Item 1. BUSINESS
General
Best Buy Co., Inc. (the "Company" or "Best Buy"), is the nation's largest volume specialty retailer of name brand consumer electronics, home office equipment, entertainment software and appliances. The Company commenced business in 1966 as an audio component systems retailer, and in the early 1980s, with the introduction of the video cassette recorder, expanded into video products. In 1983, the Company changed its marketing strategy to use mass merchandising techniques for a wider variety of products, and began to operate its stores with a "superstore" format. In 1989, Best Buy dramatically changed its method of retailing by introducing its "Concept II" store format, a self-service, non-commissioned, discount style sales environment designed to give the customer more control over the purchasing process. The Company determined that an increasing number of customers had become knowledgeable enough to select products without the assistance of a commissioned salesperson and preferred to make purchases in a more convenient and customer friendly environment. With its innovative retail format, the Company has moved into a leading position nationally in all of its principal product categories except appliances.
In fiscal 1995, the Company developed a strategy to further enhance its store format. The strategy, known as "Concept III", features a larger, redesigned store format created to produce a more informative and exciting shopping experience for the customer. Through focus group interviews and other research, the Company determined that customers wanted more product information and a larger product selection. In order to meet these evolving consumer preferences, the Company developed an enhanced store format which features more hands-on demonstrations. The standard size for the Concept III stores is now 45,000 square feet and is designed to accommodate a product selection intended to be as good as or better than the selection offered by Best Buy's competitors in each of its principal product categories. Management continues to evaluate and refine the content and features of these Concept III stores to maximize the revenue and operating profit while providing customers with the most desirable shopping experience.
In the last two fiscal years the Company has increased its store count by 13%, with a net addition of 33 new stores and, as of February 28, 1998, was operating 284 stores from coast to coast. The rate of expansion in fiscal 1998 and 1997 was significantly slower than the previous three years when the Company opened a total of 140 stores. The slower growth was dictated by the need to focus on improving the Company's operations and financial performance. The Company anticipates opening approximately 25 new
stores in fiscal 1999 and to be operating approximately 309 stores by the end of the fiscal year.
Business Strategy
The Company's business strategy is to offer consumers an enjoyable and convenient shopping experience while maximizing the Company's profitability. Best Buy believes it offers consumers meaningful advantages in store environment, product value, selection and service. An objective of this strategy has been to achieve a dominant share of the markets Best Buy serves. The Company currently holds a leading, and in some cases dominant, share in its mature markets. The Company's store format features interactive displays, and for certain product categories, a high level of customer assistance, all designed to enhance the customer's shopping experience. As part of its overall strategy, the Company:
- Generally offers a retail format similar to a self service discount store for many products that consumers are familiar with and provides a higher level of customer service and product explanation for more complex products.
- Provides a selection of brand name products comparable to retailers that specialize in the Company's principal product categories and seeks to ensure a high level of product availability for customers.
- Seeks to provide customers with the best product value available in the market area through active comparison shopping programs, daily price changes, lowest price guarantees and special promotions, including interest-free financing, performance service plans generally priced below competitors, and home delivery.
- Provides a variety of services not offered by certain competitors, including convenient financing programs, product delivery and installation, computer training and post-sale services including repair and warranty services and computer upgrades.
- Locates stores at sites that are easily accessible from major highways and thoroughfares and seeks to create sufficient concentrations of stores in major markets to maximize the leverage on fixed costs including advertising and operations management.
- Controls costs and enhances operating efficiency by centrally controlling all buying, merchandising and
distribution, and vertically integrating certain support functions such as advertising.
Best Buy's store format is a key component of its business strategy. The Company believes that because customers are generally familiar with many of the products the Company sells and are accustomed to discount shopping formats, they increasingly resist efforts to direct their choice of product and appreciate controlling the purchase decision. For products that are relatively easy for consumers to understand and purchase, the Company employs a self-service, discount style store format, featuring easy to locate product groupings, emphasizing customer choice and product information. For certain new technology products such as digital cameras and phones and digital satellite systems, the Company provides dedicated and specially trained sales assistance. Sales staff in these product categories help customers understand the features and benefits of new technology and can assist customers in the purchase of accessories and registration for service with providers.
