Edgar Filing: BEST BUY CO INC

BBY-2014-10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________________________

FORM 10-K

(Mark One)



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

For the fiscal year ended February 1, 2014



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

________________________________

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. x 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 x 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. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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). x 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. x

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 x	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 x No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of August 3, 2013, was approximately $6.5 billion, computed by reference to the price of $31.30 per share, the price at which the common equity was last sold on August 3, 2013, 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 March 24, 2014, the registrant had 347,043,619 shares of its Common Stock issued and outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement dated on or about April 29, 2014 (to be filed pursuant to Regulation 14A within 120 days after the registrant's fiscal year-end of February 1, 2014), for the regular meeting of shareholders to be held on June 10, 2014 ("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," "assume," "believe," "estimate," "expect," "intend," "foresee," "outlook," "plan," "project," 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. Our forward-looking statements speak only as of the date of this report or as of the date they are made, and we undertake no obligation to update our forward-looking statements.

BEST BUY FISCAL 2014 FORM 10-K

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PART I		4
Item 1.	Business.	4
Item 1A.	Risk Factors.	8
Item 1B.	Unresolved Staff Comments.	15
Item 2.	Properties.	16
Item 3.	Legal Proceedings.	18
Item 4.	Mine Safety Disclosures.	18

PART II		21
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	21
Item 6.	Selected Financial Data.	23
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	51
Item 8.	Financial Statements and Supplementary Data.	53
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	98
Item 9A.	Controls and Procedures.	98
Item 9B.	Other Information.	98

PART III		99
Item 10.	Directors, Executive Officers and Corporate Governance.	99
Item 11.	Executive Compensation.	99
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	100
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	100
Item 14.	Principal Accounting Fees and Services.	100

PART IV		101
Item 15.	Exhibits, Financial Statement Schedules.	101
	Signatures	104

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PART I

Item 1. 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.

Description of Business

We were incorporated in the state of Minnesota in 1966 as Sound of Music, Inc. Today, we are a multi-national, multi-channel retailer of technology products, including tablets and computers, televisions, mobile phones, large and small appliances, entertainment products, digital imaging and related accessories. We also offer technology services – including technical support, repair and installation – under the Geek Squad brand. We operate e-commerce operations, retail stores and call centers and conduct operations under a variety of names, such as Best Buy (BestBuy.com, BestBuy.ca), Best Buy Mobile, Five Star, Future Shop (FutureShop.ca), Geek Squad, Magnolia Audio Video and Pacific Sales. References to our website addresses do not constitute incorporation by reference of the information contained on the websites.

Information About Our Segments and Geographic Areas

During fiscal 2014, 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 and Pacific Sales. We operate Best Buy Mobile stores-within-a-store and offer Geek Squad services in all of our U.S. Best Buy stores. In addition, we operate Magnolia Home Theater, Magnolia Design Center and Pacific Kitchen and Home store-within-a-store experiences in select U.S. Best Buy stores, which we believe further enhance the unique product offerings and high-touch customer service provided in the stand-alone stores.

On February 1, 2014, we sold mindSHIFT Technologies, Inc. (“mindSHIFT”). We had previously acquired mindSHIFT, a managed service provider for small and mid-sized businesses, in fiscal 2012.

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 China operations, operating under the brand names Five Star and Best Buy Mobile and (iii) all Mexico operations, operating under the brand names Best Buy, Best Buy Express and Geek Squad. We operate Best Buy Mobile store-within-a-store concepts in all Best Buy branded stores in Canada, as well as in select Five Star stores.

In fiscal 2009, we acquired a 50% controlling interest in Best Buy Europe Distributions Limited (“Best Buy Europe”), a venture with Carphone Warehouse Group plc (“CPW”). On June 26, 2013, we sold our 50% ownership interest in Best Buy Europe to CPW.

Financial information about our segments and 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.

Operations

Domestic Segment

Our Domestic segment is managed by a Domestic leadership team responsible for all areas of the business. The Domestic segment operates a multi-channel platform that provides customers the ability to shop when and where they want, including online and in our retail stores.

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Merchandise selection, pricing and promotions, procurement and supply chain, marketing and advertising, and labor deployment across all channels are centrally controlled at our corporate headquarters. In addition, support capabilities (e.g., human resources, finance and real estate management) are generally performed at our corporate headquarters. We also have field operations that support the store managers and retail store employees. Our retail stores have procedures for inventory management, transaction processing, customer relations, store administration, product sales and services, staff training and merchandise display that are largely standardized within each store brand. All stores within each store brand generally operate under standard procedures with a degree of flexibility for store management to address certain local market characteristics.

International Segment

Our International President is responsible for all areas of our International segment. Leaders of our International businesses report directly to the International President.

Our Canada store operations are similar to those in our Domestic segment, with centrally controlled advertising, merchandise purchasing and pricing, and inventory policies. In addition, corporate management performs support capabilities. Similar to our U.S. Best Buy stores, 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. The retail operations include two principal store brands. Future Shop stores have predominantly commissioned sales associates, whereas employees in Best Buy branded stores in Canada, like employees in U.S. Best Buy stores, are noncommissioned.

Our Five Star stores primarily utilize vendor employees and full-time sales associates to sell our products. Corporate retail management generally controls advertising, merchandise purchasing and pricing, and inventory policies, although management for individual regions within our Five Star brand may vary these operations to adapt to local customer needs.

Our stores in Mexico employ an operating model similar to that used in our U.S. Best Buy stores.

Merchandise and Services

Domestic Segment

Our online channel and U.S. retail stores have offerings in six revenue categories: Consumer Electronics, Computing and Mobile Phones, Entertainment, Appliances, Services and Other. Consumer Electronics consists primarily of television and home theater; digital cameras and camcorders; DVD and Blu-ray players; portable electronics such as MP3 devices, headphones and speakers, car stereo, navigation and satellite radio; and all related accessories. The Computing and Mobile Phones revenue category includes notebook and desktop computers, tablets and e-Readers, mobile phones and related subscription service commissions, and all related accessories. The Entertainment revenue category includes video gaming hardware and software, DVDs, Blu-rays, CDs, digital downloads and computer software. The Appliances revenue category includes both large and small appliances and kitchen and bath fixtures, including faucets, sinks, toilets and bathtubs. The Services revenue category consists primarily of extended warranty service contracts, technical support, product repair, delivery and installation. The Other revenue category includes non-core offerings such as snacks and beverages. The merchandise and service offerings vary across our stand-alone store portfolio, with U.S. Best Buy Mobile, Magnolia Audio Video and Pacific Sales stores offering a more focused assortment.

International Segment

In Canada, the Future Shop and Best Buy branded stores have offerings in Consumer Electronics, Computing and Mobile Phones, Entertainment, Services and Other, and at Future Shop only, Appliances. Although Future Shop and Best Buy branded stores in Canada offer similar products, there are differences in brands and depth of selection. Further, Geek Squad services are only available in the Best Buy branded stores, with Future Shop's service offerings branded as Connect Pro.

In China, our Five Star stores have offerings in four revenue categories: Appliances, Consumer Electronics, Computing and Mobile Phones and Services. The products and services in these revenue categories are similar to those of our Domestic segment.

Our stores in Mexico have offerings in six revenue categories: Consumer Electronics, Computing and Mobile Phones, Entertainment, Appliances, Services and Other, with products and services similar to those of our Domestic segment.

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Distribution

Domestic Segment

U.S. Best Buy online merchandise sales generally are either picked up at U.S. Best Buy stores or delivered directly to customers from a distribution center or, beginning in the fourth quarter of fiscal 2014, a retail store. The ship-from-store capability allows us to improve product availability and delivery times for customers. Most merchandise for our U.S. Best Buy, U.S. Best Buy Mobile, Magnolia Audio Video and Pacific Sales stores is shipped directly from manufacturers to our distribution centers or warehouses located throughout the U.S. In order to meet release dates for certain products, merchandise may be shipped directly to our stores from suppliers.

International Segment

Our Canada stores' merchandise is shipped directly from our suppliers to our Canadian distribution centers. In order to meet release dates for certain products, merchandise may also be shipped directly to our stores from suppliers.

We receive our Five Star stores' merchandise at distribution centers and warehouses, the largest of which is located in Nanjing, Jiangsu Province. Large merchandise, such as major appliances, is generally fulfilled directly to customers through our distribution centers and warehouses.

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

Suppliers and Inventory

Our Domestic and International segment purchase merchandise from a variety of suppliers. In fiscal 2014, our 20 largest suppliers accounted for approximately 70% of the merchandise we purchased, with 5 suppliers – Apple, Samsung, Hewlett-Packard, Sony and LG Electronics – representing approximately 45% of total merchandise purchased. We generally do not have long-term contracts with our major suppliers that would require them to continue supplying us with merchandise.

We carefully monitor and manage our inventory levels to match quantities on hand with consumer demand as closely as possible. Key elements to our inventory management process include the following: continuous monitoring of historical and projected consumer demand, continuous monitoring and adjustment of inventory receipt levels, agreements with vendors relating to reimbursement for the cost of markdowns or sales incentives, and agreements with vendors relating to return privileges for certain products.

We also have a global sourcing operation to design, develop, test and contract-manufacture our own line of exclusive brand products.

Store Development

Domestic Segment

During fiscal 2014, the number of stores we operated remained relatively flat, but we continued to evaluate how to best leverage our store portfolio. Most notably, we rolled out ship-from-store to more than 1,400 locations, opened 1,400 Samsung and 600 Windows stores-within-a-store, and completed the first phase of our store space optimization. In fiscal 2015, we will continue to evaluate our Domestic store portfolio, including renegotiating leases and selectively opening or closing locations, as needed, to support our ongoing transformation.

International Segment

In our International segment, we opened 13 new stores and closed 27 stores in fiscal 2014. Store openings were primarily driven by Best Buy Mobile stores in Canada and Best Buy stores in Mexico. Store closures were primarily driven by Five Star stores in China. In fiscal 2015, we expect to continue to review our portfolio of stores across all geographies.

Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for tables reconciling our Domestic and International segment stores open at the end of each of the last three fiscal years.

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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, Dynex, Five Star, Future Shop, Geek Squad, Init, Insignia, Magnolia, Pacific Sales, 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 websites.

Seasonality

Our business, like that of many retailers, is seasonal. A higher proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico.

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, for general corporate purposes and investment opportunities. Our working capital needs typically increase in the months leading up to the holiday shopping season as we purchase inventory in advance of expected sales.

Competition

Our competitors are primarily traditional store-based retailers, multi-channel retailers, internet-based businesses and vendors who offer their products directly to the consumer.

Some of our competitors have low cost operating structures and seek to compete for sales primarily on price. In addition, in the U.S., online-only operators are exempt from collecting sales taxes in certain states. We believe this advantage will continue to be eroded as sales tax rules are re-evaluated at both the state and federal levels. We carefully monitor pricing offered by other retailers and investing in price competitiveness is one of our ongoing priorities. In addition, we have a price-matching policy in the U.S. that allows customers to request that we match a price offered by certain retail store and online operators. In order to allow this, we are focused on maintaining efficient operations and leveraging the economies of scale available to us through our global vendor partnerships.

In addition to price, we believe our ability to deliver a high quality customer experience offers us a key competitive advantage. We believe our dedicated and knowledgeable people, integrated online and store channels, broad product assortment, range of focused service and support offerings, distinct store formats, brand marketing strategies and supply chain are important ways in which we maintain this advantage.

Environmental Matters

We are working to transform our company in many ways, including lessening our environmental impact. In the U.S., consumers recycle more electronics through Best Buy than any other retailer. We set a goal to collect one billion pounds of consumer electronics and appliances for recycling from June 2008 through December 2014. In fiscal 2014, we collected about 118 million pounds of consumer electronics and 112 million pounds of appliances, bringing our overall total to approximately 930 million pounds.

