Best Buy 2005 Annual Report Download - page 57

In April 2005, our Board of Directors authorized the GAAP. A summary of our operating lease obligations by
purchase of up to $1.5 billion of our common stock from fiscal year is included in the ‘‘Contractual Obligations’’
time to time through open market purchases. This share section below.
repurchase program has no stated expiration date. The Our debt-to-capitalization ratio, which represents the ratio
$1.5 billion share repurchase program terminated and of total debt, including the current portion of long-term
replaced the $500 million share repurchase program debt, to total capitalization (total debt plus total
authorized by our Board of Directors in June 2004. shareholders’ equity), improved to 12% at the end of
During fiscal 2004, we purchased and retired 1.8 million fiscal 2005, compared with 20% at the end of fiscal
shares at a cost of $100 million under the $400 million 2004. The improvement was due primarily to the
share repurchase program. No share repurchases were redemption in June 2004 of our convertible debentures
made during fiscal 2003. due in 2021 for $355 million and an increase in
shareholders’ equity. We view our debt-to-capitalization
We consider several factors in determining when to make
ratio as an important indicator of our creditworthiness.
share repurchases, including among other things, our
Our adjusted debt-to-capitalization ratio, including
cash needs and the market price of our stock. We expect
capitalized operating lease obligations (rental expense for
that cash provided by future operating activities, as well
all operating leases multiplied by eight), was 51% at the
as available cash and cash equivalents and short-term
end of fiscal 2005, compared with 57% at the end of
investments, will be the sources of funding for the share
fiscal 2004.
repurchase program. Additional information on our share
repurchase program is included in Item 5, Market for Our adjusted debt-to-capitalization ratio, including
Registrant’s Common Equity, Related Stockholder Matters capitalized operating lease obligations, is considered a
and Issuer Purchases of Equity Securities, of this Annual non-GAAP financial measure and is not in accordance
Report on Form 10-K. with, or preferable to, the ratio determined in accordance
In the third quarter of fiscal 2004, our Board of Directors with GAAP. However, we have included this information
declared the Company’s first-ever cash dividend, including as we believe that our adjusted debt-to-capitalization
the initiation of a regular quarterly cash dividend. ratio, including capitalized operating lease obligations, is
Effective with the cash dividend authorized for payment important for understanding our operations and provides
by our Board of Directors in the third quarter of fiscal meaningful additional information about our ability to
2005, we increased the quarterly cash dividend by 10% service our long-term debt and other fixed obligations,
to $0.11 per common share. During fiscal 2005, we and to fund our future growth. In addition, we believe our
made four dividend payments totaling $0.42 per common adjusted debt-to-capitalization ratio, including capitalized
share, or $137 million in the aggregate. operating lease obligations, is relevant because it enables
investors to compare our indebtedness to retailers who
During fiscal 2005, we returned a total of $337 million to own, rather than lease, their stores. Our decision to own
shareholders through share repurchases and dividend or lease real estate is based on an assessment of our
payments. financial liquidity, our capital structure, our desire to own
or to lease the location, the owner’s desire to own or to
Off-Balance-Sheet Arrangements and
lease the location and the alternative that results in the
Contractual Obligations
highest return to our shareholders.
Other than operating leases, we do not have any
off-balance-sheet financing. We finance a portion of our The most directly comparable GAAP financial measure to
new-store development program through sale-leaseback our adjusted debt-to-capitalization ratio, including
transactions, which involve selling stores to unrelated capitalized operating lease obligations, is our
parties and then leasing the stores back under leases that debt-to-capitalization ratio. Our debt-to-capitalization
are accounted for as operating leases in accordance with ratio excludes capitalized operating lease obligations in
both the numerator and denominator of the calculation in
the table below.
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