UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 28, 2010
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-9595
BEST BUY CO., INC.
(Exact name of registrant as specified in its charter)
Minnesota |
|
41-0907483 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
7601 Penn Avenue South |
|
|
Richfield, Minnesota |
|
55423 |
(Address of principal executive offices) |
|
(Zip Code) |
(612) 291-1000
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. Common Stock, $.10 Par Value 397,841,000 shares outstanding as of October 1, 2010.
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED AUGUST 28, 2010
PART I FINANCIAL INFORMATION
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
($ in millions, except per share amounts)
(Unaudited)
|
|
August 28, |
|
February 27, |
|
August 29, |
|
|||
CURRENT ASSETS |
|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
843 |
|
$ |
1,826 |
|
$ |
668 |
|
Short-term investments |
|
2 |
|
90 |
|
93 |
|
|||
Receivables |
|
1,720 |
|
2,020 |
|
1,770 |
|
|||
Merchandise inventories |
|
6,346 |
|
5,486 |
|
5,738 |
|
|||
Other current assets |
|
1,048 |
|
1,144 |
|
1,035 |
|
|||
Total current assets |
|
9,959 |
|
10,566 |
|
9,304 |
|
|||
|
|
|
|
|
|
|
|
|||
PROPERTY AND EQUIPMENT, NET |
|
3,915 |
|
4,070 |
|
4,162 |
|
|||
|
|
|
|
|
|
|
|
|||
GOODWILL |
|
2,365 |
|
2,452 |
|
2,442 |
|
|||
|
|
|
|
|
|
|
|
|||
TRADENAMES, NET |
|
147 |
|
159 |
|
168 |
|
|||
|
|
|
|
|
|
|
|
|||
CUSTOMER RELATIONSHIPS, NET |
|
227 |
|
279 |
|
318 |
|
|||
|
|
|
|
|
|
|
|
|||
EQUITY AND OTHER INVESTMENTS |
|
293 |
|
324 |
|
334 |
|
|||
|
|
|
|
|
|
|
|
|||
OTHER ASSETS |
|
456 |
|
452 |
|
463 |
|
|||
|
|
|
|
|
|
|
|
|||
TOTAL ASSETS |
|
$ |
17,362 |
|
$ |
18,302 |
|
$ |
17,191 |
|
NOTE: The consolidated balance sheet as of February 27, 2010, has been condensed from the audited consolidated financial statements.
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS EQUITY
($ in millions, except per share amounts)
(Unaudited)
|
|
August 28, |
|
February 27, |
|
August 29, |
|
|||
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|||
Accounts payable |
|
$ |
5,573 |
|
$ |
5,276 |
|
$ |
5,407 |
|
Unredeemed gift card liabilities |
|
400 |
|
463 |
|
400 |
|
|||
Accrued compensation and related expenses |
|
467 |
|
544 |
|
427 |
|
|||
Accrued liabilities |
|
1,589 |
|
1,681 |
|
1,543 |
|
|||
Accrued income taxes |
|
27 |
|
316 |
|
51 |
|
|||
Short-term debt |
|
383 |
|
663 |
|
1,091 |
|
|||
Current portion of long-term debt |
|
32 |
|
35 |
|
45 |
|
|||
Total current liabilities |
|
8,471 |
|
8,978 |
|
8,964 |
|
|||
|
|
|
|
|
|
|
|
|||
LONG-TERM LIABILITIES |
|
1,181 |
|
1,256 |
|
1,217 |
|
|||
|
|
|
|
|
|
|
|
|||
LONG-TERM DEBT |
|
1,088 |
|
1,104 |
|
1,111 |
|
|||
|
|
|
|
|
|
|
|
|||
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|||
Best Buy Co., Inc. Shareholders Equity |
|
|
|
|
|
|
|
|||
Preferred stock, $1.00 par value: Authorized 400,000 shares; Issued and outstanding none |
|
|
|
|
|
|
|
|||
Common stock, $0.10 par value: Authorized 1.0 billion shares; Issued and outstanding 402,961,000, 418,815,000 and 416,539,000 shares, respectively |
|
40 |
|
42 |
|
42 |
|
|||
Additional paid-in capital |
|
|
|
441 |
|
329 |
|
|||
Retained earnings |
|
6,000 |
|
5,797 |
|
4,908 |
|
|||
Accumulated other comprehensive (loss) income |
|
(25 |
) |
40 |
|
27 |
|
|||
Total Best Buy Co., Inc. shareholders equity |
|
6,015 |
|
6,320 |
|
5,306 |
|
|||
Noncontrolling interests |
|
607 |
|
644 |
|
593 |
|
|||
Total shareholders equity |
|
6,622 |
|
6,964 |
|
5,899 |
|
|||
|
|
|
|
|
|
|
|
|||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
17,362 |
|
$ |
18,302 |
|
$ |
17,191 |
|
NOTE: The consolidated balance sheet as of February 27, 2010, has been condensed from the audited consolidated financial statements.
