Mr. Dunn served as President and Chief Operating Officer. From 2004 to 2006, Mr. Dunn was President — Retail, North America. From 2002 to 2004, he served as Executive Vice President — Best Buy U.S. Retail. Prior to that, he served as Senior Vice President, Regional Vice President, Regional

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Manager, District Manager and Store Manager. Mr. Dunn also serves on the board of The Best Buy Children's Foundation. He previously served on the boards of Dick's Sporting Goods, a full-line sporting goods retailer, and the Greater Twin Cities United Way.

Christopher K.K. Gould joined us in 2010 when he was named Vice President, Treasurer. Prior to joining us, Mr. Gould spent eleven years at Wal-Mart Stores, Inc., a global retailer, most recently as vice president and head of the capital markets division from 2007 to 2010. From 2006 to 2007, he was a senior director and head of finance for the financial services division, and prior to that, Mr. Gould held other financial leadership roles in Wal-Mart in its international, corporate finance and investment analysis divisions. Earlier in his career, Mr. Gould worked with Wasatch Funds and Bankers Trust Company.

Susan S. Grafton was named Vice President, Controller and Chief Accounting Officer in 2006. From 2005 to 2006, she served as Vice President — Financial Operations and Controller, and from 2004 to 2005, she served as Vice President — Finance, Planning and Performance Management. Prior to joining us in 2000, she worked in finance and accounting positions with The Pillsbury Company and Pitney Bowes, Inc. Ms. Grafton is a member of Financial Executives International's Committee on Corporate Reporting and the Finance Leaders Council for the Retail Industry Leaders Association. She also serves on the board of Perspectives, Inc., a non-profit supportive housing program in Minneapolis, Minnesota.

Joseph M. Joyce was named 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. He also serves on the board of governors of the University of St. Thomas School of Law.

Barry Judge was named Executive Vice President, Chief Marketing Officer in 2009. He was appointed to the Chief Marketing Officer role in 2008. Prior to that appointment, Mr. Judge served as Senior Vice President — Marketing from 2007 to 2008 and as Senior Vice President — Consumer and Brand Marketing from 2004 to 2007. Mr. Judge joined us in 1999 as a member of our e-commerce team. Prior to joining us, he spent four years as vice president of marketing for Caribou Coffee Company. His professional career also includes marketing and management positions at Young & Rubicam, Coca-Cola USA, The Quaker Oats Company, and The Pillsbury Company.

James L. Muehlbauer was named Executive Vice President, Finance and Chief Financial Officer in 2008. In 2007, he was appointed Enterprise Chief Financial Officer (interim). From 2006 to 2007, he served as Senior Vice President and Chief Financial Officer — Best Buy U.S., and from 2003 to 2006, as Senior Vice President — Finance. Prior to joining us, Mr. Muehlbauer spent ten years with The Pillsbury Company, a consumer packaged goods company, where he held 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 (inactive), Mr. Muehlbauer spent eight years with Coopers & Lybrand LLP (now PricewaterhouseCoopers) including senior manager positions in the firm's audit and consulting practices. He serves on the board of overseers of the University of Minnesota Carlson School of Management.

Kalendu Patel was named Executive Vice President, President — Asia in 2010. Mr. Patel joined us in 2003 and served as Executive Vice President — Emerging Business from 2009 until 2010, Executive Vice President — Strategy and International Development from 2005 to 2009, and Senior Vice President — Strategy and International Development from 2004 to 2005. Prior to joining us, Mr. Patel was a partner for four years at Strategos, a strategic consulting firm. Prior to that, he worked at KPMG Consulting Inc. and Courtaulds PLC in the U.K.

Ryan D. Robinson was named Senior Vice President, Chief Financial Officer — U.S. in 2010. He served as Senior Vice President, Chief Financial Officer — U.S. Strategic Business Unit and Treasurer from 2007 until his current appointment. Mr. Robinson joined us in 2002 and served as Senior Vice President and Chief Financial Officer — New Growth Platforms from 2006 to 2007, Senior Vice President — Finance and Treasurer from 2005 to 2006, and Vice President — Finance and Treasurer from 2002 to 2005. Prior to joining us, he spent 15 years at ABN AMRO Holding N.V., an international bank, where his most recent role there was senior vice president and director of its North American private equity unit.

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Mr. Robinson also held management positions in ABN AMRO Holding N.V.'s corporate finance, finance advisory, acquisitions and asset securitization divisions. Mr. Robinson is a member of the board of directors of Children's Hospitals and Clinics of Minnesota.

Richard M. Schulze is a founder of our company. He has been an officer and director from our inception in 1966 and currently serves as our Chairman of the Board. In 2002, he relinquished the duties of Chief Executive Officer, having served as 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 and serves on the board of the Richard M. Schulze Family Foundation. He previously served on the board of Pentair, Inc., a diversified industrial manufacturing company, and The Best Buy Children's Foundation. Mr. Schulze holds an honorary doctorate of laws degree from the University of St. Thomas.

Timothy R. Sheehan was named Executive Vice President, Chief Administrative Officer in 2010. He previously served as Executive Vice President — Enterprise Retail Operations since 2009. From 2004 to 2009, he served as Senior Vice President — Customer Experience Creation, where he focused on our branding and consumer support. Mr. Sheehan joined us in 1985 as a part-time sales associate and steadily advanced his career as our company grew. He has served us as Regional Manager, District Manager and Store General Manager. Upon moving from the field into corporate, Mr. Sheehan served in positions in retail operations, consumer relations and store support.

Carol A. Surface joined us in 2010 when she was appointed Executive Vice President, Chief Human Resources Officer. Prior to joining us, Ms. Surface spent ten years at PepsiCo, Inc., a global food, snack and beverage company, where she served most recently as senior vice president of human resources and chief personnel officer for PepsiCo International. From 2009 to 2010, Ms. Surface served PepsiCo in Dubai where she was responsible for all human resources aspects across the Asia Pacific region, Middle East and Africa. Prior to that, Ms. Surface spent five years in Hong Kong, serving as PepsiCo's senior vice president of international human resources and chief personnel officer for the Asia region. Prior to her work at PepsiCo, her professional career included human resources and organization development positions with Kmart Corporation, Eaton Corporation and The Dow Chemical Company.

Michael A. Vitelli was named Executive Vice President, President — Americas in March 2010. He previously served as Executive Vice President — Customer Operating Groups since 2008. Mr. Vitelli joined us in 2004 and served as Senior Vice President and General Manager of Home Solutions from 2007 to 2008, and Senior Vice President — Merchandising from 2005 to 2007. Prior to joining us, he spent 23 years with Sony Electronics, Inc., serving in positions of increasing responsibility including executive vice president of Sony's Visual Products Company. Mr. Vitelli serves on the boards of the National Multiple Sclerosis Society, Minnesota Chapter, and the National Consumer Technology Industry chapter of the Anti-Defamation League, where he serves as the industry chair.


Item 4. Reserved.

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

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.

 
  Sales Price  
 
  High
  Low
 
   

Fiscal 2011

             

First Quarter

  $ 48.83   $ 36.28  

Second Quarter

    42.65     30.90  

Third Quarter

    45.63     31.32  

Fourth Quarter

    44.62     32.00  

Fiscal 2010

             

First Quarter

  $ 42.06   $ 23.97  

Second Quarter

    39.98     31.25  

Third Quarter

    44.32     35.66  

Fourth Quarter

    45.55     35.01  

Holders

As of April 20, 2011, there were 3,305 holders of record of our common stock.

Dividends

In fiscal 2004, our Board initiated the payment of a regular quarterly cash dividend with respect to shares of our common stock. A quarterly cash dividend has been paid in each subsequent quarter. Our quarterly cash dividend for all of fiscal 2010 and for the first two quarters of fiscal 2011 was $0.14 per share, and for the last two quarters of fiscal 2011 was $0.15 per share. The payment of cash dividends is subject to customary legal and contractual restrictions.

Future dividend payments will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

From time to time, we repurchase our common stock in the open market pursuant to programs approved by our Board. We may repurchase our common stock for a variety of reasons, such as acquiring shares to offset dilution related to equity-based incentives, including stock options and our employee stock purchase plan, and optimizing our capital structure.

In June 2007, our Board authorized up to $5.5 billion of share repurchases. The program, which became effective on June 26, 2007, terminated and replaced a $1.5 billion share repurchase program authorized by our Board in June 2006. There is no expiration date governing the period over which we can repurchase shares under the June 2007 program. We made no share repurchases in fiscal 2010. During fiscal 2011, we repurchased and retired 32.6 million shares at a cost of $1.2 billion. At the end of fiscal 2011, $1.3 billion of the $5.5 billion share repurchases authorized by our Board in June 2007 was available for future share repurchases.

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Table of Contents

We consider several factors in determining when to make share repurchases including, among other things, our cash needs, the availability of funding and the market price of our stock. We expect that cash provided by future operating activities, as well as available cash and cash equivalents and short-term investments, will be the sources of funding for our share repurchase program. Based on the anticipated amounts to be generated from those sources of funds in relation to the remaining authorization approved by our Board under the June 2007 share repurchase program, we do not expect that future share repurchases will have a material impact on our short-term or long-term liquidity.

The following table presents the total number of shares of our common stock that we purchased during the fourth quarter of fiscal 2011, the average price paid per share, the number of shares that we purchased as part of our publicly announced repurchase program, and the approximate dollar value of shares that still could have been purchased at the end of the applicable fiscal period, pursuant to our June 2007 share repurchase program:

Fiscal Period
  Total Number
of Shares
Purchased

  Average
Price Paid
per Share

  Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(1)

  Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under the Plans or Programs(1)

 
   

November 28, 2010, through January 1, 2011

      $       $ 1,372,000,000  

January 2, 2011, through January 29, 2011

                1,372,000,000  

January 30, 2011, through February 26, 2011

    1,855,740     35.66     1,855,740     1,307,000,000  
                       

Total Fiscal 2011 Fourth Quarter

    1,855,740     35.66     1,855,740     1,307,000,000  
                       
(1)
"Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs" reflects our $5.5 billion share repurchase program announced on June 27, 2007, less the $3.0 billion we purchased in fiscal 2008 under our accelerated share repurchase program and the $1.2 billion we purchased in fiscal 2011. There is no stated expiration for the June 2007 share repurchase program.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information about our common stock that may be issued under our equity compensation plans as of February 26, 2011.

Plan Category
  Securities to Be Issued
Upon Exercise of
Outstanding
Options

  Weighted
Average
Exercise Price
per Share(1)

  Securities
Available
for Future
Issuance(2)

 
   

Equity compensation plans approved by security holders(3)

    40,131,027 (4) $ 38.97     6,942,317  

Equity compensation plans not approved by security holders(5)

    11,250   $ 34.44     n/a  
                 

Total

    40,142,277   $ 38.97     6,942,317  
                 
(1)
Includes weighted-average exercise price of outstanding stock options only.

(2)
Includes 3,525,553 shares of our common stock which have been reserved for issuance under our 2008 and 2003 Employee Stock Purchase Plans.

(3)
Includes our 1994 Full-Time Non-Qualified Stock Option Plan, as amended; our 1997 Directors' Non-Qualified Stock Option Plan, as amended; our 1997 Employee Non-Qualified Stock Option Plan, as amended; and our 2004 Omnibus Stock and Incentive Plan, as amended.

(4)
Includes grants of stock options and market-based, performance-based and time-based restricted stock.

(5)
Represents non-plan options issued to a former executive officer in April 2002 in consideration of his service to the Board prior to his employment with us. The options, which were fully vested upon grant, have an exercise price of $34.44 per share and expire on April 11, 2012.

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Best Buy Stock Comparative Performance Graph

The information contained in this Best Buy Stock Comparative Performance Graph section shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.

The graph below compares the cumulative total shareholder return on our common stock for the last five fiscal years with the cumulative total return on the Standard & Poor's 500 Index ("S&P 500"), of which we are a component, and the Standard & Poor's Retailing Group Industry Index ("S&P Retailing Group"), of which we are also a component. The S&P Retailing Group is a capitalization-weighted index of domestic equities traded on the NYSE and NASDAQ, and includes high-capitalization stocks representing the retail sector of the S&P 500.

The graph assumes an investment of $100 at the close of trading on February 24, 2006, the last trading day of fiscal 2006, in our common stock, the S&P 500 and the S&P Retailing Group.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Best Buy Co., Inc., the S&P 500
and the S&P Retailing Group

GRAPHIC

 
  FY06
  FY07
  FY08
  FY09
  FY10
  FY11
 
   

Best Buy Co., Inc.

  $ 100.00   $ 86.35   $ 80.89   $ 55.04   $ 70.78   $ 63.74  

S&P 500

    100.00     111.97     107.94     61.18     93.98     115.20  

S&P Retailing Group

    100.00     110.66     91.21     61.78     106.55     132.89  
*
Cumulative total return assumes dividend reinvestment.

Source: Research Data Group, Inc.

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Item 6. Selected Financial Data.

The following table presents our selected financial data. The table should be read in conjunction with Item 7, Management's 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.

Five-Year Financial Highlights

$ in millions, except per share amounts

Fiscal Year
  2011(1)
  2010(2)
  2009(3)(4)
  2008
  2007(5)
 
   

Consolidated Statements of Earnings Data

                               
 

Revenue

  $ 50,272   $ 49,694   $ 45,015   $ 40,023   $ 35,934  
 

Operating income

    2,114     2,235     1,870     2,161     1,999  
 

Net earnings including noncontrolling interests

    1,366     1,394     1,033     1,410     1,378  
 

Net earnings attributable to Best Buy Co., Inc.

