T-mobile 2020 Balance sheetin millions, except share and per shar
Best Buy Audit Plan (4.20.15)
1. Erick Olsen, Duy Nguyen, Justin Banks,
Richard Johnson, Leon Mangru
It’s a Trap
CPA, LLC
2. $42 billion in revenue
1055 Best Buy stores in the US, 406 Best Buy
Mobile stores
◦ 137 future stores
Recently closed operation in Europe, Turkey,
China
Headquarter in Richfield, MN
To increase revenue, Best Buy is attempting new
strategies
◦ Wedding registry kiosks
◦ “Local” distribution centers
◦ Stores-in-stores
3. Hubert Joly, CEO, 1 year
Sharon McCollam, CAO & CFO, 1 year
Sheri Ballard, Chief HR, 21 years
Jude Buckley, Chief Commercial, 7 years
R. Michael Mohan, Chief Merchandising, 10 years
Keith Nelson, General Counsel and Secretary, 8
years
4. Hatim A. Tyabji
J. Patrick Doyle
Russell P. Fradin
Thomas L. Millner
Gerard R. Vittecoq
5. 2 fundamental problems
◦ Declining comparable store sales
◦ Shrinking margins
Renew Blue:
◦ Reinvigorate and rejuvenate customer experience
◦ Attract/Inspire leaders and employees
◦ Work with vendors to innovate and drive values
◦ Increase returns on investment capital
◦ Positively impact our world
6. Nature of revenue
◦ Sales of merchandise
Consumer Electronics
Phones
Entertainment
Appliances
◦ Stores in stores concept (rent)
◦ Geek Squad (Services)
7. Best Buy Amazon
2014 Fiscal Year
◦ Net Profit: 1.6%
◦ Gross Margin: 22.8%
2013 Fiscal Year
◦ Net Profit: 1.2%
◦ Gross Margin: 23.3%
2014 Fiscal Year
◦ Net Profit: 0.27%
◦ Gross Margin: 29.5%
2013 Fiscal Year
◦ Net Profit: 0.37%
◦ Gross Margin: 27.2%
8. 2014 fiscal year:
◦ $2.7 billion of cash & cash equivalents
◦ $3.0 billion in working capital
◦ $1.1 billion in operating cash flow (decrease)
Sources of Liquidity
◦ $500 million 364-day unsecured revolving credit
facility
◦ $1.5 billion 5-year unsecured revolving credit
facility
◦ $162 million available unsecured revolving demand
facilities for International operations
9. CONSOLIDATED BALANCE SHEETS (USD $)
Feb. 01, 2014 Feb. 02, 2013In Millions, unless otherwise specified
Horizontal
AnalysisCURRENT ASSETS ' '
Cash and cash equivalents $2,678 47% $1,826
Short-term investments 223 0
Receivables, net 1,308 -52% 2,704
Merchandise inventories 5,376 -18% 6,571
Other current assets 900 -5% 946
Total current assets 10,485 -13% 12,047
Property and Equipment ' '
Land and buildings 758 0% 756
Leasehold improvements 2,182 -9% 2,386
Fixtures and equipment 4,515 -12% 5,120
Property under capital lease 120 6% 113
Property and equipment, gross 7,575 -10% 8,375
Less accumulated depreciation 4,977 -3% 5,105
Net property and equipment 2,598 -21% 3,270
Goodwill 425 -20% 528
Intangibles, Net 101 -70% 334
Other Assets 404 -34% 608
Total Assets 14,013 -17% 16,787
10. CURRENT LIABILITIES Feb. 01, 2014 Feb. 02, 2013
Accounts payable 5,122 -26% 6,951
Unredeemed gift card liabilities 406 -5% 428
Deferred revenue 399 -12% 451
Accrued compensation and related expenses 444 -15% 520
Accrued liabilities 873 -27% 1,188
Accrued income taxes 147 14% 129
Short-term debt 0 -100% 596
Current portion of long-term debt 45 -92% 547
Total current liabilities 7,436 -31% 10,810
Long-Term Liabilities 976 -12% 1,109