Best Buy continuously evaluates the retail environment and regularly uses focus groups and customer surveys to assess customer preferences. Through these processes, Best Buy concluded that customers want access to more product information in order to be more confident about their buying decisions. Most stores contain a demonstration area for television "surround sound" systems; a simulated, life-size car display; and audio speaker rooms. These demonstration areas allow customers to hear for themselves how different configurations of audio components enhance sound quality at home or in the car. The speaker rooms feature a wide variety of music allowing customers to compare speaker quality while listening to their choice of music. Best Buy believes that these features further differentiate it from competing retailers and should also provide an advantage for the Company relative to competitors such as catalog and on-line services and television shopping networks.
The Company's stores are in large, open buildings with high ceilings. Best Buy's stores average approximately 43,000 square feet. The Concept III stores feature specialty areas such as larger viewing rooms for large screen and projection televisions and larger speaker rooms. The Company expects that all of the new stores opened will be approximately 40,000 - 45,000 square feet to best leverage the cost of operations and maximize productivity.
Best Buy's merchandising strategy differs from many other retailers selling comparable merchandise. Best Buy's merchandise is displayed at eye level next to signs identifying the products' major features, with the boxed products available above or below the display model. The Company's product specialists, who are knowledgeable about the operation and features of the merchandise on display, are dedicated to a particular product area for customers who desire assistance. This convenient, self service format for many of the products the Company sells allows the
customer to carry merchandise directly to the check-out lanes, pay for it and leave the store thus avoiding the time-consuming process used at traditional superstores and catalog showrooms.
The Company believes that its advertising strategy continues to contribute to its increasing market share and brand image. Best Buy spends over 3% of store sales on advertising, including the distribution of about 33 million newspaper inserts weekly. The Company has vertically integrated advertising and promotion capabilities and operates its own in-house advertising agency. This capability allows the Company to respond rapidly to competitors in a cost effective manner. In many of its markets, the Company is able to secure and deliver merchandise to its stores and to create, produce and run an advertisement all within a period of less than one week.
Print advertising generally consists of four-color weekly inserts, generally of 20 to 24 pages, that emphasize a variety of product categories and feature extensive name brand selection and price range. The Company also produces all of its television commercials, each with a specific marketing message. Television commercials account for approximately 29% of total advertising expenditures. The Company is reimbursed by vendors for a substantial portion of advertising expenditures through cooperative advertising arrangements. In fiscal 1998 the Company introduced a national brand image program that is expected to move Best Buy's image beyond that of a low price specialty retailer by promoting the customer's shopping experience and the Company's responsiveness to consumers' needs.
Product service and repair are important aspects of Best Buy's marketing strategy, providing the opportunity to differentiate itself from warehouse clubs and other discount stores which generally do not provide such services. Virtually all products sold by the Company, with the exception of entertainment software, carry manufacturers' warranties. The Company generally offers to service and repair all of the products it sells, except major appliances in certain markets, and has been designated by substantially all of its major suppliers as an authorized service center. In addition, the Company conducts computer software training classes at selected stores and makes its in-store technical support staff available to assist customers with the custom configuration of personal computers and peripheral products. The Company also delivers and installs major appliances and large electronics products and installs car stereos and security systems.
Product Selection and Merchandising
Best Buy provides a broad selection of name brand models within each product line in order to provide customers with greater choice. The Company currently offers approximately 5,600 products, exclusive of entertainment software titles and accessories, in its
four principal product categories. In addition, the Company offers a selection of accessories supporting its principal product categories, which typically yield a higher margin than most of the Company's other products. The Company believes that this assortment of accessories builds customer traffic for its other products.
The home office category, Best Buy's largest product category, includes personal computers and related peripheral equipment, telephones, cellular phones, answering machines, fax machines, copiers and calculators. The Company was among the first consumer electronics retailers to carry an extensive assortment of personal computer products and related software. Sales in this category are largely comprised of the sale of personal computers. The retail market for personal computers continues to be promotional and competitive. The Company's operating results can be affected by significant changes in promotional activity as well as product demand for and availability of personal computers and the timing of computer model transitions by manufacturers. The timing of significant new software releases can also impact sales of personal computers. The Company believes that it is well positioned to withstand increased competition in the retail market for personal computer products, traditionally low margin items, due to its experience in the market and its significantly improved ability to manage inventories in this category. The Company also believes that its broad product lines, including those that generate higher profit margins, and its relatively low cost structure contribute to its ability to compete in this category. In addition, the Company believes that the related services it offers, such as computer training, configuration, maintenance and upgrade, are distinct advantages compared to other discount and mail order computer retailers. Changing technology and hardware requirements necessary to support new software, including on-line services, are expected to continue to be a primary factor in the growth in sales of personal computers and related products in the future. The Company's home office products category includes brand names such as Acer, AT&T, Canon, Compaq, CTX, Epson, Hewlett Packard, IBM, Motorola, Packard Bell, Panasonic, Sharp and Toshiba.
