BBY (11/2/13) 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 2, 2013
OR
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| |
¨ | 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
(Registrant’s 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 ¨
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 (§ 232.405 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 ¨
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.
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Large accelerated filer x | | Accelerated filer ¨ |
| | |
Non-accelerated filer ¨ | | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ 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 ¨ No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock, $.10 Par Value — 346,007,645 shares outstanding as of December 4, 2013.
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 2, 2013
INDEX
PART I — FINANCIAL INFORMATION
| |
ITEM 1. | FINANCIAL STATEMENTS |
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
($ in millions)
(Unaudited)
|
| | | | | | | | | | | |
| November 2, 2013 | | February 2, 2013 | | November 3, 2012 |
CURRENT ASSETS | |
| | |
| | |
Cash and cash equivalents | $ | 2,170 |
| | $ | 1,826 |
| | $ | 309 |
|
Receivables | 1,123 |
| | 2,704 |
| | 2,250 |
|
Merchandise inventories | 6,978 |
| | 6,571 |
| | 8,156 |
|
Other current assets | 963 |
| | 946 |
| | 1,131 |
|
Total current assets | 11,234 |
| | 12,047 |
| | 11,846 |
|
| | | | | |
PROPERTY AND EQUIPMENT, NET | 2,726 |
| | 3,270 |
| | 3,407 |
|
| | | | | |
GOODWILL | 528 |
| | 528 |
| | 1,344 |
|
| | | | | |
TRADENAMES, NET | 103 |
| | 131 |
| | 131 |
|
| | | | | |
CUSTOMER RELATIONSHIPS, NET | 72 |
| | 203 |
| | 213 |
|
| | | | | |
EQUITY AND OTHER INVESTMENTS | 41 |
| | 86 |
| | 91 |
|
| | | | | |
OTHER ASSETS | 364 |
| | 522 |
| | 524 |
|
| | | | | |
TOTAL ASSETS | $ | 15,068 |
| | $ | 16,787 |
| | $ | 17,556 |
|
NOTE: The Consolidated Balance Sheet as of February 2, 2013, 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 EQUITY
($ in millions)
(Unaudited)
|
| | | | | | | | | | | |
| November 2, 2013 | | February 2, 2013 | | November 3, 2012 |
CURRENT LIABILITIES | |
| | |
| | |
|
Accounts payable | $ | 6,578 |
| | $ | 6,951 |
| | $ | 7,933 |
|
Unredeemed gift card liabilities | 368 |
| | 428 |
| | 392 |
|
Accrued compensation and related expenses | 350 |
| | 520 |
| | 429 |
|
Accrued liabilities | 1,233 |
| | 1,639 |
| | 1,531 |
|
Accrued income taxes | 91 |
| | 129 |
| | 9 |
|
Short-term debt | — |
| | 596 |
| | 310 |
|
Current portion of long-term debt | 45 |
| | 547 |
| | 544 |
|
Total current liabilities | 8,665 |
| | 10,810 |
| | 11,148 |
|
| | | | | |
LONG-TERM LIABILITIES | 1,035 |
| | 1,109 |
| | 1,122 |
|
| | | | | |
LONG-TERM DEBT | 1,624 |
| | 1,153 |
| | 1,158 |
|
| | | | | |
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 — 345,564,000, 338,276,000 and 337,925,000 shares, respectively | 35 |
| | 34 |
| | 34 |
|
Additional paid-in capital | 253 |
| | 54 |
| | 40 |
|
Retained earnings | 2,926 |
| | 2,861 |
| | 3,328 |
|
Accumulated other comprehensive income | 528 |
| | 112 |
| | 105 |
|
Total Best Buy Co., Inc. shareholders’ equity | 3,742 |
| | 3,061 |
| | 3,507 |
|
Noncontrolling interests | 2 |
| | 654 |
| | 621 |
|
Total equity | 3,744 |
| | 3,715 |
| | 4,128 |
|
| | | | | |
TOTAL LIABILITIES AND EQUITY | $ | 15,068 |
| | $ | 16,787 |
| | $ | 17,556 |
|
NOTE: The Consolidated Balance Sheet as of February 2, 2013, 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 | | Nine Months Ended |
| November 2, 2013 | | November 3, 2012 | | November 2, 2013 | | November 3, 2012 |
Revenue | $ | 9,362 |
| | $ | 9,381 |
| | $ | 28,042 |
| | $ | 29,093 |
|
Cost of goods sold | 7,192 |
| | 7,153 |
| | 21,233 |
| | 22,020 |
|
Gross profit | 2,170 |
| | 2,228 |
| | 6,809 |
| | 7,073 |
|
Selling, general and administrative expenses | 2,048 |
| | 2,192 |
| | 6,093 |
| | 6,467 |
|
Restructuring charges | 31 |
| | 34 |
| | 44 |
| | 252 |
|
Operating income | 91 |
| | 2 |
| | 672 |
| | 354 |
|
Other income (expense) | |
| | |
| | | | |
Gain on sale of investments | 4 |
| | — |
| | 18 |
| | — |
|
Investment income and other | 8 |
| | 10 |
| | 18 |
| | 15 |
|
Interest expense | (24 | ) | | (27 | ) | | (77 | ) | | (81 | ) |
Earnings (loss) from continuing operations before income tax expense (benefit) | 79 |
| | (15 | ) | | 631 |
| | 288 |
|
Income tax expense (benefit) | 35 |
| | (6 | ) | | 253 |
| | 97 |
|
Net earnings (loss) from continuing operations | 44 |
| | (9 | ) | | 378 |
| | 191 |
|
Gain (loss) from discontinued operations (Note 2), net of tax benefit (expense) of $10, $(6), $34 and $14 | 10 |
| | 10 |
| | (149 | ) | | (45 | ) |