    1,277     1,317     1,003     1,407     1,377  

Per Share Data

                               
 

Net earnings

  $ 3.08   $ 3.10   $ 2.39   $ 3.12   $ 2.79  
 

Cash dividends declared and paid

    0.58     0.56     0.54     0.46     0.36  
 

Common stock price:

                               
   

High

    48.83     45.55     48.03     53.90     59.50  
   

Low

    30.90     23.97     16.42     41.85     43.51  

Operating Statistics

                               
 

Comparable store sales (decline) gain(6)

    (1.8 )%   0.6 %   (1.3 )%   2.9 %   5.0 %
 

Gross profit rate

    25.1 %   24.5 %   24.4 %   23.9 %   24.4 %
 

Selling, general and administrative expenses rate

    20.5 %   19.9 %   20.0 %   18.5 %   18.8 %
 

Operating income rate

    4.2 %   4.5 %   4.2 %   5.4 %   5.6 %

Year-End Data

                               
 

Current ratio(7)

    1.2     1.2     1.0     1.1     1.4  
 

Total assets

  $ 17,849   $ 18,302   $ 15,826   $ 12,758   $ 13,570  
 

Debt, including current portion

    1,709     1,802     1,963     816     650  
 

Total equity(8)

    7,292     6,964     5,156     4,524     6,236  
 

Number of stores

                               
   

Domestic

    1,317     1,192     1,107     971     873  
   

International(9)

    2,855     2,835     2,835     343     304  
   

Total(9)

    4,172     4,027     3,942     1,314     1,177  
 

Retail square footage (000s)

                               
   

Domestic

    43,660     42,488     40,924     37,511     34,092  
   

International(9)

    14,445     13,623     13,331     11,069     9,419  
   

Total(9)

    58,105     56,111     54,255     48,580     43,511  
(1)
Included within our operating income and net earnings for fiscal 2011 is $222 ($147 net of taxes) of restructuring charges recorded in the fiscal fourth quarter related to measures we took to restructure our businesses. These charges resulted in a decrease in our operating income rate of 0.5% of revenue for the fiscal year.

(2)
Included within our operating income and net earnings for fiscal 2010 is $52 ($25 net of taxes and noncontrolling interest) of restructuring charges recorded in the fiscal first quarter related to measures we took to restructure our businesses. These charges resulted in a decrease in our operating income rate of 0.1% of revenue for the fiscal year.

(3)
Included within our operating income and net earnings for fiscal 2009 is $78 ($48 net of tax) of restructuring charges recorded in the fiscal fourth quarter related to measures we took to restructure our businesses. In addition, operating income is inclusive of goodwill and tradename impairment charges of $66 ($64 net of tax) related to our former Speakeasy business. Collectively, these charges resulted in a decrease in our operating income rate of 0.2% of revenue for the fiscal year.

(4)
Included within our net earnings for fiscal 2009 is $111 ($96 net of tax) of investment impairment charges related to our investment in the common stock of CPW.

(5)
Fiscal 2007 included 53 weeks. All other periods presented included 52 weeks.

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(6)
Comparable store sales is a measure commonly used in the retail industry, which indicates store performance by measuring the growth in revenue for certain stores for a particular period over the corresponding period in the prior year. Our comparable store sales is comprised of revenue from stores operating for at least 14 full months as well as revenue related to call centers, Web sites and our other comparable sales channels. Revenue we earn from sales of merchandise to wholesalers or dealers is not included within our comparable store sales calculation. Relocated, remodeled and expanded stores are excluded from the comparable store sales calculation until at least 14 full months after reopening. Acquired stores are included in the comparable store sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The portion of our calculation of the comparable store sales percentage change attributable to our International segment excludes the effect of fluctuations in foreign currency exchange rates. The method of calculating comparable store sales varies across the retail industry. As a result, our method of calculating comparable store sales may not be the same as other retailers' methods.

(7)
The current ratio is calculated by dividing total current assets by total current liabilities.

(8)
As a result of the adoption of new accounting guidance related to the treatment of noncontrolling interests in consolidated financial statements, we recharacterized minority interests previously reported on our consolidated balance sheets as noncontrolling interests and classified them as a component of shareholders' equity. As a result, we have reclassified total shareholders' equity for fiscal years 2009, 2008 and 2007 to include noncontrolling interests of $513, $40 and $35, respectively.

(9)
In the second quarter of fiscal 2009, we acquired 2,414 stores pursuant to our acquisition of a 50% interest in Best Buy Europe.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in seven sections:

    Overview

    Business Strategy and Core Philosophies

    Results of Operations

    Liquidity and Capital Resources

    Off-Balance-Sheet Arrangements and Contractual Obligations

    Critical Accounting Estimates

    New Accounting Standards

In order to align our fiscal reporting periods and comply with statutory filing requirements in certain foreign jurisdictions, we consolidate the financial results of our Europe, China, Mexico and Turkey operations on a two-month lag. Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to these operations is also presented on a two-month lag.

Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our consolidated financial statements. Except for our fiscal 2011 restructuring, for which we recorded the effects of certain restructuring charges, no significant intervening event occurred in these operations that would have materially affected our financial condition, results of operations, liquidity or other factors had it been recorded during fiscal 2011. Accordingly, the $171 million of restructuring charges related to our International segment were included in our fiscal 2011 results.

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Our fiscal year ends on the Saturday nearest the end of February. Fiscal 2011, 2010 and 2009 each included 52 weeks.

Overview

We are a multi-national retailer of consumer electronics, home office products, entertainment products, appliances and related services. We operate two reportable segments: Domestic and International. The Domestic segment is comprised of all operations within the U.S. and its territories. The International segment is comprised of all operations outside the U.S. and its territories.

Our business, like that of many retailers, is seasonal. Historically, we have realized more of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Europe and Canada, than in any other fiscal quarter.

While some of the products and services we offer are viewed by consumers as essential, others continue to be viewed as discretionary purchases. Consequently, our results of operations are susceptible to changes in consumer confidence levels and macroeconomic factors such as unemployment, consumer credit availability and the condition of the housing market. Recently, consumers have maintained a cautious approach to discretionary spending due to continued economic pressures. Consequently, customer traffic and spending patterns continue to be difficult to predict. Other factors that directly impact our performance are product life-cycle shifts (including the adoption of new technology) and the competitive consumer electronics retail environment. As a result of these factors, predicting our future revenue and net

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earnings is difficult. Disciplined capital allocation and working capital management and expense control remain key priorities for us as we navigate through the current environment. By providing access to a wide selection of consumer electronics products and accessories; a vast array of service offerings, such as extended warranties, installation and repair; and a knowledgeable sales staff to help our customers select and connect their devices, we believe we offer our customers a differentiated value proposition.

Throughout this MD&A, we refer to comparable store sales. Comparable store sales is a measure commonly used in the retail industry, which indicates store performance by measuring the growth in revenue for certain stores for a particular period over the corresponding period in the prior year. Our comparable store sales is comprised of revenue from stores operating for at least 14 full months, as well as revenue related to call centers, Web sites and our other comparable sales channels. Revenue we earn from sales of merchandise to wholesalers or dealers is not included within our comparable store sales calculation. Relocated, remodeled and expanded stores are excluded from the comparable store sales calculation until at least 14 full months after reopening. Acquired stores are included in the comparable store sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The portion of our calculation of the comparable store sales percentage change attributable to our International segment excludes the effect of fluctuations in foreign currency exchange rates. The method of calculating comparable store sales varies across the retail industry. As a result, our method of calculating comparable store sales may not be the same as other retailers' methods.

In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates and currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment's operating results from local currencies into U.S. dollars for reporting purposes. The impact of foreign currency exchange rate fluctuations is typically calculated as the difference between current period activity translated using the current period's currency exchange rates and the comparable prior-year period's currency exchange rates. We use this method for all countries where the functional currency is not the U.S. dollar.

Business Strategy and Core Philosophies

Broadly defined, our Connected World strategy is based on the goal to demystify and humanize technology to help customers get the most out of the rapidly expanding role that technology plays in their lives. The assets we leverage to bring this strategy to life include our approximately 180,000 employees around the world and the dedication and expertise they bring; valuable relationships with our vendors; our brand names and reputation; and our unique multi-channel model which provides customer touch point opportunities through retail store locations, Web sites, mobile applications and call centers.

The Connected World gives us access to a much larger addressable market than just the traditional consumer electronics hardware market. While a large part of the traditional focus of our business has been on consumer electronics products, we have significant incremental opportunities in selling accessories, content, connections and services.

Our three primary strategic priorities are:

Capture New Growth Opportunities and Target Online Opportunities.    The unrelenting pace of change in technology provides both opportunities and challenges for our customers, and we believe we are well positioned to help them navigate through these and to enrich their lives through the use of technology.

Our current growth priorities include continuing the recent expansion in Best Buy Mobile, mobile computing (particularly with the growing selection of tablet computers) and increasing our market share in appliances and gaming. In addition, we believe our customers will increasingly appreciate our Geek Squad service offerings and innovative purchase options, such as the recently-launched "Buy Back" program in the U.S. Finally, we foresee opportunities for increasing the number of connections we sell, a vital proposition to our customers wishing to access people and content such as streaming

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movies and music, internet and television. This opportunity is most prevalent today in mobile phones, but also in connecting computing devices to mobile broadband and televisions to broadband services.

We believe that our established multi-channel strategy provides us competitive advantages in that it allows customers to connect with us in a variety of ways. For example, customers can interact with us directly through our store, online, mobile application or call center channels or through a combination of channels, such as purchasing online for in-store pick up. We plan to continue to leverage these capabilities to offer consumers options that are flexible and convenient. Our online growth plans also include allowing external vendors and retailers to sell through our Web sites, extending our reach by allowing partners to market our products and services and leveraging online traffic to sell advertising.

Improve Growth and Returns in International Markets.    Our international strategy is focused on four key geographic areas (Canada, China, Europe and Mexico), where we believe we can leverage size, scale and economics to succeed. In China, we expect to continue investment in profitable growth as we look to grow our position in this fast growing market through our Five Star business. In our established businesses in Canada and Europe (small-format stores), we plan to continue our evolution into Connected World solutions. In our relatively new markets such as the U.K. (large-format stores) and Mexico, our growth will likely be more measured, as we increase our understanding and appreciation for customers' needs in these markets.

Drive Structural Opportunities to Improve Returns.    In order to provide value to our customers and to fund growth opportunities that we are targeting, we must operate efficiently and effectively. We have a disciplined approach to managing our costs and capital allocation. We require each of our businesses to meet sufficient ROIC levels over appropriate time horizons. Our growth strategies require that we continue to increase our points of presence in order to fully realize the benefits of our multi-channel strategy. Our plans to continue the expansion of our U.S. Best Buy Mobile stand-alone stores is expected to increase our presence and allow us to reduce our large-format store footprint.

We also seek to improve store productivity through actions such as expansion of our "Connected Store" model roll-out, increasing our presence in pre-owned and pre-order games and expanding our Pacific Sales store-within-a-store appliances model.

Results of Operations

Fiscal 2011 Summary

Net earnings decreased 3.0% in fiscal 2011 compared to fiscal 2010. The decrease in net earnings was the result of decreases in both the Domestic and International segments' operating income, driven primarily by the $222 million ($147 million net of tax) of restructuring charges recorded in the fourth quarter of fiscal 2011, compared to $52 million ($25 million net of taxes and noncontrolling interest) of restructuring charges recorded in fiscal 2010. Earnings per diluted share of $3.08 in fiscal 2011 was essentially flat compared to $3.10 in fiscal 2010.

Revenue increased 1.2% to $50.3 billion. The increase was driven primarily by the net addition of 147 new stores during fiscal 2011 and the favorable impact of foreign currency exchange rate fluctuations, partially offset by a comparable store sales decline of 1.8%.

Our gross profit rate increased by 0.6% of revenue to 25.1% of revenue. The increase was driven by an increase in our Domestic segment's gross profit rate primarily due to strong sales of higher-margin smartphones as a result of the continued growth of Best Buy Mobile.

Our SG&A rate increased by 0.6% of revenue to 20.5% of revenue. The increase was due primarily to the deleveraging impact of lower comparable store sales in our Domestic segment, as well as a change in the form of vendor funding. Partially offsetting these increases was a decrease in incentive compensation in our Domestic segment.

In the fourth quarter of fiscal 2011, we recorded $222 million in restructuring charges related to our plans to exit the Turkey market, restructure the Best Buy branded stores in China and improve efficiencies in our Domestic operations,

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    which resulted in charges for inventory write-downs, property and equipment impairments, employee termination benefits, intangible asset impairments and facility closure costs.

We ended fiscal 2011 with $1.1 billion of cash and cash equivalents, compared to $1.8 billion at the end of fiscal 2010. Operating cash flow decreased to $1.2 billion in fiscal 2011 compared to fiscal 2010 operating cash flow of $2.2 billion due primarily to changes in working capital, while capital expenditures increased 21.0% to $744 million.

During fiscal 2011, we made four dividend payments totaling $0.58 per share, or $237 million in the aggregate.

We repurchased and retired 32.6 million shares at a cost of $1.2 billion during fiscal 2011.

