Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in seven sections:

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º Overview

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º Business Strategy and Core Philosophies

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º Results of Operations

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º Liquidity and Capital Resources

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º Off-Balance-Sheet Arrangements and Contractual Obligations

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º Critical Accounting Estimates

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º New Accounting Standards

We consolidate the financial results of our Europe, China and Mexico operations on a two-month lag. Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to these operations is also presented on a two-month lag. No significant intervening event occurred in these operations that would have materially affected our financial condition, results of operations, liquidity or other factors had it been recorded during fiscal 2009.

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Our fiscal year ends on the Saturday nearest the end of February. Fiscal 2009 and 2008 each included 52 weeks, whereas our fiscal 2007 included 53 weeks.

Overview

Best Buy is a specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services.

We operate two reportable segments: Domestic and International. The Domestic segment is comprised of all store, call center and online operations, including Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video, Napster, Pacific Sales and Speakeasy operations located within the U.S. and its territories. U.S. Best Buy stores offer a wide variety of consumer electronics, home office products, entertainment software, appliances and related services, operating 1,023 stores in 49 states, the District of Columbia and Puerto Rico at the end of fiscal 2009. Best Buy Mobile offers a wide selection of mobile phones, accessories and services through 38 stand-alone stores located in 12 states as well as in all U.S. Best Buy stores at the end of fiscal 2009. Geek Squad offers residential and commercial repair, support and installation services in all U.S. Best Buy stores and six stand-alone stores at the end of fiscal 2009. Magnolia Audio Video stores offer high-end audio and video products and related services from six stores located in California and Washington, as well as through 353 Magnolia Home Theater rooms located in U.S. Best Buy stores at the end of fiscal 2009. Napster is an online provider of digital music. Pacific Sales stores offer high-end home-improvement products including appliances, consumer electronics and related services, operating 34 stores in Arizona, California and Nevada at the end of fiscal 2009. Speakeasy provides broadband voice, data and information technology services to home and small-business users through a network of experienced sales associates.

The International segment is comprised of: (i) all Canada store, call center and online operations, including Best Buy, Best Buy Mobile, Future Shop and Geek Squad; (ii) all Europe store, call center and online operations, including The Carphone Warehouse, The Phone House and Geek Squad; (iii) all China store and online operations, including Best Buy, Five Star and Geek Squad; and (iv) all Mexico store operations, including Best Buy and Geek Squad. Our International segment offers products and services similar to those of our U.S. Best Buy stores. However, Best Buy Canada stores do not carry appliances, our Best Buy China stores and Five Star stores do not carry entertainment software, and Geek Squad services are offered only through our Best Buy stores in Canada and China and in select stores in the U.K. and Spain. Further, our store format and offerings in Europe are similar to our Best Buy Mobile format and offerings in the U.S., primarily offering mobile phones and related accessories and services.

At the end of fiscal 2009, we operated 2,465 The Carphone Warehouse and The Phone House stores throughout Europe, 58 Best Buy Canada stores, three Best Buy Mobile Canada stores, 139 Future Shop stores in Canada, 164 Five Star stores in China, five Best Buy China stores, and one Best Buy Mexico store.

In support of our retail store operations, we also operate Web sites for each of our brands (BestBuy.com, BestBuy.ca, BestBuy.com.cn, espanol.BestBuy.com and BestBuyMobile.com, CarphoneWarehouse.com, Five-Star.cn, FutureShop.ca, GeekSquad.com, GeekSquad.ca, MagnoliaAV.com, Napster.com, PacificSales.com, PhoneHouse.com and Speakeasy.net)

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 shopping season in the U.S., Europe and Canada, than in any other fiscal quarter. The timing of new store openings, costs associated with the development of new businesses, as well as general economic conditions may affect our future results of operations.

Throughout this MD&A, we refer to comparable store sales. Comparable store sales is a measure commonly used in the retail industry which indicates the performance of a store by measuring the growth in sales for such store for a particular fiscal period from the store's sales in the corresponding period in the prior year. Our comparable store sales is comprised of revenue at our stores, call centers and Web sites operating for at least 14 full months, as well as remodeled and expanded locations. Relocated stores are excluded from our comparable store sales calculation until at least 14 full months after reopening. Acquired stores are included in our comparable store sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The portion of our calculation of the comparable store sales percentage change attributable to our International segment excludes the effect of fluctuations in foreign currency exchange rates. The method of calculating comparable store sales varies across the retail industry. As a result, our method of calculating comparable store sales may not be the same as other retailers' methods.