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF EARNINGS
($ in millions, except per share amounts)
(Unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
August 28, |
|
August 29, |
|
August 28, |
|
August 29, |
|
||||
Revenue |
|
$ |
11,339 |
|
$ |
11,022 |
|
$ |
22,126 |
|
$ |
21,117 |
|
Cost of goods sold |
|
8,421 |
|
8,338 |
|
16,415 |
|
15,876 |
|
||||
Gross profit |
|
2,918 |
|
2,684 |
|
5,711 |
|
5,241 |
|
||||
Selling, general and administrative expenses |
|
2,507 |
|
2,404 |
|
4,987 |
|
4,613 |
|
||||
Restructuring charges |
|
|
|
|
|
|
|
52 |
|
||||
Operating income |
|
411 |
|
280 |
|
724 |
|
576 |
|
||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
||||
Investment income and other |
|
13 |
|
18 |
|
25 |
|
27 |
|
||||
Interest expense |
|
(21 |
) |
(22 |
) |
(44 |
) |
(45 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Earnings before income tax expense |
|
403 |
|
276 |
|
705 |
|
558 |
|
||||
Income tax expense |
|
146 |
|
119 |
|
267 |
|
245 |
|
||||
Net earnings including noncontrolling interests |
|
257 |
|
157 |
|
438 |
|
313 |
|
||||
Net (earnings) loss attributable to noncontrolling interests |
|
(3 |
) |
1 |
|
(29 |
) |
(2 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Net earnings attributable to Best Buy Co., Inc. |
|
$ |
254 |
|
$ |
158 |
|
$ |
409 |
|
$ |
311 |
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share attributable to Best Buy Co., Inc. |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.61 |
|
$ |
0.38 |
|
$ |
0.98 |
|
$ |
0.75 |
|
Diluted |
|
$ |
0.60 |
|
$ |
0.37 |
|
$ |
0.96 |
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends declared per common share |
|
$ |
0.14 |
|
$ |
0.14 |
|
$ |
0.28 |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding (in millions) |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
413.5 |
|
416.5 |
|
416.9 |
|
415.8 |
|
||||
Diluted |
|
423.6 |
|
427.0 |
|
427.7 |
|
426.2 |
|
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE SIX MONTHS ENDED AUGUST 28, 2010, AND AUGUST 29, 2009
($ and shares in millions)
(Unaudited)
|
|
Best Buy Co., Inc. |
|
|
|
|
|
|||||||||||||||||
|
|
Common |
|
Common |
|
Additional |
|
Retained |
|
Accumulated |
|
Total |
|
Non |
|
Total |
|
|||||||
Balances at February 27, 2010 |
|
419 |
|
$ |
42 |
|
$ |
441 |
|
$ |
5,797 |
|
$ |
40 |
|
$ |
6,320 |
|
$ |
644 |
|
$ |
6,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net earnings, six months ended August 28, 2010 |
|
|
|
|
|
|
|
409 |
|
|
|
409 |
|
29 |
|
438 |
|
|||||||
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
(83 |
) |
(83 |
) |
(70 |
) |
(153 |
) |
|||||||
Unrealized gains on available-for-sale investments |
|
|
|
|
|
|
|
|
|
14 |
|
14 |
|
|
|
14 |
|
|||||||
Cash flow hedging instruments unrealized gains |
|
|
|
|
|
|
|
|
|
4 |
|
4 |
|
4 |
|
8 |
|
|||||||
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
344 |
|
(37 |
) |
307 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Stock-based compensation |
|
|
|
|
|
58 |
|
|
|
|
|
58 |
|
|
|
58 |
|
|||||||
Stock options exercised |
|
3 |
|
|
|
90 |
|
|
|
|
|
90 |
|
|
|
90 |
|
|||||||
Issuance of common stock under employee stock purchase plan |
|
1 |
|
|
|
23 |
|
|
|
|
|
23 |
|
|
|
23 |
|
|||||||
Tax benefit from stock options exercised, restricted stock vesting and employee stock purchase plan |
|
|
|
|
|
3 |
|
|
|
|
|
3 |
|
|
|
3 |
|
|||||||
Common stock dividends, $0.28 per share |
|
|
|
|
|
|
|
(118 |
) |
|
|
(118 |
) |
|
|
(118 |
) |
|||||||
Repurchase of common stock |
|
(20 |
) |
(2 |
) |
(615 |
) |
(88 |
) |
|
|
(705 |
) |
|
|
(705 |
) |
|||||||
Balances at August 28, 2010 |
|
403 |
|
$ |
40 |
|
$ |
|
|
$ |
6,000 |
|
$ |
(25 |
) |
$ |
6,015 |
|
$ |
607 |
|
$ |
6,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balances at February 28, 2009 |
|
414 |
|
$ |
41 |
|
$ |
205 |
|
$ |
4,714 |
|
$ |
(317 |
) |
$ |
4,643 |
|
$ |
513 |
|
$ |
5,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net earnings, six months ended August 29, 2009 |
|
|
|
|
|
|
|
311 |
|
|
|
311 |
|
2 |
|
313 |
|
|||||||
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
310 |
|
310 |
|
96 |
|
406 |
|
|||||||
Unrealized gains on available-for-sale investments |
|
|
|
|
|
|
|
|
|
30 |
|
30 |
|
|
|
30 |
|
|||||||
Cash flow hedging instruments unrealized gains |
|
|
|
|
|
|
|
|
|
4 |
|
4 |
|
4 |
|
8 |
|
|||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
655 |
|
102 |
|
757 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Acquisition of business (adjustments to purchase price allocation) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(22 |
) |
(22 |
) |
|||||||
Stock-based compensation |
|
|
|
|
|
57 |
|
|
|
|
|
57 |
|
|
|
57 |
|
|||||||
Stock options exercised |
|
1 |
|
1 |
|
55 |
|
|
|
|
|
56 |
|
|
|
56 |
|
|||||||
Issuance of common stock under employee stock purchase plan |
|
1 |
|
|
|
21 |
|
|
|
|
|
21 |
|
|
|
21 |
|
|||||||
Tax deficit from stock options exercised, restricted stock vesting and employee stock purchase plan |
|
|
|
|
|
(9 |
) |
|
|
|
|
(9 |
) |
|
|
(9 |
) |
|||||||
Common stock dividends, $0.27 per share |
|
|
|
|
|
|
|
(117 |
) |
|
|
(117 |
) |
|
|
(117 |
) |
|||||||
Balances at August 29, 2009 |
|
416 |
|
$ |
42 |
|
$ |
329 |
|
$ |
4,908 |
|
$ |
27 |
|
$ |
5,306 |
|
$ |
593 |
|
$ |
5,899 |
|
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited)
|
|
Six Months Ended |
|
||||
|
|
August 28, |
|
August 29, |
|
||
OPERATING ACTIVITIES |
|
|
|
|
|
||
Net earnings including noncontrolling interests |
|
$ |
438 |
|
$ |
313 |
|
Adjustments to reconcile net earnings including noncontrolling interests to total cash provided by operating activities |
|
|
|
|
|
||
Depreciation |
|
438 |
|
407 |
|
||
Amortization of definite-lived intangible assets |
|
43 |
|
42 |
|
||
Restructuring charges |
|
|
|
52 |
|
||
Stock-based compensation |
|
58 |
|
57 |
|
||
Deferred income taxes |
|
50 |
|
6 |
|
||