We offer a large selection of energy-efficient products to help customers save money by using less energy. Our U.S. Best Buy customers purchased more than 20 million ENERGY STAR® certified products in fiscal 2014 and realized utility bill savings of more than $76 million. This energy saving equates to over 1 billion pounds of CO₂ avoidance, or the equivalent of removing more than 98,000 cars from U.S. roads.

We are continuously working to make our stores and distribution centers more sustainable and to increase efficiency within our supply chain. In calendar 2010, we set a goal of reducing our absolute carbon emissions in North America by 20% by the year 2020 (over a 2009 baseline). During fiscal 2014, our retail stores, distribution centers and corporate offices reduced more than 15,000 metric tons of CO₂emissions through energy efficiency measures.

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We are not aware of any federal, state or local provisions that 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.

Number of Employees

At the end of fiscal 2014, we employed approximately 140,000 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.

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"). We make available, free of charge on our website, our Annual Reports 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 website at www.investors.bestbuy.com – select the "Financial Performance" link and then the "SEC Filings" link. In addition, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers, such as the Company, that file electronically with the SEC at www.sec.gov.

We also make available, free of charge on our website, our Amended and Restated By-laws, 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; and Nominating, Corporate Governance and Public Policy Committee. These documents are posted on our website at www.investors.bestbuy.com – select 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 at 7601 Penn Avenue South, Richfield, MN 55423-3645.

Item 1A. Risk Factors.

Described below are certain risks that we believe apply to our business and the industry in which we operate. You should carefully consider each of the following risk factors in conjunction with other information provided in this Annual Report on Form 10-K and in our other public disclosures. The risks described below highlight potential events, trends or other circumstances that could adversely affect our business, financial condition, results of operations, cash flows, liquidity or access to sources of financing, and consequently, the market value of our common stock and debt instruments. These risks could cause our future results to differ materially from historical results and from guidance we may provide regarding our expectations of future financial performance. The risks described below are not an exhaustive list of all the risks we face. There may be others that we have not identified or that we have deemed to be immaterial. All forward-looking statements made by us or on our behalf are qualified by the risks described below.

We face strong competition from traditional store-based retailers, multi-channel retailers, internet-based businesses, our vendors and other forms of retail commerce, which directly affects our sales and margins.

The retail business is highly competitive. Price is of primary importance to customers and price transparency and comparability continues to increase, particularly as a result of digital tools. We compete with many other local, regional, national and international retailers, as well as certain of our vendors who offer their products directly to consumers. Some of our competitors have greater market presence and financial resources than we do. The retail industry continues to experience a trend toward an increase in internet sales, and some internet-only businesses are not required to collect and remit sales taxes in all U.S. states, which can negatively impact the ability of store-based retailers to be price competitive. In addition, because our business strategy is based on offering superior levels of customer service utilizing a multi-channel platform, our cost structure is higher than some of our competitors. Changes in the levels of these various competitive factors may have a significant impact on consumer demand for our products and services and the margins we can generate from them.

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Failure to anticipate and respond to changing consumer preferences in a timely manner could result in a decline in our sales.

Our success depends on our vendors' and our ability to successfully introduce new products, services and technologies to consumers. The level of success we achieve is dependent on, among other factors, the frequency of product and service innovations, how accurately we predict consumer preferences, the level of consumer demand, the availability of merchandise, the related impact on the demand for existing products and the competitive environment. Consumers continue to have a wide variety of choices in terms of how and where they purchase the products and services we sell. Failure to accurately predict and adapt to constantly changing technology and consumer preferences, spending patterns and other lifestyle decisions, could have a material adverse effect on our revenues and results of operations.

Sustained or worsening economic pressures in the U.S. and key international markets could adversely affect consumer spending and our financial results.

For the past several years, we have experienced the impact of difficult and uncertain macroeconomic conditions in the geographic markets in which we operate. Some of our products and services are viewed by some consumers to be discretionary items rather than necessities. As a result, our results of operations are sensitive to changes in macroeconomic conditions that impact consumer spending. Consumer confidence, employment levels, interest rates, tax rates, availability of consumer financing, housing market conditions, and costs for items such as fuel, energy and food, can adversely affect consumers' demand for the products and services that we offer. Our future results could be significantly adversely impacted by these factors.

If we fail to attract, develop and retain qualified employees, including employees in key positions, our business and operating results may be harmed.

Our performance is highly dependent on attracting and retaining qualified employees, including our senior management team and other key employees. Our strategy of offering high quality services and assistance for our customers requires a highly trained and engaged workforce. The turnover rate in the retail industry is relatively high, and there is an ongoing need to recruit and train new store employees. Factors that affect our ability to maintain sufficient numbers of qualified employees include employee morale, our reputation, unemployment rates, competition from other employers and our ability to offer appropriate compensation packages. Our inability to recruit a sufficient number of qualified individuals or failure to retain key employees in the future may impair our efficiency and effectiveness and our ability to pursue growth opportunities. In addition, we have experienced a significant amount of turnover of senior management employees with specific knowledge relating to us, our operations and our industry, which turnover may negatively impact our operations.

Consumer demand for the products and services we sell could decline 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 are key to our success. The proliferation of web-based social media means that consumer feedback and other information about our company are shared with a broad audience in a manner that is easily accessible and rapidly disseminated. Damage to the perception or reputation of our brands could result in declines in customer loyalty, lower employee retention and productivity, vendor relationship issues, and other factors, all of which could materially affect our profitability.

Our success is dependent on the design and execution of appropriate business strategies.

Our success is dependent on our ability to identify, develop and execute appropriate strategies. Our current strategy includes transformational change to many areas of our business, including our online and in-store customer experience, expanding our distribution system by shipping to customers from our stores, employee training and engagement, partnership with our vendors, retail execution and cost control. Achieving the goals we have set in a timely manner will be challenging, and it is possible that our strategies may prove to be ineffective and that we may need to make substantial changes to them in future periods. It is also possible that we will be unsuccessful in executing our strategies, that the strategies we will implement expose us to additional risks or that strategies that have been successful in the past will fail to produce the desired results. Our results could be materially adversely affected if we fail to design and execute appropriate strategies. The market value of our common stock and debt instruments could be materially adversely affected if investors are uncertain about the appropriateness of our strategies or our ability to execute them.

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Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for further information regarding our strategies.

Failure to effectively manage our property portfolio may negatively impact our operating results.

As a multi-national retailer, effective management of our large property portfolio is critical to our success. We primarily secure properties through operating leases with third-party landlords. If we fail to negotiate appropriate terms for new leases we enter into, we may incur lease costs that are excessive and cause operating margins to be below acceptable levels. We may also make term commitments that are too long or too short, without the option to extend. The availability of suitable new property locations may also hinder our ability to maintain or grow our operations. Factors such as the condition of local property markets, availability of lease financing, taxes, zoning and environmental issues, and competitive actions may impact the availability for suitable property.

We have closed stores, and we may close additional stores or other facilities in the future. For leased property, the financial impact of exiting a property can vary greatly depending on, among other factors, the terms of the lease, the condition of the local property market, demand for the specific property, our relationship with the landlord and the availability of potential sub-lease tenants. It is difficult for us to influence some of these factors. If these factors are unfavorable to us, then the costs of exiting a property can be significant. When we enter into a contract with a tenant to sub-lease property, we remain at risk of default by the tenant and the impact of such defaults on our future results could be significant.

Failure to effectively manage our costs could have a material adverse effect on our profitability.

Certain elements of our cost structure are largely fixed in nature. Consumer spending remains uncertain, which makes it more challenging for us to maintain or increase our operating income. The competitiveness in our industry and increasing price transparency mean that the focus on achieving efficient operations is greater than ever. As a result, we must continuously focus on managing our cost structure. Failure to manage our labor and benefit rates, advertising and marketing expenses, operating leases, other store expenses or indirect spending could severely impair our ability to maintain our price competitiveness while achieving acceptable levels of profitability.

Our liquidity may be materially adversely affected by constraints in the capital markets or our vendor credit terms.

We need 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 business opportunities. The principal sources of our liquidity are funds generated from operating activities, available cash and liquid investments, credit facilities, other debt arrangements and trade payables. Our liquidity could be materially adversely impacted if our vendors reduce payment terms and/or impose tighter credit limits. If our sources of liquidity do not satisfy our requirements, we may need to seek additional financing. The future availability of financing will depend on a variety of factors, such as economic and market conditions, the regulatory environment for banks and other financial institutions, the availability of credit and our credit ratings, and our reputation with potential lenders. These factors could materially adversely affect our costs of borrowing and our ability to pursue growth opportunities, and threaten our ability to meet our obligations as they become due.

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

In fiscal 2014, Moody's Investors Service, Inc. maintained its long-term credit rating at Baa2, but revised its outlook from Developing to Negative. Fitch Ratings Ltd. and Standard & Poor's Ratings Services maintained their long-term credit ratings at BB- and BB, respectively, and each revised its outlook from Negative to Stable.

Future downgrades to our credit ratings and outlook could negatively impact our access to capital markets, the borrowing cost for future financings and the perception of our credit risk 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 change the ratings assigned to us due to developments that are beyond our control, including the introduction of new rating practices and methodologies.

Any downgrade may result in higher interest costs for certain of our credit facilities and could result in higher interest costs on future financings. In addition, downgrades may impact our ability to obtain adequate financing, including via trade payables with our vendors. Customers' inclination to shop with us or purchase gift cards or extended warranties may also be affected by the publicity associated with deterioration of our credit ratings.

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Failure to effectively manage strategic ventures or acquisitions could have a negative impact on our business.

From time to time, our strategy has involved, and may in the future involve, entering into new business ventures and strategic alliances, and making acquisitions. Assessing a potential opportunity can be based on assumptions that might not ultimately prove to be correct. In addition, the amount of information we can obtain about a potential 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. The success of these opportunities is also largely dependent on the current and future participation, working relationship and strategic vision of the business venture or strategic alliance partners, which can change following a transaction. Integrating new businesses, stores and concepts can be a difficult task. Cultural differences in some markets into which we may expand or into which we may introduce new retail concepts may not be as well received by customers as originally anticipated. These types of transactions may divert our capital and our management's attention from other business issues and opportunities and may also negatively impact our return on invested capital. Further, implementing strategic alliances or business ventures may also impair our relationships with our vendors or other 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 and deficiencies in information technology systems 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 confidentiality of our customers' data, including payment card information, could expose us to litigation costs and materially damage our standing with our customers.

The use and handling of personally identifiable data by our business, our business associates and third parties is regulated at the state, federal and international levels. We are also contractually obligated to comply with certain industry standards regarding payment card information. Increasing costs associated with information security, such as increased investment in technology, the costs of compliance 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 customer and other confidential information over public networks, including the use of cashless payments. While we take significant steps to protect this information, lapses in our controls or the intentional or negligent actions of employees, business associates or third parties may undermine our security measures. As a result, unauthorized parties may obtain access to our data systems and misappropriate customer and other confidential data. 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 customer personal data. Furthermore, because the methods used to obtain unauthorized access change frequently and may not be immediately detected, we may be unable to anticipate these methods or promptly implement preventative measures. Any such compromise of our security or the security of information residing with our business associates or third parties could have a material adverse effect on our reputation and may expose us to material costs, penalties and compensation claims. In addition, 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.

Our reliance on key vendors subjects us to various risks and uncertainties which could affect our operating results.