Acquisitions

Best Buy Europe

On June 28, 2008, we acquired a 50% stake in Best Buy Europe for $2.2 billion, or $2.1 billion net of cash acquired. Best Buy Europe is our venture with CPW, consisting of CPW's retail and distribution business comprised of more than 2,400 stores, its online and direct business, insurance operations and mobile and fixed-line telecommunication businesses. The transaction also included CPW's economic interests in Best Buy Mobile in the U.S. and Geek Squad in the U.K. and Spain. Best Buy Europe is Europe's largest independent mobile phone retailer. We made the investment in Best Buy Europe to further our international growth plans and obtain an immediate retail presence in Europe.

Napster

On October 25, 2008, we completed our acquisition of Napster for $121 million, or $100 million net of cash acquired. Napster is an online provider of digital music. We believe the combined capabilities of our two companies will allow us to build stronger relationships with customers and to expand the number of digital music and entertainment subscribers over an increasing array of devices.

Five Star

We acquired a 75% interest in Five Star on June 8, 2006, for $184 million, which included a working capital injection of $122 million. At the time of the acquisition, we also entered into an agreement with Five Star's minority shareholders to acquire the remaining 25% interest in Five Star within four years, subject to Chinese government approval. On February 6, 2009, we were granted a business license to acquire the remaining 25% interest in Five Star and our subsequent acquisition converted Five Star into a wholly-owned foreign enterprise that is now 100% owned by us. The $190 million purchase price for the 25% interest was primarily based on a previously agreed-upon pricing formula. The acquisition furthers our international growth plans and accelerates the integration of Best Buy and Five Star in China.

Financial Reporting Changes

To maintain consistency and comparability, we reclassified certain prior-year amounts to conform to the current-year

presentation as described in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Business Strategy and Core Philosophies

Our business, broadly defined, is about meeting the wants and needs of our consumers. We believe that our assets position us to solve more customer problems than ever. Specifically, our assets include approximately 155,000 engaged employees; valuable relationships with vendors all over the world; continuing and emerging relationships with companies like Apple, Dell and CPW; and all of the other mutually enriching business relationships that our people continue to establish and develop wherever we go around the world. We also generate significant positive cash flows. All of these assets are at our disposal as we envision how we will deepen our relationships with customers in order to increase shareholder value.

Our business strategy is customer centricity. We define customer centricity through its parts, which we call our three core philosophies: inviting our employees to contribute their unique ideas and experiences in service of customers; treating customers uniquely and honoring their differences; and meeting customers' unique needs, end-to-end.

We start with a view of all of our customers, including their problems and their desires. We try to match that against everything we know about the solutions that now exist, or that could be created. Then, we determine ways to deliver to customers the right solutions by using our employees' unique capabilities, as well as our network of vendors and other third-party providers. If we accomplish what we have set out to do, we believe we have offered a truly unique and differentiated solution to the marketplace.

Mass merchants, direct sellers, other specialty retailers and online retailers are increasingly interested in our revenue categories because of rising consumer interest. Yet they do not have a strategy of unleashing their employees to understand customers' unique needs, and they lack our unique combination of assets, including those mentioned above as well as our stores, Web sites and call centers. We believe that by inspiring our employees to have richer interactions with customers, and understanding our customers better than our competitors do, we can differentiate ourselves and compete more effectively for customers' loyalty than either mass merchants or purely online players. We further believe that this strategy can be successful for us with a variety of products and services, store formats, customer groups and even countries.

