Edgar Filing: BEST BUY CO INC

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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 November 27, 2010

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

(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 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 issuer’s classes of common stock, as of the latest practicable date. Common Stock, $.10 Par Value — 394,196,420 shares outstanding as of December 29, 2010.

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BEST BUY CO., INC.

FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 27, 2010

INDEX

Part I — Financial Information			3

	Item 1.	Financial Statements (Unaudited)	3

		Condensed consolidated balance sheets as of November 27, 2010; February 27, 2010; and November 28, 2009	3

		Consolidated statements of earnings for the three and nine months ended November 27, 2010, and November 28, 2009	5

		Consolidated statements of changes in shareholders’ equity for the nine months ended November 27, 2010, and November 28, 2009	6

		Consolidated statements of cash flows for the nine months ended November 27, 2010, and November 28, 2009	7

		Notes to condensed consolidated financial statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

	Item 4.	Controls and Procedures	43

Part II — Other Information			44

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

	Item 4.	Reserved	44

	Item 6.	Exhibits	44

Signatures			45

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BEST BUY CO., INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

($ in millions, except per share amounts)

(Unaudited)

	November 27, 2010		February 27, 2010		November 28, 2009
CURRENT ASSETS
Cash and cash equivalents	$	925	$	1,826	$	564
Short-term investments	2		90		93
Receivables	2,793		2,020		2,630
Merchandise inventories	10,064		5,486		8,978
Other current assets	1,045		1,144		1,002
Total current assets	14,829		10,566		13,267

PROPERTY AND EQUIPMENT, NET	3,994		4,070		4,123

GOODWILL	2,441		2,452		2,421

TRADENAMES, NET	145		159		163

CUSTOMER RELATIONSHIPS, NET	220		279		292

EQUITY AND OTHER INVESTMENTS	343		324		332

OTHER ASSETS	380		452		502

TOTAL ASSETS	$	22,352	$	18,302	$	21,100

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.

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BEST BUY CO., INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND EQUITY

($ in millions, except per share amounts)

(Unaudited)

	November 27, 2010		February 27, 2010		November 28, 2009
CURRENT LIABILITIES
Accounts payable	$	9,858	$	5,276	$	9,083
Unredeemed gift card liabilities	424		463		425
Accrued compensation and related expenses	464		544		482
Accrued liabilities	1,920		1,681		1,856
Accrued income taxes	31		316		55
Short-term debt	690		663		741
Current portion of long-term debt	33		35		36
Total current liabilities	13,420		8,978		12,678

LONG-TERM LIABILITIES	1,166		1,256		1,194

LONG-TERM DEBT	1,101		1,104		1,104

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 — 394,067,000, 418,815,000 and 418,032,000 shares, respectively	39		42		42
Additional paid-in capital	—		441		404
Retained earnings	5,824		5,797		5,076
Accumulated other comprehensive income	138		40		7
Total Best Buy Co., Inc. shareholders’ equity	6,001		6,320		5,529
Noncontrolling interests	664		644		595
Total equity	6,665		6,964		6,124

TOTAL LIABILITIES AND EQUITY	$	22,352	$	18,302	$	21,100

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.

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BEST BUY CO., INC.

CONSOLIDATED STATEMENTS OF EARNINGS

($ in millions, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	November 27, 2010			November 28, 2009			November 27, 2010			November 28, 2009
Revenue	$	11,890		$	12,024		$	34,016		$	33,141
Cost of goods sold	8,907			9,082			25,322			24,958
Gross profit	2,983			2,942			8,694			8,183
Selling, general and administrative expenses	2,598			2,566			7,585			7,179
Restructuring charges	—			—			—			52
Operating income	385			376			1,109			952
Other income (expense)
Investment income and other	8			11			33			38
Interest expense	(20		)	(23		)	(64		)	(68		)

Earnings before income tax expense	373			364			1,078			922
Income tax expense	133			93			400			338
Net earnings including noncontrolling interests	240			271			678			584
Net earnings attributable to noncontrolling interests	(23		)	(44		)	(52		)	(46		)

Net earnings attributable to Best Buy Co., Inc.	$	217		$	227		$	626		$	538

Earnings per share attributable to Best Buy Co., Inc.
Basic	$	0.55		$	0.54		$	1.53		$	1.29
Diluted	$	0.54		$	0.53		$	1.50		$	1.27

Dividends declared per common share	$	0.15		$	0.14		$	0.43		$	0.42

Weighted-average common shares outstanding (in millions)
Basic	397.1			417.1			410.3			416.3
Diluted	407.8			428.6			420.7			426.8

See Notes to Condensed Consolidated Financial Statements.