Consolidated Results

The following table presents selected consolidated financial data for each of the past three fiscal years ($ in millions, except per share amounts):

Consolidated Performance Summary
  2011(1)
  2010(2)
  2009(3)(4)
 
   

Revenue

  $ 50,272   $ 49,694   $ 45,015  

Revenue gain %

    1.2 %   10.4 %   12.5 %

Comparable store sales % (decline) gain

    (1.8 )%   0.6 %   (1.3 )%

Gross profit as % of revenue(5)

    25.1 %   24.5 %   24.4 %

SG&A as % of revenue(5)

    20.5 %   19.9 %   20.0 %

Operating income

  $ 2,114   $ 2,235   $ 1,870  

Operating income as % of revenue

    4.2 %   4.5 %   4.2 %

Net earnings

  $ 1,277   $ 1,317   $ 1,003  

Diluted earnings per share

  $ 3.08   $ 3.10   $ 2.39  
(1)
Included within our operating income and net earnings for fiscal 2011 is $222 million ($147 million net of taxes) of restructuring charges recorded in the fiscal fourth quarter related to measures we took to restructure our businesses. These charges resulted in a decrease in our operating income of 0.5% of revenue for the fiscal year.

(2)
Included within our operating income and net earnings for fiscal 2010 is $52 million ($25 million net of taxes and noncontrolling interest) of restructuring charges recorded in the fiscal first quarter related to measures we took to restructure our businesses. These charges resulted in a decrease in our operating income of 0.1% of revenue for the fiscal year.

(3)
Included within our operating income and net earnings for fiscal 2009 is $78 million ($48 million net of tax) of restructuring charges recorded in the fiscal fourth quarter related to measures we took to restructure our businesses. In addition, operating income is inclusive of goodwill and tradename impairment charges of $66 million ($64 net of tax) related to our former Speakeasy business. Collectively, these charges resulted in a decrease in our operating income of 0.2% of revenue for the fiscal year.

(4)
Included within our net earnings for fiscal 2009 is $111 million ($96 million net of tax) of investment impairment charges related to our investment in the common stock of CPW.

(5)
Because retailers vary in how they record costs of operating their supply chain between cost of goods sold and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers' corresponding rates. For additional information regarding costs classified in cost of goods sold and SG&A, refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Fiscal 2011 Results Compared With Fiscal 2010

Throughout fiscal 2011, the majority of geographic markets in which we operate generally continued to endure difficult and uncertain economic conditions. In addition, customer appetite for certain product categories was below industry expectations. Both of these factors had a direct bearing on our revenue. We have responded to the current economic environment by closely managing our SG&A, as well as focusing on efforts to improve our gross profit.

The 1.2% revenue increase in fiscal 2011 resulted primarily from the net addition of 147 new stores during fiscal 2011 and the positive impact of foreign currency exchange rate fluctuations, partially offset by a comparable store sales decline.

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The components of the net revenue increase in fiscal 2011 were as follows:

Net new stores

    2.6 %

Impact of foreign currency exchange rate fluctuations

    0.6 %

Comparable store sales impact

    (1.7 )%

Non-comparable sales channels(1)

    (0.2 )%

One less week of revenue for Best Buy Europe(2)

    (0.1 )%
       

Total revenue increase

    1.2 %
       
(1)
Non-comparable sales channels primarily reflects the impact from revenue we earn from sales of merchandise to wholesalers and dealers as well as other non-comparable sales channels not included within our comparable store sales calculation.

(2)
Reflects the incremental revenue associated with Best Buy Europe in the first quarter of fiscal 2010, which had 14 weeks of activity, compared to 13 weeks in the first quarter of fiscal 2011.

Our gross profit rate increased 0.6% of revenue in fiscal 2011. Gross profit rate improvements in our Domestic segment accounted for an increase of 0.7% of revenue. The relatively flat gross profit rate in our International segment had no impact on the consolidated gross profit rate. In addition, restructuring charges in fiscal 2011 accounted for a decrease in the gross profit rate of 0.1% of revenue. For further discussion of each segment's gross profit rate changes, see Segment Performance Summary, below.

The 0.6% of revenue SG&A rate increase for fiscal 2011 was due to a 0.7% of revenue increase attributable to the increase in our Domestic segment's SG&A rate, partially offset by a 0.1% of revenue decrease attributable to the decrease in our International segment's SG&A rate. For further discussion of each segment's SG&A rate changes, see Segment Performance Summary, below.

Our operating income decreased $121 million, or 5.4%, and our operating income rate decreased to 4.2% of revenue in fiscal 2011, compared to 4.5% of revenue in fiscal 2010. The 0.3% of revenue operating income rate decrease was driven by an increase in our SG&A rate and increased restructuring charges, partially offset by an increase in our gross profit rate. Our operating income in fiscal 2011 included $222 million of restructuring charges recorded in the fiscal fourth quarter, compared to $52 million of restructuring charges recorded in fiscal 2010. The fiscal 2011 restructuring charges include plans to exit the Turkey market, restructure the Best Buy branded stores in China and improve efficiencies in our Domestic segment, which resulted in charges for inventory write-downs, property and equipment impairments, employee termination benefits, intangible asset impairments and facility closure costs. The fiscal 2010 restructuring charges related primarily to updating our U.S. Best Buy store operating model, which included eliminating certain positions, as well as employee termination benefits and business reorganization costs in Best Buy Europe.

Fiscal 2010 Results Compared With Fiscal 2009

The 10.4% revenue increase resulted primarily from the acquisition impact of Best Buy Europe in the second quarter of fiscal 2009, which contributed no revenue in the first six months of fiscal 2009 and $2.6 billion of revenue in the first six months of fiscal 2010, as well as the net addition of 85 new stores during fiscal 2010.

The components of the net revenue increase in fiscal 2010 were as follows:

Acquisition of Best Buy Europe

    5.8 %

Net new stores

    4.3 %

Comparable store sales impact

    0.6 %

Favorable effect of foreign currency

    0.1 %

Non-comparable sales channels(1)

    (0.4 )%
       

Total revenue increase

    10.4 %
       
(1)
Non-comparable sales channels primarily reflects the impact from revenue we earn from sales of merchandise to wholesalers and dealers as well as other non-comparable sales channels not included within our comparable store sales calculation.

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The 0.1% of revenue gross profit rate increase for fiscal 2010 was due to a 0.4% of revenue increase from our International segment's gross profit rate, partially offset by a 0.3% of revenue decrease from our Domestic segment's gross profit rate. Of the 0.4% of revenue increase from our International segment, the impact of the acquisition of Best Buy Europe, which carries a normally higher gross profit rate and contributed no gross profit in the first six months of fiscal 2009 compared to a full year of gross profit in fiscal 2010, increased our fiscal 2010 gross profit rate by 0.3% of revenue. For further discussion of each segment's gross profit rate changes, see Segment Performance Summary, below.

The 0.1% of revenue SG&A rate decrease for fiscal 2010 was due to a 0.4% of revenue decrease from our Domestic segment's SG&A rate, partially offset by a 0.3% of revenue increase from our International segment's SG&A rate. Included within the 0.3% of revenue increase from our International segment is the impact of the acquisition of Best Buy Europe, which increased our fiscal 2010 SG&A rate by 0.6% of revenue. For further discussion of each segment's SG&A rate changes, see Segment Performance Summary, below.

Our operating income in fiscal 2010 also included $52 million of restructuring charges recorded in the fiscal first quarter, compared to $78 million of restructuring charges recorded in fiscal 2009. The 2010 restructuring charge related primarily to updating our U.S. Best Buy store operating model, which included eliminating certain positions, as well as employee termination benefits and business reorganization costs in Best Buy Europe, whereas the fiscal 2009 restructuring charges related primarily to employee termination benefits offered pursuant to voluntary and involuntary separation plans at our corporate headquarters and certain other locations.

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Segment Performance Summary

Domestic

The following table presents selected financial data for our Domestic segment for each of the past three fiscal years ($ in millions):

Domestic Segment Performance Summary
  2011(1)
  2010(2)
  2009(3)
 
   

Revenue

  $ 37,186   $ 37,314   $ 35,070  

Revenue (decline) gain %

    (0.3 )%   6.4 %   5.2 %

Comparable store sales % (decline) gain

    (3.0 )%   1.7 %   (1.3 )%

Gross profit as % of revenue

    25.1 %   24.2 %   24.6 %

SG&A as % of revenue

    19.6 %   18.6 %   19.2 %

Operating income

  $ 2,031   $ 2,071   $ 1,758  

Operating income as % of revenue

    5.5 %   5.6 %   5.0 %
(1)
Included within our Domestic segment's operating income for fiscal 2011 is $51 million of restructuring charges recorded in the fiscal fourth quarter related to measures we took to increase our efficiency. These charges resulted in a decrease in our Domestic segment's operating income of 0.1% of revenue for the fiscal year.

(2)
Included within our Domestic segment's operating income for fiscal 2010 is $25 million of restructuring charges recorded in the fiscal first quarter related to measures we took to update our U.S. Best Buy store operating model. These charges resulted in a decrease in our Domestic segment's operating income of less than 0.1% of revenue for the fiscal year.

(3)
Included within our Domestic segment's operating income for fiscal 2009 is $72 million of restructuring charges recorded in the fiscal fourth quarter related to measures we took to restructure our businesses. In addition, operating income is inclusive of goodwill and tradename impairment charges of $66 million related to our former Speakeasy business. Collectively, these charges resulted in a decrease in our Domestic segment's operating income of 0.4% of revenue for the fiscal year.

The following table reconciles our Domestic segment stores open at the end of each of the last three fiscal years:

 
  Fiscal 2009   Fiscal 2010   Fiscal 2011  
 
  Total Stores
at End of
Fiscal Year

  Stores
Opened

  Stores
Closed

  Total Stores
at End of
Fiscal Year

  Stores
Opened

  Stores
Closed

  Total Stores
at End of
Fiscal Year

 
   

Best Buy

    1,023   46         1,069     31     (1 )   1,099  

Best Buy Mobile

    38   36         74     103         177  

Pacific Sales

    34   1         35             35  

Magnolia Audio Video

    6           6             6  

Geek Squad

    6           6         (6 )    
                               

Total Domestic segment stores

    1,107   83         1,190     134     (7 )   1,317  
                               

Fiscal 2011 Results Compared With Fiscal 2010

Our Domestic segment's gross profit improved in fiscal 2011, as compared to fiscal 2010, with a continued rate improvement partially offset by a revenue decline. These factors, combined with an increase in SG&A and restructuring charges, led to a modest decline in operating income.

We believe the revenue decline resulted primarily from a combination of weakness in several key consumer electronics industry product categories and a decline in our estimated domestic market share. Consumers continue to be highly selective and cautious about how and when they make consumer electronics purchases. As a specialty retailer in the consumer electronics industry, the adoption of new technology and the timing of product life-cycles continue to play an important role in revenue trends. For example, the demand for new television technologies did not materialize as the industry anticipated. Similarly, we saw a shift in consumer demand within mobile computing, as increased sales of tablets resulted in a lower overall sales mix of notebook computers throughout fiscal 2011.

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The 0.3% revenue decline in fiscal 2011 was due primarily to a comparable store sales decline of 3.0%, partially offset by the impact of net new stores opened during fiscal 2011. The components of the net revenue decrease in the Domestic segment in fiscal 2011 were as follows:

Comparable store sales impact

    (2.9 )%

Non-comparable sales channels(1)

    (0.1 )%

Net new stores

    2.7 %
       

Total revenue decrease

    (0.3 )%
       
(1)
Non-comparable sales channels reflects the impact from revenue we earn from sales channels not included within our comparable store sales calculation.

The following table presents the Domestic segment's revenue mix percentages and comparable store sales percentage changes by revenue category in fiscal 2011 and 2010:

 
  Revenue Mix Summary   Comparable Store Sales Summary  
 
  Year Ended   Year Ended  
 
  February 26, 2011
  February 27, 2010
  February 26, 2011
  February 27, 2010
 
   

Consumer electronics

    37 %   39 %   (6.3 )%   1.1 %

Home office

    37 %   34 %   3.6 %   12.8 %

Entertainment

    14 %   16 %   (13.3 )%   (13.2 )%

Appliances

    5 %   4 %   7.0 %   (4.2 )%

Services

    6 %   6 %   0.5 %   (1.1 )%

Other

    1 %   1 %   n/a     n/a  
                       

Total

    100 %   100 %   (3.0 )%   1.7 %
                       

The products having the largest impact on our comparable store sales decline in fiscal 2011 were entertainment hardware and software (which includes video gaming hardware and software, CDs and DVDs) and televisions. Comparable store sales gains in mobile phones, mobile computing (consisting of notebook computers, netbooks and tablets) partially offset these declines. Revenue from our Domestic segment's online operations increased 13% in fiscal 2011 and is incorporated in the table above.

The 6.3% comparable store sales decline in the consumer electronics revenue category was driven primarily by a decrease in the sales of televisions and cameras and camcorders, partially offset by strong sales from our expanded assortment of e-Readers. The 3.6% comparable store sales gain in the home office revenue category was primarily the result of increased sales of mobile phones due to the continued growth of Best Buy Mobile, as well as gains in the sales of mobile computing. The 13.3% comparable store sales decline in the entertainment revenue category was mainly the result of declining sales in video gaming hardware and software, partially caused by industry-wide softness combined with a decline in our market share, as well as the continued decline in the sales of DVDs and CDs as consumers shift to digital content. The 7.0% comparable store sales gain in the appliances revenue category was due to an increase in unit sales with relatively flat average selling prices, with particular strength in kitchen and small appliances. The 0.5% comparable store sales gain in the services revenue category was due primarily to a gain in the sales of computer services, partially offset by a decline in the sales of repair and home theater installation services, due in part to the decrease in television sales noted above.