Best Buy's second largest product category is consumer electronics, consisting of video and audio equipment. Video products include televisions, video cassette recorders, camcorders and satellite dishes that receive direct broadcast satellite television. Audio products include audio components, audio systems, portable audio equipment, car stereos and security systems. The Company continues to expand its product selection in consumer electronics by offering higher end products and components that have greater appeal to audio and video enthusiasts. The introduction of digital satellite systems (DSS) in fiscal 1997 and Digital Versatile Disc (DVD) and MiniDisc in fiscal 1998 marked the initial stages of the transition of the consumer electronics category into digital technology. While sales of analog technology in both audio and video products remain soft, sales of digital technology continue to accelerate. The replacement of existing
analog technology with digital products in the future represents a significant opportunity for the Company, although the transition could impact sales of current products. Manufacturers have introduced High Definition Television (HDTV), and broadcast transmission of digital signals is planned in 10 major markets beginning in November 1998. Similar to recent technology introductions in consumer electronics, introductory price points are expected to be high, resulting in a lag time between product introduction and significant sales volumes. The Company sells consumer electronics with brand names such as Aiwa, Bose, Cambridge Soundworks, Eosone, General Electric, Infinity, JBL, JVC, Magnavox, Nakamichi, Panasonic, Pioneer, RCA, Sanyo, Samsung, Sharp, Sony, Technics, Toshiba and Yamaha.
Best Buy's entertainment software category includes compact discs, pre-recorded audio and video cassettes, computer software and video game hardware and software. The Company is one of the few large consumer electronics retailers that sells a broad selection of entertainment software in all of its stores. The Company offers from 7,000 to approximately 40,000 titles in its largest Concept III stores. Due to the slow rate of inventory turn of some of the deep catalogue recorded music titles, the Company narrowed its assortment of recorded music in fiscal 1998 to improve inventory productivity. This reduction in titles occurred primarily in the 45,000 and 58,000 square foot stores. Best Buy will continue to customize a portion of the music software assortment for particular stores. The increase in sales of DVD players in fiscal 1998 and significant expansion of the number of movie titles available in DVD format led to growth in the entertainment software category. Further growth is anticipated in fiscal 1999 as the number of movie titles is expected to increase to 1,500 by the end of calendar 1998. The Company will be allocating additional space in the stores to accommodate the wider selection. The video game hardware and software products include popular games by manufacturers such as Sony and Nintendo. Activity in this category is impacted by changes in technology such as, for example, the introduction of the Sony Playstation and Nintendo 64 formats in the second half of fiscal 1997.
The major appliance category includes microwave ovens, washing machines, dryers, air conditioners, dishwashers, refrigerators, freezers, ranges and vacuum cleaners. During fiscal 1998 this category included brand names such as Amana, Eureka, Frigidaire, General Electric, GE Profile, Hoover, Hotpoint, Maytag, Panasonic, Roper, Sanyo, Sharp, Tappan and White-Westinghouse. The addition of the Whirlpool line of appliances in fiscal 1999 is expected to complete the Company's product assortment and increase the Company's market share in the appliance retailing industry.
The Company also sells cameras and other photographic equipment and ready to assemble furniture designed for use with computer and audio/video equipment. In fiscal 1998, the Company utilized a portion of the space created by the reduction in
recorded music to introduce books, magazines and fitness equipment to its product assortment.
The Company intends to continue test marketing and evaluating new products in its larger stores during fiscal 1999. While some of the products to be tested may not fit in the Company's four major product categories, they will be items that appeal to the demographics of the Company's existing customer base.
The following table sets forth the approximate percentages of store sales from each of Best Buy's principal product lines.
