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

FORM 10-K

Commission file number 1-9595

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

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

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). ý Yes o No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on August 29, 2003, was approximately $13.898 billion, computed by reference to the closing price on such date of $52.01 per share of the registrant's Common Stock, 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)

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes o No

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

As of April 3, 2004, the registrant had 325,337,000 shares of its Common Stock issued and outstanding.

Documents Incorporated by Reference

A portion of the Registrant's Annual Report to Shareholders for the fiscal year ended February 28, 2004 (Annual Report), is incorporated by reference into Part II. The portion of the Annual Report incorporated herein is Exhibit 13.1 to this report.

Portions of the Registrant's Definitive Proxy Statement dated May 17, 2004 (to be filed pursuant to Regulation 14A within 120 days after the Registrant's fiscal year end of February 28, 2004), for the regular meeting of shareholders to be held on June 24, 2004 (Proxy Statement), are incorporated by reference into Parts II and III.

Section 27A of the Securities Act of 1933, as amended, 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 "believe," "expect," "anticipate," "plan," "estimate," "intend" and "potential." 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 actual results to differ materially from the anticipated results expressed in such forward-looking statements, including, among other things, general economic conditions, acquisitions and development of new businesses, product availability, sales volumes, profit margins, weather, foreign currency fluctuation, availability of suitable real estate locations, our ability to react to a disaster recovery situation, and the impact of labor markets and new product introductions on our overall profitability. Readers should review our Current Report on Form 8-K filed with the Securities and Exchange Commission (SEC) on March 18, 2004, that describes additional important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements made in this Annual Report on Form 10-K.

Table of Contents

Exhibit Index:

Exhibit 3.2
Exhibit 4.1
Exhibit 4.2
Exhibit 4.3
Exhibit 10.4
Exhibit 12.1
Exhibit 13.1
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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Part I

Item 1. Business.

Description of Business

We are a specialty retailer of consumer electronics, home-office products, entertainment software, appliances and related services. We operate retail stores and/or commercial Web sites under the brand names Best Buy (BestBuy.com and BestBuyCanada.ca), Future Shop (FutureShop.ca), Magnolia Audio Video (MagnoliaAV.com) and Geek Squad (GeekSquad.com), as well as an outlet store on eBay.

Our vision is to make life fun and easy for consumers. Our business strategy is to bring technology and consumers together in a retail environment that focuses on educating consumers on the features and benefits of technology and entertainment products, while maximizing overall profitability. We believe our stores offer consumers meaningful advantages in store environment, product value, product selection and customer service, all of which advance our objectives of enhancing our business model, gaining market share and improving profitability. During fiscal 2003, we adopted four strategic initiatives that we believe will further enhance our business model. Additional information on our strategic initiatives is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.

We were incorporated in the state of Minnesota in 1966 as Sound of Music, Inc., and changed our name to Best Buy Co., Inc. in 1983. We began as an audio components retailer, and with the introduction of the videocassette recorder in the early 1980s, expanded into video products. In 1983, we revised our marketing strategy and began using mass-merchandising techniques, which included offering a wider variety of products and operating stores under a "superstore" concept. In 1989, we dramatically changed our method of retailing by introducing a self-service, noncommissioned, discount-style store concept designed to give the customer more control over the purchasing process.

In fiscal 2000, we established our first online shopping site, BestBuy.com. Our "clicks-and-mortar" strategy is designed to empower consumers to research and purchase products seamlessly either online or in retail stores. Our online shopping site offers products in all of our principal product categories. In fiscal 2004, we continued to make enhancements to improve the shopping experience on our Web sites.

The Best Buy store format has evolved to include more interactive displays and, for certain products, a higher level of customer service, with the latest version designed to increase labor efficiency and to improve merchandising. In fiscal 2000, we introduced a small-market Best Buy store concept that offers merchandise in the same product categories as larger stores, with a product assortment tailored to each respective community. In fiscal 2004, as part of our customer centricity initiative, we developed and tested several new store formats and customized the product offerings within these stores to meet the needs of our customers better.

Our International segment was established in connection with our acquisition of Future Shop Ltd. (Future Shop) in fiscal 2002. During fiscal 2003, we launched our dual-branding strategy in Canada by introducing the Best Buy brand. We continue to believe the Canadian market can support both brands.

Acquisitions

In the fourth quarter of fiscal 2001, we acquired the common stock of Magnolia Hi-Fi, Inc. (Magnolia Hi-Fi), a Seattle-based, high-end retailer of audio and video products, for $88 million in cash. We acquired Magnolia Hi-Fi to access an upscale customer segment. During fiscal 2004, Magnolia Hi-Fi began doing business as Magnolia Audio Video. We believe the new name and redesigned logo are more representative of

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Magnolia Audio Video's image as an upscale retailer of high-end consumer electronics.

In the third quarter of fiscal 2002, we acquired all of the common stock of Future Shop for $377 million. The Future Shop acquisition marked our expansion into international operations and provided us with an opportunity to increase revenue, gain market share, leverage our operational expertise in consumer electronics retailing and increase shareholder value. Since the acquisition, we have continued to build on Future Shop's position as the leading consumer electronics retailer in Canada.

In the third quarter of fiscal 2003, we acquired all of the common stock of Geek Squad, Inc. (Geek Squad) for approximately $3 million. Geek Squad provides residential and commercial computer support services. We acquired Geek Squad to further our plans of providing technology support services to customers. As of February 28, 2004, Geek Squad service was available in seven markets and had in-store technicians in more than 20 U.S. Best Buy stores. By the end of fiscal 2005, we expect to have Geek Squad technicians available in the majority of our U.S. Best Buy stores. Geek Squad's operations were a very small part of our fiscal 2004 business. However, our goal is to make Geek Squad North America's largest provider of in-home computer repair and installation services, and we believe that over time it will become a more significant factor in our business.

All three acquisitions described above were accounted for using the purchase method. Under this method, net assets and results of operations of those businesses were included in our consolidated financial statements from their respective dates of acquisition.

In fiscal 2003, we put on hold any major acquisitions or expansion beyond North America to focus on our core business. During our fiscal 2004 fourth-quarter earnings conference call on March 31, 2004, we confirmed that we do not intend to make any material acquisitions for the next 18 months.

Additional information regarding our acquisitions is available in Note 3, Acquisitions, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

General Development of Business

During our fiscal year ended February 28, 2004, there were no significant changes to our corporate structure or material changes in our mode of conducting the business, except as follows:

Sale of Musicland

On June 16, 2003, we sold our interest in The Musicland Group, Inc. (Musicland) to an affiliate of Sun Capital Partners Inc. The affiliate of Sun Capital Partners Inc. assumed all of Musicland's liabilities, including approximately $500 million in lease obligations, in exchange for all of the capital stock of Musicland, and paid no cash consideration. The transaction also resulted in the transfer of all of Musicland's assets other than a distribution center in Franklin, Indiana, and selected nonoperating assets. The sale of our interest in Musicland resulted in an after-tax loss on the disposal of discontinued operations totaling $66 million. In connection with the sale, Musicland is purchasing transition support services from us for up to one year from the date of the sale, until Musicland is able to develop long-term providers for these services.

We acquired the common stock of Musicland Stores Corporation in the fourth quarter of fiscal 2001. The original strategy behind our Musicland acquisition was to bring Best Buy's core competencies in retailing consumer electronics to new consumer segments, including segments typically underserved by our Best Buy stores. However, the Musicland business did not meet our financial objectives. The sale of our interest in Musicland allows us to focus on our core business, which is our primary growth and profit driver. Musicland's financial results have been classified separately as discontinued operations in our consolidated financial statements for all periods presented.

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Additional information regarding Discontinued Operations is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 2, Discontinued Operations, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Unless otherwise noted, the following discussion relates to continuing operations only.

Financial Information
about Segments

During fiscal 2004, we operated two reportable segments: Domestic and International. The Domestic segment is comprised of U.S. Best Buy and Magnolia Audio Video operations. U.S. Best Buy stores offer a wide variety of consumer electronics, home-office equipment, entertainment software, appliances and related services. Magnolia Audio Video stores offer high-end audio and video products. The International segment is comprised of Future Shop and Best Buy operations in Canada. Future Shop and Canadian Best Buy stores offer products similar to those offered by U.S. Best Buy stores.

Additional information regarding our "Segment Performance" is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K. In addition, selected financial data for our segments is available in Note 10, Segments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Reference is also made to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of this Annual Report on Form 10-K for a discussion regarding the risks associated with foreign operations.

Domestic Segment

Overview

U.S. Best Buy

At February 28, 2004, we operated 608 U.S. Best Buy stores in 48 states and the District of Columbia that averaged approximately 43,500 retail square feet. Collectively, U.S. Best Buy stores totaled approximately 26.4 million retail square feet at the end of fiscal 2004, or about 90% of the Company's total retail square footage. For fiscal 2004, U.S. Best Buy retail stores generated average revenue of approximately $38.6 million per store.

Magnolia Audio Video

At February 28, 2004, we operated 22 Magnolia Audio Video stores in California, Washington and Oregon that averaged approximately 10,000 retail square feet. Collectively, Magnolia Audio Video stores totaled approximately 218,000 retail square feet at the end of fiscal 2004, less than 1% of the Company's total retail square footage. For fiscal 2004, Magnolia Audio Video retail stores generated average revenue of approximately $6.5 million per store.

Operations

U.S. Best Buy

U.S. Best Buy stores follow a standardized and detailed operating procedure called Standard Operating Platform (SOP). The SOP includes procedures for inventory management, transaction processing, customer relations, store administration, product sales and merchandise display. All stores function in exactly the same manner under the SOP. During fiscal 2004, in conjunction with our customer centricity initiative, we began testing a new, Adaptive Operating Platform (AOP). The AOP decentralizes authority and allows the person closest to the customer to make informed decisions. This change may involve some variation in product offerings, staffing, promotions and store design.

U.S. Best Buy store operations are organized into three divisions. Each division is divided into regions and is under the supervision of a senior

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vice president who oversees store performance through regional vice presidents. Regional vice presidents have responsibility for a number of districts within their respective region. District managers monitor store operations and meet regularly with store managers to discuss merchandising, new product introductions, sales promotions, customer loyalty programs, employee satisfaction surveys and store operating performance. Similar meetings are conducted at the corporate level with divisional and regional management. Our Senior Vice President of retail operations has overall responsibility for retail store processing and operations, including labor management. Each district also has a loss prevention manager, with product security personnel employed at each store to control physical inventory losses. Advertising, merchandise buying and pricing, as well as inventory policies for U.S. Best Buy stores are centrally controlled.

U.S. Best Buy stores are generally open 75 hours per week, seven days a week. A store is typically staffed by one manager and four to five assistant managers. The average staff in each store ranges from 65 to 150 people, depending on store size and sales volume. Beginning in the first quarter of fiscal 2005, the management structure and store staffing levels of our U.S. Best Buy stores were adjusted and is now based on sales productivity. Previously, management structures and store staffing levels were based primarily on store size.

Magnolia Audio Video

Magnolia Audio Video stores are typically managed by a store manager, an audio/video sales manager and, if the store contains mobile products, a mobile electronics sales manager. Magnolia Audio Video stores are generally open 72 hours per week, seven days a week. Depending on an individual store's volume and product offerings, store staffing includes eight to 25 commissioned sales personnel, two to six commissioned mobile electronics installers and one to five sales support staff personnel. Corporate management for Magnolia Audio Video stores centrally controls advertising, merchandise buying and pricing, as well as inventory policies.