Despite a modest decline in revenue, our Domestic segment experienced gross profit growth in fiscal 2011 of $324 million, or 3.6%, compared to fiscal 2010, due to rate improvements. The 0.9% of revenue increase in the gross profit rate was due to favorable rate and mix impacts of 0.7% of revenue and 0.2% of revenue, respectively, and resulted primarily from the following factors collectively:

    increased sales of higher-margin mobile phones as a result of the growth in Best Buy Mobile;

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    a change in the form of vendor funding for fiscal 2011, shifting more dollars to gross profit than SG&A; and

    improved attachment of services, particularly in the mobile computing product category;

    partially offset by declining average selling prices of televisions.

Our Domestic segment's SG&A grew $348 million, or 5.0%, in fiscal 2011 compared to fiscal 2010. The increase in SG&A was driven by the opening of new stores and an increase in the Best Buy Mobile profit share-based management fee, partially offset by lower incentive compensation costs. The following factors collectively contributed to the Domestic segment's SG&A rate increase of 1.0% of revenue:

    deleverage due to the comparable store sales decline;

    continued growth in Best Buy Mobile (including the profit share-based management fee we paid to Best Buy Europe, which is offset in the International segment SG&A results and, therefore, has no net impact on our consolidated operating income); and

    the change in the form of vendor funding as discussed above;

    partially offset by lower incentive compensation costs.

The $40 million decrease in our Domestic segment's operating income for fiscal 2011 was due to an increase in restructuring charges, a modest decline in revenue, and higher SG&A spending, partially offset by increased gross profit due to an improvement in the gross profit rate. Our Domestic segment's operating income in fiscal 2011 included $51 million of restructuring charges recorded in the fiscal fourth quarter, compared to $25 million of restructuring charges recorded in fiscal 2010. The fiscal 2011 restructuring charges resulted from activities to improve efficiencies in our Domestic segment, which resulted in charges for inventory write-downs, property and equipment impairments, employee termination benefits and intangible asset impairments. The fiscal 2010 restructuring charges related primarily to updating our U.S. Best Buy store operating model, which resulted in the elimination of certain positions for which we incurred employee termination costs.

Fiscal 2010 Results Compared With Fiscal 2009

The 6.4% revenue increase in fiscal 2010 resulted primarily from the net addition of 85 new stores during fiscal 2010 and a comparable store sales gain of 1.7%.

The components of the net revenue increase in the Domestic segment in fiscal 2010 were as follows:

Net new stores

    4.7 %

Comparable store sales impact

    1.7 %
       

Total revenue increase

    6.4 %
       

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The following table presents the Domestic segment's revenue mix percentages and comparable store sales percentage changes by revenue category in fiscal 2010 and 2009:

 
  Revenue Mix Summary   Comparable Store Sales Summary  
 
  Year Ended   Year Ended  
 
  February 27, 2010
  February 28, 2009
  February 27, 2010
  February 28, 2009
 
   

Consumer electronics

    39 %   39 %   1.1 %   (5.8 )%

Home office

    34 %   31 %   12.8 %   10.4 %

Entertainment

    16 %   19 %   (13.2 )%   (5.9 )%

Appliances

    4 %   5 %   (4.2 )%   (15.4 )%

Services

    6 %   6 %   (1.1 )%   4.1 %

Other

    1 %   <1 %   n/a     n/a  
                       

Total

    100 %   100 %   1.7 %   (1.3 )%
                       

Our Domestic segment's comparable store sales gain in fiscal 2010 improved sequentially each quarter of the fiscal year due primarily to an increase in average ticket and reflected our market share gains. The products having the largest effect on our Domestic segment's comparable store sales gain in fiscal 2010 were notebook computers, flat-panel televisions and mobile phones. Stronger sales in these product categories were partially offset by comparable store sales declines in our entertainment revenue category. Revenue from our Domestic segment's online operations increased 22% in fiscal 2010 and is incorporated in the table above.

The 1.1% comparable store sales gain in the consumer electronics revenue category was driven primarily by increases in the sales of flat-panel televisions as unit sales increases more than offset average selling price decreases, partially offset by declines in the sales of navigation products and MP3 players. The 12.8% comparable store sales gain in the home office revenue category was primarily the result of continued growth in the sales of notebook computers, which benefited from the launch of a new operating system, as well as mobile phones, which included a full year of our Best Buy Mobile store-within-a-store experience in all U.S. Best Buy stores, partially offset by declines in the sales of computer monitors. The 13.2% comparable store sales decline in the entertainment revenue category was due principally to a decline in sales of video gaming, partially caused by industry-wide softness and a maturing product platform, as well as a continued decline in sales of DVDs and CDs. The 4.2% comparable store sales decline in the appliances revenue category was due to a decrease in unit sales which more than offset increases in average selling prices. The 1.1% comparable store sales decline in the services revenue category was due primarily to a decline in home theater installation, partially offset by modest increases in our sales of extended warranties.

Our Domestic segment experienced gross profit growth of $407 million in fiscal 2010, or 4.7% compared to fiscal 2009, due to increased revenue volumes. The 0.4% of revenue decrease in the gross profit rate was due primarily to a change in revenue mix, which reduced the gross profit rate by 0.5% of revenue and resulted from a continued shift in the revenue mix to sales of lower-margin notebook computers, partially offset by additional mix shift into higher-margin mobile phones. In addition, improved margin rate performance provided a 0.1% of revenue increase to the gross profit rate.

Despite revenue growth of 6.4%, our Domestic segment's SG&A grew only 3.1% or by $207 million. Continued store openings and significant year over year performance improvements drove higher SG&A spend in fiscal 2010 for incentive pay, payroll and benefits and rent, partially offset by lower SG&A spend in various discretionary categories such as information technology and supply chain project expenditures, store reset and transformation costs, advertising and travel. The 0.6% of revenue SG&A rate decline was primarily due to the reductions in discretionary categories discussed above, which collectively reduced the SG&A rate by 1.0% of revenue. The overall leveraging impact of higher comparable store sales on payroll and benefits further reduced the SG&A rate by 0.2% of revenue. However, we had higher incentive pay expense due to improvements in performance in fiscal 2010 and no incentive pay expense in the prior year, which collectively offset the SG&A rate improvement by 0.6% of revenue.

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The increase in our Domestic segment's operating income for fiscal 2010 was due to higher gross profit dollars from net new store openings and comparable store sales growth, while SG&A dollars grew only 3.1% despite revenue growth of 6.4%, as shown by the decrease in the SG&A rate of 0.6% of revenue. A decrease in restructuring and no goodwill and tradename impairment charges further contributed to the additional operating income.

Our Domestic segment's operating income in fiscal 2010 included $25 million of restructuring charges recorded in the first fiscal quarter, compared to $72 million of restructuring charges recorded in fiscal 2009. The fiscal 2010 restructuring charges were primarily the result of updates to our Domestic segment's Best Buy branded store operating model, which resulted in the elimination of certain positions for which we incurred employee termination costs, whereas the fiscal 2009 restructuring charges related primarily to employee termination benefits offered pursuant to voluntary and involuntary separation plans at our principal corporate headquarters and certain other locations.

International

The following table presents selected financial data for our International segment for each of the past three fiscal years ($ in millions):

International Segment Performance Summary
  2011(1)
  2010(2)
  2009(3)
 
   

Revenue

  $ 13,086   $ 12,380   $ 9,945  

Revenue gain %

    5.7 %   24.5 %   48.6 %

Comparable store sales % gain (decline)

    2.4 %   (3.7 )%   (0.9 )%

Gross profit as % of revenue

    25.1 %   25.3 %   23.9 %

SG&A as % of revenue

    23.3 %   23.8 %   22.7 %

Operating income

  $ 83   $ 164   $ 112  

Operating income as % of revenue

    0.6 %   1.3 %   1.1 %
(1)
Included within our International segment's operating income in fiscal 2011 is $171 million of restructuring charges recorded in the fiscal fourth quarter, primarily related to our plans to exit the Turkey market and restructure our Best Buy branded stores in China. These charges resulted in a decrease in our International segment's operating income of 1.3% of revenue for the fiscal year.

(2)
Included within our International segment's operating income in fiscal 2010 is $27 million of restructuring charges recorded in the fiscal first quarter, primarily related to employee termination benefits and business reorganization costs in Best Buy Europe. These charges resulted in a decrease in our International segment's operating income of 0.2% of revenue for the fiscal year.

(3)
Included within our International segment's operating income in fiscal 2009 is $6 million of restructuring charges recorded in the fiscal fourth quarter related to measures we took to restructure our Canada business. The charges represent termination benefits in our Canada business. These charges resulted in a decrease in our International segment's operating income of 0.1% of revenue for the fiscal year.

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The following table reconciles our International segment stores open at the end of each of the last three fiscal years:

 
  Fiscal 2009   Fiscal 2010   Fiscal 2011  
 
  Total Stores
at End of
Fiscal Year

  Stores
Opened

  Stores
Closed

  Total Stores
at End of
Fiscal Year

  Stores
Opened

  Stores
Closed

  Total Stores
at End of
Fiscal Year

 
   

Best Buy Europe — small box(1)

    2,465   82     (94 )   2,453     86     (99 )   2,440  

Best Buy Europe — big box(2)

                  6         6  

Canada

                                         
 

Future Shop

    139   5         144     2         146  
 

Best Buy

    58   6         64     7         71  
 

Best Buy Mobile

    3   1         4     6         10  

China

                                         
 

Five Star

    164   6     (12 )   158     12     (4 )   166  
 

Best Buy(3)

    5   1         6     2         8  

Mexico

                                         
 

Best Buy

    1   4         5     1         6  

Turkey

                                         
 

Best Buy(3)

      1         1     1         2  
                               

Total International segment stores

    2,835   106     (106 )   2,835     123     (103 )   2,855  
                               
(1)
Represents The Carphone Warehouse and The Phone House small-format stores.

(2)
Represents Best Buy branded large-format stores in the U.K.

(3)
On February 21, 2011, we announced plans to exit the Turkey market and restructure the Best Buy branded stores in China during fiscal 2012.

Fiscal 2011 Results Compared With Fiscal 2010

While challenging economic conditions persisted in fiscal 2011 in many of the countries in which we operate, our International segment continued to grow revenue and experienced a comparable store sales gain for the year. A decline in operating income was due principally to the impact of the restructuring activities in fiscal 2011. Excluding the impact of foreign currency exchange rate fluctuations, the International segment experienced gross profit improvements with only a modest increase in SG&A. Continued growth in consumer spending and temporary government stimulus programs contributed to stronger sales and improved operating income in our China operations, particularly in our Five Star business. Our Canada operations faced many of the same market conditions and factors affecting the U.S. consumer electronics industry, with the adoption of new technology and the timing of product life-cycles continuing to play an important role in revenue trends. Similarly, our Europe operations saw the impacts from a constrained economy, but continued to benefit from higher Best Buy Mobile profit share-based management fees paid in fiscal 2011.

The 5.7% increase in revenue for fiscal 2011 was due to the positive impact of foreign currency exchange rate fluctuations (mainly related to the Canadian dollar), the impact of net new stores opened during fiscal 2011, and a 2.4% comparable store sales gain, partially offset by the impact of having one less week of revenue in Europe and a decline in sales in non-comparable sales channels. The increase in comparable store sales in fiscal 2011 was the result of gains in China and Europe, partially offset by a decline in Canada.

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The components of the net revenue increase in fiscal 2011 were as follows:

Impact of foreign currency exchange rate fluctuations

    2.4 %

Net new stores

    2.3 %

Comparable store sales impact

    2.0 %

One less week of revenue for Best Buy Europe(1)

    (0.6 )%

Non-comparable sales channels(2)

    (0.4 )%
       

Total revenue increase

    5.7 %
       
(1)
Reflects the incremental revenue associated with Best Buy Europe in the first quarter of fiscal 2010, which had 14 weeks of activity, compared to 13 weeks in the first quarter of fiscal 2011.

(2)
Non-comparable sales channels primarily reflects the impact from revenue we earn from sales of merchandise to wholesalers and dealers as well as other non-comparable sales channels not included within our comparable store sales calculation.

The following table presents the International segment's revenue mix percentages and comparable store sales percentage changes by revenue category in fiscal 2011 and 2010:

 
  Revenue Mix Summary   Comparable Store Sales Summary  
 
  Year Ended   Year Ended  
 
  February 26, 2011
  February 27, 2010
  February 26, 2011
  February 27, 2010
 
   

Consumer electronics

    21 %   20 %   (2.5 )%   (12.0 )%

Home office

    55 %   53 %   5.0 %   (0.8 )%

Entertainment

    6 %   7 %   (12.4 )%   (12.4 )%

Appliances

    9 %   8 %   15.2 %   7.3 %

Services

    9 %   12 %   (1.6 )%   6.2 %

Other

    <1 %   <1 %   n/a     n/a  
                       

Total

    100 %   100 %   2.4 %   (3.7 )%
                       

The products having the largest impact on our International segment's comparable store sales gain in fiscal 2011 were mobile phones, appliances and mobile computing. Increased sales in these product categories were partially offset by declines in the sales of entertainment hardware and software, including video gaming hardware and software, DVDs and CDs.

The 2.5% comparable store sales decline in the consumer electronics revenue category resulted primarily from declines in the sales of navigation products and MP3 players and accessories. Televisions remained essentially flat, as gains in the sales of televisions in China, were offset by declines in Canada, which faced market conditions similar to the U.S. The 5.0% comparable store sales gain in the home office revenue category resulted primarily from gains in the sales of mobile phones and mobile computing, partially offset by declines in sales of desktop computers, monitors and accessories. The 12.4% comparable store sales decline in the entertainment revenue category reflected a decrease in the sales of video gaming hardware and software and continued decreases in sales of DVDs and CDs. The 15.2% comparable store sales gain in the appliances revenue category resulted primarily from increases in the sales of appliances within our Five Star operations, where growth in consumer spending and temporary government stimulus programs continued to contribute to stronger sales. The 1.6% comparable store sales decline in the services revenue category was due primarily to a decrease in the sales of extended warranties driven by declines in the sales of televisions and notebook computers in Canada.

