Best Buy 2006 Annual Report Download - page 42

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28
five stand-alone stores at the endof fiscal 2006. The
International segment offers products andservices similar to
those offered by the Domestic segment, although Canadian
Best Buy stores do not sell appliances.
In support of our retail store operations, we also operate
Web sites for each of ourbrands (BestBuy.com,
BestBuyCanada.ca, FutureShop.ca, MagnoliaA V.com,
GeekSquad.com, GeekSquad.ca and PacificSales.com).
Our business, like that of many retailers, is seasonal.
Historically, we have realized more of our revenue and
earnings in the fiscal fourth quarter,which includes the
majority of the holiday selling season, than in any other
fiscalquarter. The timing of new-store openings, costs
associated with the development of new businesses, as well
as general economic conditions mayalsoaffect our future
quarterly results.
Financial Reporting Changes
On December 16, 2004, the Financial Accounting
StandardsBoard (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004),
Share-Based Payment (123(R)), effective for acompany’s
first fiscal yearbeginning after June 15, 2005. SFAS
No. 123(R) supersedes Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued toEmployees.
SFAS No. 123(R) requires all stock-based compensation,
including grants of stock options,to be recognized in the
consolidated statements of earnings.
During the first quarterof fiscal 2006, we early-adopted
SFAS No. 123(R), and elected the modified prospective
transition method. This method permits us to apply the new
requirements on a prospective basis. Our selling, general
and administrative expenses (SG&A) rate for fiscal 2006
includedan increase in stock-based compensation expense
of $133 million ($88 million net of tax,or $0.17 per
diluted share), which increased our SG&A rate by
approximately 0.4% of revenue compared with the prior
fiscal year. For additional information on our adoption of
SFAS No. 123(R), see Note 1, Summary ofSignificant
Accounting Policies — Stock-Based Compensation , of the
Notes to Consolidated Financial Statements included in
Item 8, Financial Statements and Supplementary Data, of
this Annual Report on Form 10-K.
During the third quarter of fiscal 2006, we reclassified
variable-rate demandnotes from cash and cash equivalents
to short-term investments. Prior-year amounts have been
reclassified to conform with the current-year presentation.
These reclassifications had no effect on previously reported
total assets or net earnings. For additional information
regarding our variable-rate demand notes, refer toNote 3,
Investments, of the Notes to Consolidated Financial
Statements, included in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on Form 10-K.
Strategic Initiatives
Our vision is to make life fun and easy for consumers.Our
business strategy is to treat each customer as a unique
individual, meetingtheir needs with end-to-end solutions,
and engaging and energizing our employees to serve them,
while maximizing overall profitability. During fiscal 2006,
our primary strategic initiative was accelerating our
transformation to a customer-centric organization.
Customer centricity contributed to our strong growth during
fiscal 2006 andis expected to provide the framework to
grow and further enhance ourbusiness in the future.
Customer Centricity
Our customers are at the core of all of our business
strategies. Customer centricity has moved beyondan
initiative and is now how we do business. Customer
centricity means treating each customer asa unique
individual, meetingtheir needs with end-to-end solutions,
and engaging and energizing our employees to serve them.
Mass merchants, direct sellers, other specialty retailers and
online retailers are increasingly interested in our product
categories because of risingdemand. Ifwecan understand
our customers better than our competitorsdo, andif wecan
inspire our employees to have richer interactions with
customers, then we can more effectively compete. Customer
centricity has been, and will continue to be, a growth driver
for us.
Accelerating Our Transformation
In fiscal 2006 we implemented five key strategies to
accelerate our customer centricity initiative.
First, we convertedor opened a record numberof stores
with the customer-centric operating model, finishing the