(1) Includes, among other things, photographic equipment, blank audio and video tapes, furniture and accessories and performance service plans.
Store Locations and Expansion
The Company's expansion strategy generally has been to enter major metropolitan areas with the simultaneous opening of several stores and then to expand into contiguous non-metropolitan markets. Currently, approximately one-third of the Company's stores are in non-metropolitan markets. The entry into a new market is preceded by a detailed market analysis which includes a review of competitors, demographics and economic data. Best Buy's store location strategy enables it to increase the effectiveness of advertising expenditures and to create a high level of consumer awareness. In addition, the clustering of stores allows the Company to maintain more effective management control, enhance asset utilization, and utilize its distribution facilities more efficiently.
When entering a major metropolitan market, the Company establishes a district office, service center and major appliance warehouse. Each new store requires approximately $3 million of working capital, depending on the size of the store, for merchandise inventory (net of vendor financing), leasehold improvements, fixtures and equipment. Pre-opening costs of approximately $300,000 per store are incurred in hiring and training new employees and in advertising, and have been expensed in the year the store is opened.
During fiscal 1998, the Company opened 13 stores, and expanded or relocated five stores to larger facilities. Based on the Company's
improved financial performance in fiscal 1998 Best Buy is increasing its store expansion program in fiscal 1999. The Company expects to open 25 new stores in fiscal 1999, which includes entry into markets of Nashville and Knoxville, Tennessee; Wausau, Wisconsin; Charleston, South Carolina; Reno, Nevada; and the New England states. The remainder of the new stores will be opened in existing markets. The Company also plans to expand or relocate another five stores in fiscal 1999. With the planned opening of the Dinuba, California distribution center, the Company believes it has the necessary distribution capacity and management information systems as well as management experience and depth to support its fiscal 1999 expansion plans.
The following table presents the number and location of stores operated by the Company at the end of each of the last three fiscal years and anticipated stores at fiscal 1999 year end.
Suppliers, Purchasing and Distribution
The Company's marketing strategy depends, in part, upon its ability to offer a meaningful selection of name brand products to its customers and is, therefore, dependent upon satisfactory and stable supplier relationships. In fiscal 1998, Best Buy's 20 largest suppliers accounted for approximately 55% of the merchandise purchased by the Company, with five suppliers, Compaq, Hewlett-Packard, Packard Bell, Panasonic, and Sony representing approximately 28% of the Company's total purchases. The loss of or disruption of supply, including disruptions in supply due to manufacturers' product quality issues, from any one of these major suppliers could have a material adverse effect on the Company's sales. Certain suppliers have, at times, limited or discontinued their supply of products to the Company. Best Buy generally does not have long-term written contracts with its major suppliers and does not currently have any indication that any current suppliers will discontinue selling merchandise to the Company. The Company has not experienced difficulty in maintaining satisfactory sources of supply, and management expects that adequate sources of supply will continue to exist for the types of merchandise sold in its stores.
Best Buy's centralized buying staff purchases substantially all of the Company's merchandise. The buying staff within the Company's Marketing Department is responsible for product acquisition, promotion planning and product pricing. An inventory management staff in the Marketing Department is responsible for overall inventory management including allocations of inventory and replenishment of store inventory. Generally, with the exception of certain entertainment software, there are no agreements with suppliers for the return of unsold inventory. Merchandise remaining at the time of new product introduction is generally sold on a close-out basis and may be subject to a reduction in selling price to levels at or below the Company's cost. Revenues from the sale of close-out merchandise have been insignificant.
The Company has made product availability a high priority and continues to make investments in facilities, personnel and systems to assure that its in-stock position will be among the highest in the industry. The Company utilizes an automatic replenishment system for restocking its stores and is able to deliver products to its stores as required. Replenishment of store inventories is based on inventory levels, historical and projected sales trends, promotions and seasonality. The Company utilizes an extensive merchandise planning and daily inventory monitoring system to manage inventory turns. The Company engaged Andersen Consulting LLP in fiscal 1998 to assist in the design and implementation of systems and practices to improve the Company's assortment planning, inventory management, product sourcing and advertising effectiveness.
