Best Buy Audit PlanErick Olsen, Duy Nguyen, Justin Banks,

Richard Johnson, Leon Mangru

It’s a Trap CPA, LLC

$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

Best Buy

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

Board of Directors

Hatim A. Tyabji J. Patrick Doyle Russell P. Fradin Thomas L. Millner Gerard R. Vittecoq

Audit Committee

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

Best Buy Strategy

Nature of revenue◦ Sales of merchandise

Consumer Electronics Phones Entertainment Appliances

◦ Stores in stores concept (rent)◦ Geek Squad (Services)

Best Buy Operations

Profit Margins

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%

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

Liquidity and Capital Resources

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 0Receivables, net 1,308 -52% 2,704Merchandise inventories 5,376 -18% 6,571Other current assets 900 -5% 946Total current assets 10,485 -13% 12,047Property and Equipment ' 'Land and buildings 758 0% 756Leasehold improvements 2,182 -9% 2,386Fixtures and equipment 4,515 -12% 5,120Property under capital lease 120 6% 113Property and equipment, gross 7,575 -10% 8,375Less accumulated depreciation 4,977 -3% 5,105Net property and equipment 2,598 -21% 3,270Goodwill 425 -20% 528Intangibles, Net 101 -70% 334Other Assets 404 -34% 608Total Assets 14,013 -17% 16,787

Horizontal Analysis: Balance Sheet 2014

CURRENT LIABILITIES Feb. 01, 2014 Feb. 02, 2013Accounts payable 5,122 -26% 6,951Unredeemed gift card liabilities 406 -5% 428Deferred revenue 399 -12% 451

Accrued compensation and related expenses 444 -15% 520Accrued liabilities 873 -27% 1,188Accrued income taxes 147 14% 129Short-term debt 0 -100% 596Current portion of long-term debt 45 -92% 547Total current liabilities 7,436 -31% 10,810Long-Term Liabilities 976 -12% 1,109Long-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% 34Additional paid-in capital 300 456% 54Retained earnings 3,159 10% 2,861

Accumulated other comprehensive income 492 339% 112

Total Best Buy Co., Inc. shareholders' equity 3,986 30% 3,061Noncontrolling interests 3 -100% 654Total equity 3,989 7% 3,715Total Liabilities and Equity $14,013 -17% $16,787

Horizontal Analysis: Balance Sheet 2014

CONSOLIDATED BALANCE SHEETS (USD $)

Feb. 02, 2013 Horizontal Analysis Mar. 03, 2012 In Millions, unless otherwise specified

CURRENT ASSETSCash 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 EquipmentLand 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

Horizontal Analysis: Balance Sheet 2013

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

Horizontal Analysis: Balance Sheet 2013

CONSOLIDATED BALANCE SHEETS (USD $)Feb. 01, 2014 Feb. 02, 2013

In Millions, unless otherwise specifiedCURRENT 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%

Vertical Analysis: Balance Sheet 2013 & 2014

CURRENT LIABILITIES Feb. 1, 2014 Feb. 2, 2014Accounts 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%

Vertical Analysis: BS 2013 & 2014

CONSOLIDATED STATEMENTS OF EARNINGS (USD $) 11 Months EndedIn Millions, except Per Share data, unless otherwise specified Feb. 01, 2014 Feb. 02, 2013 Jan. 28, 2012Revenue $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%