Our International segment experienced gross profit growth in fiscal 2011 of $153 million, or 4.9%. The increase in gross profit in fiscal 2011 was due to an increase in revenue and the favorable impact of foreign currency exchange rate fluctuations, as the gross profit rate decreased slightly. The 0.2% of revenue decrease in the gross profit rate in fiscal 2011 reflects an unfavorable mix impact of 0.5% of revenue, partially offset by a favorable rate impact of 0.3% of revenue. The unfavorable mix impact resulted primarily from growth in our lower-margin China business and a decrease in the mix of our higher-margin Europe business. The favorable rate impact was mainly the result of gains in Canada, with improved

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margins in all product categories, especially mobile computing and entertainment hardware and software. In addition, restructuring charges in fiscal 2011 had an unfavorable impact of 0.1% of revenue.

In fiscal 2011, our International segment's SG&A increased $104 million, or 3.5%, driven primarily by the unfavorable impact of foreign currency exchange rate fluctuations and increased spending associated with new store openings across the segment, partially offset by a decrease in Europe due to the higher Best Buy Mobile profit share-based management fee. Excluding the impact of foreign currency exchange rate fluctuations, our International segment's SG&A increased $35 million. The 0.5% of revenue improvement in the SG&A rate was driven primarily by a rate decline in Europe due to the higher Best Buy Mobile profit share-based management fee and the favorable mix impact from both growth in our lower-rate China business and a decrease in the sales mix of our higher-rate Europe business. These improvements were partially offset by a rate increase in Canada caused by the deleveraging impact of its comparable store sales decline and increased advertising costs to drive traffic.

The decrease in our International segment's operating income in fiscal 2011 resulted primarily from higher restructuring charges and costs associated with the operation of new large-format stores in Europe, China, Mexico and Turkey, partially offset by higher operating income in Europe and from Five Star. Our International segment's operating income in fiscal 2011 included $171 million of restructuring charges recorded in the fourth fiscal quarter, compared to $27 million of restructuring charges recorded in fiscal 2010. The fiscal 2011 restructuring charges primarily related to inventory write-downs, property and equipment impairments, employee termination benefits and facility closure costs as a result of our plans to exit the Turkey market and restructure the Best Buy branded stores in China. The fiscal 2010 restructuring charges were related primarily to employee termination benefits and business reorganization costs at Best Buy Europe.

Fiscal 2010 Results Compared With Fiscal 2009

The 24.5% increase in revenue for fiscal 2010 was due to the inclusion of Best Buy Europe, which contributed no revenue in the first six months of fiscal 2009 and $2.6 billion of revenue in the first six months of fiscal 2010, and the impact of net new stores opened during fiscal 2010, partially offset by the comparable store sales decline of 3.7% and decreases in our non-comparable sales channels. The decrease in comparable store sales was the result of a comparable store sales decline in Canada, partially offset by comparable store sales gains in Europe and China. Fluctuations in foreign currency exchange rates did not have a significant impact on revenue for fiscal 2010.

The components of the net revenue increase in fiscal 2010 were as follows:

Acquisition of Best Buy Europe

    25.8 %

Net new stores

    3.5 %

Impact of foreign currency

    0.4 %

Comparable store sales impact

    (3.3 )%

Non-comparable sales channels(1)

    (1.9 )%
       

Total revenue increase

    24.5 %
       
(1)
Non-comparable sales channels primarily reflects the impact from revenue we earn from sales of merchandise to wholesalers and dealers as well as other non-comparable sales channels not included within our comparable store sales calculation.

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The following table presents the International segment's revenue mix percentages and comparable store sales percentage changes by revenue category in fiscal 2010 and 2009:

 
  Revenue Mix Summary   Comparable Store Sales Summary  
 
  Year Ended(1)   Year Ended(2)  
 
  February 27, 2010
  February 28, 2009
  February 27, 2010
  February 28, 2009
 
   

Consumer electronics

    20 %   26 %   (12.0 )%   (0.9 )%

Home office

    53 %   45 %   (0.8 )%   (2.7 )%

Entertainment

    7 %   9 %   (12.4 )%   3.3 %

Appliances

    8 %   10 %   7.3 %   (2.2 )%

Services

    12 %   10 %   6.2 %   3.1 %

Other

    <1 %   <1 %   n/a     n/a  
                       

Total

    100 %   100 %   (3.7 )%   (0.9 )%
                       
(1)
The International segment's revenue mix changed beginning in the third quarter of fiscal 2009 due to our acquisition of Best Buy Europe, whose business primarily relates to the sale of mobile phones and voice and data service plans, which are included in our home office revenue category. In addition, Best Buy Europe offers mobile phone insurance and other mobile and fixed-line telecommunication services, which are included in our services revenue category. As a result, the International segment's home office and services revenue categories grew in fiscal 2010, resulting in a lower mix percentage for the segment's consumer electronics, entertainment and appliances revenue categories.

(2)
The comparable store sales figures for the fiscal year ended February 27, 2010, included six months of Best Buy Europe's comparable store sales. However, comparable store sales for the fiscal year ended February 28, 2009, did not include Best Buy Europe as the third quarter of fiscal 2010 was the first period in which Best Buy Europe was included in our comparable store sales calculation.

The products having the largest impact on our International segment's comparable store sales decline in fiscal 2010 were flat-panel televisions, video gaming and digital cameras and camcorders. Weaker sales of these products were partially offset by comparable store sales gains in appliances, notebook computers and services. Our International segment's comparable store sales improved sequentially each quarter of fiscal 2010 amidst improving global economic conditions and temporary government stimulus programs in China.

The 12.0% comparable store sales decline in the consumer electronics revenue category resulted primarily from declines in the sales of flat-panel televisions, digital cameras and camcorders, and navigation products. The 0.8% comparable store sales decline in the home office revenue category resulted primarily from comparable store sales declines in computer monitors and accessories, partially offset by gains in the sales of notebook computers and mobile phones. The 12.4% comparable store sales decline in the entertainment revenue category reflected a decrease in the sales of video gaming hardware and software and continued decreases in sales of DVDs and CDs. The 7.3% comparable store sales gain in the appliances revenue category resulted from increases in the sales of major appliances and small electrics, notably within our Canada and China operations where promotions and temporary government stimulus programs in China helped to fuel stronger sales. The 6.2% comparable store sales gain in the services revenue category was due primarily to an increase in revenue from our product repair business.

Our International segment experienced gross profit growth of $755 million in fiscal 2010, or 31.7%, driven predominantly by the acquisition of Best Buy Europe. The acquisition impact of Best Buy Europe of 1.4% of revenue was the principal driver behind the International segment's 1.4% of revenue gross profit rate increase for fiscal 2010, with an additional 0.2% of revenue increase from gross profit rate improvements in Europe due primarily to negotiation of more favorable vendor terms across the European business in the second half of fiscal 2010. An increase in Canada's gross profit rate also contributed a 0.1% of revenue increase. Offsetting these increases to the International segment's gross profit rate was a 0.3% of revenue decrease from China due primarily to heavier promotions and clearances.

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Our International segment's SG&A grew 30.2%, or an increase of $682 million. In the first six months of fiscal 2010, Europe's SG&A spend was $775 million with no comparable expenses in the same period one year ago. Europe's lower SG&A in the last six months of fiscal 2010 compared to the same period one year ago partially offset the first-half year over year increase. New store start-up costs in Mexico and Turkey also increased SG&A, while SG&A spend in Canada and China remained relatively flat in fiscal 2010 compared to the prior fiscal year.

The acquisition impact of Best Buy Europe of 1.7% of revenue was the principal driver behind the International segment's 1.1% of revenue SG&A rate increase for fiscal 2010. In addition, the deleveraging impact of the comparable store sales decline on payroll, benefits and overhead costs in Canada contributed a 0.2% of revenue increase. Start-up costs, rent expense and incremental staffing for new store openings in Mexico and Turkey further contributed a 0.3% of revenue increase to the International segment's SG&A rate. Offsetting these increases in the SG&A rate was a 0.8% of revenue decrease in Europe in the second half of fiscal 2010, due in part to lower payroll costs stemming from their restructuring in the fiscal first quarter, as well as a 0.3% of revenue decrease in China, caused primarily by cost-cutting measures to reduce overhead, payroll and marketing expenses.

The increase in our International segment's operating income resulted primarily from higher operating income in Europe and China, partially offset by increased new store investments in Mexico and Turkey, $27 million of restructuring charges and slightly lower operating income in Canada.

Our International segment's operating income in fiscal 2010 included $27 million of restructuring charges recorded in the first fiscal quarter, compared to $6 million of restructuring charges recorded in fiscal 2009. The fiscal 2010 restructuring charges were related primarily to employee termination benefits and business reorganization costs at Best Buy Europe, whereas the fiscal 2009 restructuring charges were employee termination benefits in our Canada business.

Additional Consolidated Results

Other Income (Expense)

Our investment income and other in fiscal 2011 was $51 million, compared to $54 and $35 million in fiscal 2010 and 2009, respectively. The relatively flat investment income in fiscal 2011 compared to fiscal 2010 was principally the result of lower returns on our deferred compensation assets, partially offset by the gain on the sale of our former Speakeasy business in fiscal 2011. The increase in fiscal 2010 compared to fiscal 2009 was due primarily to the gains we recorded in fiscal 2010 on our deferred compensation assets, which experienced better returns when compared to the prior year. Gains on these assets have no impact on our net earnings, as they are offset by expense recorded within SG&A. Partially offsetting the increase was the impact of lower interest rates earned on our cash and investment balances in fiscal 2010.

Interest expense in fiscal 2011 was $87 million, compared to $94 million in both fiscal 2010 and 2009. The decrease in interest expense in fiscal 2011, compared to fiscal 2010, was the result of lower average short-term borrowings throughout fiscal 2011, partially offset by higher average interest rates on outstanding short-term borrowings. The relatively flat interest expense from fiscal 2009 to 2010 was the result of lower average short-term borrowings during the year, which was fully offset by a full year of higher interest-bearing long-term debt.

Effective Income Tax Rate

Our effective income tax rate ("ETR") was 34.4% in fiscal 2011, compared to 36.5% in fiscal 2010 and 39.6% in fiscal 2009. The decrease in the ETR in fiscal 2011 compared to fiscal 2010 was due primarily to the impact of increased tax benefits from foreign operations, tax benefits resulting from the sale of our former Speakeasy business and the favorable resolution of certain non-recurring items. Excluding the impact of various fiscal 2011 non-recurring items, the ETR would have been approximately 36.5%.

The decrease in the ETR in fiscal 2010 compared to fiscal 2009 was due principally to the fiscal 2009 impacts of the other-than-temporary impairment of our investment in the common stock of CPW and the non-deductibility of our $62 million goodwill impairment charge, as well as the favorable net impact of certain discrete foreign tax matters in the

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third quarter of fiscal 2010. Excluding the impact of the fiscal 2010 discrete foreign tax matters, the fiscal 2010 ETR would have been 38.3%. Additionally, excluding the impact of the fiscal 2009 impairment charges, the fiscal 2009 ETR would have been 36.8%.

Net Earnings Attributable to Noncontrolling Interests

The increase in net earnings attributable to noncontrolling interests in fiscal 2011 compared to fiscal 2010 was due to the higher net earnings of Best Buy Europe, in which Carphone Warehouse Group plc has a 50% noncontrolling interest. The increase in net earnings attributable to noncontrolling interests in fiscal 2010 compared to fiscal 2009 was due to having a full year of earnings from Best Buy Europe in fiscal 2010, as we did not acquire Best Buy Europe until the second quarter of fiscal 2009.

Impact of Inflation and Changing Prices

Highly competitive market conditions and the general economic environment minimized inflation's impact on the selling prices of our products and services, and on our expenses. In addition, price deflation and the continued commoditization of key technology products limited our ability to increase our gross profit rate.

Liquidity and Capital Resources

Summary

We continue to closely manage our liquidity and capital resources. The key variables we use to manage liquidity requirements and investments to support our growth strategies include discretionary SG&A spending, capital expenditures, credit facilities and short-term borrowing arrangements, working capital and our share repurchase program.

Capital expenditures, particularly with respect to opening new stores and remodeling existing stores, is a component of our cash flow and capital management strategy which, to a large extent, we can adjust in response to economic and other changes in our business environment. In both fiscal 2011 and 2010, we moderated our capital spending in response to the challenging economic environment relative to our recent historical trend.