The majority of the Company's merchandise, except for major appliances, is shipped directly from manufacturers to the Company's distribution centers in California, Ohio, Minnesota, Oklahoma and Virginia. In addition, the Company operates a dedicated distribution center for entertainment software in Minnesota. Major appliances are shipped to satellite warehouses in each of the Company's major markets. In order to meet release dates for selected computer products and entertainment software titles, certain merchandise is shipped directly to the stores from manufacturers and distributors. The Company is, however, dependent upon the distribution centers for inventory storage and shipment of most merchandise to stores. The Company primarily uses contract carriers to ship merchandise from its distribution centers to its stores. During fiscal 1999, the Company is constructing a 650,000 square foot distribution center in Dinuba, California replacing an existing leased facility in Ontario, California. The Company expects to obtain long term financing on the facility after its anticipated opening in Spring 1999. The Company believes that its distribution centers can most effectively service stores within a 600 to 700 mile radius and that its current distribution centers will accommodate the Company's expansion plans for the next year. The Company plans to continue investing in new systems and purchasing material handling equipment to reduce labor costs, improve accuracy in filling orders and enhance space utilization.
Management Information Systems
Best Buy has developed proprietary software that provides daily information on sales, gross margins and inventory levels by store and by stockkeeping unit. These systems allow the Company to compare current performance against historical performance and the current year's budget. Best Buy uses point-of-sale bar code scanning from which sales information is polled at the end of each day. The Company uses EDI (Electronic Data Interchange) with selected suppliers for the more efficient transmittal of purchase orders, shipping notices and invoices. The Company believes that the systems it has developed have the ability to continue to improve customer service, operational efficiency, and management's ability to monitor critical performance factors. Best Buy is continuing to make investments in designing new systems, modifying existing systems and increasing processing capacity, particularly with respect to inventory management.
The Company has identified critical operational and financial systems as part of a comprehensive plan to address Year 2000 computer systems issues and make the required changes to existing systems or replace non-compliant systems, as appropriate. The Company is also working with its business partners to mitigate the impact of Year 2000 issues. The Company expects to complete most of the effort to address these issues in fiscal 1999 at a cost of approximately $10 million. The Company is also replacing its point of sale system with Year 2000 compliant equipment. The Company does
not expect to incur material costs beyond this estimate; however, the magnitude of the effort is difficult to accurately predict and there can be no assurance that the Company or its business partners will be completely Year 2000 compliant on a timely basis.
Store Operations
Best Buy has developed a standardized and detailed system for operating its stores. The system includes procedures for inventory management, transaction processing, customer relations, store administration and merchandise display. The Company's store operations are organized into divisions. Each division is divided into regions and is under the supervision of a senior vice president who oversees store performance through several regional managers, each of whom has responsibility for a number of districts within the region. District managers monitor store operations closely and meet regularly with store managers to discuss merchandising and new product introductions, sales promotions, customer feedback and requests and store operating performance. Similar meetings are conducted at the corporate level with divisional and regional management. A senior vice president of retail operations has overall responsibility for retail store processing and operations. Each district also has a loss prevention manager, with product security controllers employed at each store to control inventory shrinkage. Advertising, pricing and inventory policies are controlled at corporate headquarters. The Company's training, consumer affairs, human resources and store merchandising functions are also centralized at corporate headquarters.
The Company's stores are open seven days and six evenings a week. A store is typically staffed by one manager, four assistant managers, and an average staff ranging from 70 to 140 persons depending on store size. Approximately 60% of a store's staff, which includes product specialists and a support staff of cashiers and customer service and stock handling employees, is employed on a part-time basis. Store managers are paid a salary and have the opportunity to earn bonuses if their stores exceed sales and gross margin quotas, meet certain budget criteria in controlling expenses, and achieve certain administrative goals.
The Company has an employee development department which provides managers with a variety of tools to teach employees the core skills they need to meet their performance objectives. In the stores, Sales, Inventory, Operations and Merchandising managers undergo comprehensive training in their specialty areas, which include store operations, selling, managerial, training and communications skills. The retail selling and sales support teams receive a thorough orientation to the Company's industry and its business objectives. Sales personnel are trained to ask specific questions of customers to determine their needs and to present products, accessories and services that meet those expressed needs. Stores hold monthly "team meetings" to review store performance,
Company focus and changes and modifications in operating procedures. Specialized product training is also conducted at these monthly meetings. The Company's policy is to staff store management positions with personnel promoted from within each store and to staff new stores from its pool of trained managers. However, as Best Buy expands into new markets, it also recruits local management personnel who have valuable knowledge about the new market.