Net earnings including noncontrolling interests | 54 |
| | 1 |
| | 229 |
| | 146 |
|
Net earnings from continuing operations attributable to noncontrolling interests | (1 | ) | | — |
| | (1 | ) | | — |
|
Net (gain) loss from discontinued operations attributable to noncontrolling interests | 1 |
| | (11 | ) | | 11 |
| | 14 |
|
Net earnings (loss) attributable to Best Buy Co., Inc. shareholders | $ | 54 |
| | $ | (10 | ) | | $ | 239 |
| | $ | 160 |
|
| | | | | | | |
Basic earnings (loss) per share attributable to Best Buy Co., Inc. shareholders | |
| | |
| | | | |
Continuing operations | $ | 0.13 |
| | $ | (0.03 | ) | | $ | 1.11 |
| | $ | 0.56 |
|
Discontinued operations | 0.03 |
| | — |
| | (0.41 | ) | | (0.09 | ) |
Basic earnings (loss) per share | $ | 0.16 |
| | $ | (0.03 | ) | | $ | 0.70 |
| | $ | 0.47 |
|
| | | | | | | |
Diluted earnings (loss) per share attributable to Best Buy Co., Inc. shareholders | | | | | | | |
Continuing operations | $ | 0.12 |
| | $ | (0.03 | ) | | $ | 1.09 |
| | $ | 0.56 |
|
Discontinued operations | 0.04 |
| | — |
| | (0.40 | ) | | (0.09 | ) |
Diluted earnings (loss) per share | $ | 0.16 |
| | $ | (0.03 | ) | | $ | 0.69 |
| | $ | 0.47 |
|
| | | | | | | |
Dividends declared per common share | $ | 0.17 |
| | $ | 0.17 |
| | $ | 0.51 |
| | $ | 0.49 |
|
| | | | | | | |
Weighted-average common shares outstanding (in millions) | |
| | |
| | | | |
Basic | 342.8 |
| | 337.2 |
| | 340.7 |
| | 339.3 |
|
Diluted | 348.9 |
| | 337.2 |
| | 345.3 |
| | 340.4 |
|
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in millions)
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| November 2, 2013 | | November 3, 2012 | | November 2, 2013 | | November 3, 2012 |
Net earnings including noncontrolling interests | $ | 54 |
| | $ | 1 |
| | $ | 229 |
| | $ | 146 |
|
Foreign currency translation adjustments | (2 | ) | | 33 |
| | (106 | ) | | 42 |
|
Unrealized gain on available-for-sale investments | 1 |
| | — |
| | 1 |
| | 3 |
|
Reclassification of foreign currency translation adjustments into earnings due to sale of business | — |
| | — |
| | 654 |
| | — |
|
Reclassification of losses on available-for-sale investments into earnings | — |
| | — |
| | 2 |
| | — |
|
Comprehensive income including noncontrolling interests | 53 |
| | 34 |
| | 780 |
| | 191 |
|
Comprehensive income attributable to noncontrolling interests | — |
| | (25 | ) | | (125 | ) | | — |
|
Comprehensive income attributable to Best Buy Co., Inc. shareholders | $ | 53 |
| | $ | 9 |
| | $ | 655 |
| | $ | 191 |
|
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED NOVEMBER 2, 2013, AND NOVEMBER 3, 2012
($ and shares in millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Best Buy Co., Inc. | | | | |
| Common Shares | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Best Buy Co., Inc. | | Non- controlling Interests | | Total |
Balances at February 2, 2013 | 338 |
| | $ | 34 |
| | $ | 54 |
| | $ | 2,861 |
| | $ | 112 |
| | $ | 3,061 |
| | $ | 654 |
| | $ | 3,715 |
|
Net earnings (loss), nine months ended November 2, 2013 | — |
| | — |
| | — |
| | 239 |
| | — |
| | 239 |
| | (10 | ) | | 229 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | (95 | ) | | (95 | ) | | (11 | ) | | (106 | ) |
Unrealized gains (losses) on available-for-sale investments | — |
| | — |
| | — |
| | — |
| | 2 |
| | 2 |
| | (1 | ) | | 1 |
|
Sale of noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (776 | ) | | (776 | ) |
Reclassification of foreign currency translation adjustments into earnings | — |
| | — |
| | — |
| | — |
| | 508 |
| | 508 |
| | 146 |
| | 654 |
|
Reclassification of losses on available-for-sale investments into earnings | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | 1 |
| | 2 |
|
Dividend distribution | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Stock-based compensation | — |
| | — |
| | 74 |
| | — |
| | — |
| | 74 |
| | — |
| | 74 |
|
Restricted stock vested and stock options exercised | 7 |
| | 1 |
| | 135 |
| | — |
| | — |
| | 136 |
| | — |
| | 136 |
|
Issuance of common stock under employee stock purchase plan | 1 |
| | — |
| | 13 |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
Tax deficit from stock options canceled or exercised, restricted stock vesting and employee stock purchase plan | — |
| | — |
| | (23 | ) | | — |
| | — |
| | (23 | ) | | — |
| | (23 | ) |
Common stock dividends, $0.51 per share | — |
| | — |
| | — |
| | (174 | ) | | — |
| | (174 | ) | | — |
| | (174 | ) |
Balances at November 2, 2013 | 346 |
| | $ | 35 |
| | $ | 253 |
| | $ | 2,926 |
| | $ | 528 |
| | $ | 3,742 |
| | $ | 2 |
| | $ | 3,744 |
|
| | | | | | | | | | | | | | | |
Balances at March 3, 2012 | 341 |
| | $ | 34 |
| | $ | — |