Long-Term Debt 1,612 40% 1,153
Common stock, $0.10 par value: Authorized — 1.0 billion shares; Issued
and outstanding — 346,751,000 and 338,276,000 shares, respectively 35 3% 34
Additional paid-in capital 300 456% 54
Retained earnings 3,159 10% 2,861
Accumulated other comprehensive income 492 339% 112
Total Best Buy Co., Inc. shareholders' equity 3,986 30% 3,061
Noncontrolling interests 3 -100% 654
Total equity 3,989 7% 3,715
Total Liabilities and Equity $14,013 -17% $16,787
11. CONSOLIDATED BALANCE SHEETS (USD $)
Feb. 02, 2013
Horizontal
Analysis Mar. 03, 2012In Millions, unless otherwise specified
CURRENT ASSETS
Cash and cash equivalents $ 1,826 52% $ 1,199
Receivables 2,704 18% 2,288
Merchandise inventories 6,571 15% 5,731
Other current assets 946 -12% 1,079
Total current assets 12,047 17% 10,297
Property and Equipment
Land and buildings 756 -2% 775
Leasehold improvements 2,386 1% 2,367
Fixtures and equipment 5,120 3% 4,981
Property under capital lease 113 -12% 129
Property, Plant and Equipment, Gross 8,375 1% 8,252
Less accumulated depreciation 5,105 7% 4,781
Net property and equipment 3,270 -6% 3,471
GOODWILL 528 -60% 1,335
Intangibles 334 -7% 359
OTHER ASSETS 608 12% 543
TOTAL ASSETS 16,787 5% 16,005
12. CURRENT LIABILITIES Feb. 02, 2013 Mar. 03, 2012
Accounts payable 6,951 30% 5,364
Unredeemed gift card liabilities 428 -6% 456
Accrued compensation and related expenses 520 -4% 539
Accrued liabilities 1,639 -3% 1,685
Accrued income taxes 129 -55% 288
Short-term debt 596 24% 480
Current portion of long-term debt 547 1172% 43
Total current liabilities 10,810 22% 8,855
LONG-TERM LIABILITIES 1,109 1% 1,099
LONG-TERM DEBT 1,153 -32% 1,685
Common stock, $0.10 par value: Authorized — 1.0 billion shares;
Issued and outstanding — 338,276,000 and 341,400,000 shares,
respectively 34 0% 34
Additional paid-in capital 54 -
Retained earnings 2,861 -21% 3,621
Accumulated other comprehensive income 112 24% 90
Total Best Buy Co., Inc. shareholders' equity 3,061 -18% 3,745
Noncontrolling interests 654 5% 621
Total equity 3,715 -15% 4,366
TOTAL LIABILITIES AND EQUITY $ 16,787 5% $ 16,005
13. CONSOLIDATED BALANCE SHEETS (USD $)
Feb. 01, 2014 Feb. 02, 2013
In Millions, unless otherwise specified
CURRENT ASSETS ' '
Cash and cash equivalents $2,678 19.11% $1,826 10.88%
Short-term investments 223 1.59% 0 0.00%
Receivables, net 1,308 9.33% 2,704 16.11%
Merchandise inventories 5,376 38.36% 6,571 39.14%
Other current assets 900 6.42% 946 5.64%
Total current assets 10,485 74.82% 12,047 71.76%
Property and Equipment ' '
Land and buildings 758 5.41% 756 4.50%
Leasehold improvements 2,182 15.57% 2,386 14.21%
Fixtures and equipment 4,515 32.22% 5,120 30.50%
Property under capital lease 120 0.86% 113 0.67%
Property and equipment, gross 7,575 54.06% 8,375 49.89%
Less accumulated depreciation 4,977 35.52% 5,105 30.41%
Net property and equipment 2,598 18.54% 3,270 19.48%
Goodwill 425 3.03% 528 3.15%
Intangibles, Net 101 0.72% 334 1.99%
Other Assets 404 2.88% 608 3.62%
Total Assets 14,013 100.00% 16,787 100.00%
14. CURRENT LIABILITIES Feb. 1, 2014 Feb. 2, 2014
Accounts payable 5,122 36.55% 6,951 41.41%
Unredeemed gift card liabilities 406 2.90% 428 2.55%