We source the products we sell from a wide variety of domestic and international vendors. In fiscal 2014, our 20 largest suppliers accounted for approximately 70% of the merchandise we purchased, with 5 suppliers – Apple, Samsung, Hewlett-Packard, Sony and LG Electronics – representing approximately 45% of total merchandise purchased. We generally do not have long-term written contracts with our major suppliers that would require them to continue supplying us with merchandise. If there is a loss of or disruption in supply from any of our key vendors, if any of our key vendors fail to develop new technologies that consumers demand or if our vendors make changes that affect the timing of when customers are able to make purchases, our revenues and earnings may be materially adversely affected. In addition, the formation or strengthening of business partnerships between our vendors and our competitors could limit our access to merchandise.

We have internal standards that we require all of our vendors to meet. 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 financial results.

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Natural disasters, changes in climate and geo-political events could adversely affect our operating results.

The threat or occurrence of one or more natural disasters or other extreme weather events, whether as a result of climate change or otherwise, the threat or outbreak of terrorism, civil unrest or other hostilities or conflicts, could materially adversely affect our financial performance. These events may result in damage to or destruction or closure of, our stores, distribution centers and other properties. Such events can also adversely affect our work force and prevent employees and customers from reaching our stores and other properties, can modify consumer purchasing patterns and decrease disposable income, and can disrupt or disable portions of our supply chain and distribution network.

Our exclusive brands products are subject to several additional product, supply chain and legal risks that could affect our operating results.

Sales of our exclusive brands products, which primarily include Insignia, Dynex, Init, Platinum and Rocketfish branded products, represent an important component of our revenue. Most of these products are manufactured by contracted manufacturers 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 consumers for warranty replacements and repairs as a result of exclusive brand product defects, and our recourse to contracted manufacturers for such warranty liabilities may be limited in foreign jurisdictions;


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


•	We may experience disruptions in manufacturing or logistics due to inconsistent and unanticipated order patterns, our inability to develop long-term relationships with key factories or unforeseen natural disasters;


•	We may not be able to locate manufacturers that meet our internal standards, whether for new exclusive brand products or for migration of the manufacturing of products from an existing manufacturer;


•	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 or other intellectual property owners if we inadvertently infringe upon their patents or other intellectual property rights, or if we fail to pay royalties owed on our exclusive brand products;


•	We may be unable to obtain or adequately protect patents and other intellectual property rights on our exclusive brand products or manufacturing processes; and


•	Regulations regarding disclosure of efforts to identify the country of origin of “conflict minerals” in certain portions of our supply chain could increase the cost of doing business and, depending on the findings of our country of origin inquiry, could have an adverse effect on our reputation.

Maintaining consistent quality, availability and competitive pricing of our exclusive brands products helps us build and maintain customer loyalty, generate sales and achieve acceptable margins. Failure to maintain these factors could have a significant adverse impact on the demand for exclusive brand products and the margins we are able to generate from them.

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 environments expose 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, National Labor Relations Board rule changes, health care reform, data privacy and cyber-security rules, 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 an adverse impact on our costs and impair the viability of our operating model.

The National Labor Relations Board (“NLRB”) continually considers changes to labor regulations, many of which could significantly impact the nature of labor relations in the U.S. and how union organizing and union elections are conducted. The NLRB has stated it intends to attempt to make union organizing easier. The U.S. Department of Labor is considering new regulations requiring companies to publicly report the use and associated expense of external resources providing labor relations guidance and advice. As of February 1, 2014, none of our U.S. operations had employees represented by labor unions or working under collective bargaining agreements. Changes in labor-related statutes or regulations could increase the percentage of elections won by unions. If any segment of Best Buy’s operations became unionized, it could increase our costs of doing business and adversely affect our operations.

Additional legislation or regulatory activity could have a material adverse impact on our costs or disrupt our operations.

Environmental legislation or other regulatory changes could impose unexpected costs or impact us more directly than other companies due to our operations as a global retailer. Specifically, environmental legislation or international agreements affecting energy, carbon emissions, electronics recycling and water or product materials are continually being explored by governing bodies. Increasing energy and fuel costs, supply chain disruptions and other potential risks to our business, as well as any significant rulemaking or passage of any such legislation, could materially increase the cost to transport our goods and materially adversely affect our results of operations. New regulations governing consumer privacy and security, whether imposed as a result of increased cyber security risks or otherwise, could materially increase our compliance costs. Regulatory activity focused on the retail industry has increased in recent years, increasing the risk of fines and additional operational costs associated with compliance.

Economic, regulatory and other developments could adversely affect the profitability of our credit card arrangements and our promotional financing offerings and therefore our operating results.

We offer promotional financing through credit cards issued by a third-party bank that manages and directly extends credit to our customers. The cardholders can receive low- or no-interest promotional financing on qualifying purchases. Promotional financing credit card sales account for approximately 19% of our revenue in fiscal 2014. We view these arrangements as a way to generate incremental sales of products and services from customers who prefer the financing terms to other available forms of payment, and incremental income from the payments received from our banking partners. The profitability of our new credit card arrangement is more dependent on the performance of our credit card portfolio than our previous arrangement. Regulatory, legislative or economic factors could adversely affect the performance of the portfolio, and this may have a material adverse effect on our revenues and profitability.

In addition, continuing changes in the economic and regulatory environment in the banking industry may lead banks to re-evaluate their strategies, practices and terms, including, but not limited to, the extent to which consumer credit is granted and the strategic focus on the retail partner credit card business. Promotional financing volumes could be materially adversely affected in response to substantial changes to our credit card program, such as substantial modifications to the terms and provisions of the program, or substantial adjustments to approval rates or the types of financing offered to our customers.

Our international activities subject us to risks associated with the legislative, judicial, regulatory, political, accounting and economic factors specific to the countries or regions in which we operate.

We have a presence in various foreign countries, including Bermuda, Canada, China, Germany, Hong Kong, Japan, Luxembourg, Mexico, the Republic of Mauritius, the Netherlands, Taiwan, Turks and Caicos, and the U.K. During fiscal 2014, our International segment's operations generated 16% of our revenue. 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, foreign trade rules and monetary and fiscal policies (both of the U.S. and of other countries). In addition, foreign currency exchange rates and fluctuations may have an impact on our future revenues, earnings and cash flows from International operations, and could materially adversely affect our reported financial performance.

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Our International segment's operations face other risks as well, including the costs and difficulties of managing international operations, greater difficulty in enforcing intellectual property rights in countries other than the U.S., and potential adverse tax consequences. 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 complexity of operating in numerous sovereign jurisdictions due to differences in culture, laws and regulations. There is a heightened risk that we misjudge the response of consumers in foreign markets to our product and service assortments, marketing and promotional strategy and store and website designs, among other factors, and this could adversely impact the results of these operations and the viability of these ventures.

We rely heavily on our management information systems for our key business processes. Any failure or interruption in these systems could have a material adverse impact on our business.

The effective and efficient operation of our business is dependent on our management information systems. We rely heavily on our management information systems to manage all key aspects of our business, including demand forecasting, purchasing, supply chain management, point-of-sale processing, staff planning and deployment, website offerings, financial management and forecasting and safeguarding critical and sensitive information. The failure of our management information systems to perform as we anticipate, or to meet the continuously evolving needs of our business, could significantly disrupt our business and cause, for example, higher costs and lost revenues and could threaten our ability to remain in operation.

We rely on third-party vendors for certain aspects of our business operations.

We engage key third-party business partners to manage various functions of our business, including but not limited to, information technology, human resource operations, customer loyalty programs, promotional financing and customer loyalty credit cards, customer warranty and insurance programs. Any material disruption in our relationship with key third-party business partners or any disruption in the services or systems provided or managed by third parties could impact our revenues and cost structure and hinder our ability to continue operations, particularly if a disruption occurs during peak revenue periods.

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 shopping season.

Approximately one-third of our revenue and more than one-half of our net earnings have historically been generated in our fourth fiscal quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. Unexpected events or developments such as natural or man-made disasters, product sourcing issues, failure or interruption of management information systems, disruptions in services or systems provided or managed by third-party vendors or adverse economic conditions in our fourth fiscal quarter could have a material adverse effect on our annual results of operations.

Our revenues and margins are highly sensitive to developments in products and services.

The consumer electronics industry involves constant innovation and evolution of products and services offered to consumers. The following examples demonstrate the impact this can have on our business:


•	New product categories such as tablets and e-readers have grown rapidly and fundamentally changed the market for mobile computing devices; however, as products reach maturity and/or markets become saturated, demands levels can fall sharply;


•	Product convergence has significantly impacted the demand for some products; for example, the growth of increasingly sophisticated smartphones has reduced the demand for separate cameras, gaming systems, music players and GPS devices;


•	The timing of new product introductions and updates can have a dramatic impact on the timing of revenues; for example, the introduction of new gaming systems can produce high demand levels for hardware and the accompanying software, which may be followed by several years of decline in demand;


•	Delivery models for some products are affected by technological advances and new product innovations; for example, media such as music, video and gaming is increasingly transferring to digital delivery methods that may reduce the need for physical CD, DVD, Blu-ray and gaming products; and


•	Disruptions in the availability of content (such as sporting events or other broadcast programming) may influence the demand for hardware that our customers purchase to access such content, as well as the commission we receive from service providers.

Many of the factors described above are not controllable by us. The factors can have a material adverse impact on our relevance to the consumer and the demand for products and services we have traditionally offered. It is possible that these and similar changes could materially affect our revenues and profitability.

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Failure to meet the financial performance guidance or other forward-looking statements we have provided to the public could result in a decline in our stock price.

We may provide public guidance on our expected financial results for future periods. Although we believe that this guidance provides investors and analysts with a better understanding of management's expectations for the future and is useful to our stockholders and potential stockholders, such guidance is comprised of forward-looking statements subject to the risks and uncertainties described in this report and in our other public filings and public statements. Our actual results may not always be in line with or exceed the guidance we have provided. If our financial results for a particular period do not meet our guidance or the expectations of investment analysts or if we reduce our guidance for future periods, the market price of our common stock may decline.

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 2014:



	U.S. Best Buy Stores	U.S. Best Buy Mobile Stand-Alone Stores	Pacific Sales Stores	Magnolia Audio Video Stores
Alabama	15	6	—	—
Alaska	2	—	—	—
Arizona	24	2	—	—
Arkansas	9	5	—	—
California	119	30	30	2
Colorado	22	5	—	—
Connecticut	12	6	—	—
Delaware	4	1	—	—
District of Columbia	2	1	—	—
Florida	65	50	—	—
Georgia	28	10	—	—
Hawaii	2	—	—	—
Idaho	5	2	—	—
Illinois	51	16	—	—
Indiana	23	11	—	—
Iowa	13	1	—	—
Kansas	9	4	—	—
Kentucky	9	7	—	—
Louisiana	16	7	—	—
Maine	5	—	—	—
Maryland	23	13	—	—
Massachusetts	27	12	—	—
Michigan	34	11	—	—
Minnesota	23	15	—	—
Mississippi	9	2	—	—
Missouri	20	11	—	—
Montana	3	—	—	—
Nebraska	5	3	—	—
Nevada	10	4	—	—
New Hampshire	6	4	—	—
New Jersey	27	11	—	—
New Mexico	5	3	—	—
New York	54	15	—	—
North Carolina	32	15	—	—
North Dakota	4	1	—	—
Ohio	37	12	—	—
Oklahoma	13	4	—	—
Oregon	12	3	—	—
Pennsylvania	38	14	—	—
Puerto Rico	3	—	—	—
Rhode Island	1	—	—	—
South Carolina	15	4	—	—
South Dakota	2	1	—	—
Tennessee	16	9	—	—
Texas	108	40	—	—
Utah	10	—	—	—
Vermont	1	—	—	—
Virginia	34	11	—	—
Washington	19	12	—	2
West Virginia	5	—	—	—
Wisconsin	23	11	—	—
Wyoming	1	1	—	—
Total	1,055	406	30	4

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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 2014:



	U.S. Best Buy Stores	U.S. Best Buy Mobile Stand-Alone Stores	Pacific Sales Stores	Magnolia Audio Video Stores
Owned store locations	25	—	—	—
Owned buildings and leased land	37	—	—	—
Leased store locations	993	406	30	4
Square footage (in thousands)	40,640	588	772	51

The following table summarizes the location, ownership status and total square footage of space utilized for distribution centers, service centers and corporate offices of our Domestic segment at the end of fiscal 2014:



		Square Footage (in thousands)
	Location	Leased	Owned
Distribution centers	23 locations in 17 U.S. states	7,480	3,183
Geek Squad service center⁽¹⁾	Louisville, Kentucky	237	—
Principal corporate headquarters⁽²⁾	Richfield, Minnesota	—	1,452
Territory field offices	26 locations throughout the U.S.	154	—
Pacific Sales corporate office space	Torrance, 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 consists of four interconnected buildings. Certain vendors who provide us with a variety of corporate services occupy a portion of our principal corporate headquarters. We also sublease a portion of our principal corporate headquarters to third parties.