| | $ | 3,621 |
| | $ | 90 |
| | $ | 3,745 |
| | $ | 621 |
| | $ | 4,366 |
|
Adjustment for fiscal year-end change (Note 1) | 5 |
| | — |
| | — |
| | (108 | ) | | (16 | ) | | (124 | ) | | — |
| | (124 | ) |
Balances at January 28, 2012 | 346 |
| | 34 |
| | — |
| | 3,513 |
| | 74 |
| | 3,621 |
| | 621 |
| | 4,242 |
|
Net earnings (loss), nine months ended November 3, 2012 | — |
| | — |
| | — |
| | 160 |
| | — |
| | 160 |
| | (14 | ) | | 146 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | 28 |
| | 28 |
| | 14 |
| | 42 |
|
Unrealized gains on available-for-sale investments | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
| | — |
| | 3 |
|
Stock-based compensation | — |
| | — |
| | 99 |
| | — |
| | — |
| | 99 |
| | — |
| | 99 |
|
Stock options exercised | 2 |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Issuance of common stock under employee stock purchase plan | 1 |
| | — |
| | 24 |
| | — |
| | — |
| | 24 |
| | — |
| | 24 |
|
Tax deficit from stock options canceled or exercised, restricted stock vesting and employee stock purchase plan | — |
| | — |
| | (29 | ) | | — |
| | — |
| | (29 | ) | | — |
| | (29 | ) |
Common stock dividends, $0.49 per share | — |
| | — |
| | — |
| | (164 | ) | | — |
| | (164 | ) | | — |
| | (164 | ) |
Repurchase and retirement of common stock | (11 | ) | | — |
| | (56 | ) | | (181 | ) | | — |
| | (237 | ) | | — |
| | (237 | ) |
Balances at November 3, 2012 | 338 |
| | $ | 34 |
| | $ | 40 |
| | $ | 3,328 |
| | $ | 105 |
| | $ | 3,507 |
| | $ | 621 |
| | $ | 4,128 |
|
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited)
|
| | | | | | | |
| Nine Months Ended |
| November 2, 2013 | | November 3, 2012 |
OPERATING ACTIVITIES | | | |
Net earnings including noncontrolling interests | $ | 229 |
| | $ | 146 |
|
Adjustments to reconcile net earnings including noncontrolling interests to total cash provided by (used in) operating activities: | | | |
Depreciation | 537 |
| | 657 |
|
Amortization of definite-lived intangible assets | 13 |
| | 30 |
|
Restructuring charges | 144 |
| | 251 |
|
Loss on sale of business, net | 123 |
| | — |
|
Stock-based compensation | 70 |
| | 95 |
|
Excess tax benefits from stock-based compensation | (8 | ) | | — |
|
Deferred income taxes | (3 | ) | | (96 | ) |
Other, net | 14 |
| | 19 |
|
Changes in operating assets and liabilities | | | |
Receivables | 208 |
| | 216 |
|
Merchandise inventories | (974 | ) | | (1,330 | ) |
Other assets | (102 | ) | | (167 | ) |
Accounts payable | 465 |
| | 967 |
|
Other liabilities | (347 | ) | | (541 | ) |
Income taxes | (45 | ) | | (368 | ) |
Total cash provided by (used in) operating activities | 324 |
| | (121 | ) |
| | | |
INVESTING ACTIVITIES | |
| | |
|
Additions to property and equipment | (422 | ) | | (522 | ) |
Purchases of investments | (5 | ) | | (13 | ) |
Sales of investments | 49 |
| | 68 |
|
Proceeds from sale of business, net of cash transferred upon sale | 67 |
| | 25 |
|
Acquisition of business, net of cash acquired | — |
| | (29 | ) |
Change in restricted assets | (3 | ) | | 59 |
|
Other, net | (1 | ) | | — |
|
Total cash used in investing activities | (315 | ) | | (412 | ) |
| | | |
FINANCING ACTIVITIES | |
| | |
|
Repurchase of common stock | — |
| | (255 | ) |
Borrowings of debt | 2,414 |
| | 1,034 |
|
Repayments of debt | (2,027 | ) | | (1,234 | ) |
Dividends paid | (174 | ) | | (166 | ) |
Issuance of common stock under employee stock purchase plan and for the exercise of stock options | 147 |
| | 26 |
|
Excess tax benefits from stock-based compensation | 8 |
| | — |
|
Other, net | (9 | ) | | (12 | ) |
Total cash provided by (used in) financing activities | 359 |
| | (607 | ) |
| | | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (24 | ) | | 48 |
|
| | | |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS BEFORE ADJUSTMENT | 344 |
| | (1,092 | ) |
ADJUSTMENT FOR FISCAL YEAR-END CHANGE (NOTE 1) | — |
| | 202 |
|
| | | |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AFTER ADJUSTMENT | 344 |
| | (890 | ) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 1,826 |
| | 1,199 |
|
| | | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 2,170 |
| | $ | 309 |
|
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Sale of Best Buy Europe
During the first quarter of fiscal 2014, we entered into a definitive agreement with Carphone Warehouse Group plc ("CPW") to sell our 50% ownership interest in Best Buy Europe to CPW. On June 26, 2013, the sale was completed. As a result, beginning in the first quarter of fiscal 2014, the results of Best Buy Europe for all periods have been presented as discontinued operations. See Note 2, Discontinued Operations, for further information.