The currently challenging global economy has resulted in our heightened focus on carefully managing expenses and capital expenditures. Accordingly, we have adjusted our new store opening plans, inventory levels and reduced our overall spending at stores, distribution centers and headquarters. Yet great retailers never stop improving their offerings to customers and growing their business. Our future growth plans and strategy revolve around four business priorities in fiscal 2010. These four priorities represent business opportunities where we believe we can navigate the current economic conditions to put us in the strongest possible position to take advantage of economic recovery long-term. These priorities are:

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º Grow Market Share. We expect to gain market share locally. We believe we can attract many of the customers of competitors as they close stores and gain a larger share of the spending of our existing customers. Our approach is to focus on the unique needs of each person that walks into our store, visits our Web sites or contacts our call centers, as they seek to harness the productivity, cost, communications and entertainment benefits of the latest technology. We also intend to expand our products and services, enhance our Reward Zone customer loyalty programs and build on our reputation as a solid community citizen with programs such as @15, our teen-led social change platform, as well as our recycling programs.

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º Connected Digital Solutions. We plan to help customers transition to a connected digital lifestyle, where they can seamlessly create, access and share content on the three main screens that are integral to so many lives today: the mobile phone, computer and television. This work includes providing access to a wide selection of digital content and applications, offering simple solutions and letting customers choose both how they want to engage with us and how they manage their digital experiences.

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º International Growth. We believe our strategy of customer centricity has global application, and that by expanding internationally, we can learn and adapt much more quickly and share best practices across the globe. In fiscal 2010, we plan to place less emphasis on new store openings in our 13 countries of operation outside the U.S. Instead, we intend to focus on getting the most

out of the assets we already possess, including expanding our Best Buy Mobile concept to existing Canadian stores, integrating our Five Star and Best Buy operations in China, and delivering on planned synergies in Europe.

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º Efficient and Effective Enterprise. We plan to become a more efficient and effective enterprise by re-engineering our cost structure to enable us to deliver on our strategies and goals despite changing market and economic conditions, both now and in the future. We believe we can implement and sustain a more efficient cost structure that conserves our resources now and is able to progress once the economic environment recovers. We plan to use customer insights to drive our investment decisions, focusing on those with the highest and most predictable returns. We expect our efforts will limit the growth of our costs and expenses by changing how we do our work.

Results of Operations

Fiscal 2009 Summary

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º Net earnings in fiscal 2009 decreased 29% to $1.0 billion, or $2.39 per diluted share, compared with $1.4 billion, or $3.12 per diluted share, in fiscal 2008. The decrease in net earnings was driven by a comparable store sales decline of 1.3%, deterioration in our SG&A rate and an increase in restructuring and impairment charges, partially offset by improvement in our gross profit rate.

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º Revenue in fiscal 2009 increased 13% to $45.0 billion. The increase was driven primarily by the acquisition of Best Buy Europe, which contributed $3.2 billion of revenue, and the net addition of 214 new stores during fiscal 2009. These gains were partially offset by a 1.3% comparable store sales decline and the impact of unfavorable fluctuations in foreign currency exchange rates.

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º Our gross profit rate in fiscal 2009 increased by 0.5% of revenue to 24.4% of revenue. The increase was driven primarily by the inclusion of Best Buy Europe, which has a normally higher gross profit rate, as well as an improved gross profit rate in our Domestic segment driven by rate improvements in televisions and computing and increased sales of higher-margin mobile phones. The increase was partially offset by increased sales of lower-margin notebook computers.

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º Our SG&A rate in fiscal 2009 increased by 1.5% of revenue to 20.0% of revenue. The increase was due primarily to the inclusion of Best Buy Europe, which has a normally higher SG&A rate; deleverage of payroll, benefits and overhead on lower revenue; store projects; and continued expansion of our international businesses. Partially offsetting the increase was lower incentive compensation.

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º In the fourth quarter of fiscal 2009, we recorded $144 million in restructuring and goodwill and tradename impairment charges. The restructuring charges of $78 million related primarily to termination benefits that we incurred in order to reduce our ongoing cost structure and to support our fiscal 2010 priorities. The goodwill and tradename impairment charges of $66 million was related to our Speakeasy business.

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º In accordance with our policy for evaluating investments for other-than-temporary impairment, we determined, based on specific facts and circumstances, that our $183 investment in the common stock of CPW had incurred an other-than-temporary impairment. Accordingly, we recorded a $111 million non-cash impairment charge on the investment during the third quarter of fiscal 2009.