International Segment

Overview

At February 28, 2004, we operated 108 Future Shop stores throughout all Canadian provinces and 19 Canadian Best Buy stores in Ontario, Alberta and Manitoba. Collectively, International stores totaled approximately 2.8 million retail square feet, or about 10% of the Company's total retail square footage, as of the end of fiscal 2004. For fiscal 2004, International retail stores generated average revenue of approximately $19.4 million per store.

The dual-branding strategy allows us to retain Future Shop's brand equity and attract more customers by offering a choice of store experiences. As we expand the presence of Best Buy stores in Canada, we expect to gain operating efficiencies through the leveraging of our capital investments, supply chain management, advertising, merchandising and administrative functions. Our goal is to reach differentiated customers with each brand by giving them the unique shopping experiences they desire. The primary differences between our two Canadian brands are:

In-store experience — The customer's interaction with store employees is different at each of the two brands. Future Shop stores have commissioned sales associates who take a more proactive role in assisting customers. Through their expertise and attentiveness, the sales associate drives the transaction. In contrast, Canadian Best Buy store employees are noncommissioned, and the stores offer more interactive displays and grab-and-go merchandising. This design allows the customer to drive the transaction as they experience the products themselves, with store employees available to demonstrate and explain product features.

Store size — At the end of fiscal 2004, the average Future Shop store was approximately 21,000 retail square feet, compared with an average of approximately 29,000 retail square feet for Canadian Best Buy stores. Canadian

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Best Buy stores generally have wider aisles, as well as more square footage devoted to entertainment software.

Operations

International stores use a standardized operating system. The operating system includes procedures for inventory management, transaction processing, customer relations, store administration, staff training and performance appraisal, as well as merchandise display. Advertising, merchandise buying and pricing, and inventory policies are centrally controlled.

International store operations are organized to support two brands, each headed by a vice president. Each vice president has regional management who closely monitor store operations and meet regularly with store managers to review management and staff training programs, customer feedback and requests, store operating performance and other matters. Meetings involving store management, product managers, advertising, financial and administrative staff, as well as senior management, are held quarterly to review operating results and to establish future objectives.

International stores are generally open 60 to 75 hours per week, seven days a week. A typical store is staffed by a general manager, several department sales managers, a customer service manager, and 48 to 95 full-time staff associates, as well as part-time associates. The number of full-time staff associates is dependent upon store size, sales volume and store brand.

Narrative Description of Business

Merchandise

U.S. Best Buy

U.S. Best Buy stores offer merchandise in four product categories: consumer electronics, home office, entertainment software and appliances. Consumer electronics, the largest product category for fiscal 2004 based on revenue, consists of video and audio products. Video products include televisions, digital cameras, DVD players, digital camcorders and digital broadcast satellite systems. Audio products include car stereos, shelf systems and speakers, home theater audio systems, portable audio equipment, audio components and mobile electronics. The home office category includes desktop and notebook computers and related peripheral equipment, telephones, cellular telephones and MP3 players. Entertainment software products include DVD movies, video game hardware and software, compact discs and computer software. The appliance category includes major appliances as well as vacuums, small electrics and housewares.

The following table presents U.S. Best Buy stores' revenue, by product category, as a percentage of total U.S. Best Buy stores' revenue:

Magnolia Audio Video

Magnolia Audio Video stores offer merchandise in two product categories: consumer electronics and home office. Consumer electronics, the largest product category for fiscal 2004 based on revenue, consists of video and audio products. Video products include televisions, DVD players, digital cameras, digital camcorders, mobile video, digital broadcast satellite systems and video accessories.

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Audio products include home receivers and amplifiers, home speakers, shelf systems, portable audio equipment, audio accessories, car stereos and car security systems. The home office category includes furniture, telephones and wireless communication devices.

The following table presents Magnolia Audio Video revenue, by product category, as a percentage of total Magnolia Audio Video stores' revenue:

International

International stores offer merchandise in four product categories: home office, consumer electronics, entertainment software and appliances. Home office, the largest product category for fiscal 2004 based on revenue, includes desktop and notebook computers and related peripheral equipment, telephones, wireless communication devices and personal digital assistants. The consumer electronics category consists of video and audio products. Video products include televisions, digital cameras, DVD players, digital camcorders and digital broadcast satellite systems. Audio products include car stereos, portable audio equipment, home theater audio systems, audio components, shelf systems and speakers. Entertainment software products include video game hardware and software, DVD movies, computer software and compact discs. The appliance category includes major appliances as well as vacuums, small electrics and housewares. Canadian Best Buy stores do not carry appliances.

Although the two store brands of our International segment carry similar product categories, there are differences in product brands and depth of selection within product categories. On average, approximately 40 percent of the product assortment (excluding entertainment software) overlaps between the two store brands.

The following table presents International revenue, by product category, as a percentage of total International revenue:

⁽¹⁾ Subsequent to the date of acquisition, November 4, 2001

Distribution

U.S. Best Buy

Generally, U.S. Best Buy stores' merchandise, except for major appliances and large-screen televisions, is shipped directly from manufacturers to our seven distribution centers located in California, Georgia, Minnesota, New York, Ohio, Oklahoma and Virginia. Major appliances and

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large-screen televisions are shipped to satellite warehouses in each major market. U.S. Best Buy stores are dependent upon the distribution centers for inventory storage and shipment of most merchandise. However, in order to meet release dates for selected products and to improve inventory management, certain merchandise is shipped directly to the stores from manufacturers and distributors. On average, U.S. Best Buy stores receive product shipments two or three times a week depending on sales volume. Generally, e-commerce merchandise sales are either picked up at U.S. Best Buy retail stores or fulfilled through our distribution centers. We also operate a dedicated distribution center in Indiana for U.S. Best Buy stores' entertainment software.

We believe our current distribution centers and the relocation of the Oklahoma distribution center to a larger facility in fiscal 2005 will accommodate our expansion plans for U.S. Best Buy stores for the next several years.

Magnolia Audio Video

Magnolia Audio Video stores' merchandise is received and warehoused at either a distribution center in Kent, Washington, a regional warehouse in Hayward, California, or a Best Buy distribution center in Dinuba, California. All inventory is bar coded and scanned to ensure accurate tracking. In addition, a computerized inventory replenishment program is used to maintain optimal inventory levels at each retail store. Merchandise is delivered to retail stores an average of three times each week pursuant to an in-house distribution system. We believe our current distribution centers will accommodate our Magnolia Audio Video stores' operations for the next several years.

International

Our International stores' merchandise, except for appliances, is shipped directly from suppliers to distribution centers in British Columbia and Ontario. The majority of appliance sales are delivered by third-party distributors. Our International stores are dependent upon the distribution centers for inventory storage and shipment of most merchandise. However, in order to meet release dates for selected products and to improve inventory management, certain merchandise is shipped directly to the stores from manufacturers and distributors. Our International stores typically receive product shipments twice a week, with accelerated shipments during periods of high sales volume. Contract carriers ship merchandise from the distribution centers to retail stores. We believe our current distribution centers and the expansion of the Ontario distribution center during fiscal 2005 will accommodate our expansion plans for our International stores for the next several years.

Suppliers

Our strategy depends, in part, upon our ability to offer customers a broad selection of name-brand products and, therefore, our success is dependent upon satisfactory and stable supplier relationships. For fiscal 2004, our 20 largest suppliers accounted for nearly three-fifths of the merchandise we purchased, with five suppliers — Sony, Hewlett-Packard, Toshiba, Universal Music and Video Distribution, and Samsung — representing more than one-third of total merchandise purchased. The loss of or disruption in supply from any one of these major suppliers could have a material adverse effect on our revenue and earnings. We generally do not have long-term written contracts with our major suppliers. We have no indication that any of our suppliers will discontinue selling us merchandise. We have not experienced significant difficulty in maintaining satisfactory sources of supply, and we generally expect that adequate sources of supply will continue to exist for the types of merchandise sold in our stores. In fiscal 2004, we opened a global sourcing office in Shanghai, China, in order to purchase products directly from Asian manufacturers. We expect this office will allow us to increase our efficiency and provide us with the capability to offer private-label products that fill gaps in our existing product assortment.

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Store Development

The addition of new stores has played, and we believe will continue to play in the future, a significant role in our growth and success. Our store development program focuses on entering new markets; adding stores within existing markets; and relocating, remodeling and/or expanding existing stores. During fiscal 2004, we opened 78 new stores and remodeled, relocated or expanded an additional 13 stores. While many of the new stores opened in fiscal 2004 were in existing markets, others were in new markets, including the opening of Canadian Best Buy stores in Alberta and Manitoba, our first such stores outside the Greater Toronto area.

The following table reconciles U.S. Best Buy stores open at the beginning and end of each of the last five fiscal years:

The following table reconciles Magnolia Audio Video stores open at the beginning and end of each fiscal year since the date of acquisition:

⁽¹⁾ As of the date of acquisition, December 15, 2000

The following table reconciles Future Shop stores open at the beginning and end of each fiscal year since the date of acquisition:

⁽¹⁾ As of the date of acquisition, November 4, 2001

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The following table reconciles Canadian Best Buy stores open at the beginning and end of each fiscal year since inception of the International segment:

During fiscal 2005, we expect to open approximately 73 new stores in the United States and Canada. Most of the new stores will be opened in markets where we already have stores, leveraging our infrastructure and making shopping more convenient for our customers. Included in the 73 stores are approximately 60 U.S. Best Buy stores, including our first store in Hawaii. We also anticipate opening 10 Best Buy stores in Canada, including our first such stores in Calgary, Alberta; Regina, Saskatchewan; and Langley, British Columbia, and additional stores in the Greater Toronto area. Finally, we anticipate opening three new Future Shop stores, as well as relocating four existing Future Shop stores.

Additional information regarding our "Outlook for Fiscal 2005" is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.

Intellectual Property

We believe we own valuable intellectual property including trademarks and tradenames some of which, including "Best Buy," the "Yellow Tag" logo, "Future Shop," and "Magnolia Audio Video," are of material importance to our business. Our intellectual property is the subject of numerous United States and foreign trademark and service mark registrations. We believe our intellectual property has significant value and is an important factor in the marketing of the Company, our stores and our Web sites. We are not aware of any facts that could negatively impact our continuing use of any of our intellectual property.

In accordance with accounting principles generally accepted in the United States (GAAP), our balance sheets only include the cost of acquired intellectual property. The only material acquired intellectual property presently included in our balance sheets is the Future Shop tradename, which had a carrying value of $37 million at the end of fiscal 2004. The value of the Future Shop tradename is based on the continuation of the Future Shop brand in Canada and currently is considered an indefinite-lived intangible asset. If we ever were to abandon the Future Shop brand, we would incur an impairment charge based on the then-carrying value of the Future Shop tradename.

Seasonality

Our revenue and earnings are typically greater during our fiscal fourth quarter, which includes the majority of the holiday selling season.

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Working Capital

We fund the growth of our business through a combination of available cash and cash equivalents and cash flows generated from operations. In addition, our revolving credit facilities are available for additional working capital needs or investment opportunities.

Additional information on our "Liquidity and Capital Resources" is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.

Customers

During fiscal 2004, we had an average of over 1.5 million customer visits to our retail stores per day. We do not have a significant concentration of sales with any individual customer and, therefore, the loss of any one customer would not have a material impact on our business. No single customer accounted for 10% or more of our total revenue.