On June 21, 2013, we filed a Current Report on Form 8-K (the “June 21st Form 8-K”) to recast certain financial information included in our Transition Report on Form 10-K for the transition period from March 4, 2012, to February 2, 2013, to reflect the results of Best Buy Europe as discontinued operations.
Description of Business
Historically, we have realized more of our revenue and a large portion of our earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico, 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 Transition Report on Form 10-K for the fiscal year ended February 2, 2013, and the recast financial information included in the June 21st Form 8-K. The first nine months of fiscal 2014 and fiscal 2013 included 39 weeks and 40 weeks, respectively.
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 was an 11-month transition period ending on February 2, 2013. The results for the nine months ended November 3, 2012 include our fiscal month ended March 3, 2012, for operations that are not reported on a lag (primarily our Domestic segment and Canadian operations), which were also included in our results for the fiscal year ended March 3, 2012, included in our fiscal 2012 Form 10-K. See Note 2, Fiscal Year-end Change, in the Notes to Consolidated Financial Statements included in our Transition Report on Form 10-K for the fiscal year ended February 2, 2013, and the recast financial information included in the June 21st Form 8-K, for additional information regarding our fiscal year-end change.
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 China and Mexico operations on a one-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our consolidated financial statements. No such events were identified for this period.
In preparing the accompanying condensed consolidated financial statements, we evaluated the period from November 3, 2013, through the date the financial statements were issued, for material subsequent events requiring recognition or disclosure. No such events were identified for this period.
| |
2. | Discontinued Operations |
On June 26, 2013, we completed the sale of our 50% ownership interest in Best Buy Europe to CPW in return for the following consideration upon closing: net cash of £341 million ($526 million); £80 million ($123 million) of ordinary shares of CPW; £25 million ($39 million), plus 2.5% interest, to be paid by CPW on June 26, 2014; and £25 million ($39 million), plus 2.5%
interest, to be paid by CPW on June 26, 2015. We subsequently sold the ordinary shares of CPW for $123 million on July 3, 2013.
The composition of assets and liabilities disposed of on June 26, 2013, as a result of the sale of Best Buy Europe was as follows ($ in millions):
|
| | | |
| June 26, 2013 |
Cash and cash equivalents | $ | 597 |
|
Receivables | 1,295 |
|
Merchandise inventories | 554 |
|
Other current assets | 168 |
|
Net property and equipment | 159 |
|
Other assets | 316 |
|
Total assets | 3,089 |
|
| |
Accounts payable | 790 |
|
Short-term debt | 973 |
|
Other current liabilities | 1,145 |
|
Long-term liabilities | 65 |
|
Total liabilities | 2,973 |
|
Discontinued operations are comprised of: (i) Napster operations within our Domestic segment; (ii) large-format Best Buy branded store operations in China within our International segment; and (iii) Best Buy Europe operations within our International segment. The presentation of discontinued operations has been retrospectively applied to all prior periods presented.
The financial results of discontinued operations for the three and nine months ended November 2, 2013, and November 3, 2012, were as follows ($ in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| November 2, 2013 | | November 3, 2012 | | November 2, 2013 | | November 3, 2012 |
Revenue | $ | — |
| | $ | 1,372 |
| | $ | 2,682 |
| | $ | 3,825 |
|
| | | | | | | |
Restructuring charges(1) | — |
| | 6 |
| | 100 |
| | (1 | ) |
| | | | | | | |
Gain (loss) from discontinued operations before income tax benefit (expense) | — |
| | 17 |
| | (235 | ) | | (55 | ) |
Income tax benefit (expense)(2) | 10 |
| | (6 | ) | | 34 |
| | 14 |
|
Gain on sale of discontinued operations | — |
| | — |
| | 52 |
| | — |
|
Equity in loss of affiliates | — |
| | (1 | ) | | — |
| | (4 | ) |
Net gain (loss) from discontinued operations, including noncontrolling interests | 10 |
| | 10 |
| | (149 | ) | | (45 | ) |
Net (gain) loss from discontinued operations attributable to noncontrolling interests | 1 |
| | (11 | ) | | 11 |
| | 14 |
|
Net gain (loss) from discontinued operations attributable to Best Buy Co., Inc. shareholders | $ | 11 |
| | $ | (1 | ) | | $ | (138 | ) | | $ | (31 | ) |
| |
(1) | See Note 6, Restructuring Charges, for further discussion of the restructuring charges associated with discontinued operations. |
| |
(2) | Income tax benefit for the three months ended November 2, 2013 includes a $16 million benefit related to the impairment of our investment in Best Buy Europe, partially offset by $(6) million of expense related to a tax allocation between continuing and discontinued operations. The fiscal 2014 effective tax rate for discontinued operations differs from the statutory tax rate primarily due to the tax allocation, restructuring charges and the impairment of our investment in Best Buy Europe. The restructuring charges and impairment generally included minimal related tax benefit. The deferred tax assets related to the restructuring charges generally resulted in an increase in the valuation allowance in an equal amount, while the investment impairment is generally not tax deductible. |
Investments were comprised of the following ($ in millions):
|
| | | | | | | | | | | |
| November 2, 2013 | | February 2, 2013 | | November 3, 2012 |
Equity and other investments | |
| | |
| | |
|
Debt securities (auction rate securities) | $ | 9 |
| | $ | 21 |
| | $ | 21 |
|
Marketable equity securities | 10 |
| | 27 |
| | 3 |
|
Other investments | 22 |
| | 38 |
| | 67 |
|
Total equity and other investments | $ | 41 |
| | $ | 86 |
| | $ | 91 |
|
Debt Securities
Our debt securities are comprised of auction rate securities (“ARS”). At November 2, 2013, our ARS portfolio of three investments had a par value of $10 million and a fair value of $9 million. We sold $7 million of ARS at par during the third quarter of fiscal 2014. We do not intend to sell our remaining ARS until we can recover the full principal amount. In addition, we do not believe it is more likely than not that we would be required to sell our remaining ARS until we can recover the full principal amount based on our other sources of liquidity. Our ARS portfolio had an immaterial impact on accumulated other comprehensive income at November 2, 2013, February 2, 2013, and November 3, 2012.