Vertical Analysis: Income Statement 2012-2014

CONSOLIDATED STATEMENTS OF EARNINGS (USD $) 11 Months EndedIn 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% 31,384Restructuring charges — cost of goods sold 0 -100.00% 1 -94.74% 19Gross profit 9,690 4.22% 9,298 -6.16% 9,908Selling, general and administrative expenses 8,391 2.57% 8,181 2.44% 7,986Restructuring charges 159 -61.59% 414 1625.00% 24Goodwill impairments 0 -100.00% 822 0Operating income (loss) 1,140 1057.98% -119 -106.27% 1,898Other income (expense) ' ' 'Gain on sale of investments 20 0 -100.00% 55Investment income and other 27 35.00% 20 -13.04% 23Interest 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% 1,875Income tax expense 398 47.96% 269 -59.12% 658Net earnings (loss) from continuing operations 689 247.54% -467 -138.37% 1,217Gain (loss) from discontinued operations (Note 4), net of tax of $42, $37, $119 and $122 -166 -453.19% 47 103.37% -1,394Net earnings (loss) including noncontrolling interests 523 224.52% -420 -137.29% -177Net earnings from continuing operations attributable to noncontrolling interests -2 0.00% -2 33.33% -3Net (earnings) loss from discontinued operations attributable to noncontrolling interests 11 157.89% -19 98.47% -1,245Net earnings (loss) attributable to Best Buy Co., Inc. shareholders $532 220.63% ($441) 69.05% ($1,425)

Horizontal Analysis: Income Statement

Horizontal Analysis: Cash Flow OperatingCONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)

In Millions, unless otherwise specified Feb. 01, 2014 Feb. 02, 2013 Jan. 28, 2012OPERATING 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% 811Amortization of definite-lived intangible assets

15 -60.53% 38 -9.52% 42Restructuring charges 259 -42.32% 449 60.36% 280Goodwill impairments

0 -100.00% 822 -31.90% 1,207Loss on sale of business 143 0.00% 0 0.00% 0Stock-based compensation 90 -15.89% 107 -2.73% 110Realized gain on sale of investment

0 0.00% 0 -100.00% -55Deferred income taxes

-28 -47.37% -19 -117.27% 110Other, net

62 51.22% 41 105.00% 20Changes in operating assets and liabilities, net of assets and liabilities acquired or sold: ' ' 'Receivables 7 101.27% -551 61.11% -342Merchandise inventories

597 165.46% -912 -14.53% -1,067Other assets

-70 -7.69% -65 -324.14% 29Accounts payable

-986 -156.83% 1,735 -17.18% 2,095Other liabilities

-273 19.47% -339 -513.41% 82Income taxes

54 123.89% -226 370.83% -48Total cash provided by operating activities

1,094 -24.76% 1,454 -53.05% 3,097

Horizontal Analysis: Cash Flow Investing

INVESTING ACTIVITIESFeb. 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% -709Purchases of investments

-230 -1669.23% -13 -88.29% -111Sales of investments 50 -27.54% 69 -76.21% 290Acquisition of businesses, net of cash acquired

0 100.00% -31 -82.18% -174Proceeds from sale of business, net of cash transferred

206 724.00% 25 2400.00% 1Change in restricted assets 5 -95.05% 101 74.14% 58Other, net

-1 -106.25% 16 -900.00% -2Total cash used in investing activities

-517 3.90% -538 -16.85% -647

Horizontal Analysis: Cash Flow Financing

FINANCING ACTIVITIES Feb. 01, 2014 Feb. 02, 2013 Jan. 28, 2012Repurchase of common stock 0 100.00% -122 -91.08% -1,368Issuance of common stock under employee stock purchase plan and for the exercise of stock options

171 584.00% 25 -62.12% 66Dividends paid -233 -4.02% -224 -1.75% -228Repayments of debt -2,033 -25.96% -1,614 -49.44% -3,192Proceeds from issuance of debt 2,414 38.66% 1,741 -55.48% 3,911Payment to noncontrolling interest (Note 3)

0 0.00% 0 -100.00% -1,303Other, net 0 100.00% -17 -37.04% -27Total cash provided by (used in) financing activities

319 251.18% -211 -90.14% -2,141Effect of Exchange Rate Changes on Cash

-44 -1000.00% -4 -33.33% -6Increase in Cash and Cash Equivalents 852 21.54% 701 131.35% 303Adjustment for Fiscal Year-end Change (Note 2)