We ended fiscal 2011 with $1.1 billion of cash and cash equivalents and short-term investments, compared to $1.9 billion at the end of fiscal 2010. The decrease in cash and cash equivalents was due primarily to the $1.2 billion of cash utilized in fiscal 2011 to repurchase shares of our common stock, as well as decreased cash generated from operations in fiscal 2011 as compared to fiscal 2010. Working capital, the excess of current assets over current liabilities, was $1.8 billion at the end of fiscal 2011, an increase from $1.6 billion at the end of fiscal 2010. Operating cash flow decreased 46.1% to $1.2 billion in fiscal 2011 compared to fiscal 2010, while capital expenditures increased 21.0% to $744 million.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years ($ in millions):

 
  2011
  2010
  2009
 
   

Total cash provided by (used in):

                   
 

Operating activities

  $ 1,190   $ 2,206   $ 1,877  
 

Investing activities

    (569 )   (540 )   (3,427 )
 

Financing activities

    (1,357 )   (348 )   591  
 

Effect of exchange rate changes on cash

    13     10     19  
               

(Decrease) increase in cash and cash equivalents

  $ (723 ) $ 1,328   $ (940 )
               

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Operating Activities

The decrease in cash provided by operating activities in fiscal 2011 compared to fiscal 2010 was due primarily to an increase in cash used for accounts payable, as well as a decrease in cash provided by accounts receivable. The increase in cash used for accounts payable was due primarily to the timing and level of inventory receipts compared to vendor payments as we approached fiscal 2011 year-end. As we reduced inventory receipts in January and February 2011 in response to lower holiday sales trends, our total accounts payable declined. Cash used for inventory was also lower in fiscal 2011 compared to fiscal 2010 because the fiscal 2011 year-over-year increase in inventory was lower than in the prior year due to focused efforts to manage inventory levels in light of comparable store sales declines. The decrease in cash provided by accounts receivable was due primarily to the timing of several large payments due from our vendors at the end of fiscal 2011. Other fluctuations in cash from operating activities were due primarily to higher incentive compensation payments in fiscal 2011 (relating to our fiscal 2010 performance) and other miscellaneous timing differences.

The increase in cash provided by operating activities in fiscal 2010 compared to 2009 was due primarily to increases in cash provided by net earnings, accounts receivable, other liabilities and accrued income taxes, partially offset by an increase in cash used for merchandise inventories. The increase in cash provided by accounts receivable was due primarily to the timing of receipt of customer and network carrier receivables in our Europe business, as well as network carrier receivables associated with Best Buy Mobile in the U.S. The increases in cash provided by other liabilities were due primarily to the timing and magnitude of transaction taxes payable in various jurisdictions, as well as accrued bonuses. Finally, the increase in cash provided by accrued income taxes was due to the timing and magnitude of tax accruals as a result of higher net earnings. These changes were largely offset by the increase in cash used for merchandise inventories due to increased inventory levels in fiscal 2010, notably in notebook computers and flat-panel televisions, as a result of increased consumer demand and a strengthening economy, compared to fiscal 2009 when we tightened inventory levels amidst a weaker economy and lower holiday sales.

Investing Activities

Cash used in investing activities was relatively flat in fiscal 2011 compared to fiscal 2010, as an increase in cash used for capital expenditures was offset by an increase in cash provided by the sale of a portion of our auction rate securities ("ARS") during fiscal 2011. See Auction Rate Securities and Restricted Cash and Capital Expenditures below for additional information.

The decrease in cash used in investing activities in fiscal 2010 compared to fiscal 2009 was due primarily to the $2.2 billion of net cash associated with the acquisition of businesses in fiscal 2009, largely Best Buy Europe. Also contributing to the decrease was a decrease in capital expenditures to $615 million in fiscal 2010, compared to $1.3 billion in fiscal 2009.

Financing Activities

The increase in cash used in financing activities in fiscal 2011 compared to fiscal 2010 was primarily the result of $1.2 billion of cash we used to repurchase our common stock in fiscal 2011. We had no repurchases in fiscal 2010.

The change in cash used in financing activities in fiscal 2010, compared to cash provided by financing activities in fiscal 2009, was primarily the result of a $1.1 billion decrease in borrowings, net of repayments, compared to the prior year. Larger borrowings in the prior year were associated with the acquisition of Best Buy Europe and normal working capital needs. In addition, our increased operating cash flows in fiscal 2010 allowed us to reduce our short-term borrowings.

Sources of Liquidity

Funds generated by operating activities, available cash and cash equivalents, and our credit facilities continue to be our most significant sources of liquidity. We believe our sources of liquidity will be sufficient to sustain operations and to finance anticipated expansion plans and strategic initiatives in fiscal 2012. However, in the event our liquidity is

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insufficient, we may be required to limit our future expansion plans or we may not be able to pursue business opportunities. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms.

We have a $2.3 billion five-year unsecured revolving credit facility, as amended (the "Credit Facility"), with a syndicate of banks, with no borrowings outstanding at February 26, 2011. The Credit Facility expires in September 2012. At April 20, 2011, we had no borrowings outstanding under the Credit Facility.

We have $813 million available under secured and unsecured revolving credit facilities related to our International segment operations, of which $557 million was outstanding at February 26, 2011.

We previously had a revolving credit line with UBS AG and its affiliates (collectively, "UBS") secured by the par value of our UBS-brokered ARS. However, pursuant to the settlement described in Note 3, Investments, of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, the revolving credit line expired by its terms during the second quarter of fiscal 2011 when UBS bought back all of our UBS-brokered ARS.

Our ability to access our credit facilities is subject to our compliance with the terms and conditions of our facilities, including financial covenants. The financial covenants require us to maintain certain financial ratios. At February 26, 2011, we were in compliance with all such financial covenants. If an event of default were to occur with respect to any of our other debt, it would likely constitute an event of 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 interest portion of rent expense) to fixed charges. Our interest coverage ratio, calculated as reported in Exhibit No. 12.1 of this Annual Report on Form 10-K, was 5.78 and 6.08 in fiscal 2011 and 2010, respectively.

Our credit ratings and outlooks at April 20, 2011, are summarized below and are consistent with the ratings and outlooks reported in our Annual Report on Form 10-K for the fiscal year ended February 27, 2010.

Rating Agency
  Rating
  Outlook
 

Fitch Ratings Ltd.

  BBB+   Negative

Moody's Investors Service, Inc.

  Baa2   Stable

Standard & Poor's Ratings Services

  BBB-   Stable

Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the retail and consumer electronics industries, our financial position, and changes in our business strategy. We are not aware of any current circumstances which could cause our credit ratings to be significantly downgraded. If a downgrade were to occur, it could adversely impact, among other things, our future borrowing costs, access to capital markets, vendor financing terms and future new-store occupancy costs. In addition, the conversion rights of the holders of our convertible debentures could be accelerated if our credit ratings were to be downgraded.

Auction Rate Securities and Restricted Cash

At February 26, 2011, and February 27, 2010, we had $110 million and $280 million, respectively, invested in ARS recorded at fair value within short-term investments and equity and other investments (long-term) in our consolidated balance sheets. The majority of our ARS portfolio is AAA/Aaa-rated and collateralized by student loans, which are guaranteed 95% to 100% by the U.S. government. Due to the auction failures that began in mid-February 2008, we have been unable to liquidate some of our ARS. The investment principal associated with our ARS subject to failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, or final payments are due according to the contractual maturities of the debt issues, which range from five to 32 years. We intend to hold our ARS until we can recover the full principal amount through one of the means described above, and have the ability to do so based on our other sources of liquidity.

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Our liquidity is also affected by restricted cash balances that are pledged as collateral or restricted to use for vendor payables, general liability insurance, workers' compensation insurance and customer warranty and insurance programs. Restricted cash and cash equivalents, which are included in other current assets, were $488 million and $482 million at February 26, 2011, and February 27, 2010, respectively.

Capital Expenditures

A component of our long-term strategy is our capital expenditure program. This program includes, among other things, investments in new stores, store remodeling, store relocations and expansions, new distribution facilities and information technology enhancements. During fiscal 2011, we invested $744 million in property and equipment, including opening 147 new stores, expanding and remodeling certain stores, and upgrading our information technology systems and capabilities. The 21.0% increase in our capital expenditures compared to the prior fiscal year was due primarily to increased spending on information technology and additional store-related projects.

The following table presents our capital expenditures for each of the past three fiscal years ($ in millions):

 
  2011
  2010
  2009
 
   

New stores

  $ 193   $ 229   $ 387  

Store-related projects(1)

    208     90     333  

Information technology

    327     275     494  

Other

    16     21     89  
               

Total capital expenditures(2)

  $ 744   $ 615   $ 1,303  
               
(1)
Includes store remodels and expansions, as well as various merchandising projects.

(2)
Total capital expenditures exclude non-cash capital expenditures of $81, $9 and $42 for fiscal 2011, 2010, and 2009, respectively. Non-cash capital expenditures are comprised of capitalized leases of $52, $9 and $35, as well as additions to property and equipment included in accounts payable of $29, $0 and $7, respectively, for each fiscal year.

Refer to Note 13, Contingencies and Commitments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information regarding our significant commitments for capital expenditures at February 26, 2011.

Debt and Capital

2013 Notes

In June 2008, we sold $500 million principal amount of notes due July 15, 2013 (the "2013 Notes"). The 2013 Notes bear interest at a fixed rate of 6.75% per year, payable semi-annually on January 15 and July 15 of each year, beginning January 15, 2009. The interest payable on the 2013 Notes is subject to adjustment if either Moody's Investors Service, Inc. or Standard & Poor's Ratings Services downgrades the rating assigned to the 2013 Notes to below investment grade. Net proceeds from the sale of the 2013 Notes were $496 million, after an initial issuance discount of approximately $1 million and other transaction costs.

We may redeem some or all of the 2013 Notes at any time, at a price equal to 100% of the principal amount of the 2013 Notes redeemed plus accrued and unpaid interest to the redemption date and an applicable make-whole amount as described in the indenture relating to the 2013 Notes.

The 2013 Notes are unsecured and unsubordinated obligations and rank equally with all of our other unsecured and unsubordinated debt. The 2013 Notes contain covenants that, among other things, limit our ability and the ability of our North American subsidiaries to incur debt secured by liens, enter into sale and lease-back transactions and, in the case of such subsidiaries, incur debt.

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Convertible Debentures

In January 2002, we sold convertible subordinated debentures having an aggregate principal amount of $402 million. The proceeds from the offering, net of $6 million in offering expenses, were $396 million. On January 15, 2007, the debentures became callable at par, at our option, for cash. The debentures mature in 2022.

Holders may require us to purchase all or a portion of the debentures on January 15, 2012, and again on January 15, 2017, if not previously redeemed, at a purchase price equal to 100% of the principal amount of the debentures plus accrued and unpaid interest up to but not including the date of purchase. We have the option to settle the purchase price in cash, stock, or a combination of cash and stock. Since holders may require us to purchase all or a portion of the debentures on January 15, 2012, we classified the debentures in the current portion of long-term debt at February 26, 2011.

The debentures become convertible into shares of our common stock at a conversion rate of 21.7391 shares per $1,000 principal amount of debentures, equivalent to an initial conversion price of $46.00 per share, if the closing price of our common stock exceeds a specified price for 20 consecutive trading days in a 30-trading day period preceding the date of conversion, if our credit rating falls below specified levels, if the debentures are called for redemption or if certain specified corporate transactions occur. The debentures were not convertible at February 26, 2011, and have not been convertible through April 20, 2011.

The debentures have an interest rate of 2.25% per annum. The interest rate may be reset, but not below 2.25% or above 3.25%, on July 15, 2011, and July 15, 2016. One of our subsidiaries has guaranteed the debentures.

2016 Notes and 2021 Notes

Subsequent to fiscal 2011, we sold $350 million principal amount of notes due March 15, 2016 (the "2016 Notes") and $650 million principal amount of notes due March 15, 2021 (the "2021 Notes", and together with the 2016 Notes, the "Notes"). The 2016 Notes bear interest at a fixed rate of 3.75% per year, while the 2021 Notes bear interest at a fixed rate of 5.50% per year. Interest on the Notes is payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2011. The Notes were issued at a slight discount to par, which when coupled with underwriting discounts of $6 million, resulted in net proceeds from the sale of the Notes of $990 million.

We may redeem some or all of the Notes at any time at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes redeemed and (ii) the sum of the present values of each remaining scheduled payment of principal and interest on the Notes redeemed discounted to the redemption date on a semiannual basis, plus accrued and unpaid interest on the principal amount of the Notes to the redemption date as described in the indenture (including the supplemental indenture) relating to the Notes. Furthermore, if a change of control triggering event occurs, unless we have previously exercised our option to redeem the Notes, we will be required to offer to purchase the Notes at a price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest to the purchase date.

The Notes are unsecured and unsubordinated obligations and rank equally with all of our other unsecured and unsubordinated debt. The Notes contain covenants that, among other things, limit our ability and the ability of our North American subsidiaries to incur debt secured by liens or to enter into sale and lease-back transactions.

Other

At the end of fiscal 2011, we had $170 million outstanding under financing lease obligations.

Share Repurchases and Dividends

From time to time, we repurchase our common stock in the open market pursuant to programs approved by our Board. We may repurchase our common stock for a variety of reasons, such as acquiring shares to offset dilution related to equity-based incentives, including stock options and our employee stock purchase plan, and optimizing our capital structure.

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In June 2007, our Board authorized up to $5.5 billion in share repurchases. The program, which became effective on June 26, 2007, terminated and replaced a $1.5 billion share repurchase program authorized by our Board in June 2006. There is no expiration date governing the period over which we can repurchase shares under the June 2007 program.

We repurchased and retired 32.6 million shares at a cost of $1.2 billion in fiscal 2011. We made no share repurchases in fiscal 2010 or 2009. At the end of fiscal 2011, $1.3 billion of the $5.5 billion share repurchase program authorized by our Board in June 2007 was available for future share repurchases.

We consider several factors in determining when to make share repurchases including, among other things, our cash needs, the availability of funding and the market price of our stock. We expect that cash provided by future operating activities, as well as available cash and cash equivalents and short-term investments, will be the sources of funding for our share repurchase program. Based on the anticipated amounts to be generated from those sources of funds in relation to the remaining authorization approved by our Board under the June 2007 share repurchase program, we do not expect that future share repurchases will have a material impact on our short-term or long-term liquidity.