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 $10 million, $27 million, and $3 million at November 2, 2013, February 2, 2013, and November 3, 2012, respectively. We review all investments for other-than-temporary impairment at least quarterly or as indicators of impairment exist. The total unrealized gain, net of tax, included in accumulated other comprehensive income was immaterial at November 2, 2013, February 2, 2013, and November 3, 2012, respectively.
Other Investments
The aggregate carrying values of investments accounted for using the cost method at November 2, 2013, February 2, 2013, and November 3, 2012 were $22 million, $38 million, and $67 million, respectively.
| |
4. | 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. To measure fair value, 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 management’s estimates of market participant assumptions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The fair value hierarchy requires the use of observable market data when available. In instances where 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 November 2, 2013, February 2, 2013, and November 3, 2012, according to the valuation techniques we used to determine their fair values ($ in millions).
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Inputs Considered as |
| Fair Value at November 2, 2013 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
ASSETS | |
| | |
| | |
| | |
|
Cash and cash equivalents | |
| | |
| | |
| | |
|
Money market funds | $ | 495 |
| | $ | 495 |
| | $ | — |
| | $ | — |
|
Equity and other investments | |
| | |
| | |
| | |
|
Auction rate securities | 9 |
| | — |
| | — |
| | 9 |
|
Marketable equity securities | 10 |
| | 10 |
| | — |
| | — |
|
| |
| | |
| | |
| | |
|
LIABILITIES | |
| | |
| | |
| | |
|
Accrued liabilities | | | | | | | |
Foreign currency derivative instruments | 2 |
| | — |
| | 2 |
| | — |
|
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Inputs Considered as |
| Fair Value at February 2, 2013 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
ASSETS | |
| | |
| | |
| | |
|
Cash and cash equivalents | |
| | |
| | |
| | |
|
Money market funds | $ | 520 |
| | $ | 520 |
| | $ | — |
| | $ | — |
|
Other current assets | |
| | |
| | |
| | |
|
Foreign currency derivative instruments | 1 |
| | — |
| | 1 |
| | — |
|
Equity and other investments | |
| | |
| | |
| | |
|
Auction rate securities | 21 |
| | — |
| | — |
| | 21 |
|
Marketable equity securities | 27 |
| | 27 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Inputs Considered as |
| Fair Value at November 3, 2012 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
ASSETS | |
| | |
| | |
| | |
|
Other current assets | |
| | |
| | |
| | |
|
Foreign currency derivative instruments | $ | 2 |
| | $ | — |
| | $ | 2 |
| | $ | — |
|
Equity and other investments | |
| | |
| | |
| | |
|
Auction rate securities | 21 |
| | — |
| | — |
| | 21 |
|
Marketable equity securities | 3 |
| | 3 |
| | — |
| | — |
|
| | | | | | | |
LIABILITIES | | | | | | | |
Accrued liabilities | |
| | |
| | |
| | |
|
Foreign currency derivative instruments | 1 |
| | — |
| | 1 |
| | — |
|
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 nine months ended November 2, 2013, and the three and eight months ended November 3, 2012 ($ in millions).
|
| | | | | | | | | | | |
| Debt securities- Auction rate securities only |
| Student loan bonds | | Municipal revenue bonds | | Total |
Balances at August 3, 2013 | $ | 14 |
| | $ | 2 |
| | $ | 16 |
|
Sales | (7 | ) | | — |
| | (7 | ) |
Balances at November 2, 2013 | $ | 7 |
| | $ | 2 |
| | $ | 9 |
|
|
| | | | | | | | | | | |
| Debt securities- Auction rate securities only |
| Student loan bonds | | Municipal revenue bonds | | Total |
Balances at February 2, 2013 | $ | 19 |
| | $ | 2 |
| | $ | 21 |
|
Sales | (12 | ) | | — |
| | (12 | ) |
Balances at November 2, 2013 | $ | 7 |
| | $ | 2 |
| | $ | 9 |
|
|
| | | | | | | | | | | |
| Debt securities- Auction rate securities only |
| Student loan bonds | | Municipal revenue bonds | | Total |
Balances at August 4, 2012 | $ | 20 |
| | $ | 2 |
| | $ | 22 |
|
Sales | (1 | ) | | — |
| | (1 | ) |
Balances at November 3, 2012 | $ | 19 |
| | $ | 2 |
| | $ | 21 |
|
|
| | | | | | | | | | | |
| Debt securities- Auction rate securities only |
| Student loan bonds | | Municipal revenue bonds | | Total |
Balances at March 3, 2012 | $ | 80 |
| | $ | 2 |
| | $ | 82 |
|
Changes in unrealized losses included in other comprehensive income | 4 |
| | — |
| | 4 |
|
Sales | (65 | ) | | — |
| | (65 | ) |
Balances at November 3, 2012 | $ | 19 |
| | $ | 2 |
| | $ | 21 |
|
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 that are traded in an active market were measured at fair value using quoted market prices and, therefore, were classified as Level 1.