0 100.00% -74 1380.00% -5Increase in Cash and Cash Equivalents After Adjustment

852 35.89% 627 110.40% 298Cash and Cash Equivalents at Beginning of Year

1,826 52.29% 1,199 8.70% 1,103Cash and Cash Equivalents at End of Year

2,678 46.66% 1,826 30.34% 1,401Supplemental Disclosure of Cash Flow Information

' 'Income taxes paid 332 -30.54% 478 0.42% 476Interest paid $82 -22.64% $106 23.26% $86

Discontinued Operations Goodwill Short-term and long-term debt Long-term leases Revenue Comprehensive income Inventory

Problematic Accounts

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

Discontinued Operations

Inspection of records and documents◦ Account balances and Disclosures◦ Disposition of assets

Inquiries

Analytical Procedures◦ Scanning

Test of Details/Test of Control

Account Concern Evidence Assertion

Related Accounts

Goodwill Overstated

Goodwill: -19.5%Intangible assets: -69.7%

Valuation, Disclosure

Income, Goodwill

Goodwill

Look at the methods of calculating Goodwill

Recreate the impairment test

Inquiries

Test of Details

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

Long-term debt

Debt-to-Equity ratio LT Debt-to-Equity ratioBest Buy Amazon Best BuyAmazon2014: 2.513 2014: 0.920 2014: 0.288 2014: 0.7692013: 3.227 2013: 0.408 2013: 0.274 2013: 0.327

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

Test of Details

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

Lease obligations

Interest CoverageBest Buy Amazon

2014: 10.87 2014: 0.8472013: 2.00 2013: 5.28

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

Test of Details

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

Comprehensive Income

ROE NET ROABest Buy Amazon Best BuyAmazon

2014: 17.27% 2014: 2.2% 2014: 4.92% 2014: 0.44%2013: 12.57% 2013: 2.8% 2013: 2.78% 2013: 0.68%

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.

Test of Details

Account Concern Evidence Assertion Related Accounts

Inventory Overstated

$1 billion decrease in value,Vendors vs. Best Buy,Possible obsolescence for inventory

Valuation,Rights and Obligations,Existence

Inventory, Sales, COGS

Inventory

Days in InventoryBest Buy Amazon2014: 66.64 Days 2014: 48.27 Days2013: 65.20 Days 2013: 49.93 Days

Inventory TurnoverBest Buy Amazon2014: 6.09 2014: 7.562013: 4.65 2013: 7.31

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

Test of Details

In the next few slides, we will include other valuable ratio’s that our audit team found worth looking at.

Other Key Ratio’s

Accounts receivable turnover

Best Buy Amazon

2014: 21.142 2013: 18.063

2014: 23.019 2013: 23.370

Price to Earnings Ratio

Best Buy Amazon

3/17/15◦ Basic: 26.75◦ Diluted: 27.275

2013◦ Basic: 19.908◦ Diluted: 19.908

4/8/15◦ Basic: 733.08◦ Diluted: 733.08

2013◦ Basic: 664.65◦ Diluted: 675.92

Debt to EBITDA

Best Buy Amazon

2014: 8.79 2013: 109.85

2014: 0.720 2013: 0.319

Working Capital

Best Buy Amazon

2014: 3,049 2013: 1,237

2014: 3,2382013: 1,645

Current Ratio

Best Buy Amazon

2014: 1.410 2013: 1.114

2014: 1.115 2013: 1.072

A/P Turn

Best Buy Amazon

2014: 5.222 2013: 5.094

2014: 4.029 2013: 3.906

Free Cash Flow

Best Buy Amazon

2014: $610 2013: $602

2014: $1,949 2013: $2,031

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.

Best Buy Credit Rating

Overall, Best Buy is improving financially Pressure to perform well to satisfy

shareholders

Conclusion

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.

References

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.

References

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/2015/02/17/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.

References