International Segment

The following table summarizes the location of our International segment stores at the end of fiscal 2014:



	Canada			China	Mexico
	Future Shop Stores	Best Buy Stores	Best Buy Mobile Stand-Alone Stores	Five Star Stores	Best Buy Stores	Best Buy Express Stores
Canada
Alberta	17	12	9	—	—	—
British Columbia	22	9	10	—	—	—
Manitoba	4	2	—	—	—	—
New Brunswick	3	—	—	—	—	—
Newfoundland	1	1	—	—	—	—
Nova Scotia	6	2	1	—	—	—
Ontario	53	33	30	—	—	—
Prince Edward Island	1	—	—	—	—	—
Quebec	27	11	6	—	—	—
Saskatchewan	3	2	—	—	—	—
China
Anhui	—	—	—	18	—	—
Henan	—	—	—	11	—	—
Jiangsu	—	—	—	121	—	—
Shandong	—	—	—	9	—	—
Sichuan	—	—	—	7	—	—
Yunnan	—	—	—	6	—	—
Zhejiang	—	—	—	17	—	—
Mexico
Estado de Mexico	—	—	—	—	3	—
Distrito Federal	—	—	—	—	7	1
Jalisco	—	—	—	—	4	—
Nuevo Leon	—	—	—	—	1	1
Michoacan	—	—	—	—	1	—
San Luis Potosi	—	—	—	—	1	—
Total	137	72	56	189	17	2

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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 2014:



	Canada			China	Mexico
	Future Shop Stores	Best Buy Stores	Best Buy Mobile Stand-Alone Stores	Five Star Stores	Best Buy Stores	Best Buy Express Stores
Owned store locations	—	3	—	7	—	—
Leased store locations	137	69	56	182	17	2
Square footage (in thousands)	3,609	2,293	52	6,236	678	4

The following table summarizes the location, ownership status and total square footage of space utilized for distribution centers and corporate offices of our International segment at the end of fiscal 2014:



		Square Footage (in thousands)			Square Footage (in thousands)
	Distribution Centers	Leased	Owned	Principal Corporate Offices	Leased	Owned
Canada	Brampton and Bolton, Ontario	1,685	—	Burnaby, British Columbia	141	—
	Vancouver, British Columbia	639	—
Five Star	Jiangsu Province, China	1,255	—	Nanjing, Jiangsu Province, China (corporate office)	23	46
	Throughout the Five Star retail chain	673	—	District offices throughout the Five Star retail chain	169	—
Mexico	Estado de Mexico, Mexico	89	—	Distrito Federal, Mexico	32	—

Exclusive Brands

We lease approximately 61,000 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. Additional information regarding our operating leases is available in Note 1, Summary of Significant Accounting Policies, 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.

Item 3. Legal Proceedings.

For a description of our legal proceedings, see 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.

Item 4. Mine Safety Disclosures.

Not applicable.

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Executive Officers of the Registrant

(As of March 24, 2014)



Name	Age	Position With the Company	Years With the Company
Hubert Joly	54	President and Chief Executive Officer	1
Sharon L. McCollam	51	Chief Administrative Officer and Chief Financial Officer	1
Shari L. Ballard	47	President, International and Chief Human Resources Officer	21
Jude C. Buckley	43	Chief Commercial Officer	7
R. Michael Mohan	46	Chief Merchandising Officer	10
Keith J. Nelsen	50	General Counsel and Secretary	8

Hubert Joly was appointed President and Chief Executive Officer and a Director in September 2012. Mr. Joly was previously the president and chief executive officer of Carlson, Inc., a worldwide hospitality and travel company based in Minneapolis, Minnesota, from 2008 until his current appointment. Prior to becoming chief executive officer of Carlson, Mr. Joly was president and chief executive officer of Carlson Wagonlit Travel, a business travel management company, from 2004 until 2008. He held several senior executive positions with Vivendi S.A., a French multinational media and telecommunications company, from 1999 to 2004. Prior to that time, Mr. Joly worked in the technology sector at Electronic Data Systems (now part of Hewlett-Packard Company) from 1996 to 1999, and at McKinsey & Company, Inc. from 1983 to 1996. Mr. Joly is currently a member of the board of directors of Ralph Lauren Corporation, a leader in the design, marketing and retailing of premier lifestyle products. He also serves on the board of directors for the Retail Industry Leaders Association, the board of trustees of the Minneapolis Institute of Arts and the executive committee of the Minnesota Business Partnership. Mr. Joly previously served as a director of Carlson, Inc.; chair of the board of directors of the Rezidor Hotel Group; chair of the board of directors of Carlson Wagonlit Travel; chair of the Travel Facilitation Sub-Committee of the U.S. Department of Commerce Travel and Tourism Advisory Board; on the executive committee of the World Travel and Tourism Council, and on the board of overseers of the Carlson School of Management.

Sharon L. McCollam was appointed Chief Administrative Officer and Chief Financial Officer in December 2012. In this role, she leads our finance, information technology, supply chain, logistics, real estate, procurement, enterprise fraud, internal audit, and growth initiative functions. Ms. McCollam was previously executive vice president, chief operating officer and chief financial officer of Williams-Sonoma Inc., a premier specialty retailer of home furnishings, from July 2006 until her retirement in March 2012. At Williams-Sonoma, she was responsible for the long-term strategic planning activities of the company and oversaw multiple key functions, including global finance, treasury, investor relations, information technology, real estate, store development, corporate operations and human resources. Ms. McCollam also held various executive leadership roles, including principal accounting officer, at Williams-Sonoma from March 2000 to July 2006. Prior to her time at Williams-Sonoma, Ms. McCollam served as chief financial officer of Dole Fresh Vegetables Inc. from 1996 to 2000 and in various other finance-related leadership positions at Dole Food Company Inc., a producer and marketer of fresh fruit and vegetables, from 1993 to 1996. Ms. McCollam serves as a member of the board of directors for Sutter Health, a nonprofit network of hospitals and doctors in Northern California; Art.com, an online specialty art retailer; and Privalia Venta Directa, s.a., a European e-commerce apparel retailer. Ms. McCollam previously served as a member of the board of directors of OfficeMax Incorporated, Williams-Sonoma and Del Monte Foods Company.

Shari L. Ballard was named President, International and Chief Human Resources Officer in 2013. She leads our international business and human resources function. Previously, she served as Executive Vice President and President, International from 2012 to 2013; as Executive Vice President, President – Americas from March 2010 to 2012; Executive Vice President – Retail Channel Management from 2007 to 2010; 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 Minneapolis Institute of Arts board of trustees and the University of Minnesota Foundation board of trustees. She also serves on the board of directors of the Delhaize Group, a Belgian international food retailer.

Jude C. Buckley was appointed our Chief Commercial Officer in January 2014. In this role, he oversees all of our marketing functions, including floor space optimization and promotions. He previously served as President, Mobility/Connectivity since June 2013 until his current appointment; Senior Vice President and General Manager, Connectivity Business Group from November 2012 to June 2013; Senior Vice President and Head Merchant, Best Buy Mobile from January 2010 to November 2012, and Vice President, Best Buy Mobile from July 2007 to December 2009. He joined Best Buy in 2007, coming from the

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Carphone Warehouse Group plc in Sweden, where he was a managing director for seven years. Prior to his service at Carphone Warehouse Group plc, he was a managing director with Mviva in London from 2000 to 2001, investment banker with Nomura International Investment Bank in London from 1997 to 1999, and a tax accountant in Brisbane, Australia with Bernays Brown Chartered Accountants from 1992 to 1997.

R. Michael “Mike” Mohan was appointed our Chief Merchandising Officer in January 2014. In this role, he manages the category management and merchandising functions for our U.S. business, including our category growth strategies, vendor relationships, private label business and assortment. Previously, Mr. Mohan served as President, Home since June 2013 until his current appointment; Senior Vice President, General Manager – Home Business Group from 2011 to June 2013; Senior Vice President, Home Theatre from 2008 to 2011; and Vice President, Home Entertainment from 2006 to 2008. Prior to joining Best Buy in 2004 as Vice President, Digital Imaging, Mr. Mohan was vice president and general merchandising manager for Good Guys, an audio/video specialty retailer in the western United States. Mr. Mohan also previously worked at Future Shop in Canada from 1988 to 1997, prior to our acquisition of the company, where he served in various merchandising roles. Mr. Mohan serves as a member of the board of directors for Consumer Electronics Association Board of Industry Leaders and was appointed as a trustee to Boys & Girls Club of America in March 2014.

Keith J. Nelsen has served as our General Counsel and Secretary since 2011. In this role, he manages our enterprise legal and risk management functions, as well as acts as Secretary to our Board of Directors. Previously, in addition to his current role, he also served as Chief Risk Officer from 2012 to 2013. He was appointed Executive Vice President, General Counsel in May 2011 and Secretary of the Company in June 2011 and served as Senior Vice President, Commercial and International General Counsel from 2008 until his current appointment. Mr. Nelsen joined Best Buy in 2006 as Vice President, Operations and International General Counsel. Prior to joining us, he worked at Danka Business Systems PLC, an office products supplier, from 1997 to 2006 and served in various roles, including chief administration officer and general counsel. Prior to his time at Danka, Mr. Nelsen held the role of vice president, legal from 1995 to 1997 at NordicTrack, Inc., a provider of leisure equipment products. Mr. Nelsen began his career in 1989 as a practicing attorney with Best and Flanagan, LLP, a law firm located in Minneapolis, Minnesota. Mr. Nelsen is a member of the board of directors of NuShoe, Inc., a privately held shoe repair facility in San Diego, California.

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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 and Dividends

Our common stock is traded on the New York Stock Exchange under the ticker symbol BBY. 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. Future dividend payments will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board. 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 and the dividends declared and paid during the periods indicated.



	Sales Price								Dividends Declared and Paid
	Fiscal 2014				Fiscal 2013 (11-month)				Fiscal Year
	High		Low		High		Low		2014		2013 (11-month)
First Quarter⁽¹⁾	$	26.92	$	13.83	$	27.95	$	20.78	$	0.17	$	0.16
Second Quarter	31.33		24.98		23.57		16.97		0.17		0.16
Third Quarter	43.85		30.16		21.60		14.62		0.17		0.17
Fourth Quarter	44.66		22.15		16.41		11.20		0.17		0.17


(1)	The first quarter of fiscal 2013 (11-month) included only two months (March 4, 2012 – May 5, 2012) as a result of the change in our fiscal year-end.