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º During the second quarter of fiscal 2009, we completed the conversion of all of our U.S. Best Buy stores to include a Best Buy Mobile store-within-a-store experience. Additionally, we added the Best Buy Mobile store-within-a-store-experience to eight Best Buy Canada stores during fiscal 2009.

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º In June 2008, we sold $500 million principal amount of 6.75% notes due July 2013. The proceeds were used to finance a portion of our acquisition of Best Buy Europe.

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º Effective with the cash dividend paid in the third quarter of fiscal 2009, we increased our quarterly cash dividend per share of common stock by 8%, to $0.14 per share. During fiscal 2009, we made four dividend payments totaling $0.54 per common share, or $222 million in the aggregate.

Consolidated Results

The following table presents selected consolidated financial data for each of
the past three fiscal years ($ in millions, except per share amounts):

    Consolidated Performance Summary            2009 (1)(2)        2008    2007 (3)

    Revenue                                    $     45,015    $ 40,023    $ 35,934
    Revenue gain %                                       13 %        11 %        16 %
    Comparable store sales % (decline) gain            (1.3 )%      2.9 %       5.0 %
    Gross profit as % of revenue(4)                    24.4 %      23.9 %      24.4 %
    SG&A as % of revenue(4)                            20.0 %      18.5 %      18.8 %
    Operating income                           $      1,870    $  2,161    $  1,999
    Operating income as % of revenue                    4.2 %       5.4 %       5.6 %
    Net earnings                               $      1,003    $  1,407    $  1,377
    Diluted earnings per share                 $       2.39    $   3.12    $   2.79

º (1)
º Included within our operating income for fiscal 2009 is $78 million of restructuring charges recorded in the fiscal fourth quarter related to measures we took to restructure our businesses. In addition, operating income is inclusive of goodwill and tradename impairment charges of $66 million related to our Speakeasy business. Collectively, these charges resulted in a decrease in our operating income of 0.2% of revenue for the fiscal year.

º (2)
º Included within our net earnings for fiscal 2009 is $111 million ($96 million net of tax) of investment impairment charges related to our investment in the common stock of CPW.

º (3)
º Fiscal 2007 included 53 weeks. Fiscal 2009 and 2008 each included 52 weeks.

º (4)
º Because retailers do not uniformly record costs of operating their supply chain between cost of goods sold and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers' corresponding rates. For additional information regarding costs classified in cost of goods sold and SG&A, refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financials Statements and Supplementary Data, of this Annual Report on Form 10-K.

Fiscal 2009 Results Compared With Fiscal 2008

Fiscal 2009 net earnings were $1.0 billion, or $2.39 per diluted share, compared with $1.4 billion, or $3.12 per diluted share, in fiscal 2008. The decrease in net earnings was driven by a comparable store sales decline of 1.3%, deterioration in our SG&A rate, and an increase in restructuring and impairment charges, partially offset by improvement in our gross profit rate.

Revenue in fiscal 2009 increased 13% to $45.0 billion, compared with $40.0 billion in fiscal 2008. The revenue increase resulted primarily from the acquisition of Best Buy Europe which contributed $3.2 billion of revenue in the fiscal year, the net addition of 214 new stores during fiscal 2009, and a full year of revenue from new stores added in fiscal 2008. The increase was partially offset by a 1.3% comparable store sales decline and the unfavorable effect of fluctuations in foreign currency exchange rates.

The components of the net revenue increase in fiscal 2009 were as follows:

                  Acquisition of Best Buy Europe              8 %
                  Net new stores                              7 %
                  1.3% comparable store sales decline        (1 )%
                  Unfavorable impact of foreign currency     (1 )%

                  Total revenue increase                     13 %

The following table presents consolidated revenue mix percentages and comparable store sales percentage changes by revenue category in fiscal 2009 and 2008:

                           Revenue Mix Summary                    Comparable Store Sales Summary
                                Year Ended                                  Year Ended
                   February 28, 2009        March 1, 2008      February 28, 2009        March 1, 2008