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BEST BUY CO., INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED NOVEMBER 27, 2010, AND NOVEMBER 28, 2009

($ 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. Shareholders’ Equity			Non controlling Interests			Total Equity
Balances at February 27, 2010	419		$	42		$	441		$	5,797		$	40		$	6,320		$	644		$	6,964

Net earnings, nine months ended November 27, 2010	—		—			—			626			—			626			52			678
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	—		—			—			—			40			40			(35		)	5
Unrealized gains on available-for-sale investments	—		—			—			—			55			55			—			55
Cash flow hedging instruments — unrealized gains	—		—			—			—			3			3			3			6
Total comprehensive income															724			20			744

Stock-based compensation	—		—			87			—			—			87			—			87
Stock options exercised	5		—			127			—			—			127			—			127
Issuance of common stock under employee stock purchase plan	1		—			44			—			—			44			—			44
Tax benefit from stock options exercised, restricted stock vesting and employee stock purchase plan	—		—			5			—			—			5			—			5
Common stock dividends, $0.43 per share	—		—			—			(178		)	—			(178		)	—			(178		)
Repurchase of common stock	(31	)	(3		)	(704		)	(421		)	—			(1,128		)	—			(1,128		)
Balances at November 27, 2010	394		$	39		$	—		$	5,824		$	138		$	6,001		$	664		$	6,665

Balances at February 28, 2009	414		$	41		$	205		$	4,714		$	(317	)	$	4,643		$	513		$	5,156

Net earnings, nine months ended November 28, 2009	—		—			—			538			—			538			46			584
Other comprehensive income, net of tax
Foreign currency translation adjustments	—		—			—			—			289			289			58			347
Unrealized gains on available-for-sale investments	—		—			—			—			35			35			—			35
Cash flow hedging instruments — unrealized gains	—		—			—			—			—			—			—			—
Total comprehensive income															862			104			966

Acquisition of business (adjustments to purchase price allocation)	—		—			—			—			—			—			(22		)	(22		)
Stock-based compensation	—		—			88			—			—			88			—			88
Stock options exercised	3		1			79			—			—			80			—			80
Issuance of common stock under employee stock purchase plan	1		—			40			—			—			40			—			40
Tax deficit from stock options exercised, restricted stock vesting and employee stock purchase plan	—		—			(8		)	—			—			(8		)	—			(8		)
Common stock dividends, $0.42 per share	—		—			—			(176		)	—			(176		)	—			(176		)
Balances at November 28, 2009	418		$	42		$	404		$	5,076		$	7		$	5,529		$	595		$	6,124

See Notes to Condensed Consolidated Financial Statements.

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BEST BUY CO., INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

(Unaudited)

	Nine Months Ended
	November 27, 2010			November 28, 2009
OPERATING ACTIVITIES
Net earnings including noncontrolling interests	$	678		$	584
Adjustments to reconcile net earnings including noncontrolling interests to total cash provided by operating activities
Depreciation	668			614
Amortization of definite-lived intangible assets	63			66
Restructuring charges	—			52
Stock-based compensation	87			88
Deferred income taxes	(6		)	(41		)
Excess tax benefits from stock-based compensation	(13		)	(3		)
Other, net	16			(4		)
Changes in operating assets and liabilities
Receivables	(805		)	(691		)
Merchandise inventories	(4,561		)	(4,087		)
Other assets	80			(5		)
Accounts payable	4,492			3,936
Other liabilities	159			374
Income taxes	(313		)	(204		)
Total cash provided by operating activities	545			679