Backlog

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

Government Contracts

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

Competition

The consumer electronics retail industry is highly competitive. Our stores compete against other consumer electronics retailers, specialty home office retailers, mass merchants, home improvement superstores and a growing number of direct-to-consumer alternatives. Our stores also compete against independent dealers, regional chain discount stores, wholesale clubs, video rental stores and other specialty retail stores. Mass merchants continue to increase their assortment of consumer electronics products — primarily those that are less complex to sell, install and operate. Similarly, large home improvement retailers are expanding their assortment of appliances. In addition, consumers are increasingly downloading entertainment and computer software directly via the Internet.

We compete principally on the basis of customer service; installation and support services; store environment, location and convenience; product assortment and availability; value pricing; and financing alternatives. In addition, we believe our complementary e-commerce operations have effectively positioned us to meet successfully current and future competitive challenges.

We believe our store formats and brand marketing strategies differentiate us from most competitors by positioning our retail stores as the destination for new technology and entertainment products in a fun and informative shopping environment. Our stores compete by aggressively advertising and emphasizing a complete product and service solution, value pricing and financing alternatives. In addition, our trained and knowledgeable sales and service staffs allow us to tailor the product and service offerings to meet the needs of our customers.

Research and Development

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

Environmental Matters

We are not aware of any federal, state or local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, that will materially affect our net earnings or competitive position, or result in material capital expenditures. However, we cannot predict with certainty the potential effect on our operations of possible future environmental legislation or regulations. During fiscal 2004, there were no material capital expenditures for environmental control facilities and no such material expenditures are anticipated.

Number of Employees

At the end of fiscal 2004, we employed approximately 100,000 full-time, part-time and seasonal employees in our operations. We

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consider our employee relations to be good. There are currently no collective bargaining agreements covering any of our employees, and we have not experienced a strike or work stoppage.

Financial Information about Geographic Areas

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

Available Information

We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the SEC. Copies of these reports, proxy statements and other information can be read and copied at:

SEC Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549

Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

The SEC maintains a Web site that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC's home page at http://www.sec.gov.

We make available, free of charge on our Web site, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file these documents with, or furnish them to, the SEC. These documents may be viewed on our corporate Web site at www.BestBuy.com — under "Company Information," select the "For Our Investors" link and then the "SEC Filings" link.

We also make available, free of charge on our Web site, the charters of the Audit Committee, Compensation and Human Resources Committee and Nominating, Corporate Governance and Public Policy Committee, as well as the Corporate Governance Principles and the Best Buy Code of Business Ethics (including any amendment to, or waiver from, a provision of the Best Buy Code of Business Ethics) adopted by our Board of Directors. These documents may be viewed on our corporate Web site at www.BestBuy.com — under "Company Information," select the "For Our Investors" link and then the "Corporate Governance" link.

References to our Web site addresses do not constitute incorporation by reference of the information contained on the Web sites, and the information contained on the Web sites is not part of this document.

Copies of any of the above-referenced information will also be made available, free of charge, by calling (612) 291-6111 or upon written request to:

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

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Item 2. Properties.

Stores, Distribution Centers and Corporate Facilities

The following table summarizes the geographic location of our stores at the end of fiscal 2004:

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Domestic Segment

U.S. Best Buy Stores

At the end of fiscal 2004, we operated 608 U.S. Best Buy stores totaling approximately 26.4 million retail square feet.

U.S. Best Buy stores were serviced by the following distribution centers at the end of fiscal 2004:

Note: We re-measured the square footage of all distribution centers in fiscal 2004.

⁽¹⁾ The New York distribution center was opened during the first quarter of fiscal 2004.

⁽²⁾ The distribution of entertainment software to certain U.S. Best Buy stores previously performed by our former Edina, Minnesota, distribution center was transitioned to our Indiana distribution center during fiscal 2004. Following the completion of the transition of this service to the Franklin distribution center, and coinciding with the expiration of the lease of the Edina distribution center, we vacated the Edina facility.

⁽³⁾ We broke ground on a new 720,000-square-foot distribution center in Ardmore, Oklahoma, during fiscal 2004. The distribution center will be located north of the existing location in Ardmore and will be owned. The new distribution center is scheduled to open in the second quarter of fiscal 2005. The existing facility is being replaced in order to meet the expected increased demand for technology products and services. The new facility is expected to serve approximately 98 U.S. Best Buy stores in Arkansas, Kansas, Louisiana, Missouri, New Mexico, Oklahoma and Texas when it initially opens and will have the ability to serve up to 125 U.S. Best Buy stores.

We lease space in 13 satellite warehouses in major metropolitan markets for home delivery of major appliances and large-screen televisions. U.S. Best Buy stores utilize approximately 2.5 million square feet in these warehouses.

Effective March 31, 2003, we moved our principal corporate offices to Richfield, Minnesota. The new, owned corporate campus consists of four interconnected buildings totaling approximately 1.5 million square feet. We continue to own two facilities in Eden Prairie, Minnesota, aggregating approximately 540,000 square feet, which previously served as our principal corporate offices. These two facilities are currently for sale. At the end of fiscal 2004, we also leased approximately 260,000 square feet of additional office space in close proximity to our corporate campus.

Magnolia Audio Video

At the end of fiscal 2004, we operated 22 Magnolia Audio Video stores totaling approximately 218,000 retail square feet.

We lease an 80,000-square-foot distribution, warehouse and office facility in Kent, Washington, of which approximately 54,000 square feet are used for distribution and warehouse operations, with the remainder dedicated to a service department and corporate administrative functions. In addition, we utilize a 13,000-square-foot leased regional warehouse in Hayward, California, and 45,000 square feet of the Best Buy distribution center in Dinuba, California.

International Segment

At the end of fiscal 2004, we operated 108 Future Shop stores and 19 Canadian Best Buy stores totaling approximately 2.8 million retail square feet.

The operations of the International segment are serviced by two distribution centers located in Langley, British Columbia, and Brampton, Ontario. The distribution center in British Columbia is owned, while the distribution center in Ontario is leased. Merchandise, other than appliances, is distributed from these two distribution centers, which are 413,000 square feet and 434,000 square

15         

feet, respectively. Appliance sales in western Canada are fulfilled by the distribution center in British Columbia; however, a third-party distributor is used to warehouse appliances in Alberta and Ontario and to ship appliances to all parts of Canada other than British Columbia.

In fiscal 2004, the British Columbia distribution center replaced a previously leased distribution center in Delta, British Columbia. We expect to expand the Ontario distribution center to 978,000 square feet by the end of fiscal 2005.

Corporate offices for the International segment are located in a 141,000-square-foot leased facility in Burnaby, British Columbia.

Global Sourcing Office

In September 2003, we opened our first global sourcing office, located in Shanghai, China. At the end of fiscal 2004, we leased office space in China totaling approximately 12,000 square feet.

Operating Leases

Essentially all of our retail stores and a majority of our distribution facilities are leased. Terms of the lease agreements generally range up to 20 years. Most of the leases contain renewal options and escalation clauses.

Additional information regarding operating leases is available in Note 7, Lease 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 3. Legal Proceedings.

We have been served with four purported class action lawsuits on behalf of persons who purchased the securities of Best Buy Co., Inc. between January 9, 2002, and August 7, 2002. The lawsuits, instituted in U.S. District Court for the District of Minnesota on November 20, December 12, December 16 and December 23, 2003, name Best Buy Co., Inc., its Chairman and its Chief Executive Officer as defendants. The plaintiffs allege that the defendants violated Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder by making material misrepresentations between January 9, 2002, and August 7, 2002, which resulted in artificially inflated prices of the Company's common stock. The plaintiffs seek compensatory damages, costs and expenses. We believe the allegations are without merit and intend to defend these actions vigorously.

We also have been served with a shareholder derivative action venued in Hennepin County, State of Minnesota District Court. This case raises many factual matters similar to those raised in the federal securities law cases, described above. The state court action alleges violations of state law relative to fiduciary responsibilities, control and management of the Company and unjust enrichment. The plaintiffs seek judgment in favor of the Company against certain named officer and director defendants for damages, equitable relief and attorneys' fees, costs and expenses. By agreement between the parties, and with Court approval, this case was put on inactive status. Based on the Company's information and belief, the claims against the named officer and director defendants are without merit and will be vigorously defended.

We are involved in various other legal proceedings arising in the normal course of conducting business. The resolution of those proceedings is not expected to have a material impact on our results of operation or financial condition.

         16

Executive Officers of the Registrant:

Bradbury H. Anderson has been a director since August 1986 and is currently our Vice Chairman and Chief Executive Officer. He assumed the responsibility of Chief Executive Officer in June 2002, having previously served as President and Chief Operating Officer since April 1991. He has been employed in various capacities with us since 1973. In addition, he serves on the board of trustees of Minnesota Public Radio; Junior Achievement; Retail Industry Leaders Association (RILA); American Film Institute (AFI); and Waldorf College.

Richard M. Schulze is a founder of Best Buy. He has been an officer and director from our inception in 1966 and currently is Chairman of the Board. Effective in June 2002, he relinquished the duties of Chief Executive Officer, an office he had held since February 1983. He is a trustee of the University of St. Thomas, chairman of its Executive and Institutional Advancement Committee, and chairman of the board of governors of the University of St. Thomas Business School.

Allen U. Lenzmeier has been a director since February 2001. He joined us in 1984 and is currently our President and Chief Operating Officer. Prior to his promotion to his current position, he served as President of Best Buy Retail Stores from 2001 to 2002 and as our Executive Vice President and Chief Financial Officer from 1991 to 2001. He is a national trustee for the Boys and Girls Clubs of America, and serves on its Twin Cities board of directors. He also serves on the board of directors of the Catholic Community Foundation of the Archdiocese of St. Paul and Minneapolis.

Michael P. Keskey was named President — U.S. Retail Stores in April 2004. Previously, he had served as President — Best Buy Retail Stores since March 2002. Mr. Keskey also served as Executive Vice President — Retail Sales from 2001 to 2002 and as Senior Vice President — Retail Sales from 1997 to 2001. Mr. Keskey joined us in 1988.

Ronald D. Boire joined us in June 2003 as Executive Vice President and General Merchandise Manager. Prior to joining us, he spent 17 years at Sony Electronics Inc., where he held various sales and marketing positions before becoming president of Sony's Personal Mobile Products Company. Most recently, he was president of the Sony Electronics Consumer Sales Company, and

17         

was responsible for managing sales and distribution of Sony's consumer electronics products throughout the United States. Mr. Boire also was a key member of Sony's operations committee, consumer business council, ethics committee, pension and welfare committee, and diversity steering committee.

Brian J. Dunn was named Executive Vice President — Retail Sales in March 2002. Mr. Dunn joined us in 1985 and has held positions as Senior Vice President, Regional Vice President, regional manager, district manager and store manager.

Darren R. Jackson was named Executive Vice President — Finance and Chief Financial Officer in April 2002. Mr. Jackson joined us in 2000 as Senior Vice President — Finance and Treasurer and was promoted to Chief Financial Officer in 2001. Prior to that, Mr. Jackson served as chief financial officer of the Full-Line Store Division at Nordstrom, Inc. from 1998 to 2000 and as chief financial officer of Carson Pirie Scott & Co. Inc., a department store chain, from 1996 to 1998. A certified public accountant, Mr. Jackson has 15 years of experience in the retailing industry.