Holders

As of March 24, 2014, there were 3,051 holders of record of our common stock.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In June 2011, our Board authorized up to $5.0 billion of share repurchases, which became effective on June 21, 2011. There is no expiration date governing the period over which we can repurchase shares under the June 2011 program. We did not repurchase any shares during fiscal 2014. At the end of fiscal 2014, $4.0 billion of the $5.0 billion of share repurchases authorized by our Board in June 2011 was available for future share repurchases.

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 1, 2014.



Plan Category	Securities to Be Issued Upon Exercise of Outstanding Options and Rights (a)		Weighted Average Exercise Price per Share of Outstanding Options and Rights⁽¹⁾ (b)		Securities Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))⁽²⁾ (c)
Equity compensation plans approved by security holders	23,738,232	⁽³⁾	$	36.38	23,974,493


(1)	Includes weighted-average exercise price of outstanding stock options only.


(2)	Includes 4,907,102 shares of our common stock which have been reserved for issuance under our 2008 and 2003 Employee Stock Purchase Plans.


(3)	Includes grants of stock options and market-based and performance-based restricted stock under 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.

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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 27, 2009, the last trading day of fiscal 2009, 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



	FY09		FY10		FY11		FY12		FY13		FY14
Best Buy Co., Inc.	$	100.00	$	128.61	$	115.82	$	89.04	$	61.33	$	91.65
S&P 500	100.00		153.62		188.29		197.94		221.57		269.25
S&P Retailing Group	100.00		169.06		213.78		252.65		312.74		394.59


*	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



	12-Month			11-Month			12-Month
Fiscal Year	2014⁽¹⁾			2013⁽²⁾⁽³⁾			2012⁽²⁾⁽⁴⁾			2011⁽⁵⁾			2010⁽⁶⁾
Consolidated Statements of Earnings Data
Revenue	$	42,410		$	39,827		$	45,457		$	44,432		$	43,799
Operating income (loss)	1,140			(119		)	2,200			2,280			2,274
Net earnings (loss) from continuing operations	689			(467		)	1,424			1,465			1,409
Gain (loss) from discontinued operations	(166		)	47			(1,402		)	(99		)	(15		)
Net earnings (loss) including noncontrolling interests	523			(420		)	22			1,366			1,394
Net earnings (loss) attributable to Best Buy Co., Inc. shareholders	532			(441		)	(1,231		)	1,277			1,317
Per Share Data
Net earnings (loss) from continuing operations	$	1.98		$	(1.38	)	$	3.81		$	3.53		$	3.31
Net gain (loss) from discontinued operations	(0.45		)	0.08			(7.08		)	(0.45		)	(0.21		)
Net earnings (loss)	1.53			(1.30		)	(3.27		)	3.08			3.10
Cash dividends declared and paid	0.68			0.66			0.62			0.58			0.56
Common stock price:
High	44.66			27.95			33.22			48.83			45.55
Low	13.83			11.20			21.79			30.90			23.97
Operating Statistics
Comparable store sales gain (decline)⁽⁷⁾	(0.8		)%	(3.4		)%	(1.5		)%	(2.3		)%	0.6		%
Gross profit rate	22.8		%	23.3		%	24.2		%	24.6		%	23.7		%
Selling, general and administrative expenses rate	19.8		%	20.5		%	19.3		%	19.2		%	18.4		%
Operating income (loss) rate	2.7		%	(0.3		)%	4.8		%	5.1		%	5.2		%
Year-End Data
Current ratio⁽⁸⁾	1.4			1.1			1.2			1.2			1.2
Total assets	$	14,013		$	16,787		$	16,005		$	17,849		$	18,302
Debt, including current portion	1,657			2,296			2,208			1,709			1,802
Total equity	3,989			3,715			4,366			7,292			6,964
Number of stores
Domestic	1,495			1,503			1,447			1,317			1,190
International	473			487			468			399			375
Total	1,968			1,990			1,915			1,716			1,565
Retail square footage (000s)
Domestic	42,051			42,232			43,785			43,660			42,480
International	12,872			13,553			14,353			12,385			11,857
Total	54,923			55,785			58,138			56,045			54,337

(1)

Included within operating income (loss) and net earnings (loss) from continuing operations for fiscal 2014 is $159 million ($104 million net of taxes) of restructuring charges from continuing operations recorded in fiscal 2014 related to measures we took to restructure our business. Net earnings (loss) attributable to Best Buy Co., Inc. shareholders for fiscal 2014 includes restructuring charges (net of tax and noncontrolling interest) from continuing operations.

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(2)	Fiscal 2013 (11-month) included 48 weeks and fiscal 2012 included 53 weeks. All other periods presented included 52 weeks.

(3)

Included within our operating income (loss) and net earnings (loss) from continuing operations for fiscal 2013 (11-month) is $415 million ($268 million net of taxes) of restructuring charges from continuing operations recorded in fiscal 2013 (11-month) related to measures we took to restructure our business. Also included in net earnings (loss) from continuing operations for fiscal 2013 (11-month) is $821 million (net of taxes) of goodwill impairment charges primarily related to Best Buy Canada and Five Star. Included in gain (loss) from discontinued operations is $23 million (net of taxes) of restructuring charges primarily related to Best Buy Europe. Net earnings (loss) attributable to Best Buy Co., Inc. shareholders for fiscal 2013 (11-month) includes restructuring charges (net of tax and noncontrolling interest) from continuing operations and the net of tax goodwill impairment.

(4)

Included within our operating income (loss) and net earnings (loss) from continuing operations for fiscal 2012 is $48 million ($30 million net of taxes) of restructuring charges from continuing operations recorded in fiscal 2012 related to measures we took to restructure our business. Included in gain (loss) from discontinued operations is $194 million (net of taxes) of restructuring charges recorded in fiscal 2012 related to measures we took to restructure our business. Also included in gain (loss) from discontinued operations for fiscal 2012 is $1.2 billion (net of taxes) of goodwill impairment charges related to Best Buy Europe. Net earnings (loss) attributable to Best Buy Co., Inc. shareholders for fiscal 2012 includes restructuring charges (net of tax and noncontrolling interest) from both continuing and discontinued operations and the net of tax goodwill impairment, and excludes $1.3 billion in noncontrolling interest related to the agreement to buy out Carphone Warehouse Group plc's interest in the profit share-based management fee paid to Best Buy Europe pursuant to the 2007 Best Buy Mobile agreement (which represents earnings attributable to the noncontrolling interest).

(5)

Included within our operating income (loss) and net earnings (loss) from continuing operations for fiscal 2011 is $147 million ($93 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 rate of 0.3% of revenue for the fiscal year. Included in gain (loss) from discontinued operations is $54 million (net of taxes) of restructuring charges recorded in the fiscal fourth quarter related to measures we took to restructure our business. Net earnings (loss) attributable to Best Buy Co., Inc. shareholders for fiscal 2011 includes the net of tax impact of restructuring charges from both continuing and discontinued operations.

(6)

Included within our operating income (loss) and net earnings (loss) from continuing operations for fiscal 2010 is $26 million ($16 million net of tax) of restructuring charges related to measures we took to restructure our business. These charges resulted in a decrease in our operating income rate of 0.1% of revenue for the fiscal year. Included in gain (loss) from discontinued operations is $18 million (net of taxes) of restructuring charges related to measures we took to restructure our business. Net earnings (loss) attributable to Best Buy Co., Inc. shareholders for fiscal 2010 includes $25 million net of taxes and noncontrolling interest of restructuring charges from both continuing and discontinued operations.

(7)

Comparable store sales is a commonly used metric in the retail industry, which compares revenue for a particular period with the corresponding period in the prior year, excluding the impact of sales from new stores opened or closed stores. Our comparable store sales is comprised of revenue from stores operating for at least 14 full months, as well as revenue related to website and online sales, call centers and our other comparable sales channels. Revenue we earn from sales of merchandise to wholesalers or dealers is generally not included within our comparable store sales calculation. Relocated stores, as well as remodeled, expanded, and downsized stores closed more than 14 days, 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 calculation of comparable store sales excludes the impact of the extra week of revenue in the fourth quarter of fiscal 2012, as well as revenue from discontinued operations. 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.


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

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 six sections:


•	Overview


•	Business Strategy


•	Results of Operations


•	Liquidity and Capital Resources


•	Off-Balance-Sheet Arrangements and Contractual Obligations


•	Critical Accounting Estimates

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.

Overview

We are a multi-national, multi-channel retailer of technology products, including tablets and computers, televisions, mobile phones, large and small appliances, entertainment products, digital imaging, and related accessories. We also offer consumers technology services – including technical support, repair, troubleshooting and installation – under the Geek Squad brand. 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.

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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., Canada and Mexico. While consumers view some of the products and services we offer as essential, others are viewed as discretionary purchases. Consequently, our financial results are susceptible to changes in consumer confidence and other macroeconomic factors, including unemployment, consumer credit availability and the condition of the housing market. Additionally, there are other factors that directly impact our performance, such as product life-cycles (including the introduction and pace of adoption of new technology) and the competitive retail environment. As a result of these factors, predicting our future revenue and net earnings is difficult. However, we remain confident in our unique customer promise: (1) the latest devices and services, all in one place; (2) impartial and knowledgeable advice; (3) competitive prices; (4) the ability to shop when and where you want; and (5) support for the life of your products.

Throughout this MD&A, we refer to comparable store sales. Comparable store sales is a commonly used metric in the retail industry, which compares revenue for a particular period with the corresponding period in the prior year, excluding the impact of sales from new stores opened or closed stores. Our comparable store sales is comprised of revenue from stores operating for at least 14 full months, as well as revenue related to website and online sales, call centers and our other comparable sales channels. Revenue we earn from sales of merchandise to wholesalers or dealers is generally not included within our comparable store sales calculation. Relocated stores, as well as remodeled, expanded, and downsized stores closed more than 14 days, 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 calculation of comparable store sales excludes the impact of the extra week of revenue in the fourth quarter of fiscal 2012, as well as revenue from discontinued operations. 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 or the impact of foreign 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 to calculate the impact of changes in foreign currency exchange rates for all countries where the functional currency is not the U.S. dollar.

In our discussions of the operating results below, we sometimes refer to the impact of net new stores on our results of operations. The key factors that dictate the impact that the net new stores have on our operating results include: (i) store opening and closing decisions; (ii) the size and format of new stores, as we operate stores ranging from approximately 1,000 square feet to approximately 50,000 square feet; (iii) the length of time the stores were open during the period; and (iv) the overall success of new store launches.

This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), as well as certain non-GAAP financial measures such as adjusted operating income, adjusted net earnings from continuing operations, adjusted diluted earnings per share from continuing operations and adjusted debt to earnings before goodwill impairment, interest, income taxes, depreciation, amortization and rent ("EBITDAR") ratio. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.

