Unless the context otherwise requires, the use of the terms "Best Buy," "we," "us" and "our" in the following refers to Best Buy Co., Inc. and its consolidated subsidiaries.

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. Unless otherwise noted, transactions, trends and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. In addition, unless expressly stated otherwise, the comparisons presented in this MD&A refer to the same period in the prior year. Our MD&A is presented in six sections:

• Overview

• Results of Operations

• Liquidity and Capital Resources

• Off-Balance-Sheet Arrangements and Contractual Obligations

• Significant Accounting Policies and Estimates

• New Accounting Standards

Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended March 3, 2012, as well as our reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited.

Overview

We are a multi-national, e-commerce and physical retailer of consumer electronics, including computers, mobile phones, televisions, entertainment products, large and small appliances and related accessories. We also offer consumers technology services - including repair, troubleshooting and installation - under the Geek Squad brand.

Best Buy operates as two reportable segments: Domestic and International. The Domestic segment is comprised of all operations within the U.S. and its territories. The International segment is comprised of all operations outside the U.S. and its territories.

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.

While consumers view some of the products and services we offer as essential, others are viewed as discretionary purchases. Consequently, our financial results are susceptible to changes in consumer confidence and other macroeconomic factors, including unemployment, consumer credit availability, and the condition of the housing market. Consumer confidence and macroeconomic trends continue to be uncertain, making customer traffic and spending patterns difficult to predict. Additionally, there are other factors that directly impact our performance, such as product life-cycles (including the introduction and pace of adoption of new technology) and the competitive retail environment. As a result of these factors, predicting our future revenue and net earnings is difficult. However, we remain confident that our differentiated value proposition continues to be valued by the consumer. Our proposition is to offer:
(1) the latest devices and services, all in one place; (2) knowledgeable, impartial advice; (3) competitive prices; (4) the consumer's ability to shop Best Buy wherever and whenever they like; and (5) technical and warranty support for the life of the product.

Revenue growth, along with disciplined capital allocation and expense control, remain key priorities for us as we navigate through the current environment and work to grow our Return on Invested Capital.

Throughout this MD&A, we refer to comparable store sales. Comparable store sales is a commonly used metric in the retail industry, which compares revenue for a particular period with the corresponding period in the prior year, excluding the impact of sales from new stores opened. Our comparable store sales is comprised of revenue from stores operating for at least 14 full months, as well as revenue related to call centers, web sites, and our other comparable sales channels. Revenue we earn from sales of merchandise to wholesalers or dealers is not included within our comparable store sales calculation. Relocated stores, as well as remodeled, expanded, and downsized stores closed more than 14 days, are excluded from the comparable store sales calculation until at least 14 full months after reopening. Acquired stores are included in the comparable store sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The calculation of comparable store sales excludes the impact of the extra week of revenue in the first quarter of fiscal 2013, as well as revenue from discontinued operations. 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.

In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment's operating results from local currencies into U.S. dollars for reporting purposes. The impact of foreign currency exchange rate fluctuations is typically calculated as the difference between current period activity translated using the current period's currency exchange rates and the comparable prior-year period's currency exchange rates. We use this method to calculate the impact of changes in foreign currency exchange rates for all countries where the functional currency is not the U.S. dollar.

In our discussions of the operating results below, we sometimes refer to the impact of net store changes on our results of operations. The key factors that dictate the impact that the net store changes have on our operating results include: (i) store opening and closing decisions; (ii) the size and format of new stores, as we operate stores ranging from approximately 1,000 square feet to approximately 50,000 square feet; (iii) the length of time the stores were open during the period; and (iv) the overall success of new store launches.

This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), as well as certain non-GAAP financial measures such as adjusted operating income, adjusted net earnings from continuing operations, adjusted diluted earnings per share ("EPS") from continuing operations and adjusted debt to earnings before goodwill impairment, interest, income taxes, depreciation, amortization and rent ("EBITDAR") ratio. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position, or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.