Michael A. Linton was promoted to Executive Vice President — Consumer and Brand Marketing and Chief Marketing Officer in March 2002. Mr. Linton joined us in 1999 as Senior Vice President — Strategic Marketing. Prior to that, Mr. Linton held positions as vice president of marketing at Remington Products Corporation, maker of personal care and grooming products; vice president and general manager of a product category at James River Corporation, a manufacturer and marketer of consumer products, food and packaging; and a general manager at Progressive Insurance. Mr. Linton began his career at The Proctor & Gamble Company.

Michael London was named Executive Vice President — Global Sourcing in February 2004. From July 2003 to February 2004, he served as Executive Vice President — Customer Centricity. Prior to that, he served as Executive Vice President — General Merchandise Manager from 2001 to 2003, as Senior Vice President — General Merchandise from 1998 to 2001 and as Vice President — General Merchandise from 1996 to 1998. Prior to joining us in 1996, Mr. London was a senior vice president for NordicTrack, a fitness equipment manufacturer, and executive vice president for Central Tractor Farm & Country, a specialty farm products retail supplier.

Philip J. Schoonover was named Executive Vice President — Customer Segments in April 2004. Previously, he had served as Executive Vice President — New Business Development since February 2002. He was promoted to Executive Vice President of Digital Technology Solutions in February 2001 after having served for five years as Senior Vice President — Merchandising. Prior to joining us in 1995, Mr. Schoonover was an executive vice president for TOPS Appliance City, a retailer of home appliances and consumer electronics.

John C. Walden was named Executive Vice President — Human Capital and Leadership in March 2002. Mr. Walden served as President of BestBuy.com, Inc. from 1999 to 2002. Prior to joining us in 1999, Mr. Walden served as chief operating officer of Peapod, Inc., an Internet retailer of groceries. Mr. Walden has also held executive positions with Ameritech Corporation, a telecommunications company, and Storage Technology Corporation, a maker of data storage products. Earlier he practiced corporate and securities law with Sidley, Austin, Brown and Wood LLP.

Robert A. Willett became our Executive Vice President — Operations in April 2004. In April 2002, we engaged Mr. Willett as a consultant and special advisor to our Board of Directors on matters relating to operational efficiency and excellence. Prior to that, he was the global managing partner for the retail practice at Accenture LLP, a global management consulting, technology services and outsourcing company, and was also a member of its executive committee. Mr. Willett began his career as a store manager at Marks and Spencer P.L.C., a British department store chain, and has held executive positions at F.W. Woolworth & Co., as well as several other retailers in the United Kingdom.

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Susan S. Hoff was named Senior Vice President and Chief Communications Officer in April 2004. Previously, she had served as Senior Vice President — Public Affairs and Investor Relations Officer since 2000. Since joining us in 1983, Ms. Hoff has served in various capacities including Vice President of Corporate Communications and Public Relations. Ms. Hoff is the daughter of Founder and Chairman of the Board Richard M. Schulze.

Joseph M. Joyce was promoted to Senior Vice President — General Counsel and Assistant Secretary in 1997. Mr. Joyce joined us in 1991 as Vice President — Human Resources and General Counsel. Prior to joining us, Mr. Joyce was with Tonka Corporation, a toy maker, having most recently served as vice president, secretary and general counsel.

Bruce H. Besanko joined us in April 2002 as Vice President — Finance. Prior to joining us, he spent approximately six years with Sears, Roebuck & Co. serving in positions of increasing responsibility, including most recently as the senior finance leader for its hardlines business. Mr. Besanko also brings finance and treasury experience from Atlantic Richfield Company and more than eight years of service in the United States Air Force in various leadership roles.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Part II

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

Market Information

Our common stock is traded on the New York Stock Exchange under the ticker symbol BBY. The following table shows high and low sales prices of our common stock for each quarter of fiscal 2004 and 2003.

Holders

As of April 3, 2004, there were 5,795 holders of record of Best Buy common stock.

Dividends

In October 2003, our Board of Directors declared the Company's first-ever cash dividends, including the initiation of a regular quarterly cash dividend. A special dividend payment of $0.30 per common share, or approximately $97 million, and the first regular quarterly cash dividend of $0.10 per common share, or approximately $33 million, were paid on December 9, 2003, and January 28, 2004, respectively. These two dividend payments allowed the Company to commence its desired rhythm of paying $0.40 per common share per fiscal year, subject to legal and contractual restrictions. The second regular quarterly cash dividend of $0.10 per common share is payable on May 12, 2004, to shareholders of record as of the close of business on April 21, 2004.

Securities Authorized for Issuance Under Equity Compensation Plans

The information set forth under the caption "Executive Compensation Plan Information" in the Proxy Statement is incorporated herein by reference.

19         

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In October 2003, we resumed purchasing shares of our common stock pursuant to a $400 million share repurchase program authorized by the Company's Board of Directors in fiscal 2000. During the fourth quarter of fiscal 2004, we purchased and retired 736,000 shares at a cost of $40 million. We have purchased and retired 4.6 million shares at a cost of $200 million since the inception of the share repurchase program in fiscal 2000. We consider several factors in determining when to make share repurchases including, among other things, our cash needs and the market price of the stock. At the end of fiscal 2004, $200 million of the $400 million originally authorized by the Company's Board of Directors was available for future share repurchases. There is no expiration date governing the period over which we can make our share repurchases. Cash provided by future operating activities, as well as available cash and cash equivalents, are the expected sources of funding for the share repurchase program.

The following table presents the total number of shares repurchased during the fourth quarter of fiscal 2004, the average price paid per share, the number of shares that were purchased as part of a publicly announced repurchase plan, and the approximate dollar value of shares that may yet be purchased pursuant to the $400 million share repurchase program:

⁽¹⁾ Pursuant to a $400 million share repurchase program announced on September 20, 1999. The program has no stated expiration date.

Additional information regarding our share repurchase program is included in the "Outlook for Fiscal 2005" section of Management's Discussion and Analysis of Financial Condition and Results of Operations, included as Item 7 of this Annual Report on Form 10-K.

Item 6. Selected Financial Data.

The information set forth under the caption "11-Year Financial Highlights" on pages 16 and 17 of the Annual Report, for the fiscal years 2000 through 2004, is incorporated herein by reference.

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 designed to provide a reader of our financial statements with a narrative on our financial condition, results of operations, liquidity, critical accounting policies and the future impact of accounting standards that have been issued but are not yet effective. Our MD&A is presented in

         20

nine sections: Overview, Strategic Initiatives, Results of Operations, Liquidity and Capital Resources, Off-Balance-Sheet Arrangements and Contractual Obligations, Critical Accounting Policies, New Accounting Standards, Quarterly Results and Seasonality, and Outlook for Fiscal 2005. We believe it is useful to read our MD&A 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

Best Buy Co., Inc. is a specialty retailer of consumer electronics, home-office products, entertainment software, appliances and related services, with fiscal 2004 revenue of $24.5 billion. We operate two reportable segments: Domestic and International. The Domestic segment is comprised of the operations of U.S. Best Buy and Magnolia Audio Video. U.S. Best Buy stores offer a wide variety of consumer electronics, home-office products, entertainment software, appliances and related services, operating 608 stores in 48 states and the District of Columbia as of the end of fiscal 2004. Magnolia Audio Video stores offer high-end audio and video products from 22 stores located in California, Washington and Oregon as of the end of fiscal 2004. Magnolia Audio Video was acquired in the fourth quarter of fiscal 2001.

The International segment was established in connection with our acquisition of Future Shop in the third quarter of fiscal 2002. At the end of fiscal 2004, the International segment consisted of 108 Future Shop stores operating throughout all Canadian provinces and 19 Canadian Best Buy stores operating in Ontario, Alberta and Manitoba. Future Shop and Canadian Best Buy stores offer products similar to those offered by U.S. Best Buy stores.

In support of our retail store operations, we also operate Geek Squad, a provider of in-home computer repair and service, Web sites for each brand (BestBuy.com, BestBuyCanada.ca, FutureShop.ca, MagnoliaAV.com and GeekSquad.com), as well as an outlet store on eBay.

Sale of Musicland Business

On June 16, 2003, we sold our interest in Musicland to an affiliate of Sun Capital Partners Inc. The affiliate of Sun Capital Partners Inc. assumed all of Musicland's liabilities, including approximately $500 million in lease obligations, in exchange for all of the capital stock of Musicland, and paid no cash consideration. The transaction also resulted in the transfer of all of Musicland's assets, other than a distribution center in Franklin, Indiana, and selected nonoperating assets. The sale of our interest in Musicland resulted in an after-tax loss on the disposal of discontinued operations totaling $66 million. In connection with the sale, Musicland is purchasing transition support services from us for up to one year from the date of the sale, until Musicland is able to develop long-term providers for these services.

We acquired the common stock of Musicland Stores Corporation in the fourth quarter of fiscal 2001. The original strategy behind our Musicland acquisition was to bring Best Buy's core competencies in retailing consumer electronics to new consumer segments, including segments typically underserved by our Best Buy stores. Musicland's mall-based stores and rural market locations gave us access to more young people and more rural communities. In addition, we believed integrating certain administrative and support functions within our existing infrastructure could increase the overall profitability of the Musicland business. However, for a number of reasons, the Musicland business did not meet our financial objectives. First, Musicland was not as successful as we hoped in selling digital products, even at Best Buy prices, because many consumers assumed that products sold in a mall-based environment were not price-competitive. Second, we did not anticipate such steep and protracted declines in sales of prerecorded music or significant declines in mall traffic. Third, Musicland reduced the assortment of CDs at its stores resulting in the loss of some core customers (a

21         

similar move at our Best Buy stores resulted in increased inventory turns and profits). Fourth, Musicland was successful in introducing DVD movies and video gaming at Sam Goody stores; however, these products carry a lower gross profit rate than CDs and did not provide incremental profits sufficient to make the Musicland business viable.

The sale of our interest in Musicland allows us to focus on our core business, which is our primary growth and profit driver.

For additional information regarding discontinued operations, see the "Discontinued Operations" section included in this MD&A, and refer to Note 2, Discontinued Operations, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Unless otherwise noted, the remainder of this MD&A relates only to results from continuing operations. All periods presented reflect the classification of Musicland's financial results as discontinued operations.

Strategic Initiatives

Our vision is to make life fun and easy for consumers. Our business strategy is to bring technology and consumers together in a retail environment that focuses on educating consumers on the features and benefits of technology and entertainment, while maximizing our overall profitability. We believe our stores offer consumers meaningful advantages in store environment, product value, product selection and customer service, all of which advance our objectives of enhancing our business model, gaining market share and improving profitability. As of the end of fiscal 2004, we operated 757 retail stores, including Best Buy stores in the United States and Canada; Future Shop stores in Canada; and Magnolia Audio Video stores in the United States. We also operate Web sites for each brand and an outlet store on eBay.

During fiscal 2004, we advanced four strategic initiatives that we believe will further enhance our business model over the next several years. The four strategic initiatives are:

•

Customer Centricity

•

Efficient Enterprise

•

Win the Home with Service

•

Win in Entertainment

Customer Centricity

Our customers are at the core of all of our business strategies, and our customer centricity initiative is the most important of our four strategic initiatives. In short, customer centricity means winning with the customer. The customer centricity initiative includes identifying profitable customer segments, tailoring our store experience to satisfy their needs, and training our employees to think and behave as owner/operators. We believe that we can extend our competitive advantage by engaging more fully with our customers, offering them broader and deeper assortments than our competitors, and supporting their shopping experiences with a full array of services. Our goal is to maximize every customer touch point, including store visits, phone calls, online visits and in-home visits.