We believe that the non-GAAP measures described above provide meaningful supplemental information to assist shareholders in understanding our financial results and assessing our prospects for future performance. Management believes adjusted operating income, adjusted net earnings from continuing operations and adjusted diluted earnings per share from continuing operations are important indicators of our operations because they exclude items that may not be indicative of, or are unrelated to, our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management makes standard adjustments for items such as restructuring charges, goodwill impairments, non-restructuring asset impairments and gains or losses on sales of investments, as well as adjustments for other items that may arise during the period and have a meaningful impact on comparability. To measure adjusted operating income, we removed the impact of restructuring charges, non-restructuring asset impairments, goodwill impairments and the impact of second quarter fiscal 2014 LCD-related legal settlements from our calculation of operating income. Adjusted net earnings from continuing operations was calculated by

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removing the after-tax impact of operating income adjustments and the gain on sale of investments, as well as the tax impact of the Best Buy Europe sale from our calculation of net earnings from continuing operations. To measure adjusted diluted earnings per share from continuing operations, we excluded the per share impact of net earnings adjustments from our calculation of diluted earnings per share. Management believes our adjusted debt to EBITDAR ratio is an important indicator of our creditworthiness. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These non-GAAP financial measures are an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures within our discussion of consolidated performance below, provide a more complete understanding of our business. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

Business Strategy

In the fall of 2012, we laid out for investors the state of our business and summarized the challenges we faced by articulating two fundamental problems: (1) declining comparable store sales and (2) shrinking margins. To address these problems and achieve our goal of becoming the leading authority and destination for technology products and services, we revealed our Renew Blue transformation effort. That effort has five pillars and they are:


•	Reinvigorate and rejuvenate the customer experience


•	Attract and inspire leaders and employees


•	Work with vendor partners to innovate and drive value


•	Increase our return on invested capital


•	Continue our leadership role in positively impacting our world

This past year was the first full fiscal year in our Renew Blue transformation. While we remain in the early stages of our journey, we are pleased to report significant progress. Most notably, we stabilized our revenue and achieved virtually flat Domestic segment comparable store sales, we increased our Domestic online revenue by nearly 20 percent, we increased our Net Promoter Score by 300 basis points and, in one year, we exceeded our multi-year Renew Blue cost reduction target of $725 million.

Beyond these successes, we made additional operational improvements that included: increased price competitiveness; a ship-from-store ability now in place in more than 1,400 locations; the opening of 1,400 Samsung and 600 Windows stores-within-a-store and the completion of the first phase of our floor space optimization; the re-launch of our loyalty and credit card programs; and the strengthening of our balance sheet through a renewed focus on our core business and a substantially more disciplined capital allocation process.

Renew Blue Road Map for the Next 24 Months

Looking ahead, we remain focused on stabilizing and improving our comparable store sales and increasing profitability. To aid in this focus, we have created a road map for the next 24 months of our transformation. This road map is grounded in our belief that we need to do three things over the upcoming fiscal year and next. We must improve operational performance, build foundational capabilities necessary to unlock future growth and make full use of our unique assets to create significant differentiation for our customers and vendors. With this mind, our road map is built around eight priorities:

Merchandising. Our goal is to create a compelling assortment online and in the stores with a superior end-to-end customer experience that yields enhanced financial returns. Our priorities in merchandising over the next 24 months include the following: (1) developing compelling and differentiated strategies for key categories that leverage our competitive assets; (2) strengthening vendor partnerships; (3) implementing an enhanced online shopping experience for key categories; (4) expanding Pacific Kitchen and Home and Magnolia Design Centers stores-within-a-store; and (5) optimizing returns, replacement and damages through operational improvements like ship-from-store.

Marketing. Our goal is to unlock growth opportunities by creating and effectively communicating new, compelling value propositions for customers that go beyond price. Our priorities in marketing over the next 24 months include developing more targeted, relevant and personalized customer communications in support of category strategies, as well as creating greater engagement with customers through our loyalty program and our credit card offering.

Online. Our goal is to continue to capture online market share and serve customers based on how, where, and when they want to be served. Our online priorities over the next 24 months include further improving the online shopping experience to make it easier for customers to find and choose products, encouraging customers to complete their technology solutions by improving

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the presentation of accessories and services and enabling customers to build their own bundle, as well as leveraging our expanded supply chain capabilities. We will also continue to re-engineer our e-commerce technology platform so that new features and functions can be developed quickly and optimized across platforms.

Retail Stores. Our ability to transform Best Buy is highly dependent on our ability to transform our in-store experience. To that end, we are evolving our field organization based on what we see as the mission of retail, which is (1) the execution of category and functional strategies; (2) the development and implementation of effective market-level strategies that take into account the specifics of local markets; and (3) the ability to lift our performance in terms of employee engagement, customer satisfaction, sales and profitability.

Supply Chain. We believe that our supply chain is a competitive advantage, driven by a powerful network of strategically located distribution centers and the recently launched ship-from-store capabilities. Our goal over the next 24 months is to use this network and improve our customer experience by providing (1) increased inventory availability; (2) improved speed to the customer; and (3) improved home delivery and installation capabilities for our large-cube assortment. To achieve this, we will continue to invest in systems and infrastructure to drive significantly enhanced delivery options.

Geek Squad Services. We believe the Geek Squad is one of our biggest competitive advantages, yet at the same time, we believe it is an underutilized asset. Our goal for the Geek Squad is to deliver a superior customer experience, while providing a key revenue and profit growth engine for Best Buy. Our goals for Geek Squad over the next 24 months include (1) improving our service delivery and the service experience for our customers; (2) refining existing service offerings (e.g., extended warranty services); and (3) building new offerings that meet the needs of customers in the context of today’s technology environment.

Cost Structure. Our goal is to more quickly and deeply reduce our costs. Through the fourth quarter of fiscal 2014, we eliminated a total of $765 million in annualized costs, which exceeded our original multi-year target of $725 million. We have now increased our target to $1 billion. We expect these additional cost reductions to come primarily from: (1) returns, replacements and damages; (2) logistics and supply chain; (3) procurement; and (4) continued rationalization of our organization.

Employee Engagement. Across the company, we have a commitment to serving our customers in such an extraordinary manner that they become promoters of Best Buy. A key to achieving this goal is the talent and engagement of our people. In line with this, over the next 24 months, we will be pursuing the successful implementation of our new field- and store-operating model, the strengthening of our talent in critical areas, and the redefining of key business processes to better support our multi-channel, customer-focused strategy.

In addition to the areas above, we plan to focus on improving the performance in our International segment. Largely as a result of our Renew Blue initiatives, we reduced International SG&A in fiscal 2014. In fiscal 2015, we expect to take further actions to reduce our International segment’s cost structure.

Long-Term Financial Targets

All of these initiatives are in pursuit of our long-term non-GAAP targets of a 5% to 6% operating income rate and a 13% to 15% return on invested capital.

Fiscal 2015 Trends

In the U.S., we have an agreement with Citibank for the issuance of promotional financing and customer loyalty credit cards bearing the Best Buy brand (the "Citibank credit card agreement"). We commenced operating under the Citibank credit card agreement in September 2013, at which point Citibank acquired the customer portfolio from the previous bank. The Citibank credit card agreement is expected to result in lower revenue and gross profit rates due to less favorable economics as a result of changes in both the regulatory and overall consumer credit market. Revenues we earn under the Citibank credit card agreement are primarily based on the profitability of the credit card portfolio. These revenues are inherently more difficult to forecast than revenues earned under the previous credit card agreement, which were primarily based on new account activations.

In fiscal 2015, we estimate we will generate $150 million to $200 million less revenue from our credit card agreement than in fiscal 2014. A portion of this year-over-year decrease is driven by the accelerated recognition of previously deferred revenue related to our previous credit card agreement in fiscal 2014.

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In the first three quarters of fiscal 2015, we expect the following business drivers to have a net negative impact on our operating income rate: (1) ongoing price investments; (2) incremental Renew Blue SG&A investments; (3) the increase in our product warranty-related costs due to higher mobile phone claims frequency; (4) the negative impact of our credit card agreement with Citibank, as described above; and (5) the offsetting positive impact of the realization of Renew Blue cost savings. We expect the net negative impact of these factors to be greatest in the first quarter of fiscal 2015, as we expect to realize greater cost savings in the second and third quarters of fiscal 2015.

In addition, we anticipate reorganizing certain European legal entities to simplify our overall structure in the first quarter of fiscal 2015. We currently expect this reorganization to accelerate a non-cash tax benefit of approximately $310 million to $365 million. As a result of this acceleration, we are expecting a lower annual effective tax rate for fiscal 2015.

Results of Operations

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 and Mexico operations on a 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 lag. Our policy is to accelerate the recording of events occurring in the lag period that significantly affect our consolidated financial statements. There were no significant intervening events which would have materially affected our financial condition, results of operations, liquidity or other factors had they been recorded during fiscal 2014 (12-month).

On November 2, 2011, our Board approved a change in our fiscal year-end from the Saturday nearest the end of February to the Saturday nearest the end of January, effective beginning with our fiscal year 2013. As a result of this change, our fiscal year 2013 transition period was 11 months and ended on February 2, 2013, and we began consolidating the results of our Europe, China and Mexico operations on a one-month lag, compared to a two-month lag in fiscal year 2012, to continue aligning our fiscal reporting periods with statutory filing requirements in certain foreign jurisdictions. As a result of our change in fiscal year-end and resulting change in our lag period, the month of January 2012 was not captured in our consolidated fiscal 2013 (11-month) results for those entities reported on a one-month lag. Refer to Note 2, Fiscal Year-end Change, 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.

In this MD&A, when financial results for fiscal 2014 are compared to financial results for fiscal 2013, the results for the 12-month fiscal 2014 are compared to the results for the 11-month transition period from fiscal 2013. When financial results for fiscal 2013 are compared to financial results for fiscal 2012, the results for the 11-month transition period are compared to the results of the comparable 11-month recast period from fiscal 2012. Fiscal 2014 (12-month) included 52 weeks, and fiscal 2013 (11-month) and fiscal 2012 (11-month recast) included 48 weeks. The following tables show the fiscal months included within the various comparison periods in our MD&A:



Fiscal 2014 (12-month) Results Compared With Fiscal 2013 (11-month)⁽¹⁾
2014 (12-month)		2013 (11-month)
February 2013 - January 2014		March 2012 - January 2013


(1)	For entities reported on a lag, the fiscal months included in fiscal 2014 (12-month) were January through December and for fiscal 2013 (11-month) were February through December.



Fiscal 2013 (11-month) Results Compared With Fiscal 2012 (11-month recast)⁽¹⁾
2013 (11-month)		2012 (11-month recast)
March 2012 - January 2013		March 2011 - January 2012


(1)	For entities reported on a lag, the fiscal months included in fiscal 2013 (11-month) and fiscal 2012 (11-month recast) were February through December.

The month of February 2012, which was the last month of fiscal 2012 (12-month), is excluded from the comparison periods shown above. As such, there is no discussion of February 2012 throughout the remainder of this MD&A. Other than an extra week of activity in February 2012, which generated additional revenue, gross profit and operating income, we do not believe there were any unusual events or transactions or any significant economic changes or trends that materially affected the month of February 2012.

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Discontinued Operations Presentation

The results of our large-format Best Buy branded stores in China and Turkey, Best Buy Europe, Napster and mindSHIFT are presented as discontinued operations in our Consolidated Statements of Earnings. Unless otherwise stated, financial results discussed herein refer to continuing operations.

Fiscal 2014 Summary

•

Fiscal 2014 (12-month) included net earnings from continuing operations of $689 million, compared to a net loss of $467 million in fiscal 2013 (11-month). Net earnings in fiscal 2014 (12-month) included $159 million of restructuring charges, while fiscal 2013 (11-month) included $822 million of goodwill impairments and $414 million of restructuring charges. Earnings per diluted share from continuing operations was $1.98 in fiscal 2014 (12-month), compared to loss per diluted share of $1.38 in fiscal 2013 (11-month).


•	Revenue was $42.4 billion in fiscal 2014 (12-month). The increase from fiscal 2013 (11-month) was driven by an extra month of revenue, partially offset by store closures in the Domestic and International segments and a comparable store sales decline of 0.8%.


•	Our gross profit rate decreased by 0.5% of revenue to 22.8% of revenue. The decrease was primarily due to an investment in price competitiveness in the Domestic segment and a more promotional environment in the Domestic and International segments.


•	We recorded $159 million of restructuring charges related to several restructuring actions we undertook in fiscal 2014 (12-month), including our Renew Blue cost reduction initiatives and other operational changes.