Excess tax benefits from stock-based compensation |
|
(10 |
) |
(1 |
) |
||
Other, net |
|
5 |
|
(6 |
) |
||
Changes in operating assets and liabilities |
|
|
|
|
|
||
Receivables |
|
197 |
|
165 |
|
||
Merchandise inventories |
|
(909 |
) |
(883 |
) |
||
Other assets |
|
75 |
|
48 |
|
||
Accounts payable |
|
361 |
|
316 |
|
||
Other liabilities |
|
(225 |
) |
(33 |
) |
||
Income taxes |
|
(437 |
) |
(245 |
) |
||
Total cash provided by operating activities |
|
84 |
|
238 |
|
||
|
|
|
|
|
|
||
INVESTING ACTIVITIES |
|
|
|
|
|
||
Additions to property and equipment |
|
(342 |
) |
(310 |
) |
||
Purchases of investments |
|
(241 |
) |
(7 |
) |
||
Sales of investments |
|
379 |
|
37 |
|
||
Proceeds from sale of business, net of cash transferred |
|
21 |
|
|
|
||
Change in restricted assets |
|
12 |
|
(11 |
) |
||
Settlement of net investment hedges |
|
12 |
|
66 |
|
||
Other, net |
|
(1 |
) |
(13 |
) |
||
Total cash used in investing activities |
|
(160 |
) |
(238 |
) |
||
|
|
|
|
|
|
||
FINANCING ACTIVITIES |
|
|
|
|
|
||
Repurchase of common stock |
|
(667 |
) |
|
|
||
Borrowings of debt |
|
955 |
|
2,967 |
|
||
Repayments of debt |
|
(1,207 |
) |
(2,680 |
) |
||
Dividends paid |
|
(118 |
) |
(117 |
) |
||
Issuance of common stock under employee stock purchase plan and for the exercise of stock options |
|
113 |
|
77 |
|
||
Acquisition of noncontrolling interests |
|
|
|
(34 |
) |
||
Excess tax benefits from stock-based compensation |
|
10 |
|
1 |
|
||
Other, net |
|
9 |
|
4 |
|
||
Total cash (used in) provided by financing activities |
|
(905 |
) |
218 |
|
||
|
|
|
|
|
|
||
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
(2 |
) |
(48 |
) |
||
|
|
|
|
|
|
||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
(983 |
) |
170 |
|
||
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
1,826 |
|
498 |
|
||
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
843 |
|
$ |
668 |
|
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share amounts)
(Unaudited)
1. Basis of Presentation
Unless the context otherwise requires, the use of the terms Best Buy, we, us and our in these Notes to Condensed Consolidated Financial Statements refers to Best Buy Co., Inc. and its consolidated subsidiaries.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (GAAP). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.
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. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 27, 2010.
In order to align our fiscal reporting periods and comply with statutory filing requirements in certain foreign jurisdictions, we consolidate the financial results of our Europe, China, Mexico and Turkey operations on a two-month lag. There were no significant intervening events which would have materially affected our consolidated financial statements had they been recorded during the three months ended August 28, 2010.
In preparing the accompanying condensed consolidated financial statements, we evaluated the period from August 29, 2010 through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such events were identified for this period.
New Accounting Standards
Consolidation of Variable Interest Entities In June 2009, the Financial Accounting Standards Board (FASB) issued new guidance on the treatment of a consolidation of variable interest entities (VIE) in response to concerns about the application of certain key provisions of pre-existing guidance, including those regarding the transparency of an involvement with a VIE. Specifically, this new guidance requires a qualitative approach to identifying a controlling financial interest in a VIE and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. In addition, this new guidance requires additional disclosures about an involvement with a VIE and any significant changes in risk exposure due to that involvement. This new guidance was effective for fiscal years beginning after November 15, 2009. As such, we adopted the new guidance on February 28, 2010, and determined that it did not have an impact on our consolidated financial position or results of operations.
Transfers of Financial Assets In June 2009, the FASB issued new guidance on the treatment of transfers of financial assets which eliminates the concept of a qualifying special-purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entitys continuing involvement in and exposure to the risks related to transferred financial assets. This new guidance was effective for fiscal years beginning after November 15, 2009. As such, we adopted the new guidance on February 28, 2010, and determined that it did not have an impact on our consolidated financial position or results of operations.
2. Investments
Investments were comprised of the following:
|
|
August 28, |
|
February 27, |
|
August 29, |
|
|||
Short-term investments |
|
|
|
|
|
|
|
|||
Money market fund |
|
$ |
2 |
|
$ |
2 |
|
$ |
4 |
|
Debt securities (auction-rate securities) |
|
|
|
88 |
|
89 |
|
|||
Total short-term investments |
|
$ |
2 |
|
$ |
90 |
|
$ |
93 |
|
|
|
|
|
|
|
|
|
|||
Equity and other investments |
|
|
|
|
|
|
|
|||
Debt securities (auction-rate securities) |
|
$ |
134 |
|
$ |
192 |
|
$ |
209 |
|
Marketable equity securities |
|
97 |
|
77 |
|
78 |
|
|||
Other investments |
|
62 |
|
55 |
|
47 |
|
|||
Total equity and other investments |
|
$ |
293 |
|
$ |
324 |
|
$ |
334 |
|
Debt Securities
Our debt securities are comprised of auction-rate securities (ARS). ARS were intended to behave like short-term debt instruments because their interest rates reset periodically through an auction process, most commonly at intervals of seven, 28 and 35 days. The auction process had historically provided a means by which we could rollover the investment or sell these securities at par in order to provide us with liquidity as needed. As a result, we classify our investments in ARS as available-for-sale and carry them at fair value.