Deferred revenue 399 2.85% 451 2.69%
Accrued compensation and related expenses
444 3.17% 520 3.10%
Accrued liabilities 873 6.23% 1,188 7.08%
Accrued income taxes 147 1.05% 129 0.77%
Short-term debt 0 0.00% 596 3.55%
Current portion of long-term debt 45 0.32% 547 3.26%
Total current liabilities 7,436 53.07% 10,810 64.40%
Long-Term Liabilities 976 6.96% 1,109 6.61%
Long-Term Debt 1,612 11.50% 1,153 6.87%
Contingencies and Commitments (Note 13)
' '
Best Buy Co., Inc. Shareholders’ Equity
' '
Preferred stock, $1.00 par value: Authorized — 400,000 shares; Issued and outstanding
— none
0 0.00% 0 0.00%
Common stock, $0.10 par value: Authorized — 1.0 billion shares; Issued and outstanding
— 346,751,000 and 338,276,000 shares, respectively
35 0.25% 34 0.20%
Additional paid-in capital 300 2.14% 54 0.32%
Retained earnings 3,159 22.54% 2,861 17.04%
Accumulated other comprehensive income
492 3.51% 112 0.67%
Total Best Buy Co., Inc. shareholders' equity
3,986 28.45% 3,061 18.23%
Noncontrolling interests 3 0.02% 654 3.90%
Total equity 3,989 28.47% 3,715 22.13%
Total Liabilities and Equity $14,013 100.00% $16,787 100.00%
15. CONSOLIDATED STATEMENTS OF EARNINGS (USD $) 11 Months Ended
In Millions, except Per Share data, unless otherwise specified Feb. 01, 2014 Feb. 02, 2013 Jan. 28, 2012
Revenue $42,410 100% $39,827 100% $41,311 100%
Cost of goods sold 32,720 77% 30,528 77% 31,384 76%
Restructuring charges cost of goods sold 0 0% 1 0% 19 0%
Gross profit 9,690 23% 9,298 23% 9,908 24%
Selling, general and administrative expenses 8,391 20% 8,181 21% 7,986 19%
Restructuring charges 159 0% 414 1% 24 0%
Goodwill impairments 0 0% 822 2% 0 0%
Operating income (loss) 1,140 3% -119 0% 1,898 5%
Other income (expense) ' ' '
Gain on sale of investments 20 0% 0 0% 55 0%
Investment income and other 27 0% 20 0% 23 0%
Interest expense -100 0% -99 0% -101 0%
Earnings (loss) from continuing operations before income tax expense and
equity in income (loss) of affiliates 1,087 3% -198 0% 1,875 5%
Income tax expense 398 1% 269 1% 658 2%
Net earnings (loss) from continuing operations 689 2% -467 -1% 1,217 3%
Gain (loss) from discontinued operations (Note 4), net of tax of $42, $37,
$119 and $122 -166 0% 47 0% -1,394 -3%
Net earnings (loss) including noncontrolling interests 523 1% -420 -1% -177 0%
Net earnings from continuing operations attributable to noncontrolling
interests -2 0% -2 0% -3 0%
Net (earnings) loss from discontinued operations attributable to noncontrolling
interests 11 0% -19 0% -1,245 -3%
Net earnings (loss) attributable to Best Buy Co., Inc. shareholders $532 1% ($441) -1% ($1,425) -3%
16. CONSOLIDATED STATEMENTS OF EARNINGS (USD $) 11 Months Ended
In Millions, except Per Share data, unless otherwise specified
Feb. 01,
2014 Feb. 02, 2013
Jan. 28,
2012
Revenue $42,410 6.49% $39,827 -3.59% $41,311
Cost of goods sold 32,720 7.18% 30,528 -2.73% 31,384
Restructuring charges — cost of goods sold 0 -100.00% 1 -94.74% 19
Gross profit 9,690 4.22% 9,298 -6.16% 9,908
Selling, general and administrative expenses 8,391 2.57% 8,181 2.44% 7,986
Restructuring charges 159 -61.59% 414 1625.00% 24
Goodwill impairments 0 -100.00% 822 0
