The change in accounting for vendor allowances also impacted the timing of vendor allowances recognized during interim periods of fiscal 2003 and the classification of vendor allowances in our statement of earnings. Based on EITF No. 02-16, vendor allowances generally are recognized in earnings when the product is sold or the service is performed. Prior to the adoption of EITF No. 02-16, we generally recognized vendor allowances based on the provisions of the specific vendor agreement. The change in accounting method reduced fiscal 2003 earnings from continuing operations by $1 million, due to the timing of recognizing vendor allowances. Also, as a result of recognizing the majority of vendor allowances in cost of goods sold rather than in selling, general and administrative expenses (SG&A), our fiscal 2003 gross profit rate increased by 3.4% of revenue and our fiscal 2003 SG&A rate increased by 3.4% of revenue. For additional information regarding the change in accounting for vendor allowances, refer to “Change in Accounting Principles – Goodwill and Vendor Allowances” in note 1 of the Notes to Consolidated Financial Statements.

For information regarding the impact of EITF No. 02-16 on our fiscal 2003 annual and quarterly results and fiscal 2002 annual and fourth quarter results, refer to our Current Reports on Form 8-K filed with the Securities and Exchange Commission on April 3, 2003, and April 7, 2003.

Results of Operations
Fiscal 2003 Summary

• Earnings from continuing operations increased 10% in fiscal 2003 to $622 million, compared with $564 million in the prior fiscal year. The increase was driven by a 13% increase in revenue and a modest improvement in our gross profit rate, partially offset by a higher SG&A rate.
   
• Revenue increased 13% in fiscal 2003 to $20.9 billion, compared with $18.5 billion in the prior fiscal year. The increase was primarily due to the opening of 67 new U.S. Best Buy stores and 17 new stores in our International segment, as well as a 2.4% comparable store sales increase.
   
• Our gross profit rate increased slightly in fiscal 2003 to 25.0% of revenue, compared with 24.9% of revenue in the prior fiscal year, primarily due to a higher-margin revenue mix, partially offset by a more promotional environment.
   
• The SG&A rate increased to 20.2% of revenue in fiscal 2003, compared with 20.0% of revenue in the prior fiscal year. The increase was primarily due to increased expenses in our International segment related to the launch of Canadian Best Buy stores and to improving the future efficiency and profitability of our International segment. The SG&A rate in the Domestic segment was relatively flat as compared with the prior fiscal year.
   
• Our fiscal 2003 results also were impacted by significant non-cash charges discussed in the Significant Accounting Matters section. Significant non-cash charges totaled $500 million after-tax, including $418 million related to discontinued operations.
   
• In fiscal 2003, the loss from discontinued operations totaled $441 million, net of tax, and included significant non-cash charges of $418 million, net of tax. Discontinued operations also included a $72 million operating loss, before asset impairment charge, primarily attributable to revenue declines at Musicland’s mall-based stores. >>