Credit Policy
Approximately 35% of store revenues are paid for in cash, with the remainder paid for by either major credit cards or the Best Buy private label credit card. In recent years, the Company has utilized special financing offers to stimulate sales. Generally, these financing offers allow customers to purchase certain products with repayment terms ranging from 90 days to one year without a finance charge. The longer financing offers, generally those beyond six months, typically require minimum monthly payments to avoid the finance charge. The special financing offers are only provided to customers who qualify for Best Buy's private label credit card. The private label credit card allows these customers to obtain financing on purchases of merchandise at Best Buy stores through arrangements between the Company and independent banks and consumer credit programs. The Company is generally able to qualify a new customer for credit on the spot, typically in less than five minutes. Receivables from private label credit card sales are sold, without recourse to the Company, to unaffiliated third party institutions. The Company receives payment from these institutions within 2 to 3 days following the sale.
Competition
Retailing in each of the Company's product categories is highly competitive. The overall growth in the consumer electronics business has slowed in recent years and the concentration of sales among the top retailers in the industry has increased. The industry's consolidation has been evidenced in recent years by the liquidation and consolidation of a number of competitors, including the closing of Tandy Corp.'s Incredible Universe stores and selected Computer City stores, stores operated by Musicland and Montgomery Ward and store closures by other national and regional chains in fiscal 1998. The flat industry sales are due to market saturation for many consumer electronics products and the general absence, until recently, of new products in that market. The dollar volume growth of sales nationally in the home office product category has slowed as average selling prices decline and household penetration increases. The Company competes with an increasing number of retailers and alternative channels of distribution such as mail order and internet shopping services. The Company is currently testing a "configure to order" sales process to compete
for the business of the most knowledgeable home office computer buyers. In addition, the Company believes that consumers continue to become more knowledgeable and value conscious, thereby putting pressure on profit margins. Management believes that its store format distinguishes the Company from most of its competitors by offering customers a friendlier and less pressured shopping experience. In addition, the Company competes by aggressively advertising and emphasizing a meaningful product selection, low prices, financing alternatives and service.
Best Buy competes in most of its markets against Circuit City, Sears and Montgomery Ward and in selected markets against computer superstores such as Computer City and CompUSA and entertainment software superstores operated by Musicland and Tower Records. Certain of these competitors have significantly greater financial resources than the Company. The Company also competes against independent dealers, discount stores, wholesale clubs, office products superstores and mass merchandisers.
Employees
As of February 28, 1998, the Company employed approximately 39,000 persons, of whom approximately 19,500 were part-time or seasonal employees. The Company has never experienced a strike or work stoppage, and management believes that its employee relations are good. There are currently no collective bargaining agreements covering any of the Company's employees.
Item 2.
Item 2. PROPERTIES
The Company's stores, most of which are leased, include sales space, inventory storage, management offices and employee areas. All of the leases provide for a fixed minimum rent with scheduled escalation dates and amounts. Leases for six of the stores have a percentage rent provision equal to from .75% to 4% of gross sales at each location in excess of certain specified sales amounts. The initial terms of the leases range from 5 to 20 years and generally allow the Company to renew for up to three additional five-year terms. The terms of a majority of the leases, including renewal options, extend beyond the year 2020. At February 28, 1998, the Company owned one of its operating retail store locations. Management expects to sell and lease back this property in fiscal 1999.
The Company leases over 3 million square feet of distribution facilities including brown goods centers in Bloomington, Minnesota; Ardmore, Oklahoma; Staunton, Virginia; Ontario, California; and Findlay, Ohio, and a software distribution center in Edina, Minnesota. The Company also operates leased satellite warehouses for major appliances in its major markets. The Company's corporate
offices are located in a 290,000 square foot facility it owns in Eden Prairie, Minnesota.
Item 3.
Item 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising during the normal course of conducting business. The resolution of those proceedings is not expected to have a material impact on the Company's financial condition.
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RICHARD M. SCHULZE is a founder of the Company. He has served as an officer and director of the Company from its inception in 1966 and currently serves as its Chairman and Chief Executive Officer.