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 active markets.
Auction Rate Securities. Our investments in ARS were classified as Level 3 as quoted prices were unavailable due to events described in Note 3, Investments. Due to limited market information, we utilized a discounted cash flow (“DCF”) model to derive an estimate of fair value. The unobservable inputs and 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. Changes in these unobservable inputs are not likely to have a significant impact on the fair value measurement of our 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 active markets for which closing stock prices are readily available.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, goodwill and intangible assets, which are remeasured when the fair value is below carrying value on our Condensed Consolidated Balance Sheets. For these assets, we do not periodically adjust carrying value to fair value except in the event of impairment. When we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded within operating income in our Consolidated Statements of Earnings.
With the exception of fixed asset impairments associated with our agreement to sell our interest in Best Buy Europe and our restructuring activities described in Note 6, Restructuring Charges, we had no significant remeasurements of such assets or liabilities to fair value during the nine months ended November 2, 2013, and November 3, 2012.
The following table summarizes the fair value remeasurements recorded during the nine months ended November 2, 2013, and November 3, 2012 ($ in millions):
|
| | | | | | | | | | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| November 2, 2013 | | November 3, 2012 |
| Impairments | | Remaining Net Carrying Value | | Impairments | | Remaining Net Carrying Value |
Continuing operations | | | | | | | |
Property and equipment | $ | 4 |
| | $ | — |
| | $ | 29 |
| | $ | — |
|
Investments | 16 |
| | 22 |
| | — |
| | — |
|
Total continuing operations | $ | 20 |
| | $ | 22 |
| | $ | 29 |
| | $ | — |
|
Discontinued operations(1) | | | | | | | |
Property and equipment(2) | $ | 220 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Tradename | 4 |
| | — |
| | — |
| | — |
|
Total discontinued operations | $ | 224 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| |
(1) | Property and equipment and tradename impairments associated with discontinued operations are recorded within gain (loss) from discontinued operations in our Consolidated Statements of Earnings. |
| |
(2) | Includes the $175 million impairment to write down the book value of our investment in Best Buy Europe to fair value. Upon completion of the sale of Best Buy Europe as described in Note 2, Discontinued Operations, the remaining net carrying values of all assets have been reduced to zero. |
The fair value remeasurements included in the table above were based on significant unobservable inputs (Level 3). Fixed asset and tradename fair values were derived using a DCF model to estimate the present value of net cash flows that the asset or asset group was expected to generate. The key inputs to the DCF model generally included our forecasts of net cash generated from
revenue, sales proceeds, expenses and other significant cash outflows, such as capital expenditures, as well as an appropriate discount rate. In the case of these specific assets, for which their impairment was the result of restructuring activities, no future cash flows have been assumed as the assets will cease to be used and expected sale values are nominal.
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. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. 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 7, Debt, for information about the fair value of our long-term debt.
| |
5. | Goodwill and Intangible Assets |
The changes in the carrying values of goodwill and indefinite-lived tradenames by segment were as follows in the nine months ended November 2, 2013, and the eight months ended November 3, 2012 ($ in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | Indefinite-lived Tradenames |
| Domestic | | International | | Total | | Domestic | | International | | Total |
Balances at February 2, 2013 | $ | 528 |
| | $ | — |
| | $ | 528 |
| | $ | 19 |
| | $ | 112 |
| | $ | 131 |
|
Changes in foreign currency exchange rates | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Sale of Best Buy Europe | — |
| | — |
| | — |
| | — |
| | (22 | ) | | (22 | ) |
Impairments | — |
| | — |
| | — |
| | — |
| | (4 | ) | | (4 | ) |
Balances at November 2, 2013 | $ | 528 |
| | $ | — |
| | $ | 528 |
| | $ | 19 |
| | $ | 84 |
| | $ | 103 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | Indefinite-lived Tradenames |
| Domestic | | International | | Total | | Domestic | | International | | Total |
Balances at March 3, 2012 | $ | 516 |
| | $ | 819 |
| | $ | 1,335 |
| | $ | 19 |
| | $ | 112 |
| | $ | 131 |
|
Changes in foreign currency exchange rates | — |
| | (5 | ) | | (5 | ) | | — |
| | — |
| | — |
|
Acquisitions | 14 |
| | — |
| | 14 |
| | — |
| | — |
| | — |
|
Balances at November 3, 2012 | $ | 530 |
| | $ | 814 |
| | $ | 1,344 |
| | $ | 19 |
| | $ | 112 |
| | $ | 131 |
|
The following table provides the gross carrying amount of goodwill and cumulative goodwill impairment losses ($ in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| November 2, 2013 | | February 2, 2013 | | November 3, 2012 |
| Gross Carrying Amount(1) | | Cumulative Impairment(1) | | Gross Carrying Amount | | Cumulative Impairment | | Gross Carrying Amount | | Cumulative Impairment |
Goodwill | $ | 1,412 |
| | $ | (884 | ) | | $ | 2,608 |
| | $ | (2,080 | ) | | $ | 2,605 |
| | $ | (1,261 | ) |
| |