During fiscal 2004, we tested our customer centricity platform at 32 of our existing U.S. Best Buy stores by focusing on five specific customer segments. These stores collectively led the Company in terms of comparable store sales gains for fiscal 2004. In fiscal 2005, we plan to develop a strategy for scaling customer centricity, based on the customer segments with the highest return on invested capital, and then expand this initiative by converting up to 110 additional existing U.S. Best Buy stores. In addition, during fiscal 2004 we launched Reward Zone, a customer loyalty program through which customers earn award certificates based on purchases. The program attracted more than 2.5 million members in fiscal 2004, and we expect to gain valuable customer insights from this program in the future.

Efficient Enterprise

The purpose of our efficient enterprise initiative is to reduce our cost structure, increase our speed to

         22

market and improve the returns we achieve on our capital investments. Ultimately, we have a goal of increasing our operating income rate to 7% of revenue by fiscal 2007, while continuing to deliver double-digit revenue growth.

We improved our operating income rate by 0.5% of revenue for fiscal 2004 to 5.3% of revenue, reflecting leverage associated with a strong comparable store sales gain, the opening of new stores and efficient enterprise initiatives. For example, we increased productivity and lowered the cost of building new stores. In the coming year, we plan to implement changes to our corporate and field organizations in order to prepare for customer centricity and boost productivity. To support our customer centricity initiative, we are changing from a culture of Standard Operating Platforms to a culture of Adaptive Operating Platforms. This change requires us to increase the agility and flexibility of our internal processes. We also plan to explore the increased use of third-party vendors to improve our capabilities while reducing costs.

Win the Home with Service

Our customers' technology needs are becoming more complex with the rapid development of new products. In addition, consumers wish to manage their movies, music, photographs and games centrally and to access them through multiple devices throughout their home. Our win the home with service initiative focuses on creating a market-leadership position in delivering lifestyle-based solutions for our customers. We are committed to selling, installing and supporting technologies that create an integrated digital home. We believe this approach will differentiate us from many of our competitors who sell technology products, but do not provide installation and support services. Our goal is to create a life-long relationship with our customers and deliver to them a broad product selection, home integration capabilities, service and technology upgrades.

We expanded the Geek Squad, our 24-hour rapid response computer support task force, to a total of seven markets during fiscal 2004. In fiscal 2005, we plan to roll out this service to a majority of our U.S. Best Buy stores. Our goal is to make the Geek Squad North America's largest provider of in-home computer repair and installation services. We also plan to integrate this service with the existing computer support staff in our stores, who will be given additional training and re-branded with the Geek Squad logo. We also intend to expand our in-home integration services and to explore additional opportunities within the services industry.

Win in Entertainment

Our fourth strategic initiative is focused on gaining market share in the rapidly changing entertainment category. This category includes music, movies, video game hardware and software, computer software, subscriptions and other related products. The development and delivery of entertainment products have undergone significant changes in recent years. Our win in entertainment initiative includes supporting the development and delivery of new entertainment-related products through multiple distribution channels and increasing our market share. We want to be the consumer's preferred choice when purchasing entertainment products.

In support of this initiative, we increased our CD in-stock levels in fiscal 2004 and modestly increased the amount of labor in our music departments. We also introduced new entertainment products, including online entertainment services and magazine subscriptions. Finally, we offered an exclusive DVD from the Rolling Stones. We believe we gained market share in entertainment as a result of these efforts. In fiscal 2005, we anticipate continuing to enhance our entertainment assortments and to pursue exclusive arrangements.

Results of Operations

Fiscal 2004 Summary

•

Earnings from continuing operations increased 29% to $800 million, or $2.44 per diluted share, compared with $622 million, or $1.91 per diluted share, for fiscal 2003. The increase in earnings from continuing operations was driven by an increase in revenue, including a comparable

23         

store sales gain of 7.1%; an improved gross profit rate; and a decrease in our selling, general and administrative expenses (SG&A) rate.

•

Revenue increased 17% to $24.5 billion, compared with $20.9 billion for the prior fiscal year. The increase reflected market share gains and was driven by the addition of 78 new stores in the past 12 months, a full of year of revenue from stores added in fiscal 2003, a 7.1% comparable store sales increase and the effect of changes in foreign currency exchange rates.

•

Our gross profit rate increased 0.2% of revenue to 25.2% of revenue, up from 25.0% of revenue for fiscal 2003. The increase was primarily due to gross profit rate improvements within our product categories and a more effective use of promotions in the Domestic segment compared with the prior fiscal year. These factors were partially offset by costs associated with Reward Zone, our customer loyalty program introduced during the second quarter of fiscal 2004; the increase of the home office category in the revenue mix, as that product category carries a lower gross profit rate; and a more promotional environment in the International segment compared with the prior fiscal year.

•

Our SG&A rate declined 0.3% of revenue to 19.9% of revenue, down from 20.2% of revenue for the prior fiscal year. The SG&A rate improvement was primarily due to expense leverage from the 7.1% comparable store sales gain and the addition of 78 new stores, and the realization of cost savings from our efficient enterprise initiative. Our fiscal 2004 SG&A rate also benefited from a one-time gain associated with the sale of stock received in connection with a vendor co-marketing agreement. These factors were partially offset by increased performance-based incentive compensation as a result of our improved year-over-year financial performance and restricted stock grants awarded pursuant to our new long-term incentive compensation program. Other offsetting factors included spending on our customer centricity initiative, reduced funding from vendor alliance programs and technology asset impairment charges.

•

In October 2003, our Board of Directors declared the Company's first-ever cash dividends, including a special dividend of $0.30 per share of outstanding common stock, and the initiation of a regular quarterly cash dividend of $0.10 per share of outstanding common stock. During fiscal 2004, we made two dividend payments of approximately $130 million in the aggregate.

•

Also in October 2003, we announced our intent to resume purchasing shares of our common stock pursuant to the $400 million share repurchase program authorized by the Company's Board of Directors in fiscal 2000. During fiscal 2004, we purchased and retired 1.8 million shares at a cost of $100 million.

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Consolidated Results

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

Note: All periods presented reflect the classification of Musicland's financial results as discontinued operations.

⁽¹⁾ As-adjusted data conforms the accounting for vendor allowances to the method adopted in fiscal 2003 and is reflected as if Future Shop had been acquired at the beginning of fiscal 2002. As-adjusted data is unaudited.

⁽²⁾ Comprised of revenue at stores and Internet sites operating for at least 14 full months, as well as remodeled and expanded locations. Relocated stores are excluded from the comparable store sales calculation until at least 14 full months after reopening. Acquired stores are included in the comparable store sales calculation beginning with the first full quarter following the first anniversary of the date of acquisition. The calculation of the comparable store sales percentage change excludes the impact of fluctuations in foreign currency exchange rates.

In the third quarter of fiscal 2004, we refined our methodology for calculating our comparable store sales percentage change. It now reflects the impact of non-point-of-sale (non-POS) revenue transactions. We refined our comparable store sales calculation methodology in light of changes in our business. Previously, our comparable store sales calculation was based on store POS revenue. The comparable store sales change for fiscal 2004 has been computed based on the refined methodology. The comparable store sales changes for prior fiscal years have not been computed using the refined methodology. Refining the methodology for calculating our comparable store sales percentage change did not impact previously reported revenue, earnings or cash flows.

Continuing Operations

Fiscal 2004 Results Compared With Fiscal 2003

Earnings from continuing operations were $800 million for fiscal 2004, or $2.44 per diluted share, a 29% increase from $622 million, or $1.91 per diluted share, for fiscal 2003. The increase in earnings from continuing operations was primarily driven by an increase in revenue, including a comparable store sales gain of 7.1%, and improvements in both our gross profit rate and our SG&A rate.

Revenue for fiscal 2004 increased 17% to $24.5 billion, compared with $20.9 billion for fiscal 2003. The revenue increase resulted from the addition of 60 U.S. Best Buy, 11 Canadian Best Buy, four Future Shop and three Magnolia Audio Video stores in the past 12 months; a full year of revenue from new stores added in fiscal 2003; and a 7.1% comparable store sales gain. The addition of new stores during the past two fiscal years accounted for approximately half of the revenue increase for fiscal 2004; the comparable store sales gain accounted for approximately two-fifths of the revenue increase for the current fiscal year; and the effect of changes in foreign currency exchange rates accounted for the remainder of the revenue increase. The fiscal 2004 comparable store sales gain was driven by an improved economic environment, including increased consumer

25         

confidence, demand for digital products and effective advertising and promotional campaigns. These factors led to higher customer traffic in our stores and contributed to our market share gains during fiscal 2004. Products having the largest impact on our fiscal 2004 comparable store sales gain included computers, digital televisions, digital cameras and accessories, DVD movies, MP3 players, CDs and digital camcorders. The increase in computers reflects market share gains as well as customers' increased desire to upgrade their home computers for managing their music, movies, photos and games. The increase in digital products reflects the continued consumer migration to, and increased affordability of, digital products.

Our gross profit rate improved to 25.2% of revenue for fiscal 2004, a 0.2% of revenue increase compared with 25.0% of revenue for fiscal 2003. The increase in the gross profit rate was primarily due to gross profit rate improvements within our product categories and a more effective use of promotions in the Domestic segment compared with the prior fiscal year. The improvements in the gross profit rates within our product categories resulted from specific initiatives, including reducing markdowns, improving product assortments and developing more effective promotions. These factors were partially offset by costs associated with Reward Zone, our new customer loyalty program, and the increase of the home office category in the revenue mix, as that product category carries a lower gross profit rate. We also experienced a more promotional environment in the International segment compared with fiscal 2003.

During the second quarter of fiscal 2004, we launched Reward Zone, our new customer loyalty program. At the end of fiscal 2004, we had more than 2.5 million Reward Zone members. Under the terms of the program, members earn points for each qualifying purchase completed at U.S. Best Buy stores. After accumulating the required point total, members are awarded a certificate that may be redeemed on future purchases. Certificates awarded to Reward Zone members expire 90 days after issuance. In accordance with Emerging Issues Task Force (EITF) Issue No. 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future, the value of points earned by Reward Zone members are recorded as a liability and a reduction of revenue. The value of points earned by our loyalty program members are included as a liability and a reduction of revenue at the time the points are earned based on the percentage of points that are projected to be redeemed. The value of points earned by Reward Zone members reduced fiscal 2004 gross profit and operating income by approximately 0.3% of revenue. Revenue, gross profit rates and earnings in future periods will continue to reflect points earned, adjusted for our actual redemption experience.

Because we do not include all costs of our distribution facilities in cost of goods sold, our gross profit and gross profit rate may not be comparable to those of other retailers that include all costs related to their distribution facilities in cost of goods sold and in the calculation of gross profit.

Our SG&A rate decreased 0.3% of revenue to 19.9% of revenue for fiscal 2004, compared with 20.2% of revenue for fiscal 2003. The decrease in the SG&A rate was primarily due to expense leverage (as revenue increased at a faster rate than operating expenses) from the 7.1% comparable store sales gain and the addition of 78 new stores, and the realization of cost savings from our efficient enterprise initiative. Our fiscal 2004 SG&A rate also benefited from a one-time gain of approximately $5 million, before tax, associated with the sale of stock received in connection with a vendor co-marketing agreement. In addition, our fiscal 2004 SG&A rate benefited from the absence of certain costs incurred during fiscal 2003, including lease termination and asset impairment charges associated with vacating our previous corporate facilities in connection with the relocation to our new corporate campus, as well as various expenses in our International segment to support

         26

strategic initiatives, including the launch of Best Buy stores in Canada and outside consulting expenses intended to improve the future efficiency and profitability of our International segment. These factors were partially offset by increased performance-based incentive compensation as a result of our improved year-over-year financial performance and restricted stock grants awarded pursuant to our new long-term incentive compensation program, as well as spending on our customer centricity initiative. Other offsetting factors included reduced funding received from vendor alliance programs and technology asset impairment charges.

