Best Buy 2007 Annual Report Download - page 55

40
covenants require us to maintain certain financial ratios. At
the end of fiscal 2007, 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
facilitiesaswell.
An interest coverage ratio represents the ratio of pre-tax
earnings before fixed charges (interest expense and the
interest portion of rent expense) to fixed charges. Our
interest coverage ratio, calculated as reported in Exhibit
No. 12.1 of this Annual Report on Form 10-K, was 10.3
and 9.8 in fiscal 2007 and 2006, respectively.
Our credit ratings at April 30, 2007, were as follows:
Rating Agency Rating Outlook
Fitch(1) BBB+ Stable
Moody’s(2) Baa2 Stable
Standard & Poor’s BBB Stable
(1) In April 2006, Fitch Ratings revised its rating from BBB with a
positive outlook to BBB+ with a stable outlook. The upgrade
reflected our leading market position and successful
operating strategy, which has resulted in strong revenue
growth and operating performance. The upgrade also
reflected our highly liquid balance sheet and considered our
exposure to a very competitive industry and changes in
consumer spending over time.
(2) In April 2006, Moody’s Investors Service revised its rating
from Baa3 with a positive outlook to Baa2 with a stable
outlook. The upgrade was based on our ability to generate
comparable store sales gains, while improving operating
profit margins, our continued investment in opening or
converting stores to the customer-centric platform, our ability
to maintain our liquidity and credit metrics, and expectations
that our varied growth initiatives will not adversely affect
revenue or net earnings.
Factors that can affect 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 and vendor financing terms
and result in higher long-term lease costs. In addition, the
conversion rights of the holders of our convertible
subordinated debentures could be accelerated if our credit
ratings were to be significantly 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 2007, we
invested $733 million in property and equipment, including
opening 96 new stores, adding Magnolia Home Theater
rooms inside nearly 200 new and existing U.S. Best Buy stores,
relocating 20 stores and upgrading our information technology
systems. Capital expenditures are funded through cash
provided by operating activities, as well as available cash and
cash equivalents and short-term investments.
Refer to the Outlook for Fiscal 2008 section of this MD&A
for information on our capital expenditure plans in fiscal
2008.
The following table presents our capital expenditures for each of the past three fiscal years ($ in millions):
2007 2006 2005
New stores $253 $244 $182
Store-related projects(1) 251 206 145
Information technology 121 115 115
Other 108 83 60
Total capital expenditures $733 $648 $502
(1) Includes store remodels, relocations and/or expansions, as well as various merchandising projects.