Operating income (loss) 1,140 1057.98% -119 -106.27% 1,898
Other income (expense) ' ' '
Gain on sale of investments 20 0 -100.00% 55
Investment income and other 27 35.00% 20 -13.04% 23
Interest expense -100 1.01% -99 1.98% -101
Earnings (loss) from continuing operations before income
tax expense and equity in income (loss) of affiliates 1,087 648.99% -198 -110.56% 1,875
Income tax expense 398 47.96% 269 -59.12% 658
Net earnings (loss) from continuing operations 689 247.54% -467 -138.37% 1,217
Gain (loss) from discontinued operations (Note 4), net of tax
of $42, $37, $119 and $122 -166 -453.19% 47 103.37% -1,394
Net earnings (loss) including noncontrolling interests 523 224.52% -420 -137.29% -177
Net earnings from continuing operations attributable to
noncontrolling interests -2 0.00% -2 33.33% -3
Net (earnings) loss from discontinued operations attributable
to noncontrolling interests 11 157.89% -19 98.47% -1,245
Net earnings (loss) attributable to Best Buy Co., Inc.
shareholders $532 220.63% ($441) 69.05% ($1,425)
17. CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified Feb. 01, 2014 Feb. 02, 2013 Jan. 28, 2012
OPERATING ACTIVITIES ' ' '
Net earnings (loss) including noncontrolling interests
$523 224.52% ($420) 137.29% ($177)
Adjustments to reconcile net earnings (loss) to total cash
provided by operating activities
' ' '
Depreciation 701 -11.71% 794 -2.10% 811
Amortization of definite-lived intangible assets
15 -60.53% 38 -9.52% 42
Restructuring charges 259 -42.32% 449 60.36% 280
Goodwill impairments
0 -100.00% 822 -31.90% 1,207
Loss on sale of business 143 0.00% 0 0.00% 0
Stock-based compensation 90 -15.89% 107 -2.73% 110
Realized gain on sale of investment
0 0.00% 0 -100.00% -55
Deferred income taxes
-28 -47.37% -19 -117.27% 110
Other, net
62 51.22% 41 105.00% 20
Changes in operating assets and liabilities, net of assets and
liabilities acquired or sold:
' ' '
Receivables 7 101.27% -551 61.11% -342
Merchandise inventories
597 165.46% -912 -14.53% -1,067
Other assets
-70 -7.69% -65 -324.14% 29
Accounts payable
-986 -156.83% 1,735 -17.18% 2,095
Other liabilities
-273 19.47% -339 -513.41% 82
Income taxes
54 123.89% -226 370.83% -48
Total cash provided by operating activities
1,094 -24.76% 1,454 -53.05% 3,097
18. INVESTING ACTIVITIES
Feb. 01, 2014 Feb. 02, 2014 Jan. 28, 2012
Additions to property and equipment, net of $13,
$29, $13 and $18 non-cash capital expenditures
-547 22.41% -705 -0.56% -709
Purchases of investments
-230 -1669.23% -13 -88.29% -111
Sales of investments 50 -27.54% 69 -76.21% 290
Acquisition of businesses, net of cash acquired
0 100.00% -31 -82.18% -174
Proceeds from sale of business, net of cash
transferred
206 724.00% 25 2400.00% 1
Change in restricted assets 5 -95.05% 101 74.14% 58
Other, net
-1 -106.25% 16 -900.00% -2
Total cash used in investing activities
-517 3.90% -538 -16.85% -647
19. FINANCING ACTIVITIES Feb. 01, 2014 Feb. 02, 2013 Jan. 28, 2012
Repurchase of common stock 0 100.00% -122 -91.08% -1,368
Issuance of common stock under employee stock purchase
plan and for the exercise of stock options
171 584.00% 25 -62.12% 66
Dividends paid -233 -4.02% -224 -1.75% -228