INVESTING ACTIVITIES
Additions to property and equipment	(529		)	(469		)
Purchases of investments	(245		)	(10		)
Sales of investments	383			46
Proceeds from sale of business, net of cash transferred	21			—
Change in restricted assets	(1		)	19
Settlement of net investment hedges	12			27
Other, net	(2		)	(18		)
Total cash used in investing activities	(361		)	(405		)

FINANCING ACTIVITIES
Repurchase of common stock	(1,128		)	—
Borrowings of debt	1,925			3,593
Repayments of debt	(1,884		)	(3,703		)
Dividends paid	(178		)	(175		)
Issuance of common stock under employee stock purchase plan and for the exercise of stock options	171			120
Acquisition of noncontrolling interests	(21		)	(34		)
Excess tax benefits from stock-based compensation	13			3
Other, net	9			(12		)
Total cash used in financing activities	(1,093		)	(208		)

EFFECT OF EXCHANGE RATE CHANGES ON CASH	8			—

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(901		)	66

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	1,826			498

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	925		$	564

See Notes to Condensed Consolidated Financial Statements.

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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 November 27, 2010.

In preparing the accompanying condensed consolidated financial statements, we evaluated the period from November 28, 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 entity’s 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.

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2. Investments

Investments were comprised of the following:

	November 27, 2010		February 27, 2010		November 28, 2009
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)	$	131	$	192	$	195
Marketable equity securities	145		77		86
Other investments	67		55		51
Total equity and other investments	$	343	$	324	$	332

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 November 27, 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.

During the third quarter of fiscal 2011, we sold $3 of ARS at par. At November 27, 2010, our entire remaining ARS portfolio, consisting of 24 investments in ARS having an aggregate par value of $141, was subject to failed auctions. Subsequent to November 27, 2010, and through December 30, 2010, we sold $8 of ARS at par.

Our ARS portfolio consisted of the following, at fair value:

Description	Nature of collateral or guarantee	November 27, 2010		February 27, 2010		November 28, 2009
Student loan bonds	Student loans guaranteed 95% to 100% by the U.S. government	$	113	$	261	$	264
Municipal revenue bonds	100% insured by AA/Aa-rated bond insurers at November 27, 2010	18		19		20
Total fair value plus accrued interest(1)		$	131	$	280	$	284

(1) The par value and weighted-average interest rates (taxable equivalent) of our ARS were $141, $285 and $293, and 0.91%, 1.10% and 0.95%, respectively, at November 27, 2010, February 27, 2010, and November 28, 2009, respectively.

At November 27, 2010, our ARS portfolio was 73% AAA/Aaa-rated, 20% AA/Aa-rated and 7% A/A-rated.

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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 33 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 $141 (par value) for impairment at November 27, 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 November 27, 2010, was $131. Accordingly, a $10 pre-tax unrealized loss is recognized 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 November 27, 2010, February 27, 2010, and November 28, 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:

	November 27, 2010		February 27, 2010		November 28, 2009
Common stock of The Carphone Warehouse Group PLC	$	—	$	74	$	83
Common stock of TalkTalk Telecom Group PLC	63		—		—
Common stock of Carphone Warehouse Group plc	78		—		—
Other	4		3		3
Total	$	145	$	77	$	86

We purchased shares of The Carphone Warehouse Group PLC (“CPW”) common stock in fiscal 2008, representing nearly 3% of CPW’s 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 CPW’s 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. An $84 pre-tax unrealized gain is recorded in accumulated other comprehensive income related to these investments at November 27, 2010.

We review all investments for other-than-temporary impairment at least quarterly or as we observe indicators of impairment. 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 investee’s 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 Total Best Buy Co., Inc. shareholders’ equity. The total unrealized gain, net of tax, included in accumulated other comprehensive income was $75, $17 and $26 at November 27, 2010, February 27, 2010, and November 28, 2009, respectively.

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Other Investments

The aggregate carrying values of investments accounted for using either the cost method or the equity method, at November 27, 2010, February 27, 2010, and November 28, 2009, were $67, $55 and $51, 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 management’s 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 November 27, 2010, February 27, 2010, and November 28, 2009, according to the valuation techniques we used to determine their fair values.