In February 2008, auctions began to fail due to insufficient buyers, as the amount of securities submitted for sale in auctions exceeded the aggregate amount of the bids. For each failed auction, the interest rate on the security moves to a maximum rate specified for each security, and generally resets at a level higher than specified short-term interest rate benchmarks. To date, we have collected all interest due on our ARS and expect to continue to do so in the future. Due to persistent failed auctions, and the uncertainty of when these investments could be liquidated at par, we have classified all of our investments in ARS as non-current assets within equity and other investments in our condensed consolidated balance sheet at August 28, 2010.
In October 2008, we accepted a settlement with UBS AG and its affiliates (collectively, UBS) pursuant to which UBS issued to us Series C-2 Auction Rate Securities Rights (ARS Rights). The ARS Rights provided us the right to receive the full par value of our UBS-brokered ARS plus accrued but unpaid interest at any time between June 30, 2010, and July 2, 2012. Of the $88 UBS-brokered ARS held at the end of fiscal 2010, we sold $35 at par in the first quarter of fiscal 2011, and exercised our right to sell the remaining $53 at par in the second quarter of fiscal 2011. In addition, we sold $46 of non-UBS-brokered ARS at par in the second quarter of fiscal 2011, totaling $99 of ARS sold at par in the quarter.
At August 28, 2010, our entire remaining ARS portfolio, consisting of 25 investments in ARS having an aggregate value at par of $144, was subject to failed auctions. Subsequent to August 28, 2010, and through October 4, we sold less than $1 of ARS at par.
Our ARS portfolio consisted of the following, at fair value:
Description |
|
Nature of collateral or guarantee |
|
August 28, |
|
February 27, |
|
August 29, |
|
|||
Student loan bonds |
|
Student loans guaranteed 95% to 100% by the U.S. government |
|
$ |
116 |
|
$ |
261 |
|
$ |
278 |
|
Municipal revenue bonds |
|
100% insured by AA/Aa-rated bond insurers at August 28, 2010 |
|
18 |
|
19 |
|
20 |
|
|||
Total fair value plus accrued interest(1) |
|
|
|
$ |
134 |
|
$ |
280 |
|
$ |
298 |
|
(1) The par value and weighted-average interest rates (taxable equivalent) of our ARS were $144, $285 and $306, and 0.91%, 1.10% and 1.23%, respectively, at August 28, 2010, February 27, 2010, and August 29, 2009, respectively.
At August 28, 2010, our ARS portfolio was 66% AAA/Aaa-rated, 27% AA/Aa-rated and 7% A/A-rated.
The investment principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, or final payments are due according to the contractual maturities of the debt issuances, which range from six to 38 years. We intend to hold our ARS until we can recover the full principal amount through one of the means described above, and have the ability to do so based on our other sources of liquidity.
We evaluated our entire ARS portfolio of $144 (par value) for impairment at August 28, 2010, based primarily on the methodology described in Note 3, Fair Value Measurements. As a result of this review, we determined that the fair value of our ARS portfolio at August 28, 2010, was $134. Accordingly, we recognized a $10 pre-tax unrealized loss in accumulated other comprehensive income. This unrealized loss reflects a temporary impairment on all of our investments in ARS. The estimated fair value of our ARS portfolio could change significantly based on future market conditions. We will continue to assess the fair value of our ARS portfolio for substantive changes in relevant market conditions, changes in our financial condition or other changes that may alter our estimates described above.
We may be required to record an additional unrealized holding loss or an impairment charge to earnings if we determine that our ARS portfolio has incurred a further decline in fair value that is temporary or other-than-temporary, respectively. Factors that we consider when assessing our ARS portfolio for other-than-temporary impairment include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and the nature of the collateral or guarantees in place, as well as our intent and ability to hold an investment.
We had $(6), $(3) and $(5) of unrealized loss, net of tax, recorded in accumulated other comprehensive income at August 28, 2010, February 27, 2010, and August 29, 2009, respectively, related to our investments in debt securities.
Marketable Equity Securities
We invest in marketable equity securities and classify them as available-for-sale. Investments in marketable equity securities are classified as non-current assets within equity and other investments in our condensed consolidated balance sheets and are reported at fair value based on quoted market prices.
Our investments in marketable equity securities were as follows:
|
|
August 28, |
|
February 27, |
|
August 29, |
|
|||
Common stock of The Carphone Warehouse Group PLC |
|
$ |
|
|
$ |
74 |
|
$ |
78 |
|
Common stock of TalkTalk Telecom Group PLC |
|
51 |
|
|
|
|
|
|||
Common stock of Carphone Warehouse Group plc |
|
44 |
|
|
|
|
|
|||
Other |
|
2 |
|
3 |
|
|
|
|||
Total |
|
$ |
97 |
|
$ |
77 |
|
$ |
78 |
|
We purchased shares of The Carphone Warehouse Group PLC (CPW) common stock in fiscal 2008, representing nearly 3% of CPWs then outstanding shares. In March 2010, CPW demerged into two new holding companies: TalkTalk Telecom Group PLC (TalkTalk), which is the holding company for the fixed line voice and broadband telecommunications business of the former CPW, and Carphone Warehouse Group plc (Carphone Warehouse), which includes the former CPWs 50% noncontrolling interest in Best Buy Europe Distributions Limited (Best Buy Europe). Accordingly, our investment in CPW was exchanged for equivalent levels of investment in TalkTalk and Carphone Warehouse. A $39 pre-tax unrealized gain is recorded in accumulated other comprehensive income related to these investments at August 28, 2010.