Consumer
electronics                       36 %                 41 %                 (5.1 )%              (1.3 )%
Home office                       34 %                 28 %                  8.2 %                7.1 %
Entertainment
software                          17 %                 19 %                 (4.9 )%               7.9 %
Appliances                         6 %                  6 %                (10.9 )%              (2.6 )%
Services                           7 %                  6 %                  4.0 %                5.5 %
Other                             <1 %                 <1 %                  n/a                  n/a

Total                            100 %                100 %                 (1.3 )%               2.9 %

Our comparable store sales decline in fiscal 2009 reflected a decrease in customer traffic. Partially offsetting the decline in traffic was an increase in the average ticket as our revenue mix continued to shift toward large-ticket items, such as notebook computers and mobile phones. Products having the largest impact on the fiscal 2009 comparable store sales decline include digital cameras, tube and projection televisions, DVDs and CDs, partially offset by gains in notebook computers, flat-panel televisions and mobile phones. Revenue from our online operations increased more than 21% in fiscal 2009 and partially offset the overall comparable store sales decline.

Our gross profit rate in fiscal 2009 increased by 0.5% of revenue to 24.4% of revenue. The gross profit rate increase for fiscal 2009 was due to increases in both our Domestic and International segments' gross profit rates. The acquisition of Best Buy Europe increased our gross profit rate by 0.4% of revenue for fiscal 2009. For further discussion of each segment's gross profit rate changes, see the Segment Performance Summary for Domestic and International below.

Our SG&A rate in fiscal 2009 increased by 1.5% of revenue to 20.0% of revenue. The SG&A rate increase for fiscal 2009 was due to an increase in both our Domestic and International segments' SG&A rates. The acquisition of Best Buy Europe increased our SG&A rate by 0.7% of revenue for fiscal 2009. For further discussion of each segment's SG&A rate changes, see the Segment Performance Summary for Domestic and International below.

Our operating income in fiscal 2009 also included restructuring and goodwill and tradename impairment charges recorded in the fiscal fourth quarter. The $78 million restructuring charge related primarily to employee termination benefits offered pursuant to voluntary and involuntary separation programs at our corporate headquarters and certain other locations. The restructuring charges were recorded as a result of measures we took to create a more effective and efficient operating cost structure and to support our fiscal 2010 strategic priorities. The $66 million goodwill and tradename impairment charges related to impairment of our Speakeasy business recorded as a result our annual test of goodwill for impairment.

Fiscal 2008 Results Compared With Fiscal 2007

Fiscal 2008 net earnings were slightly more than $1.4 billion, or $3.12 per diluted share, compared with nearly $1.4 billion, or $2.79 per diluted share, in fiscal 2007. The modest increase in net earnings was driven by revenue growth and a decrease in our SG&A rate, offset by a decrease in our gross profit rate and a higher effective income tax rate. The increase in net earnings per diluted share was due primarily to the lower average number of shares outstanding, resulting from our share repurchases in fiscal 2008.

Revenue in fiscal 2008 increased 11% to $40.0 billion, compared with $35.9 billion in fiscal 2007. The increase resulted primarily from the net addition of 137 new Best Buy, Future Shop, Five Star, Pacific Sales and Best Buy Mobile stores during fiscal 2008, a full year of revenue from new stores added in fiscal 2007, a 2.9% comparable store sales gain and the non-comparable store sales generated from the acquisition of Five Star, Pacific Sales and Speakeasy. The remainder of the revenue increase was due primarily to the favorable effect of fluctuations in

foreign currency exchange rates. Excluding the impact of the extra week in fiscal 2007, the net addition of new stores during the past fiscal year accounted for more than one-half of the revenue increase in fiscal 2008; the comparable store sales gain accounted for more than two-tenths of the revenue increase; the non-comparable store sales generated from the acquisition of Five Star, Pacific Sales and Speakeasy accounted for more than one-tenth of the revenue increase; and the remainder of the revenue increase was due to the favorable effect of fluctuations in foreign currency exchange rates.

The following table presents consolidated revenue mix percentages and comparable store sales percentage changes by revenue category in fiscal 2008 and 2007:

                                  Revenue Mix Summary              Comparable Store Sales Summary
                                      Year Ended                             Year Ended
                            March 1, 2008       March 3, 2007     March 1, 2008        March 3, 2007
. . .