In fiscal 2004, our Board initiated the payment of a regular quarterly cash dividend on our common stock. A quarterly cash dividend has been paid in each subsequent quarter. Effective with the quarterly cash dividend paid in the third quarter of fiscal 2009, we increased our quarterly cash dividend per share by 8% to $0.14 per share, and maintained our cash dividend at that rate for the balance of fiscal 2009 and throughout fiscal 2010. We increased our quarterly cash dividend per share by 7% to $0.15 per share effective with the quarterly cash dividend paid in the third quarter of fiscal 2011. The payment of cash dividends is subject to customary legal and contractual restrictions. During fiscal 2011, we made four cash dividend payments totaling $0.58 per share, or $237 million in the aggregate.

Other Financial Measures

Our debt to earnings ratio was 1.3 at the end of both fiscal 2011 and 2010. Our adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent ("EBITDAR") ratio, which includes capitalized operating lease obligations in its calculation, was 2.5 at the end of both fiscal 2011 and 2010, as an increase in operating lease obligations in fiscal 2011 was offset by an increase in the amount of depreciation and amortization (including impairments).

Our adjusted debt to EBITDAR ratio is considered a non-GAAP financial measure and should be considered in addition to, rather than as a substitute for, the most directly comparable ratio determined in accordance with accounting principles generally accepted in the U.S. ("GAAP"). We have included this information in our MD&A as we view the adjusted debt to EBITDAR ratio as an important indicator of our creditworthiness. Furthermore, we believe that our adjusted debt to EBITDAR ratio is important for understanding our financial position and provides meaningful additional information about our ability to service our long-term debt and other fixed obligations and to fund our future growth. We also believe our adjusted debt to EBITDAR ratio is relevant because it enables investors to compare our indebtedness to that of retailers who own, rather than lease, their stores. Our decision to own or lease real estate is based on an assessment of our financial liquidity, our capital structure, our desire to own or to lease the location, the owner's desire to own or to lease the location, and the alternative that results in the highest return to our shareholders.

Our adjusted debt to EBITDAR ratio is calculated as follows:

Adjusted debt to EBITDAR =   Adjusted debt

EBITDAR

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The most directly comparable GAAP financial measure to our adjusted debt to EBITDAR ratio is our debt to net earnings ratio, which excludes capitalized operating lease obligations from debt in the numerator of the calculation and does not adjust net earnings in the denominator of the calculation.

The following table presents a reconciliation of our debt to net earnings ratio to our adjusted debt to EBITDAR ratio ($ in millions):

 
  2011(1)
  2010(1)
 
   

Debt (including current portion)

  $ 1,709   $ 1,802  

Capitalized operating lease obligations (8 times rental expense)(2)

    9,271     9,013  
           

Adjusted debt

  $ 10,980   $ 10,815  
           

Net earnings including noncontrolling interests(3)

  $ 1,366   $ 1,394  

Interest expense, net

    36     40  

Income tax expense

    714     802  

Depreciation and amortization expense(4)

    1,145     930  

Rental expense

    1,159     1,127  
           

EBITDAR

  $ 4,420   $ 4,293  
           

Debt to net earnings ratio

    1.3     1.3  

Adjusted debt to EBITDAR ratio

    2.5     2.5  
(1)
Debt is reflected as of the balance sheet dates for each of the respective fiscal year-ends, while rental expense and the other components of EBITDAR represent activity for the 12 months ended as of each of the respective balance sheet dates.

(2)
The multiple of eight times annual rental expense in the calculation of our capitalized operating lease obligations is the multiple used for the retail sector by one of the nationally recognized credit rating agencies that rate our creditworthiness, and we consider it to be an appropriate multiple for our lease portfolio.

(3)
We utilize net earnings including noncontrolling interests within our calculation as such net earnings and related cash flows attributable to noncontrolling interests are available to service our debt and operating lease commitments.

(4)
Depreciation and amortization expense includes impairments of fixed assets, investments, goodwill and intangible assets (including impairments associated with our fiscal 2011 restructuring).

Off-Balance-Sheet Arrangements and Contractual Obligations

Other than operating leases, we do not have any off-balance-sheet financing. A summary of our operating lease obligations by fiscal year is included in the "Contractual Obligations" table below. Additional information regarding our operating leases is available in Item 2, Properties, and Note 9, 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.

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The following table presents information regarding our contractual obligations by fiscal year ($ in millions):

 
   
  Payments Due by Period  
Contractual Obligations
  Total
  Less Than
1 Year

  1-3 Years
  3-5 Years
  More Than
5 Years

 
   

Short-term debt obligations

  $ 557   $ 557   $   $   $  

Long-term debt obligations

    903     402     500         1  

Capital lease obligations

    79     14     27     20     18  

Financing lease obligations

    170     25     47     45     53  

Interest payments

    686     128     183     127     248  

Operating lease obligations(1)

    8,247     1,208     2,245     1,864     2,930  

Purchase obligations(2)

    1,989     1,135     446     393     15  

Unrecognized tax benefits(3)

    359                          

Deferred compensation(4)

    64                          
                       

Total

  $ 13,054   $ 3,469   $ 3,448   $ 2,449   $ 3,265  
                       

Note: For additional information refer to Note 6, Debt; Note 9, Leases; Note 11, Income Taxes and Note 13, Contingencies and Commitments, in the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

(1)
Operating lease obligations do not include payments to landlords covering real estate taxes and common area maintenance. These charges, if included, would increase total operating lease obligations by $2.2 billion at February 26, 2011.

(2)
Purchase obligations include agreements to purchase goods or services that are enforceable, are legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include agreements that are cancelable without penalty. Additionally, although they are not legally binding agreements, we included open purchase orders in the table above. Substantially all open purchase orders are fulfilled within 30 days.

(3)
Unrecognized tax benefits relate to uncertain tax positions recorded under accounting guidance that we adopted on March 4, 2007. As we are not able to reasonably estimate the timing of the payments or the amount by which the liability will increase or decrease over time, the related balances have not been reflected in the "Payments Due by Period" section of the table.

(4)
Included in other long-term liabilities on our consolidated balance sheet at February 26, 2011, was a $64 million obligation for deferred compensation. As the specific payment dates for the deferred compensation are unknown, the related balances have not been reflected in the "Payments Due by Period" section of the table.

Additionally, we have $2.5 billion in undrawn capacity on our credit facilities at February 26, 2011, which if drawn upon, would be included as liabilities in our consolidated balance sheets.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies, 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 believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board.

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Description
  Judgments and Uncertainties
  Effect if Actual Results Differ From Assumptions
 

 

 

 

 

 
Inventory        

We value our inventory at the lower of the cost or market through the establishment of markdown and inventory loss adjustments.

Our inventory valuation reflects markdowns for the excess of the cost over the amount we expect to realize from the ultimate sale or other disposal of the inventory. Markdowns establish a new cost basis for our inventory. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis.

Our inventory valuation also reflects adjustments for anticipated physical inventory losses (e.g., theft) that have occurred since the last physical inventory. Physical inventory counts are taken on a regular basis to ensure that the inventory reported in our consolidated financial statements is properly stated.

 

Our markdown adjustment contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding inventory aging, forecasted consumer demand, the promotional environment and technological obsolescence.

Our inventory loss adjustment contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding a number of factors, including historical results and current inventory loss trends.

 

We have not made any material changes in the accounting methodology we use to establish our markdown or inventory loss adjustments during the past three fiscal years.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our markdowns. However, if estimates regarding consumer demand are inaccurate or changes in technology affect demand for certain products in an unforeseen manner, we may be exposed to losses or gains that could be material. A 10% difference in our actual markdowns at February 26, 2011, would have affected net earnings by approximately $12 million in fiscal 2011.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory loss adjustment. However, if our estimates regarding physical inventory losses are inaccurate, we may be exposed to losses or gains that could be material. A 10% difference in actual physical inventory loss adjustments at February 26, 2011, would have affected net earnings by approximately $6 million in fiscal 2011.

Vendor Allowances

 

 

 

 

We receive funds from vendors for various programs, primarily as reimbursements for costs such as markdowns, margin protection, advertising and sales incentives.

Vendor allowances provided as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor's products are included as an expense reduction when the cost is incurred. All other vendor allowances are generally in the form of receipt-based funds or sell-through credits. Receipt-based funds are generally determined based on our level of inventory purchases and initially deferred and recorded as a reduction of merchandise inventories. The deferred amounts are then included as a reduction of cost of goods sold when the related product is sold. Sell-through credits are generally based on the number of units we sell over a specified period and are recognized when the related product is sold.

 

Based on the provisions of our vendor agreements, we develop vendor fund accrual rates by estimating the point at which we will have completed our performance under the agreement and the deferred amounts will be earned. During the year, due to the complexity and diversity of the individual vendor agreements, we perform analyses and review historical trends to ensure the deferred amounts earned are appropriately recorded. As a part of these analyses, we apply rates negotiated with our vendors to actual purchase volumes to determine the amount of funds accrued and receivable from the vendor. Certain of our vendor agreements contain purchase volume incentives that provide for increased funding when graduated purchase volumes are met. Amounts accrued throughout the year could be impacted if actual purchase volumes differ from projected annual purchase volumes.

 

We have not made any material changes in the accounting methodology we use to record different forms of vendor allowances or vendor receivables during the past three fiscal years.

If actual results are not consistent with the assumptions and estimates used, we may be exposed to additional adjustments that could materially, either positively or negatively, impact our gross profit rate and inventory. However, substantially all receivables associated with these activities are collected within the following fiscal year and all amounts deferred against inventory turnover within the following fiscal year and therefore do not require subjective long-term estimates. Adjustments to our gross profit rate and inventory in the following fiscal year have historically not been material.

A 10% difference in our vendor receivables at February 26, 2011, would have affected net earnings by approximately $22 million in fiscal 2011.

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Description
  Judgments and Uncertainties
  Effect if Actual Results Differ From Assumptions
 

 

 

 

 

 

Long-Lived Assets

 

 

 

 

Long-lived assets other than goodwill and indefinite-lived intangible assets, which are separately tested for impairment, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset's estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset's estimated fair value, which may be based on estimated future cash flows (discounted and with interest charges). We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset.

 

Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.

 

We have not made any material changes in the accounting methodology we use to assess impairment loss during the past three fiscal years.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.

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Description
  Judgments and Uncertainties
  Effect if Actual Results Differ From Assumptions
 

 

 

 

 

 

Goodwill and Intangible Assets

 

 

 

 

We evaluate goodwill and other indefinite-lived intangible assets for impairment annually in the fiscal fourth quarter and whenever events or changes in circumstances indicate their carrying value may not be recoverable.

We test for goodwill impairment at the reporting unit level, which is at the operating segment level or one level below the operating segment. Our impairment evaluation involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value.

 

We carry forward the detailed determination of the fair value of a reporting unit in our annual goodwill impairment analysis if three criteria are met: (1) the assets and liabilities that make up the reporting unit have not changed significantly since the most recent fair value determination; (2) the most recent fair value determination resulted in an amount that exceeded the carrying amount of the reporting unit by a substantial margin; and (3) based on an analysis of events that have occurred since the most recent fair value determination, the likelihood that a current fair value determination would be less than the current carrying amount of the reporting unit is remote. For all other reporting units, we perform a detailed determination of fair value of the reporting unit.

Our detailed impairment analysis involves the use of a discounted cash flow model. Significant management judgment is necessary to evaluate the impact of operating and macroeconomic changes on each reporting unit. Critical assumptions include projected comparable store sales growth, store count, gross profit rates, SG&A rates, working capital fluctuations, capital expenditures and terminal growth rates, as well as an appropriate discount rate. We determine discount rates separately for each reporting unit using the capital asset pricing model. For fiscal 2011, such discount rates ranged from 8.5% to 12.5%. We also use comparable market earnings multiple data and our company's market capitalization to corroborate our reporting unit valuations.

These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies. It is our policy to conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as our future expectations.

 

We have not made any material changes in the accounting methodology we use to assess impairment loss on goodwill and other intangible assets during the past three fiscal years.

The carrying values of goodwill and indefinite-lived intangible assets at February 26, 2011, were $2.5 billion and $105 million, respectively.

In fiscal 2011, we identified no goodwill impairments. We determined that the excess of fair value over carrying value for each of our reporting units was substantial.

As part of our fiscal 2011 restructuring, we recorded an impairment charge of $10 million related to certain indefinite-lived tradenames in our Domestic segment

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill and other intangible assets. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.

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Description
  Judgments and Uncertainties
  Effect if Actual Results Differ From Assumptions
 

 

 

 

 

 

Tax Contingencies

 

 

 

 

Our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various tax authorities. In evaluating the exposures associated with our various tax filing positions, we record a liability for such exposures. A number of years may elapse before a particular matter, for which we have established a liability, is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.

 

Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions.

Our effective income tax rate is also affected by changes in tax law, the tax jurisdiction of new stores or business ventures, the level of earnings and the results of tax audits.

 

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.

To the extent we prevail in matters for which a liability has been established, or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution.

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Description
  Judgments and Uncertainties
  Effect if Actual Results Differ From Assumptions
 

 

 

 

 

 

Revenue Recognition

 

 

 

 

See Note 1, Summary of Significant Accounting Policies, to the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for a complete discussion of our revenue recognition policies.

We recognize revenue, net of estimated returns, at the time the customer takes possession of the merchandise or receives services. We estimate the liability for sales returns based on our historical return levels.

We record an allowance for doubtful accounts receivable for amounts due from third parties that we do not expect to collect. We estimate the allowance based on historical write offs and chargebacks as well as aging trends.