We review all investments for other-than-temporary impairment at least quarterly or as indicators of impairment exist. Indicators of impairment include the duration and severity of the decline in fair value as well as the intent and ability to hold the investment to allow for a recovery in the market value of the investment. In addition, we consider qualitative factors that include, but are not limited to: (i) the financial condition and business plans of the investee including its future earnings potential, (ii) the investees credit rating, and (iii) the current and expected market and industry conditions in which the investee operates. If a decline in the fair value of an investment is deemed by management to be other-than-temporary, we write down the cost basis of the investment to fair value, and the amount of the write-down is included in net earnings.
All unrealized holding gains or losses related to our investments in marketable equity securities are reflected net of tax in accumulated other comprehensive income in shareholders equity. The total unrealized gain, net of tax, included in accumulated other comprehensive income was $35, $17 and $21 at August 28, 2010, February 27, 2010, and August 29, 2009, respectively.
Other Investments
The aggregate carrying values of investments accounted for using either the cost method or the equity method, at August 28, 2010, February 27, 2010, and August 29, 2009, were $62, $55 and $47, respectively.
3. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use a three-tier valuation hierarchy based upon observable and non-observable inputs:
Level 1 Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.
Level 2 Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:
· Quoted prices for similar assets or liabilities in active markets;
· Quoted prices for identical or similar assets in non-active markets;
· Inputs other than quoted prices that are observable for the asset or liability; and
· Inputs that are derived principally from or corroborated by other observable market data.
Level 3 Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize managements estimates of market participant assumptions.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following tables set forth by level within the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis at August 28, 2010, February 27, 2010, and August 29, 2009, according to the valuation techniques we used to determine their fair values.
|
|
|
|
Fair Value Measurements |
|
||||||||
|
|
Fair Value at |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
1 |
|
$ |
1 |
|
$ |
|
|
$ |
|
|
Short-term investments |
|
|
|
|
|
|
|
|
|
||||
Money market fund |
|
2 |
|
|
|
2 |
|
|
|
||||
Other current assets |
|
|
|
|
|
|
|
|
|
||||
Money market funds (restricted assets) |
|
49 |
|
49 |
|
|
|
|
|
||||
U.S. Treasury bills (restricted assets) |
|
100 |
|
100 |
|
|
|
|
|
||||
Foreign currency derivative instruments |
|
6 |
|
|
|
6 |
|
|
|
||||
Equity and other investments |
|
|
|
|
|
|
|
|
|
||||
Auction-rate securities |
|
134 |
|
|
|
|
|
134 |
|
||||
Marketable equity securities |
|
97 |
|
97 |
|
|
|
|
|
||||
Other assets |
|
|
|
|
|
|
|
|
|
||||
Marketable securities that fund deferred compensation |
|
77 |
|
77 |
|
|
|
|
|
||||
Foreign currency derivative instruments |
|
6 |
|
|
|
6 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
||||
Long-term liabilities |
|
|
|
|
|
|
|
|
|
||||
Deferred compensation |
|
64 |
|
64 |
|
|
|
|
|
||||
|
|
|
|
Fair Value Measurements |
|
||||||||
|
|
Fair Value at |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
752 |
|
$ |
752 |
|
$ |
|
|
$ |
|
|
U.S. Treasury bills |
|
300 |
|
300 |
|
|
|
|
|
||||
Short-term investments |
|
|
|
|
|
|
|
|
|
||||
Money market fund |
|
2 |
|
|
|
2 |
|
|
|
||||
Auction-rate securities |
|
88 |
|
|
|
|
|
88 |
|
||||
Other current assets |
|
|
|
|
|
|
|
|
|
||||
Money market funds (restricted assets) |
|
123 |
|
123 |
|
|
|
|
|
||||
U.S. Treasury bills (restricted assets) |
|
25 |
|
25 |
|
|
|
|
|
||||
Foreign currency derivative instruments |
|
4 |
|
|
|
4 |
|
|
|
||||
Equity and other investments |
|
|
|
|
|
|
|
|
|
||||
Auction-rate securities |
|
192 |
|
|
|
|
|
192 |
|
||||
Marketable equity securities |
|
77 |
|
77 |
|
|
|
|
|
||||
Other assets |
|
|
|
|
|
|
|
|
|
||||
Marketable securities that fund deferred compensation |
|
75 |
|
75 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
||||
Long-term liabilities |
|
|
|
|
|
|
|
|
|
||||
Deferred compensation |
|
61 |
|
61 |
|
|
|
|
|
||||
|
|
|
|
Fair Value Measurements |
|
||||||||
|
|
Fair Value at |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
||||
Short-term investments |
|
|
|
|
|
|
|
|
|
||||
Money market fund |
|
$ |
4 |
|
$ |
|
|
$ |
4 |
|
$ |
|
|
Auction-rate securities |
|
89 |
|
|
|
|
|
89 |
|
||||
Other current assets |
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury bills (restricted assets) |
|
80 |
|
80 |
|
|
|
|
|
||||
Money market funds (restricted assets) |
|
53 |
|
53 |
|
|
|
|
|
||||
Foreign currency derivative instruments |
|
9 |
|
|
|
9 |
|
|
|
||||
Equity and other investments |
|
|
|
|
|
|
|
|
|
||||
Auction rate securities |
|
209 |
|
|
|
|
|
209 |
|
||||
Marketable equity securities |
|
78 |
|
78 |
|
|
|
|
|
||||
Other assets |
|
|
|
|
|
|
|
|
|
||||
Marketable securities that fund deferred compensation |
|
71 |
|
71 |
|
|
|
|
|
||||
Foreign currency derivative instruments |
|
6 |
|
|
|
6 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
||||
Accrued liabilities |
|
|
|
|
|
|
|
|
|
||||
Foreign currency derivative instruments |
|
1 |
|
|
|
1 |
|
|
|
||||
Long-term liabilities |
|
|
|
|
|
|
|
|
|
||||
Deferred compensation |
|
60 |
|
60 |
|
|
|
|
|
||||
The following tables provide a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis in the tables above that used significant unobservable inputs (Level 3) for the three and six months ended August 28, 2010, and August 29, 2009.