We believe that the non-GAAP measures described above provide meaningful information to assist shareholders in understanding our financial results and assessing our prospects for future performance. Management believes adjusted operating income, adjusted net earnings from continuing operations, and adjusted diluted EPS from continuing operations are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. To measure adjusted operating income, we remove the impact of restructuring charges from our calculation of operating income. Adjusted net earnings from continuing operations is calculated by removing the after-tax impact of restructuring charges from our calculation of net earnings. To measure adjusted diluted EPS from continuing operations, we exclude the per share impact of restructuring charges from our calculation of diluted EPS. Management believes our adjusted debt to EBITDAR ratio is an important indicator of our creditworthiness. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These non-GAAP financial measures are an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures within our discussion of consolidated performance, below, provide a more complete understanding of our business. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

Results of Operations

Beginning in the first quarter of fiscal 2013, we changed our fiscal year-end from the Saturday nearest the end of February to the Saturday nearest the end of January. As a result of this change, our fiscal year 2013 is an 11-month transition period ending on February 2, 2013. In the first quarter of fiscal 2013, we also began consolidating the results of our Europe, China, and Mexico operations on a one-month lag as a result of this change, compared to a two-month lag in fiscal year 2012, to continue to align our fiscal reporting periods with statutory filing requirements in certain foreign jurisdictions. Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to these operations is also presented on a one-month lag. There were no significant intervening events which would have materially affected our financial condition, results of operations, liquidity, or other factors had they been recorded during the three months ended November 3, 2012.

In order to allow an immediate transition to our new fiscal calendar and to maintain transparency and comparability of financial information included in our quarterly Form 10-Q filings, we are presenting such quarterly information on a three- and nine-month basis for both the current and prior fiscal years, in both instances based on the new fiscal calendar. Following the change to our fiscal calendar, the third quarter of fiscal 2013 is the three and nine months ended November 3, 2012, and these periods,

together with the comparable periods in the prior fiscal year, the three and nine months ended October 29, 2011, form the basis for the results discussed in our MD&A. See Note 2, Fiscal Year-end Change, of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the fiscal year change.

Discontinued Operations Presentation

The results of our large-format Best Buy branded stores in China, Turkey, and the United Kingdom ("U.K."), The Phone House retail stores in Belgium, and Napster are presented as discontinued operations in our Condensed Consolidated Statements of Earnings and Comprehensive Income. Unless otherwise stated, financial results discussed herein refer to continuing operations.

Consolidated Performance Summary

In the third quarter of fiscal 2013, we experienced comparable store sales declines in gaming, notebooks and televisions. These declines were partially offset by gains in mobile phones. The decline in gross profit rate reflects mix shifts, a price competitive environment and growth in the lower-margin wholesale business in Europe. A modest increase in SG&A largely reflected increased compensation and training costs for store associates and costs associated with executive transitions.

The following table presents selected consolidated financial data ($ in millions, except per share amounts):

                                                Three Months Ended                           Nine Months Ended
                                      November 3, 2012      October 29, 2011      November 3, 2012      October 29, 2011
                                                                (recast)                                    (recast)
Revenue                              $       10,753        $       11,145        $       32,910        $       33,370
Revenue % growth (decline)                     (3.5 )%                1.5  %               (1.4 )%                0.5  %
Comparable store sales % decline               (4.3 )%               (0.7 )%               (4.3 )%               (2.5 )%
Gross profit                         $        2,586        $        2,853        $        8,057        $        8,536
Gross profit as a % of revenue(1)              24.0  %               25.6  %               24.5  %               25.6  %
SG&A                                 $        2,538        $        2,472        $        7,496        $        7,431
SG&A as a % of revenue(1)                      23.6  %               22.2  %               22.8  %               22.3  %
Restructuring charges                $           36        $            -        $          254        $            4
Operating income                     $           12        $          381        $          307        $        1,101
Operating income as % of revenue                0.1  %                3.4  %                0.9  %                3.3  %
Net earnings (loss) from continuing
operations(2)                        $          (13 )      $          173        $          160        $          578
Gain (loss) from discontinued
operations(3)                        $            3        $          (17 )      $            -        $          (82 )
Net earnings (loss) attributable to
Best Buy Co., Inc.                   $          (10 )      $          156        $          160        $          496
Diluted earnings (loss) per share
from continuing operations           $        (0.04 )      $         0.47        $         0.47        $         1.51
Diluted earnings (loss) per share    $        (0.03 )      $         0.42        $         0.47        $         1.30

(1) Because retailers vary in how they record certain costs between cost of goods sold and selling, general and administrative expenses ("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, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended March 3, 2012.

(2) Includes both net earnings (loss) from continuing operations and net (earnings) loss from continuing operations attributable to noncontrolling interests.

(3) Includes both net gain (loss) from discontinued operations and net (gain) loss from discontinued operations attributable to noncontrolling interests.