Repayments of debt -2,033 -25.96% -1,614 -49.44% -3,192
Proceeds from issuance of debt 2,414 38.66% 1,741 -55.48% 3,911
Payment to noncontrolling interest (Note 3)
0 0.00% 0 -100.00% -1,303
Other, net 0 100.00% -17 -37.04% -27
Total cash provided by (used in) financing activities
319 251.18% -211 -90.14% -2,141
Effect of Exchange Rate Changes on Cash
-44 -1000.00% -4 -33.33% -6
Increase in Cash and Cash Equivalents 852 21.54% 701 131.35% 303
Adjustment for Fiscal Year-end Change (Note 2)
0 100.00% -74 1380.00% -5
Increase in Cash and Cash Equivalents After Adjustment
852 35.89% 627 110.40% 298
Cash and Cash Equivalents at Beginning of Year
1,826 52.29% 1,199 8.70% 1,103
Cash and Cash Equivalents at End of Year
2,678 46.66% 1,826 30.34% 1,401
Supplemental Disclosure of Cash Flow Information
' '
Income taxes paid 332 -30.54% 478 0.42% 476
Interest paid $82 -22.64% $106 23.26% $86
21. Account Concern Evidence Assertion Related
Account
Discontinued
Operation
Overstated Routine
expenses were
included in the
disposing
process in
reduce
comprehensive
income
Cut off:
Valuation
Income,
Income
taxes
22. Inspection of records and documents
◦ Account balances and Disclosures
◦ Disposition of assets
Inquiries
Analytical Procedures
◦ Scanning
24. Look at the methods of calculating Goodwill
Recreate the impairment test
Inquiries
25. Account Concern Evidence Assertion Related
Accounts
LT debt Understated H.A ratio:
LT debt (less
current
portion)
39.8%
Valuation,
Presentation,
Completeness
A/P, Notes
Payable,
Cash &
Cash
Equivalents
Debt-to-Equity ratio LT Debt-to-Equity ratio
Best Buy Amazon Best Buy Amazon
2014: 2.513 2014: 0.920 2014: 0.288 2014: 0.769
2013: 3.227 2013: 0.408 2013: 0.274 2013: 0.327
26. Obtain analysis of debt and related accounts
Vouch borrowing and repayment transactions
Test computations of interest
◦ Expense
◦ Payable
◦ Amortization of discount and premium
Confirm the debt exists
◦ Confirmation letters about financing agreements
Get documents supporting authority was
given for the debt
27. Account Concern Evidence Assertion Related
Accounts
Leases Understated Possible expenses
were not incurred
properly during
2014. Total rent
expenses
increased by $1.5
billion
Valuation,
Existence,
Presentation
Rent
expenses,
Cash,
Income
Interest Coverage
Best Buy Amazon
2014: 10.87 2014: 0.847
2013: 2.00 2013: 5.28
28. Contractual agreements
◦ Terms and Condition
◦ Duration of the leases
Examine copies of the lease obligation
◦ Confirm leases with appropriate third parties
Evaluate whether the debt provisions have
been met
Review any lease expenses paid after the
balance sheet date
Test the valuation of leases in long-term
portion
29. Account Concern Evidence Assertion Related
Accounts
ACI Overstated V.A ratio:
339% increase
from 2013
compare to an
average of
11% increase
in the
previous
periods
Valuation,
Existence,
Disclosure
Comprehensive
Income, Equity
ROE NET ROA
Best Buy Amazon Best Buy Amazon
2014: 17.27% 2014: 2.2% 2014: 4.92% 2014: 0.44%
2013: 12.57% 2013: 2.8% 2013: 2.78% 2013: 0.68%
30. Observe and make inquiries about the
process
◦ Review historical rate of day of hedging account.