|
|
Debt securities- |
|
|||||||
|
|
Student loan |
|
Municipal |
|
Total |
|
|||
Balances at May 29, 2010 |
|
$ |
214 |
|
$ |
19 |
|
$ |
233 |
|
Changes in unrealized losses included in other comprehensive income |
|
|
|
|
|
|
|
|||
Sales |
|
(98 |
) |
(1 |
) |
(99 |
) |
|||
Interest received |
|
|
|
|
|
|
|
|||
Balances at August 28, 2010 |
|
$ |
116 |
|
$ |
18 |
|
$ |
134 |
|
|
|
Debt securities- |
|
|||||||
|
|
Student loan |
|
Municipal |
|
Total |
|
|||
Balances at February 27, 2010 |
|
$ |
261 |
|
$ |
19 |
|
$ |
280 |
|
Changes in unrealized losses included in other comprehensive income |
|
(5 |
) |
|
|
(5 |
) |
|||
Sales |
|
(139 |
) |
(1 |
) |
(140 |
) |
|||
Interest received |
|
(1 |
) |
|
|
(1 |
) |
|||
Balances at August 28, 2010 |
|
$ |
116 |
|
$ |
18 |
|
$ |
134 |
|
|
|
Debt securities- |
|
||||||||||
|
|
Student loan |
|
Municipal |
|
Auction |
|
Total |
|
||||
Balances at May 30, 2009 |
|
$ |
274 |
|
$ |
24 |
|
$ |
|
|
$ |
298 |
|
Changes in unrealized gains included in other comprehensive income |
|
5 |
|
|
|
|
|
5 |
|
||||
Sales |
|
(1 |
) |
(4 |
) |
|
|
(5 |
) |
||||
Balances at August 29, 2009 |
|
$ |
278 |
|
$ |
20 |
|
$ |
|
|
$ |
298 |
|
|
|
Debt securities- |
|
||||||||||
|
|
Student loan |
|
Municipal |
|
Auction |
|
Total |
|
||||
Balances at February 28, 2009 |
|
$ |
276 |
|
$ |
24 |
|
$ |
14 |
|
$ |
314 |
|
Changes in unrealized gains included in other comprehensive income |
|
5 |
|
|
|
1 |
|
6 |
|
||||
Sales |
|
(3 |
) |
(4 |
) |
(15 |
) |
(22 |
) |
||||
Balances at August 29, 2009 |
|
$ |
278 |
|
$ |
20 |
|
$ |
|
|
$ |
298 |
|
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Money Market Funds. Our money market fund investments were classified as Level 1 or 2. If a fund is not trading on a regular basis, and we have been unable to obtain pricing information on an ongoing basis, we classify the fund as Level 2.
U.S. Treasury Bills. Our U.S. Treasury notes were classified as Level 1 as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.
Foreign Currency Derivative Instruments. Comprised primarily of foreign currency forward contracts and foreign currency swap contracts, our foreign currency derivative instruments were measured at fair value using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. Our foreign currency derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
Auction-Rate Securities. Our investments in ARS were classified as Level 3 as quoted prices were unavailable due to events described in Note 2, Investments. Due to limited market information, we utilized a discounted cash flow (DCF) model to derive an estimate of fair value. The assumptions we used in preparing the DCF model included estimates with respect to the amount and timing of future interest and principal payments, forward projections of the interest rate benchmarks, the probability of full repayment of the principal considering the credit quality and guarantees in place, and the rate of return required by investors to own such securities given the current liquidity risk associated with ARS.
Marketable Equity Securities. Our marketable equity securities were measured at fair value using quoted market prices. They were classified as Level 1 as they trade in an active market for which closing stock prices are readily available.
Deferred Compensation. Our deferred compensation liabilities and the assets that fund our deferred compensation consist of investments in mutual funds. These investments were classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Measurements to fair value on a nonrecurring basis relate primarily to our tangible fixed assets, goodwill and other intangible assets and occur when the derived fair value is below carrying value on our condensed consolidated balance sheet. During the six months ended August 28, 2010, and August 29, 2009, we had no significant remeasurements of such assets or liabilities to fair value.
Fair Value of Financial Instruments
Our financial instruments, other than those presented in the disclosures above, include cash, receivables, other investments, accounts payable, other payables and short- and long-term debt. The fair values of cash, receivables, accounts payable, other payables and short-term debt approximated carrying values because of the short-term nature of these instruments. Fair values for other investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate fair value. See Note 6, Debt, for information about the fair value of our long-term debt.