The components of the 3.5% and 1.4% revenue decreases for the third quarter and first nine months of fiscal 2013, respectively, were as follows:

                                                      Three Months Ended     Nine Months Ended
                                                       November 3, 2012      November 3, 2012
Comparable store sales impact                                 (4.0 )%               (4.0 )%
Net store changes                                             (0.6 )%                0.1  %
Non-comparable store sales channels(1)                         0.6  %                0.4  %
Impact of foreign currency exchange rate fluctuations          0.5  %               (0.1 )%
Extra week of revenue(2)                                         -  %                2.2  %
Total revenue decrease                                        (3.5 )%               (1.4 )%

(1) Non-comparable store sales channels primarily reflects the impact from revenue we earn from sales of merchandise to wholesalers and dealers, as well as other non-comparable sales channels not included within our comparable store sales calculation.

(2) Represents the estimated incremental revenue associated with stores in our Domestic segment and Canada in the first nine months of fiscal 2013, which had 40 weeks of activity, compared to 39 weeks in the first nine months of fiscal 2012.

The gross profit rate decreased by 1.6% of revenue in the third quarter of fiscal 2013. Gross profit rate declines in our Domestic and International segments each accounted for a decrease of 0.8% of revenue. For the first nine months of fiscal 2013, the gross profit rate decreased by 1.1% of revenue. Gross profit rate declines in our Domestic and International segments accounted for decreases of 0.6% of revenue and 0.5% of revenue, respectively. For further discussion of each segment's gross profit rate changes, see Segment Performance Summary below.

The SG&A rate increased by 1.4% of revenue in the third quarter of fiscal 2013. Our Domestic and International segments contributed a rate increase of 1.0% of revenue and 0.4% of revenue, respectively. For the first nine months of fiscal 2013, the SG&A rate increased by 0.5% of revenue, which was due entirely to a rate increase in our International segment. For further discussion of each segment's SG&A rate changes, see Segment Performance Summary below.

We recorded restructuring charges of $36 million and $254 million in the third quarter and first nine months of fiscal 2013, respectively, related primarily to our Domestic segment. We recorded no restructuring charges in the third quarter of fiscal 2012. In the first nine months of fiscal 2012, we recorded $4 million of restructuring charges related primarily to our Domestic segment. These restructuring charges resulted in a decrease in our operating income in the third quarter and first nine months of fiscal 2013 of 0.3% of revenue and 0.8% of revenue, respectively. The restructuring charges recorded in the first nine months of fiscal 2012 had no impact on our operating income rate. For further discussion of each segment's restructuring charges, see Segment Performance Summary below.

Operating income decreased $369 million, or 96.9%, and our operating income rate decreased to 0.1% of revenue in the third quarter of fiscal 2013, compared to 3.4% of revenue in the third quarter of fiscal 2012. For the first nine months of fiscal 2013, operating income decreased 72.1% to $307 million or, as a percentage of revenue, to 0.9%. The decrease in operating income and operating income rate was driven by operating losses from our International segment, compared to operating income in the prior-year periods and decreases in operating income from our Domestic segment compared to the prior-year periods. The operating income decreases in the current year periods were primarily due to lower revenue, a decrease in the gross profit rate and an increase in restructuring charges.

Other Income (Expense)

Investment income and other in the third quarter and first nine months of fiscal 2013 was $13 million and $25 million, respectively, compared to less than $1 million and $25 million, respectively, in the prior-year periods. The increase in the third quarter was primarily due to a gain on deferred compensation assets in fiscal 2013 compared to a loss in the prior-year period. The increase in deferred compensation assets during the first nine months of fiscal 2013 was fully offset by a decrease in investments and a realized gain on the sale of an investment in the prior-year period, which did not recur in fiscal 2013.

Interest expense in the third quarter and first nine months of fiscal 2013 decreased to $31 million and $94 million, respectively, compared to $37 million and $98 million, respectively, in the prior-year periods. The reduction in interest expense from the repayment of our convertible debt in January 2012, as well as the acceleration of amortization costs from the early cancellation of our receivables credit facility in Europe in July 2011, was partially offset by an increase in interest expense on our $1 billion of long-term debt securities that remained outstanding for the first three quarters of fiscal 2013, compared to two of the three quarters of fiscal 2012.

Income Tax Expense

We had an income tax benefit of $2 million in the third quarter of fiscal 2013 and income tax expense of $84 million in the first nine months of fiscal 2013, compared to $122 million and $364 million of expense in the prior-year periods, respectively. The decrease was primarily a result of a decrease in pre-tax earnings in both current year periods.