In August 2003, we launched a new long-term incentive program for approximately 2,300 U.S. employees designed to help us attract and retain the best employees and to better align employee interests with those of our shareholders. The new program is expected to result in less shareholder dilution for existing shareholders. Under the terms of the new program, which began in November 2003, eligible employees received a mix of restricted stock and stock options. Shares of restricted stock vest at the end of a three-year incentive period based on our total return to shareholders compared with companies that comprise the S&P 500 over the same three-year period. In accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, compensation expense under the new program is recognized each reporting period based on the number of shares expected to ultimately vest, our stock price and the vesting period. For fiscal 2004, we recognized $5 million, before tax, in compensation expense associated with restricted stock awards granted pursuant to the new long-term incentive program. Stock options issued pursuant to the long-term incentive program are also accounted for in accordance with APB Opinion No. 25, consistent with the accounting treatment for stock options previously granted pursuant to our stock option plans. Accordingly, no compensation expense is recognized for stock options as the exercise price equals the stock price on the date of grant.

Fiscal 2003 Results Compared With Fiscal 2002 As-Adjusted

The discussion and analysis of fiscal 2003 results compared with fiscal 2002 results as-adjusted conforms the accounting for vendor allowances to the method adopted in fiscal 2003 and reflects Future Shop as if it had been acquired at the beginning of fiscal 2002. As-adjusted information is unaudited.

Earnings from continuing operations for fiscal 2003 increased 10% to $622 million, or $1.91 per diluted share, compared with $564 million, or $1.75 per diluted share, for fiscal 2002 on an as-adjusted basis. The increase in earnings from continuing operations was primarily driven by a 13% increase in revenue and a slight improvement in the gross profit rate, partially offset by a higher SG&A rate.

Fiscal 2003 revenue increased to $20.9 billion, compared with fiscal 2002 as-adjusted revenue of $18.5 billion. Approximately four-fifths of the increase in revenue for fiscal 2003 was due to the opening of 67 U.S. Best Buy, eight Canadian Best Buy and nine Future Shop stores during fiscal 2003, and a full year of revenue from new stores opened in fiscal 2002. The remainder of the increase was due to the 2.4% comparable store sales gain.

Our gross profit rate for fiscal 2003 increased slightly to 25.0% of revenue, versus 24.9% of revenue for the prior fiscal year on an as-adjusted basis. The improvement in the gross profit rate was primarily due to selling a more profitable revenue mix at U.S. Best Buy stores, including increased revenue from higher-margin digital products, partially offset by a more promotional environment in fiscal 2003 compared with fiscal 2002.

Our SG&A rate was 20.2% of revenue for fiscal 2003, an increase of 0.2% of revenue over the prior fiscal year's as-adjusted rate of 20.0% of revenue. The increase in the SG&A rate was primarily due to increased expenses in our International segment to support strategic initiatives, including the launch of Best Buy stores in Canada and outside consulting expenses

27         

intended to improve the future efficiency and profitability of our International segment. The SG&A rate also increased due to the deleveraging effect of a modest comparable store sales increase, as operating expenses increased at a faster rate than comparable store sales. In addition, the SG&A rate was negatively impacted by higher consulting expenses, increased depreciation expenses related to technology investments, and lease termination and asset impairment charges associated with vacating existing corporate facilities in connection with the relocation to our new corporate campus in fiscal 2004. The increase in the SG&A rate was partially offset by expense-saving initiatives implemented in the second half of fiscal 2003, reduced performance-based incentive compensation and expense leverage from opening new stores in existing markets.

Segment Performance

Domestic

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

Note: All periods presented reflect the classification of Musicland's financial results as discontinued operations.

⁽¹⁾ As-adjusted data conforms the accounting for vendor allowances to the method adopted in fiscal 2003.

⁽²⁾ Comprised of revenue at stores and Internet sites operating for at least 14 full months, as well as remodeled and expanded locations. Relocated stores are excluded from the comparable store sales calculation until at least 14 full months after reopening. Acquired stores are included in the comparable store sales calculation beginning with the first full quarter following the first anniversary of the date of acquisition.

In the third quarter of fiscal 2004, we refined our methodology for calculating our comparable store sales percentage change. It now reflects the impact of non-point-of-sale (non-POS) revenue transactions. We refined our comparable store sales calculation methodology in light of changes in our business. Previously, our comparable store sales calculation was based on store POS revenue. The comparable store sales change for fiscal 2004 has been computed based on the refined methodology. The comparable store sales changes for prior fiscal years have not been computed using the refined methodology. Refining the methodology for calculating our comparable store sales percentage change did not impact previously reported revenue, earnings or cash flows.

Domestic operating income increased 27% to $1.3 billion, or 5.7% of revenue, for fiscal 2004, compared with $1.0 billion, or 5.2% of revenue, for fiscal 2003. The improvement in the Domestic segment operating income rate for fiscal 2004 was driven by revenue gains, including a 7.4% comparable store sales increase; an improvement in the gross profit rate of 0.3% of revenue; and a decrease in the SG&A rate of 0.2% of revenue.

Domestic revenue increased to $22.2 billion for fiscal 2004, a 15% increase over fiscal 2003 revenue of $19.3 billion. Slightly more than half of the revenue increase for fiscal 2004 was due to new stores added in the past two fiscal years. The remainder of the revenue increase for fiscal 2004 was attributable to the 7.4% comparable store sales gain.

Our fiscal 2004 comparable store sales gain was driven by an improved economic environment, including increased consumer confidence; demand for, and increased affordability of, digital products; and effective advertising and promotional strategies, all of which led to higher customer traffic in our stores and on our Web sites. These factors also contributed to our market share gains during fiscal 2004. The home office, consumer

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electronics and entertainment software product categories experienced comparable store sales gains for fiscal 2004, while appliances posted a modest decline in comparable store sales. The home office category posted a low double-digit comparable store sales gain for the fiscal year primarily driven by sales of personal computers, MP3 players and computer networking products, partially offset by softer sales of PDAs, computer accessories and scanners. The increase in revenue from notebook computers and computer networking products reflects customers' growing preference for portability, while the increase in desktop computers reflects customers' increased desire to upgrade their home computers. A mid-single-digit comparable store sales gain in the consumer electronics category was primarily driven by sales of digital televisions, digital cameras and digital camcorders, reflecting continued consumer migration to, and increased affordability of, digital products, partially offset by declines in sales of analog televisions and camcorders, as well as VCRs. The entertainment software category also had a mid-single-digit comparable store sales gain for fiscal 2004, fueled by new-releases and our improved assortments in both DVD movies and CDs, partially offset by a double-digit comparable store sales decline in video game hardware. Despite improving trends in appliances throughout fiscal 2004, the category posted a modest comparable store sales decline for the fiscal year. Increased assortments in higher-end laundry products, refrigerators and dishwashers, as well as effective promotions in the second half of fiscal 2004, were more than offset by softer sales during the first half of fiscal 2004.

The Domestic gross profit rate increased to 25.3% of revenue for fiscal 2004, an improvement of 0.3% of revenue compared with 25.0% of revenue for the prior fiscal year. The increase in the gross profit rate was primarily due to gross profit rate improvements within our product categories and a more effective use of promotions compared with the prior fiscal year. The improvements in the gross profit rates within our product categories resulted from specific initiatives, including reducing markdowns, improving product assortments and developing more effective promotions. These factors were partially offset by costs associated with Reward Zone and the increase of the home office category in the revenue mix, as that product category carries a lower gross profit rate.

The fiscal 2004 SG&A rate for the Domestic segment was 19.6% of revenue, a decrease of 0.2% of revenue from 19.8% of revenue for the prior fiscal year. The SG&A rate benefited from expense leverage resulting from the 7.4% comparable store sales gain, the addition of 60 U.S. Best Buy stores and three Magnolia Audio Video stores in the past 12 months, a full year of revenue from stores added in fiscal 2003, the realization of cost savings from our efficient enterprise initiative and a one-time gain of approximately $5 million, before tax, associated with the sale of stock received in connection with a vendor co-marketing agreement. In addition, the Domestic segment's SG&A rate for fiscal 2004 also benefited from the absence of certain costs incurred during fiscal 2003, including lease termination and asset impairment charges associated with vacating our previous corporate facilities in connection with the relocation to our new corporate campus. These factors were partially offset by increased performance-based incentive compensation as a result of our improved year-over-year financial performance and restricted stock grants awarded pursuant to our new long-term incentive compensation program, reduced funding received from vendor alliance programs, expenses associated with our customer centricity initiative and technology asset impairment charges.

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The following table reconciles Domestic stores open at the beginning and end of fiscal 2004:

The following table reconciles Domestic stores open at the beginning and end of fiscal 2003:

During fiscal 2004, we opened 60 U.S. Best Buy stores, remodeled three U.S. Best Buy stores and relocated four other U.S. Best Buy stores. At the end of fiscal 2004, we operated 608 U.S. Best Buy stores in 48 states and the District of Columbia. Magnolia Audio Video opened three new stores during fiscal 2004 and operated 22 stores in California, Washington and Oregon at the end of fiscal 2004. During fiscal 2004, Magnolia Audio Video remodeled one store.

International

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

⁽¹⁾ As-adjusted data conforms the accounting for vendor allowances to the method adopted in fiscal 2003 and is reflected as if Future Shop had been acquired at the beginning of fiscal 2002.

⁽²⁾ Reflects results of operations of Future Shop subsequent to its acquisition in November of fiscal 2002.

⁽³⁾ Comprised of revenue at stores and Internet sites operating for at least 14 full months, as well as remodeled and expanded locations. Relocated stores are excluded from the comparable store sales calculation until at least 14 full months after reopening. Acquired stores are included in the comparable store sales calculation beginning with the first full quarter following the first anniversary of the date of acquisition. The calculation of the comparable store sales percentage change excludes the impact of fluctuations in foreign currency exchange rates.

In the third quarter of fiscal 2004, we refined our methodology for calculating our comparable store sales percentage change. It now reflects the impact of non-point-of-sale (non-POS) revenue transactions. We refined our comparable store sales calculation methodology in light of changes in our business. Previously, our comparable store sales calculation was based on store POS revenue. The comparable store sales change for fiscal 2004 has been computed based on the refined methodology. The comparable store sales changes for prior fiscal years have not been computed using the refined methodology. Refining the methodology for calculating our comparable store sales percentage change did not impact previously reported revenue, earnings or cash flows.

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The International segment generated operating income of $37 million for fiscal 2004, compared with $8 million for the prior fiscal year. Approximately one-quarter of the increase in operating income for fiscal 2004 was due to the effect of changes in foreign currency exchange rates. The remainder of the increase in operating income was primarily due to revenue gains, including a 4.7% comparable store sales increase for the fiscal year, and an improved SG&A rate, and was partially offset by a decrease in the gross profit rate.