◦ Inspect notes on hand and rate used
Test IT Application Controls
◦ Review for errors posted due to foreign currency
translation adjustment.
Check for existence
◦ Valuate and check documents and accuracy of
hedging account.
31. Account Concern Evidence Assertion Related
Accounts
Inventory Overstate
d
$1 billion
decrease in
value,
Vendors vs.
Best Buy,
Possible
obsolescence
for inventory
Valuation,
Rights and
Obligations,
Existence
Inventory,
Sales, COGS
Days in Inventory
Best Buy Amazon
2014: 66.64 Days 2014: 48.27 Days
2013: 65.20 Days 2013: 49.93 Days
Inventory Turnover
Best Buy Amazon
2014: 6.09 2014: 7.56
2013: 4.65 2013: 7.31
32. Doing inspection of source documents to
verify ownership
◦ Company-owned vs. vendor-owned vs.
consignment
Physical count of inventory
Valuation of inventory for obsolescence
Observation of internal control for shrinkage
33. In the next few slides, we will include other
valuable ratio’s that our audit team found
worth looking at.
41. Standard & Poor’s: BB rating with a stable
outlook.
Moody’s: Baa2 rating with a Negative outlook.
Fitch: BB- Rating with a stable outlook.
BB rating investors face higher risk of default.
Baa2 rating is ninth highest rating for Moody.
This rating suggests that Best Buy has
moderate credit risk.
42. Overall, Best Buy is improving financially
Pressure to perform well to satisfy
shareholders
43. Amazon.com, Inc. (2015). Form 10-K 2015.
Retrieved from https://www.last10k.com/sec-
filings/amzn
Best Buy Co., Inc. (2014). Form 10-K 2014.
Retrieved from https://www.last10k.com/sec-
filings/BBY/0000764478-14-000011.htm
Best Buy Co., Inc. (n.d). Letter to Shareholders.
Burkitt, L. (2014, December 4). Best Buy to Exit
China. http://www.wsj.com/articles/best-buy-
to-exit-china-1417678576
BUSINESS INSIGHTS: Best Buy Co., Inc. (2015).
Best Buy Co, Inc. Company Profiles.
44. Byrd, S. (2015, February 16). Insider Selling: Best Buy
Co major shareholder Sells $27,086,400.00 in Stock
(BBY). http://www.dakotafinancialnews.com/insider-
selling-best-buy-co-major-shareholder-sells-
27086400-00-in-stock-bby/39264/
DATAMONITOR: Best Buy Co., Inc. (2012). Best Buy
Co, Inc. SWOT Analysis, 1-12.
D'Innicenzio, A. (2015, February 11). Best Buy
launches its first wedding registry.
http://finance.yahoo.com/news/best-buy-launches-
first-wedding-200056725.html
GLOBALDATA: Best Buy Co., Inc. (2014). Best Buy Co,
Inc. – Financial and Strategic Analysis Review. 1-4.
45. REUTERS FUNDAMENTALS: Best Buy Co., Inc. (2015).
Best Buy Co, Inc. 1-12.
S&P CAPITAL IG: Best Buy Co., Inc. (2015). Best Buy
Co, Inc. 1-12.
Trefis, T. (2015, February 18). Why We Think Best
Buy's FY'16 Bets Make a Lot More Sense
http://www.forbes.com/sites/greatspeculations/201
5/02/17/why-we-think-best-buys-fy16-bets-make-
a-lot-more-sense/
Wolf, A. (2014). Shipping Wars Heat Up With Best
Buy's Two-Day Deliveries. TWICE: This Week In
Consumer Electronics, 29(24), 4.
Wolf, A. (2014). Best Buy Turnaround Gains Traction,
Q1 Profits Resurge. TWICE: This Week In Consumer
Electronics, 29(11), 4-44.