4. Goodwill and Intangible Assets
The changes in the carrying values of goodwill and indefinite-lived tradenames by segment were as follows in the six months ended August 28, 2010, and August 29, 2009:
|
|
Goodwill |
|
Indefinite-lived Tradenames |
|
||||||||||||||
|
|
Domestic |
|
International |
|
Total |
|
Domestic |
|
International |
|
Total |
|
||||||
Balances at February 27, 2010 |
|
$ |
434 |
|
$ |
2,018 |
|
$ |
2,452 |
|
$ |
32 |
|
$ |
80 |
|
$ |
112 |
|
Sale of business(1) |
|
(12 |
) |
|
|
(12 |
) |
(1 |
) |
|
|
(1 |
) |
||||||
Changes in foreign currency exchange rates |
|
|
|
(75 |
) |
(75 |
) |
|
|
|
|
|
|
||||||
Balances at August 28, 2010 |
|
$ |
422 |
|
$ |
1,943 |
|
$ |
2,365 |
|
$ |
31 |
|
$ |
80 |
|
$ |
111 |
|
(1) As a result of the sale of our Speakeasy business in the second quarter of fiscal 2011, we wrote off the carrying value of the goodwill and indefinite-lived tradenames as of the date of sale. See Note 13, Sale of Business, for additional information regarding the sale.
|
|
Goodwill |
|
Indefinite-lived Tradenames |
|
||||||||||||||
|
|
Domestic |
|
International |
|
Total |
|
Domestic |
|
International |
|
Total |
|
||||||
Balances at February 28, 2009 |
|
$ |
434 |
|
$ |
1,769 |
|
$ |
2,203 |
|
$ |
32 |
|
$ |
72 |
|
$ |
104 |
|
Adjustments to purchase price allocation |
|
|
|
42 |
|
42 |
|
|
|
|
|
|
|
||||||
Changes in foreign currency exchange rates |
|
|
|
197 |
|
197 |
|
|
|
7 |
|
7 |
|
||||||
Balances at August 29, 2009 |
|
$ |
434 |
|
$ |
2,008 |
|
$ |
2,442 |
|
$ |
32 |
|
$ |
79 |
|
$ |
111 |
|
The following table provides the gross carrying values and related accumulated amortization of definite-lived intangible assets:
|
|
August 28, 2010 |
|
February 27, 2010 |
|
August 29, 2009 |
|
||||||||||||
|
|
Gross |
|
Accumulated |
|
Gross |
|
Accumulated |
|
Gross |
|
Accumulated |
|
||||||
Tradenames |
|
$ |
71 |
|
$ |
(35 |
) |
$ |
75 |
|
$ |
(28 |
) |
$ |
76 |
|
$ |
(19 |
) |
Customer relationships |
|
372 |
|
(145 |
) |
401 |
|
(122 |
) |
406 |
|
(88 |
) |
||||||
Total |
|
$ |
443 |
|
$ |
(180 |
) |
$ |
476 |
|
$ |
(150 |
) |
$ |
482 |
|
$ |
(107 |
) |
Total amortization expense was $21 and $21 for the three months ended August 28, 2010, and August 29, 2009, respectively, and was $43 and $42 for the six months then ended, respectively. The estimated future amortization expense for identifiable intangible assets is as follows:
Fiscal Year |
|
|
|
|
Remainder of fiscal 2011 |
|
$ |
37 |
|
2012 |
|
60 |
|
|
2013 |
|
43 |
|
|
2014 |
|
38 |
|
|
2015 |
|
34 |
|
|
Thereafter |
|
51 |
|
|
5. Restructuring Charges
In the fourth quarter of fiscal 2009, we implemented a restructuring plan for our domestic and international businesses to support our long-term growth plans and, accordingly, we recorded charges of $78 related primarily to voluntary and involuntary separation plans at our corporate headquarters. In addition, in the first quarter of fiscal 2010, we incurred restructuring charges of $52 related to employee termination benefits and business reorganization costs at our U.S. Best Buy stores and Best Buy Europe. No restructuring charges were recorded in the remainder of fiscal 2010 or in the first six months of fiscal 2011.
All charges related to our restructuring plan were presented as restructuring charges in our consolidated statements of earnings. The composition of our restructuring charges incurred in the six months ended August 28, 2010, and August 29, 2009, as well as the cumulative amount incurred through August 28, 2010, for both the Domestic and International segments, were as follows:
|
|
Domestic |
|
International |
|
Total |
|
|||||||||||||||||||||
|
|
Six months ended |
|
Cumulative |
|
Six months ended |
|
Cumulative |
|
Six months ended |
|
Cumulative |
|
|||||||||||||||
|
|
August 28, |
|
August 29, |
|
August 28, |
|
August 28, |
|
August 29, |
|
August 28, |
|
August 28, |
|
August 29, |
|
August 28, |
|
|||||||||
Termination benefits |
|
$ |
|
|
$ |
25 |
|
$ |
94 |
|
$ |
|
|
$ |
26 |
|
$ |
32 |
|
$ |
|
|
$ |
51 |
|
$ |
126 |
|
Facility closure costs |
|
|
|
|
|
1 |
|
|
|
1 |
|
1 |
|
|
|
1 |
|
2 |
|
|||||||||
Property and equipment write-downs |
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|||||||||
Total |
|
$ |
|
|
$ |
25 |
|
$ |
97 |
|
$ |
|
|
$ |
27 |
|
$ |
33 |
|
$ |
|
|
$ |
52 |
|
$ |
130 |
|
The following table summarizes our restructuring activity in the six months ended August 28, 2010, and August 29, 2009, related to termination benefits and facility closure costs:
|
|
Termination |
|
Facility |
|
Total |
|
|||
Balances at February 27, 2010 |
|
$ |
8 |
|
$ |
1 |
|
$ |
9 |
|
Charges |
|
|
|
|
|
|
|
|||
Cash payments |
|
(5 |
) |
(1 |
) |
(6 |
) |
|||
Changes in foreign currency exchange rates |
|
|
|
|
|
|
|
|||
Balances at August 28, 2010 |
|
$ |
3 |
|
$ |
|
|
$ |
3 |
|
|
|
Termination |
|
Facility |
|
Total |
|
|||
Balances at February 28, 2009 |
|
$ |
73 |
|
$ |
1 |
|
$ |
74 |
|
Charges |
|
51 |
|
1 |
|
52 |
|
|||
Cash payments |
|
(104 |
) |
(1 |
) |
(105 |
) |
|||
Changes in foreign currency exchange rates |
|
2 |
|
|
|
2 |
|
|||
Balances at August 29, 2009 |
|
$ |
22 |
|
$ |
1 |
|
$ |
23 |
|
6. Debt
Short-Term Debt
Short-term debt consisted of the following:
|
|
August 28, |
|
February 27, |
|
August 29, |
|
|||
J.P. Morgan revolving credit facility |
|
$ |
|
|
$ |
|
|
$ |
325 |
|
ARS revolving credit line |
|
|
|
|
|
|
|
|||
Europe receivables financing facility(1) |
|
350 |
|
442 |
|
|
|
|||
Europe revolving credit facility |
|
|
|
206 |
|
730 |
|
|||
Canada revolving demand facility |
|
|
|
|
|
|
|
|||
China revolving demand facilities |
|
33 |
|
15 |
|
36 |
|
|||
Total short-term debt |
|
$ |
383 |
|
$ |
663 |
|
$ |
1,091 |
|
(1) This facility is secured by certain network carrier receivables of Best Buy Europe, which are included within receivables in our condensed consolidated balance sheet. Availability on this facility is based on a percentage of the available acceptable receivables, as defined in the agreement for the facility, and was £288 (or $437) at August 28, 2010.