International revenue increased 41% to $2.3 billion for fiscal 2004, compared with $1.6 billion last fiscal year. The effect of changes in foreign currency exchange rates accounted for approximately half of the revenue increase for the fiscal year. New store additions in the past two fiscal years accounted for approximately two-fifths of the revenue increase, and the 4.7% comparable store sales gain accounted for the remainder. The comparable store sales gain reflected market share gains and was driven by increased revenue from digital televisions, digital cameras, DVD movies and notebook computers.

The International gross profit rate was 24.3% of revenue for fiscal 2004, a decrease from 25.0% of revenue for the prior fiscal year. The decline in the gross profit rate was primarily due to increased promotional activity compared with the prior fiscal year, including higher customer financing expenses. In response to the opening of Best Buy stores in Canada, our competitors in the International segment increased their promotional offerings, resulting in additional pressure on our gross profit rate.

The SG&A rate for the International segment declined to 22.7% of revenue for fiscal 2004, compared with 24.5% of revenue for the prior fiscal year. The SG&A rate decrease for fiscal 2004 was primarily due to expense leverage resulting from new store openings and the 4.7% comparable store sales gain, as well as the absence of certain expenses incurred during fiscal 2003, including expenses associated with launching Canadian Best Buy stores and outside consulting expenses intended to improve the future efficiency and profitability of International operations. Also, the International SG&A rate was positively affected by favorable settlements related to previously established legal and location closing liabilities, which did not have a significant affect on fiscal 2004 earnings from continuing operations.

During the fourth quarter of fiscal 2004, we completed our annual impairment testing of the goodwill and tradename recorded in our International segment. Based on expectations for the business and the prevailing retail environment, we determined that no impairment existed. However, if unanticipated events adversely impact this segment for an extended period of time, it could result in future impairment charges. In addition, the value recorded for the Future Shop tradename is based on the continuation of the Future Shop brand in Canada. If we ever were to abandon the Future Shop tradename, it would result in future impairment charges.

The following table reconciles International stores open at the beginning and end of fiscal 2004:

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The following table reconciles International stores open at the beginning and end of fiscal 2003:

During fiscal 2004, we opened four and relocated five Future Shop stores. At the end of fiscal 2004, we operated 108 Future Shop stores throughout all Canadian provinces. We also opened 11 Canadian Best Buy stores during fiscal 2004, including our first such stores in Alberta and Manitoba. At the end of fiscal 2004, we operated 19 Canadian Best Buy stores in Ontario, Alberta and Manitoba.

Discontinued Operations

For fiscal 2004, the sale of our interest in Musicland resulted in an after-tax loss on the disposal of discontinued operations totaling $66 million. The results of discontinued operations for fiscal 2004 are included through the date of the sale, June 16, 2003. Fiscal 2003 results from discontinued operations are for the entire fiscal year. For additional information regarding discontinued operations, refer to Note 2, Discontinued Operations, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

The results from discontinued operations for the past three fiscal years are as follows ($ in millions):

⁽¹⁾ As-adjusted data conforms the accounting for vendor allowances to the method adopted in fiscal 2003.

⁽²⁾ Fiscal 2003 included a $25 million tax benefit resulting from the differences between the bases of assets and liabilities for financial reporting and income tax purposes at acquisition, which were expected to be realized upon the disposition of Musicland.

⁽³⁾ In fiscal 2004, based on the terms of the sale of our interest in Musicland, we determined that the nature of our future taxable income may not allow us to realize the $25 million deferred tax asset recorded in fiscal 2003 and have provided a full valuation allowance.

⁽⁴⁾ In the first quarter of fiscal 2003, we recorded an after-tax, non-cash impairment charge of $308 million for the full write-off of goodwill related to our acquisition of Musicland, in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which was adopted effective on March 3, 2002. In addition, we recorded an after-tax, non-cash charge of $8 million for the change in our method of accounting for vendor allowances in accordance with EITF No. 02-16, Accounting by a Reseller for Cash Consideration Received from a Vendor.

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Additional Consolidated Results

Net Interest (Expense) Income

Net interest expense increased to $8 million for fiscal 2004, compared with net interest income of $4 million for fiscal 2003. The increase in net interest expense was primarily a result of the allocation of interest expense to discontinued operations for fiscal 2003. In addition, net interest expense increased approximately $4 million for fiscal 2004 as a result of interest expense related to the construction of our new corporate campus that was capitalized during fiscal 2003.

Net interest income decreased to $4 million for fiscal 2003, compared with $18 million for fiscal 2002. The decrease in net interest income was primarily due to lower yields on short-term investments and a full year of interest expense associated with convertible debentures issued during fiscal 2002.

For additional information regarding net interest (expense) income, refer to Note 6, Net Interest (Expense) Income, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Effective Income Tax Rate

Our effective income tax rate decreased to 38.3% for fiscal 2004, compared with 38.7% for fiscal 2003. The decrease in the effective income tax rate for fiscal 2004 was mainly due to our lower effective state income tax rate for the current fiscal year.

Our effective income tax rate increased to 38.7% for fiscal 2003, up from 38.4% for fiscal 2002. The increase in the effective income tax rate for fiscal 2003 was primarily due to increased tax expense related to our International segment and a slight increase in the effective state income tax rate.

Impact of Inflation and Changing Prices

The impact of inflation and changing prices has not been material to our revenue or earnings from continuing operations in any of the last three fiscal years. Highly competitive market conditions and the general economic environment minimized inflation's impact on the selling prices of our products.

Liquidity and Capital Resources

Summary

We ended fiscal 2004 with $2.6 billion of cash and cash equivalents, an increase from $1.9 billion at the end of fiscal 2003. Working capital, the excess of current assets over current liabilities, increased to $1.2 billion at the end of fiscal 2004, compared with $1.1 billion at the end of fiscal 2003.

Cash Flows

Cash provided by operating activities was $1.4 billion for fiscal 2004, compared with $746 million for fiscal 2003 and $1.5 billion for fiscal 2002. The improvement in operating cash flows for fiscal 2004, compared with the prior fiscal year, was primarily due to an increase in cash provided from changes in operating assets and liabilities, as well as increased earnings from continuing operations. Earnings from continuing operations increased to $800 million for fiscal 2004, compared with $622 million for fiscal 2003. The changes in operating assets and liabilities were substantially due to changes in accounts payable, other liabilities and accrued income taxes, partially offset by increased merchandise inventories. Merchandise inventories increased in fiscal 2004, primarily due to the addition of new stores and changes in product mix, including expanded assortments of digital televisions and notebook computers. In addition, the increased inventory levels reflected our efforts to improve in-stock positions in product categories that have been driving our revenue growth. The increase in accounts payable was primarily due to the increase in inventory, the timing of vendor payments and increased business volume. Other liabilities increased primarily due to growth in the business, higher performance-based incentive compensation as a result of our improved year-over-year operating performance and increased payroll withholdings associated with our new employee stock purchase plan. Accrued income taxes increased primarily due to higher income taxes resulting from the increase in

33         

earnings from continuing operations, partially offset by tax benefits resulting from the sale of our interest in Musicland.

Cash used in investing activities was $543 million for fiscal 2004, compared with $659 million and $924 million for fiscal 2003 and fiscal 2002, respectively. The decrease for fiscal 2004 was primarily a result of a decrease in additions to property and equipment. Refer to the "Capital Expenditures" section of this MD&A for additional information. In fiscal 2004, we used cash for the construction of new retail locations, information systems, distribution center improvements, and other additions to property and equipment, including the completion of our new corporate campus. The primary purposes of the cash investment activity were to support our expansion plans, to improve our operational efficiency and to enhance shareholder value.

Cash used in financing activities was $133 million for fiscal 2004, compared with cash provided by financing activities of $45 million for fiscal 2003 and $769 million for fiscal 2002. The change from fiscal 2003 to fiscal 2004 was primarily due to the payment of cash dividends and repurchases of our common stock during fiscal 2004, partially offset by increased proceeds from the issuance of common stock in connection with our equity-based compensation programs. We made two dividend payments totaling approximately $130 million during fiscal 2004. In addition, during fiscal 2004, we repurchased $100 million of our common stock pursuant to the stock purchase program authorized by our Board of Directors in fiscal 2000.

Net cash used in discontinued operations was $53 million for fiscal 2004, compared with $79 million for fiscal 2003 and $270 million for fiscal 2002. Net cash used in discontinued operations decreased for fiscal 2004, as compared with fiscal 2003, due to the sale of our interest in Musicland during the second quarter of fiscal 2004.

Sources of Liquidity

Funds generated by operating activities and available cash and cash equivalents continue to be our most significant sources of liquidity. We believe funds generated from the expected results of operations and available cash and cash equivalents will be sufficient to finance anticipated expansion plans and strategic initiatives for the next fiscal year. In addition, our revolving credit facilities are available for additional working capital needs or investment opportunities. There can be no assurance, however, that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under the revolving credit facilities.

We have a $200 million unsecured revolving credit facility scheduled to expire in March 2005, of which $197 million was available at February 28, 2004. Outstanding letters of credit reduced the amount available under this facility. No borrowings were made under this facility during fiscal 2004, 2003 and 2002.

We also have inventory financing lines totaling $210 million that allow us to extend the due dates of merchandise invoices beyond their normal terms. At February 28, 2004, $140 million was available for use under these facilities. Outstanding merchandise invoices reduced the amounts available under these facilities.

In March 2004, we entered into a $19 million unsecured revolving demand facility related to our International operations, of which $4 million is only available on a seasonal basis from August through January of each year. This facility replaced a $41 million unsecured credit facility which was cancelled on March 1, 2004. There were no borrowings outstanding under the $41 million facility at February 28, 2004.

We offer our customers extended financing through a third-party financial institution. The use of financing encourages consumers to purchase selected products and promotes our business. The third-party institution assumes the risk of collection from our customers and has no recourse against

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us for any uncollectible amounts. Generally, these financing offers allow customers to purchase products with repayment terms ranging from 90 days to 18 months without a finance charge. Our contract with the third-party financial institution extends through January 2009. If the contract were to be unexpectedly terminated or canceled, we believe we could contract with an alternative third-party financial institution or directly provide our customers with extended financing.

Our credit ratings as of February 28, 2004, were as follows:

⁽¹⁾ Fitch Ratings affirmed its BBB rating and Stable outlook in September 2003. Fitch stated that its ratings reflected our strong customer acceptance and market share, solid operating margins and liquid balance sheet. These factors were balanced against the cyclical nature of the consumer electronics industry.

⁽²⁾ Standard & Poor's Ratings Services revised its outlook to Stable from Negative in June 2003. The revised outlook issued by Standard & Poor's Ratings Services reflects our divestiture of Musicland, no expected significant acquisition activity and positive comparable store sales trends.

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

Capital Expenditures

A component of our long-term strategy is our capital expenditure program. This program includes, among other things, investments in new stores, store remodeling, store relocations and expansions, new distribution facilities and information technology enhancements. During fiscal 2004, we invested $545 million in property and equipment, including opening 78 new stores; remodeling, relocating and/or expanding 13 stores; and improving our distribution centers and information systems. We plan to invest approximately $700 million in property and equipment during fiscal 2005. We expect to open approximately 73 new stores in the United States and Canada; remodel, relocate and/or expand some of our older stores in key strategic markets; complete the construction of our new Ardmore, Oklahoma, distribution center; complete the expansion of our Brampton, Ontario, distribution center and make other infrastructure investments to support the business. Capital expenditures are funded through cash provided by operating activities, as well as available cash and cash equivalents.

Refer to the "Outlook for Fiscal 2005" section of this MD&A for additional information on our capital expenditure plans for fiscal 2005.