We sell gift cards to customers in our retail stores, through our Web sites and through selected third parties. A liability is initially established for the cash value of the gift card. We recognize revenue from gift cards when: (i) the card is redeemed by the customer; or (ii) the likelihood of the gift card being redeemed by the customer is remote ("gift card breakage"). We determine our gift card breakage rate based upon historical redemption patterns, which show that after 24 months, we can determine the portion of the liability for which redemption is remote.

We have customer loyalty programs which allow members to earn points for each purchase completed at any of our Best Buy branded stores, or through our related Web sites or when using our co-branded credit cards in the U.S. and Canada. Points earned enable members to receive a certificate that may be redeemed on future purchases at Best Buy branded stores and Web sites. The value of points earned by our loyalty program members is included in accrued liabilities and recorded as a reduction in revenue at the time the points are earned, based on the value of points that are projected to be redeemed.

 

Our revenue recognition accounting methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the amount and timing of future sales returns, uncollectible accounts and redemptions of gift cards and certificates. Our estimate of the amount and timing of sales returns, uncollectible accounts and redemptions of gift cards and certificates is based primarily on historical transaction experience.

 

We have not made any material changes in the accounting methodology we use to measure sales returns or doubtful accounts or to recognize revenue for our gift card and customer loyalty programs during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to measure sales returns and doubtful accounts or to recognize revenue for our gift card and customer loyalty programs. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

A 10% change in our sales return reserve at February 26, 2011, would have affected net earnings by approximately $1 million in fiscal 2011.

A 10% change in our allowance for doubtful accounts receivable at February 26, 2011, would have affected net earnings by approximately $8 million in fiscal 2011.

A 10% change in our gift card breakage rate at February 26, 2011, would have affected net earnings by approximately $14 million in fiscal 2011.

A 10% change in our customer loyalty program liability at February 26, 2011, would have affected net earnings by approximately $6 million in fiscal 2011.

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Description
  Judgments and Uncertainties
  Effect if Actual Results Differ From Assumptions
 

 

 

 

 

 

Costs Associated With Exit Activities

 

 

 

 

We occasionally vacate stores and other locations prior to the expiration of the related lease. For vacated locations with remaining lease commitments, we record an expense for the difference between the present value of our future lease payments and related costs (e.g., real estate taxes and common area maintenance) from the date of closure through the end of the remaining lease term, net of expected future sublease rental income.

Our estimate of future cash flows is based on historical experience; our analysis of the specific real estate market, including input from independent real estate firms; and economic conditions that can be difficult to predict. Cash flows are discounted using a risk-free interest rate that coincides with the remaining lease term.

 

The liability recorded for location closures contains uncertainties because management is required to make assumptions and to apply judgment to estimate the duration of future vacancy periods, the amount and timing of future settlement payments, and the amount and timing of potential sublease rental income. When making these assumptions, management considers a number of factors, including historical settlement experience, the owner of the property, the location and condition of the property, the terms of the underlying lease, the specific marketplace demand and general economic conditions.

 

We have not made any material changes in the accounting methodology we use to establish our location closing liability during the past three fiscal years.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our location closing liability. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

A 10% change in our location closing liability at February 26, 2011, would have affected net earnings by approximately $5 million in fiscal 2011.

Stock-Based Compensation

 

 

 

 

We have a stock-based compensation plan, which includes non-qualified stock options and nonvested share awards, and an employee stock purchase plan. See Note 1, Summary of Significant Accounting Policies, and Note 8, Shareholders' Equity, to the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for a complete discussion of our stock-based compensation programs.

We determine the fair value of our non-qualified stock option awards at the date of grant using option-pricing models. Non-qualified stock option awards are primarily valued using a lattice model.

We determine the fair value of our market-based and performance-based nonvested share awards at the date of grant using generally accepted valuation techniques and the closing market price of our stock.

Management reviews its assumptions and the valuations provided by independent third-party valuation advisors to determine the fair value of stock-based compensation awards.

 

Option-pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating the future volatility of our stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors. Changes in these assumptions can materially affect the fair value estimate.

Performance-based nonvested share awards require management to make assumptions regarding the likelihood of achieving company or personal performance goals.

 

We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that could be material.

If actual results are not consistent with the assumptions used, the stock-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the stock-based compensation.

A 10% change in our stock-based compensation expense for the year ended February 26, 2011, would have affected net earnings by approximately $7 million in fiscal 2011.

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Description
  Judgments and Uncertainties
  Effect if Actual Results Differ From Assumptions
 

 

 

 

 

 

Self-Insured Liabilities

 

 

 

 

We are self-insured for certain losses related to health, workers' compensation and general liability claims, as well as customer warranty and insurance programs, although we obtain third party insurance coverage to limit our exposure to these claims. We maintain wholly-owned insurance captives to manage a portion of these self-insured liabilities.

When estimating our self-insured liabilities, we consider a number of factors, including historical claims experience, demographic factors, severity factors and valuations provided by independent third-party actuaries.

Periodically, we review our assumptions and the valuations provided by independent third-party actuaries to determine the adequacy of our self-insured liabilities.

 

Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported at the balance sheet date.

 

We have not made any material changes in the accounting methodology we use to establish our self-insured liabilities during the past three fiscal years.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our self-insured liabilities. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

A 10% change in our self-insured liabilities at February 26, 2011, would have affected net earnings by approximately $8 million in fiscal 2011.

Acquisitions — Purchase Price Allocation

 

 

In accordance with accounting guidance for business combinations, we allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. Noncontrolling interests' proportionate ownership of assets and liabilities are recorded at historical carrying values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill.

We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets such as tradenames and any other significant assets or liabilities. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date as we obtain more information regarding asset valuations and liabilities assumed.

 

Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.

 

During the last three fiscal years, we completed three significant acquisitions:

    •  In February 2009, we acquired the remaining 25% interest in Five Star for $196 million, after having acquired a 75% interest in Five Star in June 2006.


    •  In October 2008, we acquired Napster for $122 million, including transaction costs.


    •  In June 2008, we acquired a 50% interest in Best Buy Europe for $2.2 billion, including transaction costs.


See Note 2, Acquisitions, to the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for the final purchase price allocations completed in fiscal 2010 for such acquisitions.

New Accounting Standards

Consolidation of Variable Interest Entities — In June 2009, the Financial Accounting Standards Board ("FASB") issued new guidance on the treatment of a consolidation of variable interest entities ("VIE") in response to concerns about the application of certain key provisions of pre-existing guidance, including those regarding the transparency of an involvement with a VIE. Specifically, this new guidance requires a qualitative approach to identifying a controlling financial interest in a VIE and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. In addition, this new guidance requires additional disclosures about an involvement with a VIE and any significant changes in risk exposure due to that involvement. This new guidance is effective for fiscal years beginning after November 15, 2009. As such, we adopted the new guidance on February 28, 2010 and determined that it did not have an impact on our consolidated financial position or results of operations.

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Transfers of Financial Assets — In June 2009, the FASB issued new guidance on the treatment of transfers of financial assets which eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity's continuing involvement in and exposure to the risks related to transferred financial assets. This new guidance is effective for fiscal years beginning after November 15, 2009. As such, we adopted the new guidance on February 28, 2010 and determined that it did not have an impact on our consolidated financial position or results of operations.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

In addition to the risks inherent in our operations, we are exposed to certain market risks, including adverse changes in foreign currency exchange rates and interest rates.

Foreign Currency Exchange Rate Risk

We have market risk arising from changes in foreign currency exchange rates related to our International segment operations. On a limited basis, we use forward foreign exchange contracts to hedge the impact of fluctuations in foreign currency exchange rates. Our Canada and Europe businesses enter into the contracts primarily to hedge certain non-functional currency transaction exposures.

The aggregate notional amount related to our foreign exchange forward contracts outstanding at February 26, 2011, and February 27, 2010, was $757 million and $1.1 billion, respectively. The fair value recorded on our consolidated balance sheet related to our foreign exchange forward contracts outstanding at February 26, 2011, and February 27, 2010, was $(1) million and $4 million, respectively. The amount recorded in our consolidated statement of net earnings related to all contracts settled and outstanding was a gain of $24 million in fiscal 2011, and a loss of $1 million in fiscal 2010.

The overall weakness of the U.S. dollar compared to the Canadian dollar since the end of fiscal 2010 has had a positive overall impact on our revenue and net earnings as the foreign denominations translated into more U.S. dollars. However, the strength of the U.S. dollar compared to the U.K. pound has had a negative overall impact on our revenue. It is not possible to determine the exact impact of foreign currency exchange rate fluctuations; however, the effect on reported revenue and net earnings can be estimated. We estimate that foreign currency exchange rate fluctuations had a net favorable impact on our revenue and net earnings in fiscal 2011 of approximately $297 million and $6 million, respectively. Similarly, we estimate that the overall weakness of the U.S. dollar had a favorable impact on our revenue and net earnings in fiscal 2010 of approximately $41 million and $12 million, respectively.

Interest Rate Risk

Short- and long-term debt

At February 26, 2011, our short- and long-term debt was comprised primarily of credit facilities, our convertible debentures and our 2013 Notes. We do not manage the interest rate risk on our debt through the use of derivative instruments.

Our credit facilities' interest rates may be reset due to fluctuations in a market-based index, such as the federal funds rate, LIBOR, or the base rate or prime rate of our lenders. A hypothetical 100-basis-point change in the interest rates on the outstanding balance of our credit facilities at February 26, 2011, and February 27, 2010, would change our annual pre-tax earnings by $6 million and $7 million, respectively.

There is no interest rate risk associated with our convertible debentures or 2013 Notes, as the interest rates are fixed at 2.25% and 6.75%, respectively, per annum.

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Long-term investments in debt securities

At February 26, 2011, our long-term investments in debt securities were comprised of ARS. These investments are not subject to material interest rate risk. A hypothetical 100-basis-point change in the interest rate on such investments at February 26, 2011, and February 27, 2010, would change our annual pre-tax earnings by $1 million and $3 million, respectively. We do not manage interest rate risk on our investments in debt securities through the use of derivative instruments.

Other Market Risks

Investments in auction rate securities

At February 26, 2011, we held $110 million in investments in ARS, which includes a $5 million pre-tax temporary impairment, compared to $280 million in investments in ARS and a $5 million pre-tax temporary impairment at February 27, 2010. Given current conditions in the ARS market as described above in the Liquidity and Capital Resources section, included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K, we may incur additional temporary unrealized losses or other-than-temporary realized losses in the future if market conditions were to persist and we were unable to recover the cost of our ARS investments. A hypothetical 100-basis-point loss from the par value of these investments at February 26, 2011, and February 27, 2010, would result in an impairment of $1 million and $3 million, respectively.


Item 8. Financial Statements and Supplementary Data.

Management's Report on the Consolidated Financial Statements

Our management is responsible for the preparation, integrity and objectivity of the accompanying consolidated financial statements and the related financial information. The consolidated financial statements have been prepared in conformity with GAAP and necessarily include certain amounts that are based on estimates and informed judgments. Our management also prepared the related financial information included in this Annual Report on Form 10-K and is responsible for its accuracy and consistency with the consolidated financial statements.

The accompanying consolidated financial statements have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, which conducted its audits in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). The independent registered public accounting firm's responsibility is to express an opinion as to the fairness with which such financial statements present our financial position, results of operations and cash flows in accordance with GAAP.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed under the supervision of our principal executive officer and principal financial officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that:

(1)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets;

(2)
Provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Board; and

(3)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of February 26, 2011, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on our assessment, we have concluded that our internal control over financial reporting was effective as of February 26, 2011. During our assessment, we did not identify any material weaknesses in our internal control over financial reporting. Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements for the year ended February 26, 2011, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, has issued an unqualified attestation report on our internal control over financial reporting as of February 26, 2011.

SIGNATURE   SIGNATURE
Brian J. Dunn
Chief Executive Officer
(duly authorized and principal executive officer)
  James L. Muehlbauer
Executive Vice President — Finance
and Chief Financial Officer
(duly authorized and principal financial officer)

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
Best Buy Co., Inc.:

We have audited the accompanying consolidated balance sheets of Best Buy Co., Inc. and subsidiaries (the "Company") as of February 26, 2011 and February 27, 2010, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for the each of the three years in the period ended February 26, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Best Buy Co., Inc. and subsidiaries as of February 26, 2011 and February 27, 2010, and the results of their operations and their cash flows for each of the three years in the period ended February 26, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, during the year ended February 27, 2010, the Company changed its method of accounting for noncontrolling interests for all periods presented with the adoption of Financial Accounting Standards Board Accounting Standards Codification 810, Consolidation.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of February 26, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 25, 2011, expressed an unqualified opinion on the Company's internal control over financial reporting.

SIGNATURE

Minneapolis, Minnesota
April 25, 2011

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
Best Buy Co., Inc.:

We have audited the internal control over financial reporting of Best Buy Co., Inc. and subsidiaries (the "Company") as of February 26, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 26, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended February 26, 2011 of the Company and our report dated April 25, 2011 expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph relating to the Company's change in its method of accounting for noncontrolling interests with the adoption of Financial Accounting Standards Board Accounting Standards Codification 810, Consolidation.

SIGNATURE

Minneapolis, Minnesota
April 25, 2011

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Consolidated Balance Sheets

$ in millions, except per share and share amounts

 
  February 26, 2011
  February 27, 2010
 
   

Assets

             

Current Assets

             
 

Cash and cash equivalents

  $ 1,103   $ 1,826  
 

Short-term investments

    22     90  
 

Receivables