ARS Revolving Credit Line
We previously had a revolving credit line with UBS secured by the par value of our UBS-brokered ARS. However, pursuant to the settlement described in Note 2, Investments, the revolving credit line would terminate at the time UBS buys back all of our UBS-brokered ARS. During the second quarter of fiscal 2011, we sold the remainder of our UBS-brokered ARS of $53, thus terminating our revolving credit line with UBS.
Long-Term Debt
Long-term debt consisted of the following:
|
|
August 28, |
|
February 27, |
|
August 29, |
|
|||
6.75% notes |
|
$ |
500 |
|
$ |
500 |
|
$ |
500 |
|
Convertible debentures |
|
402 |
|
402 |
|
402 |
|
|||
Financing lease obligations |
|
175 |
|
186 |
|
195 |
|
|||
Capital lease obligations |
|
41 |
|
49 |
|
55 |
|
|||
Other debt |
|
2 |
|
2 |
|
4 |
|
|||
Total long-term debt |
|
1,120 |
|
1,139 |
|
1,156 |
|
|||
Less: current portion |
|
(32 |
) |
(35 |
) |
(45 |
) |
|||
Total long-term debt, less current portion |
|
$ |
1,088 |
|
$ |
1,104 |
|
$ |
1,111 |
|
The fair value of long-term debt approximated $1,194, $1,210 and $1,190 at August 28, 2010, February 27, 2010, and August 29, 2009, respectively, based primarily on the ask prices quoted from external sources, compared with carrying values of $1,120, $1,139 and $1,156, respectively.
Other than as referred to above, see Note 6, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 27, 2010, for additional information regarding the terms of our debt facilities and obligations.
7. Derivative Instruments
We manage our economic and transaction exposure to certain market-based risks through the use of foreign currency derivative instruments. Our objective in holding derivatives is to reduce the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates. We do not hold or issue derivative financial instruments for trading or speculative purposes.
We record all foreign currency derivative instruments on our condensed consolidated balance sheets at fair value and evaluate hedge effectiveness prospectively and retrospectively when electing to apply hedge accounting treatment. We formally document all hedging relationships at inception for all derivative hedges and the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transactions. In addition, we have derivatives which are not designated as hedging instruments. We have no derivatives that have credit risk-related contingent features, and we mitigate our credit risk by engaging with major financial institutions as our counterparties.
Cash Flow Hedges
We enter into foreign exchange forward contracts to hedge against the effect of exchange rate fluctuations on certain revenue streams denominated in non-functional currencies. The contracts have terms of up to three years. We report the effective portion of the gain or loss on a cash flow hedge as a component of other comprehensive income, and it is subsequently reclassified into net earnings in the period in which the hedged transaction affects net earnings or the forecasted transaction is no longer probable of occurring. We report the ineffective portion, if any, of the gain or loss in net earnings.
Net Investment Hedges
Previously, we entered into foreign exchange swap contracts to hedge against the effect of euro and Swiss franc exchange rate fluctuations on net investments of certain foreign operations. For a net investment hedge, we recognized changes in the fair value of the derivative as a component of foreign currency translation within other comprehensive income to offset a portion of the change in the translated value of the net investment being hedged, until the investment was sold or liquidated. Subsequent to February 27, 2010, we discontinued this hedging strategy and no longer have contracts that hedge net investments of foreign operations.
Derivatives Not Designated as Hedging Instruments
Derivatives not designated as hedging instruments include foreign exchange forward contracts used to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies and on certain forecasted inventory purchases denominated in non-functional currencies. The contracts have terms of up to six months. These derivative instruments are not designated in hedging relationships; therefore, we record gains and losses on these contracts directly in net earnings.
Summary of Derivative Balances
The following table presents the gross fair values for derivative instruments and the corresponding classification at August 28, 2010, February 27, 2010, and August 29, 2009:
|
|
August 28, 2010 |
|
February 27, 2010 |
|
August 29, 2009 |
|
||||||||||||
Contract Type |
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
||||||
Cash flow hedges (foreign exchange forward contracts) |
|
$ |
13 |
|
$ |
(4 |
) |
$ |
2 |
|
$ |
(1 |
) |
$ |
11 |
|
$ |
|
|
Net investment hedges (foreign exchange swap contracts) |
|
|
|
|
|
4 |
|
|
|
|
|
|
|
||||||
Total derivatives designated as hedging instruments |
|
$ |
13 |
|
$ |
(4 |
) |
$ |
6 |
|
$ |
(1 |
) |
$ |
11 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
No hedge designation (foreign exchange forward contracts) |
|
3 |
|
|
|
1 |
|
(2 |
) |
4 |
|
(1 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
16 |
|
$ |
(4 |
) |
$ |