(1) | Excludes the gross carrying amount and cumulative impairment related to Best Buy Europe, which was sold during the quarter ended August 3, 2013. |
The following table provides the gross carrying values and related accumulated amortization of definite-lived intangible assets ($ in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| November 2, 2013 | | February 2, 2013 | | November 3, 2012 |
| Gross Carrying Amount(1) | | Accumulated Amortization(1) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Customer relationships | $ | 83 |
| | $ | (11 | ) | | $ | 475 |
| | $ | (272 | ) | | $ | 475 |
| | $ | (262 | ) |
| |
(1) | Excludes the gross carrying amount and accumulated amortization related to Best Buy Europe, which was sold during the quarter ended August 3, 2013. |
Total amortization expense for the three months ended November 2, 2013, and November 3, 2012, was $1 million and $10 million, respectively, of which $0 million and $9 million, respectively, has been included in the results of discontinued operations. Total amortization expense for the nine months ended November 2, 2013, and November 3, 2012, was $13 million and $30 million, respectively, of which $9 million and $26 million, respectively, has been included in the results of
discontinued operations. The estimated future amortization expense for identifiable intangible assets is as follows ($ in millions):
|
| | | |
Fiscal Year | |
Remainder of fiscal 2014 | $ | 2 |
|
2015 | 6 |
|
2016 | 6 |
|
2017 | 6 |
|
2018 | 6 |
|
Thereafter | 46 |
|
Summary
Charges incurred in the nine months ended November 2, 2013, and November 3, 2012, for our restructuring activities were as follows ($ in millions):
|
| | | | | | | |
| Nine Months Ended |
| November 2, 2013 | | November 3, 2012 |
Continuing operations | | | |
Renew Blue | $ | 52 |
| | $ | — |
|
Fiscal 2013 U.S. restructuring | (8 | ) | | 258 |
|
Fiscal 2012 restructuring | — |
| | 6 |
|
Fiscal 2011 restructuring | — |
| | (12 | ) |
Total | 44 |
| | 252 |
|
Discontinued operations | | | |
Fiscal 2013 Europe restructuring | 95 |
| | 2 |
|
Fiscal 2012 restructuring | 5 |
| | (5 | ) |
Fiscal 2011 restructuring | — |
| | 2 |
|
Total (Note 2) | 100 |
| | (1 | ) |
Total | $ | 144 |
| | $ | 251 |
|
Renew Blue
In the fourth quarter of fiscal 2013, we began implementing initiatives intended to reduce costs and improve operating performance. These initiatives included focusing on core business activities, reducing headcount and optimizing our real estate portfolio. These cost reduction initiatives represent one of the six Renew Blue priorities for fiscal 2014. We incurred $52 million of restructuring charges related to Renew Blue initiatives during the first nine months of fiscal 2014, primarily comprised of employee termination benefits, investment impairments, facility closure costs, and property and equipment impairments. We expect to continue to implement Renew Blue initiatives throughout fiscal 2014, as we further analyze our operations and strategies.
All restructuring charges related to this program are from continuing operations and are presented in restructuring charges in our Consolidated Statements of Earnings. The composition of the restructuring charges we incurred for this program in the nine months ended November 2, 2013, as well as the cumulative amount incurred through November 2, 2013, was as follows ($ in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic | | International | | Total |
| Nine Months Ended November 2, 2013 | | Cumulative Amount through November 2, 2013 | | Nine Months Ended November 2, 2013 | | Cumulative Amount through November 2, 2013 | | Nine Months Ended November 2, 2013 | | Cumulative Amount through November 2, 2013 |
Continuing operations | | | | | | | | | | | |
Inventory write-downs | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
Property and equipment impairments | 2 |
| | 9 |
| | 2 |
| | 25 |
| | 4 |
| | 34 |
|
Termination benefits | 16 |
| | 62 |
| | 10 |
| | 19 |
| | 26 |
| | 81 |
|
Investment impairments | 16 |
| | 43 |
| | — |
| | — |
| | 16 |
| | 43 |
|
Facility closure and other costs | — |
| | 3 |
| | 6 |
| | 61 |
| | 6 |
| | 64 |
|
Total | $ | 34 |
| | $ | 118 |
| | $ | 18 |
| | $ | 105 |
| | $ | 52 |
| | $ | 223 |
|
The following table summarizes our restructuring accrual activity during the nine months ended November 2, 2013, related to termination benefits and facility closure and other costs associated with this program ($ in millions):
|
| | | | | | | | | | | |
| Termination Benefits | | Facility Closure and Other Costs | | Total |
Balance at February 2, 2013 | $ | 54 |
| | $ | 54 |
| | $ | 108 |
|
Charges | 25 |
| | 14 |
| | 39 |
|
Cash payments | (65 | ) | | (16 | ) | | (81 | ) |
Adjustments | (7 | ) | | 8 |
| | 1 |
|
Changes in foreign currency exchange rates | 1 |
| | (1 | ) | | — |
|
Balance at November 2, 2013 | $ | 8 |
| | $ | 59 |
| | $ | 67 |
|
Fiscal 2013 Europe Restructuring
In the third quarter of fiscal 2013, we initiated a series of actions to restructure our Best Buy Europe operations in our International segment intended to improve operating performance. All restructuring charges related to this program are reported within gain (loss) from discontinued operations in our Consolidated Statements of Earnings as a result of the sale of our 50% ownership interest in Best Buy Europe. Refer to Note 2, Discontinued Operations. We incurred $95 million of restructuring charges in the first nine months of fiscal 2014, consisting primarily of property and equipment impairments and employee termination benefits. In the first nine months of fiscal 2013, we incurred $2 million of restructuring charges related to employee termination benefits. Given the sale of Best Buy Europe, we do not expect to incur additional restructuring charges related to this program.
