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49
PART II
New Accounting Standards
In October 2005,the FASB issued Financial Accounting
Standards Board (FASB) Staff Position (FSP) No. FAS 13-1,
Accounting for Rental Costs Incurred During a Construction
Period . FSP No. FAS 13-1requires companies to expense
rent payments for building or ground leases incurred during
the construction period. FSP No. FAS 13-1 is effective for
annual reporting periods beginning after December 15,
2005. Retrospective application is permitted, but not
required. We will adopt FSP No. FAS 13-1 on a prospective
basis in the first quarter of fiscal 2007. We do not believe
the adoption of this new standard will have a significant
effect on operating income ornet earnings.
Outlook for Fiscal 2007
Our outlook for fiscal 2007 is based on information
presently available and contains certain assumptions
regarding future economic conditions. Differences in actual
economic conditions compared with our assumptions could
have amaterial impact on our fiscal 2007 results. Refer to
Item 1A, Risk Factors, of this Annual Report on Form 10-K
for additional important factors thatcould cause future
results to differ materially from those contemplated by the
following forward-looking statements.
Looking forward to fiscal 2007, we are projecting net
earnings in a range of $2.65 to $2.80per diluted share.
We expect the earnings growth to be driven primarily by an
increase in revenue of 10 percentto 13 percent, a slight
improvement in our gross profit rate, anda decrease in our
SG&A rate. This guidance includes anticipated severance
andrelated reorganization costs of $0.03 to$0.05 per
diluted share in the first half of fiscal 2007. These costs are
directly related to our efforts to increase productivity and
redeploy resources to implement a simple, customer-centric
operatingmodel. We estimate that our net interest income,
as a percent of revenue, will remain relatively stable for
fiscal 2007, compared with fiscal 2006. Our effective
income tax rate for fiscal 2007 is projected to be
approximately 35%.
We areforecasting revenue of $34.0 billion to $35.0
billion for fiscal 2007, compared with revenue of $30.8
billion for fiscal 2006. We expect the opening of nearly 90
new stores will drive the revenue growth. For the fiscal year,
we are projecting an increase in comparable store sales of
3% to 5%. Additionally, our fiscal 2007 reporting period
includes 53 weeks. We estimate an additional week of
business adds, on average, approximately $0.05 per
diluted share, which is reflected in the guidance above.
Our fiscal 2007 outlook assumes an improvement in our
operating income rate of approximately 0.4% of revenue,
due mainly to reducing ourSG&A rate by 0.3% of revenue
to 0.4% of revenue aswerefine our operating model.
Capital expenditures for fiscal 2007 are expected to be
$675 to $725 million, excluding expenditures associated
with acquiring Pacific Sales and any additional acquisitions.
Of that total, we expect approximately $450 million will
support our planned new-store openings and various store
remodelingprojects, including the costs of converting
additional stores to our customer centricity model.
Specifically, the capital expenditures are expectedto
support the opening of 75 to 80 new U.S. Best Buy stores,
approximately threeCanadian Best Buystoresand four to
fiveFuture Shop stores. We anticipate relocating 10 to 15
U.S. Best Buy stores andapproximately four Future Shop
stores, and expect to remodel and enhance existing stores
as usual. As part of our customer centricity initiative, stores
scheduled for updatingtypically receive new fixtures,
expanded product assortments and changes in the staffing
model. We also plan to enhance ourhome theater
experience by expanding the assortment of digital TVs and
continuing to add Magnolia Home Theater store-within-a-
store concepts, which we view as a differentiated solution
for customers. Finally, we plan to add elements of ourBest
BuyFor Business experience to at least 120 U.S. BestBuy
stores in fiscal 2007.
Capital expenditures for fiscal 2007 also are expected to
include approximately $250 million in technology
investments intended to, among other things, improve our
customer service capabilities and increase our operating
efficiencies.
During fiscal 2007, we plan to continue with our quarterly
cash dividend program.We will continue to evaluate the
amount of our quarterly dividend based on our strong cash
and short-term investments position at the end of fiscal
2006, and our cash flows generated during fiscal 2007.
We alsoexpect to continue repurchasing our common stock
during fiscal 2007 pursuantto a $1.5 billion share