BRADBURY H. ANDERSON has been the Company's President and Chief Operating Officer since April 1991. He has been employed in various other capacities with the Company since 1973, including retail salesperson, store manager and sales manager. Mr. Anderson has been a Director of the Company since 1986.
ALLEN U. LENZMEIER was promoted to his present position in April 1991 after having served as Senior Vice President - Finance and Operations and Treasurer of the Company from 1986. Mr. Lenzmeier joined the Company in 1984 and has also served as Vice President - Finance and Operations and Treasurer.
WADE R. FENN was promoted to his present position in August 1995, having served as a Sr. Vice President - Sales since 1991 and a Regional Vice President of the Company from 1987. Mr. Fenn joined the Company in 1980 as a salesperson and has also been employed by the Company as a store and district manager.
JULIE M. ENGEL was promoted to her present position in April 1995. Ms. Engel joined the Company in July 1981 as Advertising Manager, was promoted to Advertising Director in 1984 and became Vice-President - Advertising in April 1987.
ROBERT C. FOX was promoted to his present position in April 1994, after having served as Vice President - Accounting since 1987 and Treasurer since 1993. Mr. Fox joined the Company in 1985 as Controller.
KEVIN R. FREELAND was promoted to his present position in April 1997, after having served as Vice President - Inventory Management since 1995. Prior to joining Best Buy, Mr. Freeland spent more than eight years with Payless Shoe Source, where he held various positions in merchandise management, most recently as Vice President of Merchandise Distribution.
MARC D. GORDON joined the Company in April 1998 as Senior Vice President - MIS & Chief Information Officer. Mr. Gordon brings 13 years experience in the retail information systems area most recently as CIO for West Marine Products, a West Coast-based specialty retailer/wholesaler of marine products. Other positions have included senior manager with Andersen Consulting, principal with a Boston IS consulting firm and Vice President of Information Systems with the Timberland Company.
WAYNE R. INOUYE joined the Company in September 1995 as Senior Vice President - Marketing for Computers and Home Office. Prior to joining the Company, Mr. Inouye was with The Good Guys! for 10 years, most recently as Vice President of Merchandising.
MICHAEL P. KESKEY was promoted to his present position in April 1997, having served as Vice President - Sales since 1996. Mr. Keskey joined the Company in 1988 and has held positions as a Store Manager, District Manager and Regional Manager.
RICHARD L. LEWIS joined the Company in July 1997 as Senior Vice President - Human Resources. Mr. Lewis' career history includes 12 years with Limited Express where he held various positions, most recently as Executive Vice President of Human Resources. Lewis also served as Vice President of Human Resources for the car rental divisions of Republic Industries.
GEORGE Z. LOPUCH joined the Company in March 1998 as Senior Vice President - - Strategic Planning & Development. Mr. Lopuch brings to Best Buy more than 18 years of retail industry
experience. Most recently he served as Senior Vice President of Corporate Strategic Planning and Research at SuperValu.
JOSEPH T. PELANO was promoted to his present position in April 1997, having served as Vice President - Retail Store Operations since 1996. Mr. Pelano joined the Company in 1989 as Regional Operations Manager.
LOWELL W. PETERS joined the Company in September 1997 as Senior Vice President - Service. Mr. Peters' career spans 34 years with Sears, where he held various positions in their service organization, most recently as Vice President Parts, Product Services.
PHILIP J. SCHOONOVER joined Best Buy in May 1995 and was promoted to Senior Vice President - Marketing for Consumer Electronics and Appliances. Mr. Schoonover's background includes more than eight years as Vice President of Sales for the eastern region of Sony Corp. of America. Prior to joining the Company, he was Executive Vice President for TOPS Appliance City for five years.
KENNETH R. WELLER joined the Company in May 1993. Since 1986, he was Vice President of Sales with The Good Guys!, a San Francisco-based consumer electronics retailer where he had worked since 1982.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption "Common Stock Prices" on page 22 of the Annual Report is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Consolidated Financial and Operating Data" on page 17 of the Annual Report is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The information set forth under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 18 through 22 of the Annual Report is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item, listed below, are contained in the Annual Report on the pages thereof indicated, and are expressly incorporated herein by this reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Nominees and Directors" on pages 4 through 8 of the Proxy Statement is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" on pages 9 through 16 of the Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 4 through 6 of the Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Nominees and Directors" and "Certain Transactions" on pages 6 through 8 of the Proxy Statement is incorporated herein by reference.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
All financial statements of the Registrant as set forth under Item 8 of this Report.