•

We generated $1.1 billion in operating cash flow in fiscal 2014 (12-month), compared to $1.5 billion in fiscal 2013 (11-month), and we ended fiscal 2014 (12-month) with $2.7 billion of cash and cash equivalents, compared to $1.8 billion at the end of fiscal 2013 (11-month). Capital expenditures decreased $158 million to $547 million compared to the prior year as a result of a more disciplined capital allocation process.


•	During fiscal 2014 (12-month), we made four dividend payments totaling $0.68 per share, or $233 million in the aggregate.

Consolidated Results

The following table presents selected consolidated financial data for each of the past three fiscal years and fiscal 2012 (11-month recast) ($ in millions, except per share amounts):



	12-Month			11-Month						12-Month
Consolidated Performance Summary	2014			2013			2012			2012
							(recast)
Revenue	$	42,410		$	39,827		$	41,311		$	45,457
Revenue gain (decline) %	6.5		%	(3.6		)%	n/a			2.3		%
Comparable store sales % decline	(0.8		)%	(3.4		)%	(1.6		)%	(1.5		)%
Gross profit	$	9,690		$	9,298		$	9,908		$	10,984
Gross profit as a % of revenue⁽¹⁾	22.8		%	23.3		%	24.0		%	24.2		%
SG&A	$	8,391		$	8,181		$	7,986		$	8,755
SG&A as a % of revenue⁽¹⁾	19.8		%	20.5		%	19.3		%	19.3		%
Restructuring charges	$	159		$	414		$	24		$	29
Goodwill impairments	$	—		$	822		$	—		$	—
Operating income (loss)	$	1,140		$	(119	)	$	1,898		$	2,200
Operating income (loss) as a % of revenue	2.7		%	(0.3		)%	4.6		%	4.8		%
Net earnings (loss) from continuing operations⁽²⁾	$	687		$	(469	)	$	1,214		$	1,421
Gain (loss) from discontinued operations⁽³⁾	$	(155	)	$	28		$	(2,639	)	$	(2,652	)
Net earnings (loss) attributable to Best Buy Co., Inc. shareholders	$	532		$	(441	)	$	(1,425	)	$	(1,231	)
Diluted earnings (loss) per share from continuing operations	$	1.98		$	(1.38	)	$	3.19		$	3.81
Diluted earnings (loss) per share	$	1.53		$	(1.30	)	$	(3.72	)	$	(3.27	)


(1)	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,

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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.


(2)	Includes both net earnings (loss) from continuing operations and net earnings from continuing operations attributable to noncontrolling interests.


(3)	Includes both gain (loss) from discontinued operations and net (earnings) loss from discontinued operations attributable to noncontrolling interests.

Fiscal 2014 (12-month) Results Compared With Fiscal 2013 (11-month)

For purposes of this section, fiscal 2014 (12-month) represents the 12-month period ended February 1, 2014 and fiscal 2013 (11-month) represents the 11-month transition period ended February 2, 2013.

The components of the 6.5% revenue increase in fiscal 2014 (12-month) were as follows:



Extra month of revenue⁽¹⁾	8.0	%
Net store changes	(0.6	)%
Comparable store sales impact	(0.5	)%
Impact of foreign currency exchange rate fluctuations	(0.4	)%
Total revenue increase	6.5	%


(1)	Represents the incremental revenue in fiscal 2014, which had 12 months of activity compared to 11 months in fiscal 2013 as a result of our fiscal year-end change. Refer to Note 2, Fiscal Year-end Change, 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.

Our gross profit rate decreased 0.5% of revenue in fiscal 2014 (12-month). Our Domestic and International segments contributed a rate decrease of 0.3% of revenue and 0.2% of revenue, respectively. For further discussion of each segment's gross profit rate changes, see Segment Performance Summary, below.

The SG&A rate decreased 0.7% of revenue in fiscal 2014 (12-month). Our Domestic and International segments contributed a rate decrease of 0.6% of revenue and 0.1% of revenue, respectively. For further discussion of each segment's SG&A rate changes, see Segment Performance Summary, below.

We recorded restructuring charges of $159 million in fiscal 2014 (12-month), comprised of $123 million in our Domestic segment and $36 million in our International segment. These restructuring charges resulted in a decrease in our operating income in fiscal 2014 (12-month) of 0.4% of revenue. We recorded $415 million of restructuring charges in fiscal 2013 (11-month), which included $1 million of inventory write-downs recorded in cost of goods sold. Our Domestic and International segments recorded $328 million and $87 million of restructuring charges, respectively, in fiscal 2013 (11-month). The restructuring charges recorded in fiscal 2013 (11-month) resulted in a decrease in our operating income rate of 1.0% of revenue. For further discussion of each segment’s restructuring charges, see Segment Performance Summary, below.

Our operating income increased $1.3 billion and our operating income as a percent of revenue increased to 2.7% of revenue in fiscal 2014 (12-month), compared to an operating loss of 0.3% of revenue in fiscal 2013 (11-month). The increase in our operating income was due to a decrease in goodwill impairments and restructuring charges, as well as additional operating income from an extra month of activity in fiscal 2014 (12-month) compared to fiscal 2013 (11-month).

Fiscal 2013 (11-month) Results Compared With Fiscal 2012 (11-month recast)

For purposes of this section, fiscal 2013 (11-month) represents the 11-month transition period ended February 2, 2013 and fiscal 2012 (11-month recast) represents the comparable 11-month period ended January 28, 2012.

In fiscal 2013 (11-month), we experienced comparable store sales declines in gaming, computers, televisions and digital imaging. These declines were partially offset by gains in mobile phones and tablets. The decline in gross profit rate reflects mix shifts and a price competitive environment. The increase in SG&A largely reflected increased field incentive compensation and executive retention and transition costs.

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The components of the 3.6% revenue decrease in fiscal 2013 (11-month) were as follows:



Comparable store sales impact	(3.3	)%
Net store changes	(0.3	)%
Non-comparable sales channels⁽¹⁾	(0.1	)%
Impact of foreign currency exchange rate fluctuations	0.1	%
Total revenue decrease	(3.6	)%


(1)	Non-comparable sales reflects the impact of revenue streams not included within our comparable store sales calculation, such as certain credit card revenue, gift card breakage and sales of merchandise to wholesalers and dealers, as applicable.

Our gross profit rate decreased 0.7% of revenue in fiscal 2013 (11-month). Our Domestic and International segments contributed a rate decrease of 0.6% of revenue and 0.1% of revenue, respectively. For further discussion of each segment's gross profit rate changes, see Segment Performance Summary, below.

The SG&A rate increased 1.2% of revenue in fiscal 2013 (11-month). Our Domestic and International segments contributed a rate increase of 0.8% of revenue and 0.4% of revenue, respectively. For further discussion of each segment's SG&A rate changes, see Segment Performance Summary, below.

We recorded restructuring charges of $415 million in fiscal 2013 (11-month), which included $1 million of inventory write-downs recorded in cost of goods sold. Our Domestic segment recorded $328 million of restructuring charges, including $1 million of inventory write-downs, in fiscal 2013 (11-month), and our International segment recorded $87 million of restructuring charges in fiscal 2013 (11-month). These restructuring charges resulted in a decrease in our operating income in fiscal 2013 (11-month) of 1.0% of revenue. We recorded $43 million of restructuring charges in fiscal 2012 (11-month recast), which included $19 million of inventory write-downs recorded in cost of goods sold. Our Domestic and International segments recorded $38 million and $5 million of restructuring charges, respectively, in fiscal 2012 (11-month recast). The restructuring charges recorded in fiscal 2012 (11-month recast) resulted in a decrease in our operating income rate of 0.1% of revenue. For further discussion of each segment’s restructuring charges, see Segment Performance Summary, below.

Our operating income decreased $2.0 billion, or 106.3%, and our operating loss as a percent of revenue decreased to 0.3% of revenue in fiscal 2013 (11-month), compared to operating income of 4.6% of revenue in fiscal 2012 (11-month recast). The decrease in our operating income was due to an increase in goodwill impairments, a decrease in gross profit as a result of a decrease in revenue and a decline in the gross profit rate, an increase in restructuring charges and an increase in SG&A.

Segment Performance Summary

Domestic

The following table presents selected financial data for our Domestic segment for each of the past three fiscal years and fiscal 2012 (11-month recast) ($ in millions):



	12-Month			11-Month						12-Month
Domestic Segment Performance Summary	2014			2013			2012			2012
							(recast)
Revenue	$	35,831		$	33,222		$	34,102		$	37,596
Revenue gain (decline) %	7.9		%	(2.6		)%	n/a			1.4		%
Comparable store sales decline %	(0.4		)%	(1.7		)%	(1.6		)%	(1.6		)%
Gross profit	$	8,274		$	7,789		$	8,227		$	9,179
Gross profit as a % of revenue	23.1		%	23.4		%	24.1		%	24.4		%
SG&A	$	7,006		$	6,728		$	6,554		$	7,191
SG&A as a % of revenue	19.6		%	20.3		%	19.2		%	19.1		%
Restructuring charges	$	123		$	327		$	19		$	24
Goodwill impairments	$	—		$	3		$	—		$	—
Operating income	$	1,145		$	731		$	1,654		$	1,964
Operating income as a % of revenue	3.2		%	2.2		%	4.9		%	5.2		%

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



	Fiscal 2012	Fiscal 2013 (11-Month)				Fiscal 2014
	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	1,103	—	(47	)	1,056	—	(1	)	1,055
Best Buy Mobile stand-alone	305	105	(1	)	409	12	(15	)	406
Pacific Sales	34	—	—		34	—	(4	)	30
Magnolia Audio Video	5	—	(1	)	4	—	—		4
Total Domestic segment stores	1,447	105	(49	)	1,503	12	(20	)	1,495

Fiscal 2014 (12-month) Results Compared With Fiscal 2013 (11-month)

For purposes of this section, fiscal 2014 (12-month) represents the 12-month period ended February 1, 2014 and fiscal 2013 (11-month) represents the 11-month transition period ended February 2, 2013.

During fiscal 2014 (12-month), we made substantial progress against our Renew Blue priorities. First, we exceeded our original Renew Blue annualized cost reduction targets. Second, we made progress stabilizing our comparable store sales and operating income rate. In our Domestic segment, comparable stores sales were nearly flat for fiscal 2014 (12-month). Domestic operating income increased in fiscal 2014 (12-month); however, this was driven by LCD-related legal settlements and lower restructuring charges. Excluding these items, our operating income rate decreased primarily due to a lower gross profit rate, which was only partially offset by cost reduction initiatives and tighter expense management.

The components of the 7.9% revenue increase in the Domestic segment in fiscal 2014 (12-month) were as follows:



Extra month of revenue⁽¹⁾	8.2	%
Net store changes	(0.2	)%
Comparable store sales impact	(0.1	)%
Total revenue increase	7.9	%


(1)	Represents the incremental revenue in fiscal 2014, which had 12 months of activity compared to 11 months in fiscal 2013 as a result of our fiscal year-end change. Refer to Note 2, Fiscal Year-end Change, 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.

The decrease in revenue from net store changes was primarily due to the closure of 47 large-format Best Buy branded stores in the second and third quarter of fiscal 2013 (11-month). The opening and closing of small-format Best Buy Mobile stores had a significantly smaller impact given their smaller size and limited category focus compared to our large-format stores.