			Fair Value Measurements Using Inputs Considered as
	Fair Value at November 27, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS
Short-term investments
Money market fund	$	2	$	—	$	2	$	—
Other current assets
Money market funds (restricted assets)	66		66		—		—
U.S. Treasury bills (restricted assets)	85		85		—		—
Foreign currency derivative instruments	5		—		5		—
Equity and other investments
Auction-rate securities	131		—		—		131
Marketable equity securities	145		145		—		—
Other assets
Marketable securities that fund deferred compensation	80		80		—		—
Foreign currency derivative instruments	4		—		4		—

LIABILITIES
Long-term liabilities
Deferred compensation	67		67		—		—

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			Fair Value Measurements Using Inputs Considered as
	Fair Value at February 27, 2010		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	$	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 Using Inputs Considered as
	Fair Value at November 28, 2009		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	$	28	$	28	$	—	$	—
Short-term investments
Money market fund	4		—		4		—
Auction-rate securities	89		—		—		89
Other current assets
Money market funds (restricted assets)	16		16		—		—
U.S. Treasury bills (restricted assets)	55		55		—		—
Foreign currency derivative instruments	4		—		4		—
Equity and other investments
Auction-rate securities	195		—		—		195
Marketable equity securities	86		86		—		—
Other assets
Marketable securities that fund deferred compensation	73		73		—		—

LIABILITIES
Accrued liabilities
Foreign currency derivative instruments	1		—		1		—
Long-term liabilities
Deferred compensation	62		62		—		—

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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 27, 2010, and November 28, 2009.

	Debt securities- Auction-rate securities only
	Student loan bonds			Municipal revenue bonds		Total
Balances at August 28, 2010	$	116		$	18	$	134
Changes in unrealized losses included in other comprehensive income	—			—		—
Sales	(3		)	—		(3		)
Interest received	—			—		—
Balances at November 27, 2010	$	113		$	18	$	131

	Debt securities- Auction-rate securities only
	Student loan bonds			Municipal revenue bonds			Total
Balances at February 27, 2010	$	261		$	19		$	280
Changes in unrealized losses included in other comprehensive income	(5		)	—			(5		)
Sales	(142		)	(1		)	(143		)
Interest received	(1		)	—			(1		)
Balances at November 27, 2010	$	113		$	18		$	131

	Debt securities- Auction-rate securities only
	Student loan bonds			Municipal revenue bonds		Auction preferred securities		Total
Balances at August 29, 2009	$	278		$	20	$	—	$	298
Changes in unrealized gains included in other comprehensive income	—			—		—		—
Sales	(14		)	—		—		(14		)
Balances at November 28, 2009	$	264		$	20	$	—	$	284

	Debt securities- Auction-rate securities only
	Student loan bonds			Municipal revenue bonds			Auction preferred securities			Total
Balances at February 28, 2009	$	276		$	24		$	14		$	314
Changes in unrealized gains included in other comprehensive income	5			—			1			6
Sales	(17		)	(4		)	(15		)	(36		)
Balances at November 28, 2009	$	264		$	20		$	—		$	284

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.

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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 nine months ended November 27, 2010, and November 28, 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 nine months ended November 27, 2010, and November 28, 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		)
Acquisition of noncontrolling interests	—			5			5			—			—		—
Changes in foreign currency exchange rates	—			(4		)	(4		)	—			2		2
Balances at November 27, 2010	$	422		$	2,019		$	2,441		$	31		$	82	$	113

(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 associated with such business 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	—		43		43		—		—		—
Changes in foreign currency exchange rates	—		175		175		—		8		8
Balances at November 28, 2009	$	434	$	1,987	$	2,421	$	32	$	80	$	112

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The following table provides the gross carrying values and related accumulated amortization of definite-lived intangible assets:

	November 27, 2010					February 27, 2010					November 28, 2009
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Tradenames	$	74	$	(42	)	$	75	$	(28	)	$	74	$	(23	)
Customer relationships	387		(167		)	401		(122		)	395		(103		)
Total	$	461	$	(209	)	$	476	$	(150	)	$	469	$	(126	)

Total amortization expense was $20 and $24 for the three months ended November 27, 2010, and November 28, 2009, respectively, and was $63 and $66 for the nine months then ended, respectively. The estimated future amortization expense for identifiable intangible assets is as follows:

Fiscal Year
Remainder of fiscal 2011	$	19
2012	61
2013	44
2014	40
2015	35
Thereafter	53

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 nine 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 nine months ended November 27, 2010, and November 28, 2009, as well as the cumulative amount incurred through November 27, 2010, for both the Domestic and International segments, were as follows:

	Domestic						International						Total
	Nine months ended				Cumulative Amount through		Nine months ended				Cumulative Amount through		Nine months ended				Cumulative Amount through
	November 27, 2010		November 28, 2009		November 27, 2010		November 27, 2010		November 28, 2009		November 27, 2010		November 27, 2010		November 28, 2009		November 27, 2010
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 nine months ended November 27, 2010, and November 28, 2009, related to termination benefits and facility closure costs:

	Termination Benefits				Facility Closure Costs			Total
Balances at February 27, 2010	$		8		$	1		$	9
Charges	—				—			—
Cash payments	(6			)	(1		)	(7		)
Changes in foreign currency exchange rates	—				—			—
Balances at November 27, 2010	$	2			$	—		$	2

	Termination Benefits			Facility Closure Costs			Total
Balances at February 28, 2009	$	73		$	1		$	74
Charges	51			1			52
Cash payments	(116		)	(1		)	(117		)
Changes in foreign currency exchange rates	3			—			3
Balances at November 28, 2009	$	11		$	1		$	12

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6. Debt

Short-Term Debt

Short-term debt consisted of the following:

	November 27, 2010		February 27, 2010		November 28, 2009
J.P. Morgan revolving credit facility	$	500	$	—	$	350
ARS revolving credit line	—		—		—
Europe receivables financing facility(1)	136		442		326
Europe revolving credit facility	—		206		30
Canada revolving demand facility	—		—		—
China revolving demand facilities	54		15		35
Total short-term debt	$	690	$	663	$	741

(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 £225 (or $356) at November 27, 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 expired by its terms during the second quarter of fiscal 2011 when UBS bought back all of our UBS-brokered ARS.

Long-Term Debt

Long-term debt consisted of the following:

	November 27, 2010			February 27, 2010			November 28, 2009
6.75% notes	$	500		$	500		$	500
Convertible debentures	402			402			402
Financing lease obligations	173			186			191
Capital lease obligations	57			49			44
Other debt	2			2			3
Total long-term debt	1,134			1,139			1,140
Less: current portion	(33		)	(35		)	(36		)
Total long-term debt, less current portion	$	1,101		$	1,104		$	1,104

The fair value of long-term debt approximated $1,235, $1,210 and $1,221 at November 27, 2010, February 27, 2010, and November 28, 2009, respectively, based primarily on the ask prices quoted from external sources, compared with carrying values of $1,134, $1,139 and $1,140, respectively.

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.

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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 November 27, 2010, February 27, 2010, and November 28, 2009:

	November 27, 2010					February 27, 2010					November 28, 2009
Contract Type	Assets		Liabilities			Assets		Liabilities			Assets		Liabilities
Cash flow hedges (foreign exchange forward contracts)	$	9	$	—		$	2	$	(1	)	$	1	$	—
Net investment hedges (foreign exchange swap contracts)	—		—			4		—			—		—
Total derivatives designated as hedging instruments	$	9	$	—		$	6	$	(1	)	$	1	$	—

No hedge designation (foreign exchange forward contracts)	1		(1		)	1		(2		)	3		(1		)

Total	$	10	$	(1	)	$	7	$	(3	)	$	4	$	(1	)

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The following tables present the effects of derivative instruments on other comprehensive income (“OCI”) and on our consolidated statements of earnings for the three and nine months ended November 27, 2010 and November 28, 2009:

	Three Months Ended November 27, 2010					Nine Months Ended November 27, 2010
Contract Type	Pre-tax Gain(Loss) Recognized in OCI (1)			Gain(Loss) Reclassified from Accumulated OCI to Earnings (Effective Portion) (2)		Pre-tax Gain(Loss) Recognized in OCI (1)	Gain(Loss) Reclassified from Accumulated OCI to Earnings (Effective Portion) (2)

Cash flow hedges (foreign exchange forward contracts)	$	(1	)	$	2	$