2. Financial Statement Schedules:
No schedules have been included since they are either not applicable or the information is included elsewhere herein.
(1) Document is filed herewith.
(2) Exhibits so marked were filed with the Securities and Exchange Commission on May 23, 1995, as exhibits to the Form 10-K of Best Buy Co., Inc. and are incorporated herein by reference and made a part hereof.
(3) Exhibits so marked were filed with the Securities and Exchange Commission on May 20, 1994, as exhibits to the Form 10-K of Best Buy Co., Inc. and are incorporated herein by reference and made a part hereof.
(4) Exhibit so marked was filed with the Securities and Exchange Commission on November 12, 1991, as an exhibit to the Registration Statement on Form S-3 (Registration No. 33-43065) of Best Buy Co., Inc., and is incorporated herein by reference and made a part of hereof.
(5) Exhibit so marked was filed with the Securities and Exchange Commission on January 13, 1992, as an exhibit to Form 10-Q of Best Buy Co., Inc., and is incorporated herein by reference and made a part hereof.
(6) Exhibits so marked were filed with the Securities and Exchange Commission on October 12, 1992, as exhibits to Form 10-Q of Best Buy Co., Inc., and are incorporated herein by reference and made a part hereof.
(7) Exhibits so marked were filed with the Securities and Exchange Commission on May 29, 1996, as exhibits to the Form 10-K of Best Buy Co., Inc., and are incorporated herein by reference and made a part hereof.
(8) Exhibits so marked were filed with the Securities and Exchange Commission on May 12, 1997, as exhibits to the definitive Proxy Statement of Best Buy Co., Inc., and are incorporated herein by reference and made a part hereof.
(9) Exhibits so marked were filed with the Securities and Exchange Commission on May 28, 1997, as exhibits to the Form 10-K of Best Buy Co., Inc., and are incorporated herein by reference and made a part hereof.
(10) Exhibits so marked were filed with the Securities and Exchange Commission on April 30, 1998, as exhibits to the preliminary Proxy Statement of Best Buy Co., Inc., and are incorporated herein by reference and made a part hereof.
(11) Exhibit so marked was filed on April 3, 1998, as an exhibit to the Registration Statement on Form S-8 (Registration No. 333-49371) of Best Buy Co., Inc., and is incorporated herein by reference and made a part hereof.
(12) Exhibit so marked was filed with the Securities and Exchange Commission on July 11, 1997, as an exhibit to Form 10-Q of Best Buy Co., Inc., and is incorporated herein by reference and made a part hereof.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K under the Securities Act of 1933, the Registrant has not filed as exhibits to the Form 10-K certain instruments with respect to long-term debt under which the amount of securities authorized does not exceed 10 percent of the total assets of the Registrant. The Registrant hereby agrees to furnish copies of all such instruments to the Commission upon request.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BEST BUY CO., INC. (Registrant)
By: /s/ Richard M. Schulze -------------------------- Chief Executive Officer Dated: May 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on May 27, 1998.
/s/ Richard M. Schulze Chairman, Chief Executive Officer - -------------------------- and Director (principal executive Richard M. Schulze officer)
/s/ Bradbury H. Anderson President, Chief Operating Officer - --------------------------- and Director Bradbury H. Anderson
/s/ Allen U. Lenzmeier Executive Vice President and Chief - --------------------------- Financial Officer (principal Allen U. Lenzmeier financial officer)
/s/ Robert C. Fox Sr. Vice President - Finance and - -------------------------- Treasurer (principal accounting Robert C. Fox officer)
- -------------------------- Director Culver Davis, Jr.
- -------------------------- Director Yvonne R. Jackson
/s/ Elliot S. Kaplan - -------------------------- Director Elliot S. Kaplan
/s/ David Stanley - -------------------------- Director David Stanley
/s/ Frank D. Trestman - -------------------------- Director Frank D. Trestman
- -------------------------- Director Hatim A. Tyabji
- -------------------------- Director James C. Wetherbe