The composition of the restructuring charges we incurred for this program in the nine months ended November 2, 2013 and November 3, 2012, as well as the cumulative amount incurred through November 2, 2013, was as follows ($ in millions):
|
| | | | | | | | | | | |
| Nine Months Ended November 2, 2013 | | Nine Months Ended November 3, 2012 | | Cumulative Amount through November 2, 2013 |
Discontinued operations | | | | | |
Inventory write-downs | $ | 7 |
| | $ | — |
| | $ | 7 |
|
Property and equipment impairments | 45 |
| | — |
| | 57 |
|
Termination benefits | 36 |
| | 2 |
| | 55 |
|
Tradename impairment | 4 |
| | — |
| | 4 |
|
Facility closure and other costs | 3 |
| | — |
| | 8 |
|
Total | $ | 95 |
| | $ | 2 |
| | $ | 131 |
|
The following table summarizes our restructuring accrual activity during the nine months ended November 2, 2013, and the eight months ended November 3, 2012, related to termination benefits and facility closure and other costs associated with this program ($ in millions):
|
| | | | | | | | | | | |
| Termination Benefits | | Facility Closure and Other Costs | | Total |
Balance at February 2, 2013 | $ | — |
| | $ | 5 |
| | $ | 5 |
|
Charges | 36 |
| | 2 |
| | 38 |
|
Cash payments | (2 | ) | | (7 | ) | | (9 | ) |
Adjustments(1) | (34 | ) | | — |
| | (34 | ) |
Balance at November 2, 2013 | $ | — |
| | $ | — |
| | $ | — |
|
| |
(1) | Represents the remaining liability written off as a result of the sale of Best Buy Europe, as described in Note 2, Discontinued Operations. |
|
| | | |
| Termination Benefits |
Balance at March 3, 2012 | $ | — |
|
Charges | 2 |
|
Cash payments | (2 | ) |
Balance at November 3, 2012 | $ | — |
|
Fiscal 2013 U.S. Restructuring
In the first quarter of fiscal 2013, we initiated a series of actions to restructure operations in our Domestic segment intended to improve operating performance. The actions included closure of 49 large-format Best Buy branded stores in the U.S. and changes to the store and corporate operating models. The costs of implementing the changes are primarily comprised of facility closure costs, employee termination benefits, and property and equipment (primarily store fixtures) impairments. We recognized a reduction to restructuring charges of $8 million in the nine months ended November 2, 2013, as a result of the buyout of a lease for less than the remaining vacant space liability. In the nine months ended November 3, 2012, we incurred $258 million of charges consisting primarily of facility closure and other costs, termination benefits, and property and equipment impairments. We do not expect to incur further material restructuring charges related to this program, with the exception of lease payments for vacated stores which will continue until leases expire or are terminated.
The restructuring charges related to our fiscal U.S. 2013 restructuring activities are from continuing operations and are presented in restructuring charges in our Consolidated Statements of Earnings. The composition of the restructuring charges we incurred for this program in the nine months ended November 2, 2013, and November 3, 2012, as well as the cumulative amount incurred through November 2, 2013, was as follows ($ in millions):
|
| | | | | | | | | | | |
| Nine Months Ended | | Cumulative Amount through November 2, 2013 |
| November 2, 2013 | | November 3, 2012 | |
Continuing operations | | | | | |
Property and equipment impairments | $ | — |
| | $ | 28 |
| | $ | 29 |
|
Termination benefits | — |
| | 83 |
| | 77 |
|
Facility closure and other costs, net | (8 | ) | | 147 |
| | 143 |
|
Total | $ | (8 | ) | | $ | 258 |
| | $ | 249 |
|
The following table summarizes our restructuring accrual activity during the nine months ended November 2, 2013, and the eight months ended November 3, 2012, related to termination benefits and facility closure and other costs associated with this program ($ in millions):
|
| | | | | | | | | | | |
| Termination Benefits | | Facility Closure and Other Costs | | Total |
Balance at February 2, 2013 | $ | 4 |
| | $ | 113 |
| | $ | 117 |
|
Charges | — |
| | 3 |
| | 3 |
|
Cash payments | (2 | ) | | (39 | ) | | (41 | ) |
Adjustments | (2 | ) | | (13 | ) | | (15 | ) |
Balance at November 2, 2013 | $ | — |
| | $ | 64 |
| | $ | 64 |
|
|
| | | | | | | | | | | |
| Termination Benefits | | Facility Closure and Other Costs | | Total |
Balance at March 3, 2012 | $ | — |
| | $ | — |
| | $ | — |
|
Charges | 109 |
| | 145 |
| | 254 |
|
Cash payments | (65 | ) | | (18 | ) | | (83 | ) |
Adjustments | (31 | ) | | (3 | ) | | (34 | ) |
Balance at November 3, 2012 | |