Our effective income tax rate in the third quarter of fiscal 2013 was 34.7%, compared to a rate of 35.6% in the third quarter of fiscal 2012. The decrease in the effective income tax rate was primarily due to the favorable resolution of certain state tax items, which was partially offset by a lower mix of forecast taxable income from foreign operations in fiscal 2013. Our effective income tax rate for the first nine months of fiscal 2013 and fiscal 2012 was flat at 35.4%, as the resolution of foreign and state tax matters was offset by a lower mix of forecast taxable income from foreign operations.

Our consolidated effective tax rate is impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate. As our foreign earnings are generally taxed at lower statutory rates than the 35% U.S. federal statutory rate, changes in the proportion of our consolidated taxable earnings originating in foreign jurisdictions impact our consolidated effective rate. Our foreign earnings have been indefinitely reinvested outside the U.S. and are not subject to current U.S. income tax.

Discontinued Operations

Discontinued operations include our large-format Best Buy branded stores in China, Turkey, and the U.K., and The Phone House retail stores in Belgium in our International segment, as well as Napster in our Domestic segment.

The decrease in loss from discontinued operations in the third quarter and first nine months of fiscal 2013 compared to the third quarter and first nine months of fiscal 2012 was the result of all of the above listed operations having been largely inactive during the current year period, whereas we were still operating our U.K. and Belgium stores, as well as Napster, during the prior-year period. In addition, we recognized a benefit from positive adjustments to estimated facility closure costs associated with the closure of our Best Buy branded stores in the U.K. in the third quarter of fiscal 2013.

Net Earnings from Continuing Operations Attributable to Noncontrolling Interests

The decrease in net earnings from continuing operations attributable to noncontrolling interests in the third quarter and first nine months of fiscal 2013 compared to the same periods in fiscal 2012 was due to our purchase of CPW's interest in the Best Buy Mobile profit share agreement (the "Mobile buy-out") in the fourth quarter of fiscal 2012. As a result of the Mobile buy-out, CPW is no longer entitled to a portion of the profit share payments to Best Buy Europe Distributions Limited ("Best Buy Europe"), our subsidiary in which CPW holds a 50% noncontrolling interest. In addition, net earnings from continuing operations attributable to noncontrolling interests also decreased due to a decline in net earnings of Best Buy Europe.

Non-GAAP Financial Measures

The following table reconciles operating income, net earnings, and diluted EPS
for the periods presented from continuing operations (GAAP financial measures)
to adjusted operating income, adjusted net earnings, and adjusted diluted EPS
from continuing operations (non-GAAP financial measures) for the periods
presented.
                                                 Three Months Ended                           Nine Months Ended
                                      November 3, 2012       October 29, 2011      November 3, 2012       October 29, 2011
                                                                 (recast)                                     (recast)
Operating income                     $            12       $              381     $         307         $            1,101
  Restructuring charges                           36                        -               254                          4
Adjusted operating income            $            48       $              381     $         561         $            1,105

Net earnings (loss) from continuing
operations                           $           (13 )     $              173     $         160         $              578
  After-tax impact of restructuring
charges                                           23                        -               164                          3
Adjusted net earnings from
continuing operations                $            10       $              173     $         324         $              581

Diluted EPS from continuing
operations                           $         (0.04 )     $             0.47     $        0.47         $             1.51
  Per share impact of restructuring
charges                                         0.07                        -              0.48                          -
Adjusted diluted EPS from continuing
operations                           $          0.03       $             0.47     $        0.95         $             1.51

Adjusted operating income decreased $333 million and $544 million in the third quarter and first nine months of fiscal 2013, respectively, compared to the prior-year periods. The decreases in operating income in both current year periods were driven by lower gross profit, primarily due to decreases in the gross profit rate in both segments, and modest increases in SG&A. These operating income decreases resulted in declines in adjusted net earnings and adjusted diluted EPS in the third quarter and first nine months of fiscal 2013 compared to the prior-year periods.

Segment Performance Summary

Domestic

In the third quarter of fiscal 2013, we experienced sales growth in mobile phones and e-Readers, with consumer demand for these products as new technology is introduced. In addition, we continued to experience sales growth in appliances in the third quarter of fiscal 2013, as a result of operating model improvements and promotional strategies for appliances surrounding the secondary holidays. However, these increases were more than offset by decreases in other product categories, such as notebooks, gaming and televisions. Certain other products (in particular, compact cameras and camcorders) have faced declining demand due in part to the inclusion of their key features in new products, such as smartphones and tablets. In addition, the net impact from the closure of 49 large-format stores throughout the first nine months of fiscal 2013 contributed to the overall revenue decline.

The following table presents selected financial data for the Domestic segment ($ in millions): . . .