The following table presents the Domestic segment's revenue mix percentages and comparable store sales percentage changes by revenue category in fiscal 2014 (12-month) and 2013 (11-month):



	Revenue Mix Summary				Comparable Store Sales Summary
	12 Months Ended		11 Months Ended		12 Months Ended		11 Months Ended
	February 1, 2014		February 2, 2013		February 1, 2014		February 2, 2013
Consumer Electronics⁽¹⁾	30	%	32	%	(5.6	)%	(8.0	)%
Computing and Mobile Phones⁽¹⁾	48	%	45	%	4.7	%	7.4	%
Entertainment	8	%	10	%	(16.3	)%	(21.4	)%
Appliances	7	%	6	%	16.7	%	10.1	%
Services	6	%	6	%	0.2	%	0.8	%
Other	1	%	1	%	n/a		n/a
Total	100	%	100	%	(0.4	)%	(1.7	)%


(1)	In fiscal 2014, e-Readers were moved from the "Consumer Electronics" revenue category to "Computing and Mobile Phones" to reflect the continued convergence of their features with tablets and other computing devices.

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The following is a description of the notable comparable store sales changes in our Domestic segment by revenue category:


•	Consumer Electronics: The 5.6% comparable store sales decline was primarily due to industry declines driven by device convergence with smartphones and tablets, which has negatively impacted sales of digital imaging products, particularly compact cameras and camcorders, MP3 devices and accessories, and GPS navigation products.

•

Computing and Mobile Phones: The 4.7% comparable store sales gain primarily resulted from growth in mobile phones in the first three quarters of fiscal 2014 (12-month), which was partially due to successful promotions and an increased sales mix into higher-priced smartphones. In addition, we experienced a comparable store sales gain in computing driven by growth in the second half of fiscal 2014 (12-month) as a result of improved inventory availability.


•	Entertainment: The 16.3% comparable stores sales decline was driven primarily by weak gaming sales in the first three quarters as consumers awaited the launch of new platforms in the fourth quarter of fiscal 2014 (12-month), as well as declines in movies and music as consumers continue to shift from physical media to digital consumption.


•	Appliances: The 16.7% comparable store sales gain was a result of strong performance throughout fiscal 2014 (12-month) due to effective promotions, the addition of appliance specialists in select stores, the expansion of the small appliances category, and the positive impact of Pacific Kitchen & Home store-within-a-store concepts.


•	Services: The 0.2% comparable store sales gain was primarily due to growth in mobile phone repair services, offset by a decline in warranty services due to the prior-year benefit from a periodic profit sharing payment that was earned based on the long-term performance of our externally managed extended service plan portfolio that did not recur in fiscal 2014 (12-month).

Our Domestic segment experienced an increase in gross profit of $485 million, or 6.2%, in fiscal 2014 (12-month) compared to fiscal 2013 (11-month), driven by the extra month of activity. Excluding the extra month, gross profit declined due to a decline in the gross profit rate and lower revenue. The 0.3% of revenue decrease in the gross profit rate resulted primarily from a greater investment in price competitiveness and increased product warranty-related costs associated with higher claims frequency in mobile phones. These items were partially offset by LCD-related legal settlements, the realization of Renew Blue cost reductions and other supply chain cost containment initiatives, and the accelerated recognition of previously deferred revenue associated with our prior credit card agreement.

Our Domestic segment's SG&A increased $278 million, or 4.1%, in fiscal 2014 (12-month) compared to fiscal 2013 (11-month). Excluding the extra month of activity, SG&A decreased primarily from the realization of our Renew Blue cost reduction initiatives, tighter expense management throughout the company and, to a lesser extent, the impact of store closures in fiscal 2013 (11-month). These decreases were partially offset by Renew Blue investments, including optimization of our retail floor space and the re-platforming of and functionality enhancements to bestbuy.com. These factors also contributed to the 0.7% of revenue decline in the SG&A rate.

Our Domestic segment recorded $123 million of restructuring charges in fiscal 2014 (12-month), primarily related to employee termination benefits as a result of Renew Blue cost reduction initiatives. These restructuring charges resulted in a decrease in our operating income in fiscal 2014 (12-month) of 0.3% of revenue. In fiscal 2013 (11-month) our Domestic segment recorded restructuring charges of $328 million, which included $1 million of inventory write-downs included in cost of goods sold. The restructuring charges related to our Renew Blue and first quarter fiscal 2013 U.S. restructuring activities and consisted primarily of facility closure costs, employee termination benefits and asset impairments. These restructuring charges resulted in a decrease in our operating income in fiscal 2013 (11-month) of 1.0% of revenue. Refer to Note 6, Restructuring Charges, 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 about our restructuring activities.

Our Domestic segment’s operating income increased $414 million, or 1.0% or revenue, in fiscal 2014 (12-month) compared to fiscal 2013 (11-month). Excluding the extra month of activity, operating income increased primarily due to lower SG&A expenses and a decrease in restructuring, partially offset by lower gross profit as described above.

Fiscal 2013 (11-month) Results Compared With Fiscal 2012 (11-month recast)

In the first three quarters of fiscal 2013 (11-month), we experienced continued declines in comparable store sales and gross margins. Management took action to reverse these negative trends, including increased training for our retail employees and a price-match policy for online and retail store competitors during the U.S. holiday season. During the fourth quarter, we achieved comparable store sales growth and stable gross margins.

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In fiscal 2013 (11-month), we experienced sales growth in mobile phones and tablets due to continued demand for these products as new technology is introduced. We also experienced sales growth in appliances, primarily from the introduction of additional Pacific Kitchen and Home store-within-a-store locations. However, these increases were more than offset by decreases in other product categories, such as gaming, computers, digital imaging and televisions. Certain of these products (in particular, compact cameras and camcorders and gaming) have faced declining demand due in part to the inclusion of their key features in new products, such as smartphones and tablets. In addition, the net impact from the closure of 47 large-format stores in fiscal 2013 (11-month) contributed to the overall revenue decline.

The components of the 2.6% revenue decrease in the Domestic segment in fiscal 2013 (11-month) were as follows:



Comparable store sales impact	(1.6	)%
Net new stores	(1.0	)%
Total revenue decrease	(2.6	)%

The impact of net store changes on our revenue is a result of store opening and closing activity during the past 11 months, as well as stores opened in the prior year that are not included in comparable store sales due to the timing of their opening. The decrease in large-format Best Buy branded stores contributed to the majority of the total decrease in revenue associated with net store changes in fiscal 2013 (11-month) compared to the comparable prior-year period. The addition of small-format Best Buy Mobile stand-alone stores partially offset the decrease, as the proportion contributed to revenue is smaller due to their smaller square footage and limited category focus compared to our large-format stores.

The following table presents the Domestic segment's revenue mix percentages and comparable store sales percentage changes by revenue category in fiscal 2013 (11-month) and 2012 (11-month recast):



	Revenue Mix Summary				Comparable Store Sales Summary
	11 Months Ended				11 Months Ended
	February 2, 2013		January 28, 2012		February 2, 2013		January 28, 2012
Consumer Electronics⁽¹⁾	32	%	34	%	(8.0	)%	(8.6	)%
Computing and Mobile Phones⁽¹⁾	45	%	42	%	7.4	%	9.1	%
Entertainment	10	%	12	%	(21.4	)%	(16.0	)%
Appliances	6	%	5	%	10.1	%	10.6	%
Services	6	%	6	%	0.8	%	(0.1	)%
Other	1	%	1	%	n/a		n/a
Total	100	%	100	%	(1.7	)%	(1.6	)%


(1)	In fiscal 2014, e-Readers were moved from the "Consumer Electronics" revenue category to "Computing and Mobile Phones" to reflect the continued convergence of their features with tablets and other computing devices.

The following is a description of the notable comparable store sales changes in our Domestic segment by revenue category:

•

Consumer Electronics: The 8.0% comparable store sales decline was primarily driven by a decrease in the sales of digital imaging products, particularly compact cameras and camcorders, partially due to convergence with smartphones. In addition, we experienced a decrease in television revenue due primarily to a decrease in average selling price from an increased sales mix of small and mid-sized televisions.

•

Computing and Mobile Phones: The 7.4% comparable store sales gain resulted primarily from increased sales of mobile phones due to an increased mix of higher-priced smartphones and new product launches, as well as increased sales of tablets and e-Readers driven by new product launches, consumer demand and continued expansion of available platforms. The strong performance from mobile phones, tablets and e-Readers was partially offset by a decline in sales of notebook and desktop computers.


•	Entertainment: The 21.4% comparable stores sales decline was mainly the result of a decline in gaming due to aging gaming platforms, fewer new software releases and the migration of casual gamers to other platforms, such as tablets and smartphones.


•	Appliances: The 10.1% comparable store sales gain was due to the implementation of operational improvements, including the addition of more Pacific Kitchen and Home store-within-a-store concepts, promotional effectiveness and improved performance in small appliances.

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•	Services: The 0.8% comparable store sales gain was primarily due to the benefit from a periodic profit sharing payment that was earned based on the long-term performance of the our externally managed extended service plan portfolio, partially offset by a decrease in the sales of notebook computers, which contributed to fewer service products sales opportunities.

Our Domestic segment experienced a decrease in gross profit of $438 million, or 5.3%, in fiscal 2013 (11-month) compared to fiscal 2012 (11-month recast), driven by lower revenue and a decline in the gross profit rate. The 0.7% of revenue decrease in the gross profit rate resulted primarily from the following factors:


•	increased promotional activity, notably in computing, home theater, MP3 players and movies; and


•	an increased mix of smartphones with higher average selling prices but a lower margin rate;


•	partially offset by an improvement in sales mix due to decreased sales of computing and gaming products.

Our Domestic segment's SG&A grew $174 million, or 2.7%, in fiscal 2013 (11-month) compared to fiscal 2012 (11-month recast). The increase in SG&A was driven by an increase in field incentive compensation and executive retention and transition costs, costs related to the addition of 104 net new Best Buy Mobile stand-alone stores, and increased investments in advertising and other costs to drive online sales. This increase was partially offset by lower expenses as a result of large-format store closures. The SG&A rate increased by 1.1% of revenue as a result of the deleveraging impact of the revenue decline, as well as from the aforementioned factors.

Our Domestic segment recorded $328 million of restructuring charges in fiscal 2013 (11-month), which included $1 million of inventory write-downs included in cost of goods sold. The restructuring charges related to our Renew Blue and first quarter fiscal 2013 U.S. restructuring activities and consisted primarily of facility closure costs, employee termination benefits and asset impairments. These restructuring charges resulted in a decrease in our operating income in fiscal 2013 (11-month) of 1.0% of revenue. Our Domestic segment recorded restructuring charges of $38 million, including $19 million of inventory write-downs included in cost of goods sold, in fiscal 2012 (11-month recast). The restructuring charges consisted of facility closure costs, and property and equipment impairments related to our fiscal 2012 restructuring activities, as well as inventory write-downs and facility closure costs related primarily to our fiscal 2011 restructuring activities. Refer to Note 6, Restructuring Charges, 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 about our restructuring activities.

The $923 million decrease in our Domestic segment's operating income for fiscal 2013 (11-month) was principally the result of a decrease in revenue as a result of large-format store closures and a comparable store sales decline, as well as an increase in restructuring charges.

International

The following table presents selected financial data for our International segment for each of the past three fiscal years and fiscal 2012 (11-month recast) ($ in millions):



	12-Month			11-Month						12-Month
International Segment Performance Summary	2014			2013			2012			2012
							(recast)
Revenue	$	6,579		$	6,605		$	7,209		$	7,861
Revenue gain (decline) %	(0.4		)%	(8.4		)%	n/a			6.8		%
Comparable store sales % decline	(3.1		)%	(11.4		)%	(1.5		)%	(1.1		)%
Gross profit	$	1,416		$	1,509		$	1,681		$	1,805
Gross profit as a % of revenue	21.5		%	22.8		%	23.3		%	23.0		%
SG&A	$	1,385		$	1,453		$	1,432		$	1,564
SG&A as a % of revenue	21.1		%	22.0		%	19.9		%	19.9		%
Restructuring charges	$	36		$	87		$	5		$	5
Goodwill impairments	$	—