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

⁽¹⁾ Includes store remodels, relocations and/or expansions, as well as various merchandising projects.

⁽²⁾ Construction of our new corporate campus was completed during fiscal 2004.

⁽³⁾ Excludes cash paid for acquisitions.

Debt and Capital

In fiscal 2002, we sold convertible debentures due June 27, 2021, and January 15, 2022, with an initial principal amount at maturity of $492 million and

35         

a principal amount of $402 million, respectively. The proceeds from the offerings, net of offering expenses, were $726 million. We may redeem, and holders of the debentures may require us to purchase, all or part of the debentures on certain dates or upon the occurrence of certain events as specified in the respective indentures. In addition, in the event that certain conditions are satisfied, holders may surrender their debentures for conversion, which would increase the number of shares of our common stock outstanding and have a dilutive impact on our reported earnings per share. The shares related to the convertible debentures were not included in our diluted earnings-per-share computation for fiscal 2004 or 2003, as the criteria for conversion of the debentures were not met. For additional information regarding the convertible debentures, refer to Note 4, Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Holders of our convertible debentures due in 2021 can require us to redeem the debentures for cash effective on June 27, 2004. As a result, convertible debentures with a carrying value of $353 million have been included in the current portion of long-term debt in the February 28, 2004, consolidated balance sheet. At the end of fiscal 2004, the fair market value of the convertible debentures exceeded the redemption value. Therefore, we do not currently expect, subject to changes in market conditions, that holders of the convertible debentures will exercise their redemption option during fiscal 2005 and require us to purchase these debentures. However, if market conditions change and holders of our convertible debentures due in 2021 exercise their redemption option, we believe funds generated from the expected results of operations and available cash and cash equivalents will be sufficient to finance the redemption. If holders of our convertible debentures do not exercise their redemption option on June 27, 2004, their next redemption opportunity will not be until June 27, 2009.

Our ability to access our credit facilities is subject to our compliance with the terms and conditions of the credit facilities, including financial covenants. The financial covenants require us to maintain certain financial ratios and a minimum net worth. As of the end of fiscal 2004, we were in compliance with all such covenants. In the event we were to default on any of our other debt, it would constitute a default under our credit facilities as well.

Our decision to own or lease real estate is based on an assessment of our financial liquidity, our capital structure, our desire to own or to lease the location and the alternative that results in the highest return to our shareholders. For those sites developed using working capital, we often sell and lease back those properties under long-term lease agreements.

We also have a master lease program which was used for the purpose of constructing and leasing new retail locations. As of February 28, 2004, $58 million in leases related to new stores were outstanding under the master lease program. The master lease program is complete and there will be no further new-store development under this program. The program is set to expire on January 1, 2006, and is renewable for one year, subject to the lenders' consent.

Share Repurchases and Dividends

In October 2003, we announced our intent to resume purchasing shares of our common stock pursuant to a $400 million share repurchase program authorized by the Company's Board of Directors in fiscal 2000. During fiscal 2004, we purchased and retired 1.8 million shares at a cost of $100 million. No purchases were made under the stock repurchase program in either fiscal 2003 or fiscal 2002. We have purchased and retired 4.6 million shares at a cost of $200 million since the inception of the share repurchase program in fiscal 2000. We consider several factors in determining when to make share repurchases, including among other things, our cash needs and the market price of our stock. At the end of fiscal 2004, $200 million of the $400 million originally authorized by the Company's Board of Directors

         36

was available for future share repurchases. There is no expiration date governing the period over which we can make our share repurchases. We expect that cash provided by future operating activities, as well as available cash and cash equivalents, will be the sources of funding for the share repurchase program.

Additional information on the share repurchase program is included in Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, of this Annual Report on Form 10-K.

In October 2003, we also announced that our Board of Directors had declared the Company's first-ever cash dividends, including the initiation of a regular quarterly cash dividend. A special cash dividend payment of $0.30 per common share, or approximately $97 million based on 324,804,000 common shares outstanding as of the record date, November 18, 2003, was paid on December 9, 2003. In addition, a regular quarterly cash dividend of $0.10 per common share, or approximately $33 million based on 324,146,000 common shares outstanding as of the record date, January 7, 2004, was paid on January 28, 2004. These two dividend payments allowed the Company to begin its desired rhythm of paying $0.40 per common share each fiscal year, subject to legal and contractual restrictions. The second regular quarterly cash dividend of $0.10 per common share is payable on May 12, 2004, to shareholders of record as of the close of business on April 21, 2004. We plan to fund future dividend payments using cash provided by future operating activities and available cash and cash equivalents.

Off-Balance-Sheet Arrangements and Contractual Obligations

Other than in connection with executing operating leases, we do not have any off-balance-sheet financing. We finance a portion of our new-store development program through sale-leaseback transactions, which involve selling stores to unrelated parties and then leasing the stores back under leases that are accounted for as operating leases in accordance with SFAS No. 13, Accounting for Leases. A summary of our operating lease obligations by fiscal year is included in the "Contractual Obligations" section below.

Our debt-to-capitalization ratio, which represents the ratio of total debt, including the current portion of long-term debt, to total capitalization (total debt plus total shareholders' equity), improved to 20% at February 28, 2004, compared with 23% at March 1, 2003. We view our debt-to-capitalization ratio as an important indicator of our creditworthiness. Our adjusted debt-to-capitalization ratio, including capitalized operating lease obligations (rental expense for all operating leases multiplied by eight), was 57% at the end of fiscal 2004, compared with 67% at the end of fiscal 2003. Total debt, including capitalized operating lease obligations (rental expense for all operating leases multiplied by eight), was $4.6 billion at February 28, 2004, compared with $5.5 billion at March 1, 2003.

The information presented in this Annual Report on Form 10-K includes financial information prepared in accordance with GAAP, as well as measures that may be considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP.

Our adjusted debt-to-capitalization ratio, including capitalized operating lease obligations (rental expense for all operating leases multiplied by eight), is not in accordance with, or preferable to, the ratio determined in accordance with GAAP. However, we have included this information as we believe that our adjusted debt-to-capitalization

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ratio, including capitalized operating lease obligations (rental expense for all operating leases multiplied by eight), is important for understanding our operations and provides meaningful additional information about our ability to service our long-term debt and other fixed obligations, and to fund our future growth. In addition, we believe our adjusted debt-to-capitalization ratio, including capitalized operating lease obligations (rental expense for all operating leases multiplied by eight), is relevant because it enables investors to compare our indebtedness to retailers who own, rather than lease, their stores.

In January 2003, as directed by the Sarbanes-Oxley Act of 2002, the SEC amended Item 10 of Regulation S-K to provide additional guidance to registrants that include non-GAAP financial measures in SEC filings. The following table presents a reconciliation of the numerator and denominator used in the calculation of our adjusted debt-to-capitalization ratio, including capitalized operating lease obligations (rental expense for all operating leases multiplied by eight) ($ in millions):

⁽¹⁾ Fiscal 2003 includes $5 million of Musicland debt.

⁽²⁾ Fiscal 2003 includes $1.2 billion of Musicland capitalized operating lease obligations.

The most directly comparable GAAP financial measure to our adjusted debt-to-capitalization ratio, including capitalized operating lease obligations (rental expense for all operating leases multiplied by eight), is our debt-to-capitalization ratio. Our debt-to-capitalization ratio excludes capitalized operating lease obligations (rental expense for all operating leases multiplied by eight) in both the numerator and denominator of the above calculation.

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Contractual Obligations

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

Note:    For more information regarding long-term debt, operating leases and purchase obligations, refer to Notes 4, 7 and 11, respectively, in the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

⁽¹⁾ Purchase obligations include agreements to purchase goods or services that are enforceable, legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. Additionally, we included open purchase orders in the table above which are not legally binding agreements. Our purchase orders are based on our current inventory needs and substantially all orders are fulfilled within 30 days.

⁽²⁾ Included in other long-term liabilities on our consolidated balance sheet at February 28, 2004, is a $58 million obligation for deferred compensation. As the specific payment dates for the deferred compensation is unknown, related balances have not been reflected in the above table.

Critical Accounting Policies

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

Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management's most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting policies and related disclosures with our independent auditor and the Audit Committee of our Board of Directors.

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New Accounting Standards

In January 2003, the FASB issued Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities, which requires the consolidation of, and disclosures about, variable interest entities (VIEs). VIEs are entities for which control is achieved through means other than voting rights. In December 2003, the FASB revised FIN No. 46 to incorporate all decisions, including those in previously issued FASB Staff Positions, into one Interpretation. The revised Interpretation supersedes the original Interpretation. In most circumstances, the requirements were effective immediately for all VIEs in which an interest was acquired after January 31, 2003. For variable interests in special purpose entities in which an interest was acquired before February 1, 2003, the requirements were effective for us at the end of fiscal 2004. Requirements for non-special purpose entities acquired before February 1, 2003, are effective for us at the end of the first quarter of fiscal 2005. FIN No. 46 has not had, and is not expected to have, a significant impact on our consolidated financial statements.

During fiscal year 2004, we adopted EITF Issue No. 03-10, Application of Issue 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers, which amends EITF No. 02-16. According to the amended guidance, if certain criteria are met, consideration received by a reseller in the form of reimbursement from a vendor for honoring the vendor's sales incentives offered directly to consumers (e.g., manufacturers' coupons) should not be recorded as a reduction of the cost of the reseller's purchases from the vendor. The adoption of EITF No. 03-10 did not impact reported net earnings, financial position or cash flows.

Quarterly Results and Seasonality

Similar to many retailers, our business is seasonal. Historically, we have realized more of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday selling season, than in any other fiscal quarter. The timing of new store openings, costs associated with acquisitions and development of new businesses, and general economic conditions also may affect our future quarterly results.

Selected quarterly financial data is included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

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Fourth-Quarter Summary

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Earnings from continuing operations increased 24% to $469 million, or $1.42 per diluted share, compared with $378 million, or $1.16 per diluted share, for the fourth quarter of fiscal 2003. The increase in earnings from continuing operations was driven by revenue gains, including a comparable store sales increase of 9.7%, and an improved gross profit rate, and was partially offset by a modest increase in our SG&A rate.

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Revenue increased 21% to $8.4 billion, compared with $7.0 billion for the fourth quarter of fiscal 2003, driven by a comparable store sales gain of 9.7%, the addition of 78 stores in the past 12 months and the effect of changes in foreign currency exchange rates.

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Our gross profit rate increased 0.3% of revenue to 25.4% of revenue, up from 25.1% of revenue for the fourth quarter of fiscal 2003. The increase in the gross profit rate was primarily due to gross profit rate improvements within our product categories and a more effective use of promotions in the Domestic segment compared with the fourth quarter of the prior fiscal year. These improvements were partially offset by costs associated with Reward Zone; the increase of the home office category in the revenue mix, as that product category carries a lower gross profit rate; and a more promotional environment in the International segment compared with the fourth quarter of fiscal 2003.

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Our SG&A rate increased 0.1% of revenue to 16.4% of revenue, up from 16.3% of revenue for the fourth quarter of fiscal 2003. The modest SG&A rate increase was primarily due to increased performance-based incentive compensation, expenses associated with our customer centricity initiative and reduced funding from vendor alliance programs. These factors were partially offset by expense leverage from a 21% increase in revenue and the realization of cost savings from our efficient enterprise initiative.

Consolidated

The following table presents unaudited selected consolidated financial data ($ in millions, except per share amounts):