BBY 11/3/12 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 3, 2012
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)
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| | |
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 ¨ |
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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, $.10 Par Value — 338,087,851 shares outstanding as of November 30, 2012.
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 3, 2012
INDEX
PART I — FINANCIAL INFORMATION
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ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
BEST BUY CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
($ in millions)
(Unaudited)
|
| | | | | | | | | | | |
| November 3, 2012 | | March 3, 2012 | | October 29, 2011 |
| | | | | (recast) |
CURRENT ASSETS | |
| | |
| | |
Cash and cash equivalents | $ | 309 |
| | $ | 1,199 |
| | $ | 2,073 |
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Short-term investments | — |
| | — |
| | 20 |
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Receivables | 2,250 |
| | 2,288 |
| | 1,968 |
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Merchandise inventories | 8,156 |
| | 5,731 |
| | 7,780 |
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Other current assets | 1,131 |
| | 1,079 |
| | 1,098 |
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Total current assets | 11,846 |
| | 10,297 |
| | 12,939 |
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| | | | | |
PROPERTY AND EQUIPMENT, NET | 3,407 |
| | 3,471 |
| | 3,697 |
|
| | | | | |
GOODWILL | 1,344 |
| | 1,335 |
| | 2,447 |
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| | | | | |
TRADENAMES, NET | 131 |
| | 130 |
| | 131 |
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| | | | | |
CUSTOMER RELATIONSHIPS, NET | 213 |
| | 229 |
| | 165 |
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| | | | | |
EQUITY AND OTHER INVESTMENTS | 91 |
| | 140 |
| | 279 |
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| | | | | |
OTHER ASSETS | 524 |
| | 403 |
| | 469 |
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| | | | | |
TOTAL ASSETS | $ | 17,556 |
| | $ | 16,005 |
| | $ | 20,127 |
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NOTE: The Consolidated Balance Sheet as of March 3, 2012, 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)
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| | | | | | | | | | | |
| November 3, 2012 | | March 3, 2012 | | October 29, 2011 |
| | | | | (recast) |
CURRENT LIABILITIES | |
| | |
| | |
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Accounts payable | $ | 7,933 |
| | $ | 5,364 |
| | $ | 7,557 |
|
Unredeemed gift card liabilities | 392 |
| | 456 |
| | 413 |
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Accrued compensation and related expenses | 429 |
| | 539 |
| | 474 |
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Accrued liabilities | 1,531 |
| | 1,685 |
| | 1,619 |
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Accrued income taxes | 9 |
| | 288 |
| | 43 |
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Short-term debt | 310 |
| | 480 |
| | 163 |
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Current portion of long-term debt | 544 |
| | 43 |
| | 442 |
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Total current liabilities | 11,148 |
| | 8,855 |
| | 10,711 |
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| | | | | |
LONG-TERM LIABILITIES | 1,122 |
| | 1,099 |
| | 1,161 |
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| | | | | |
LONG-TERM DEBT | 1,158 |
| | 1,685 |
| | 1,692 |
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| | | | | |
EQUITY | |
| | |
| | |
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Best Buy Co., Inc. shareholders’ equity | |
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| | |
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Preferred stock, $1.00 par value: Authorized — 400,000 shares; Issued and outstanding — none | — |
| | — |
| | — |
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Common stock, $0.10 par value: Authorized — 1.0 billion shares; Issued and outstanding — 337,925,000, 341,400,000 and 357,941,000 shares, respectively | 34 |
| | 34 |
| | 36 |
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Additional paid-in capital | 40 |
| | — |
| | — |
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Retained earnings | 3,328 |
| | 3,621 |
| | 5,676 |
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Accumulated other comprehensive income | 105 |
| | 90 |
| | 145 |
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Total Best Buy Co., Inc. shareholders’ equity | 3,507 |
| | 3,745 |
| | 5,857 |
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Noncontrolling interests | 621 |
| | 621 |
| | 706 |
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Total equity | 4,128 |
| | 4,366 |
| | 6,563 |
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| | | | | |
TOTAL LIABILITIES AND EQUITY | $ | 17,556 |
| | $ | 16,005 |
| | $ | 20,127 |
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NOTE: The Consolidated Balance Sheet as of March 3, 2012, has been condensed from the audited consolidated financial statements.
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
($ in millions, except per share amounts)
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| November 3, 2012 | | October 29, 2011 | | November 3, 2012 | | October 29, 2011 |
| | | (recast) | | | | (recast) |
Revenue | $ | 10,753 |
| | $ | 11,145 |
| | $ | 32,910 |
| | $ | 33,370 |
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Cost of goods sold | 8,167 |
| | 8,292 |
| | 24,853 |
| | 24,834 |
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Gross profit | 2,586 |
| | 2,853 |
| | 8,057 |
| | 8,536 |
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Selling, general and administrative expenses | 2,538 |
| | 2,472 |
| | 7,496 |
| | 7,431 |
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Restructuring charges | 36 |
| | — |
| | 254 |
| | 4 |
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Operating income | 12 |
| | 381 |
| | 307 |
| | 1,101 |
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Other income (expense) | |
| | |
| | | | |
Investment income and other | 13 |
| | — |
| | 25 |
| | 25 |
|
Interest expense | (31 | ) | | (37 | ) | | (94 | ) | | (98 | ) |
Earnings (loss) from continuing operations before income tax (benefit) expense and equity in loss of affiliates | (6 | ) | | 344 |
| | 238 |
| | 1,028 |
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Income tax (benefit) expense | (2 | ) | | 122 |
| | 84 |
| | 364 |
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Equity in loss of affiliates | (1 | ) | | (2 | ) | | (5 | ) | | (3 | ) |
Net earnings (loss) from continuing operations | (5 | ) | | 220 |
| | 149 |
| | 661 |
|
Gain (loss) from discontinued operations (Note 3), net of tax benefit (expense) of ($2), $17, $2 and $49 | 6 |
| | (46 | ) | | (3 | ) | | (137 | ) |
Net earnings including noncontrolling interests | 1 |
| | 174 |
| | 146 |
| | 524 |
|
Net (earnings) loss from continuing operations attributable to noncontrolling interests | (8 | ) | | (47 | ) | | 11 |
| | (83 | ) |
Net (gain) loss from discontinued operations attributable to noncontrolling interests | (3 | ) | | 29 |
| | 3 |
| | 55 |
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Net earnings (loss) attributable to Best Buy Co., Inc. | $ | (10 | ) | | $ | 156 |
| | $ | 160 |
| | $ | 496 |
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Basic earnings (loss) per share attributable to Best Buy Co., Inc. | |
| | |
| | | | |
Continuing operations | $ | (0.04 | ) | | $ | 0.48 |
| | $ | 0.47 |
| | $ | 1.53 |
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Discontinued operations | 0.01 |
| | (0.05 | ) | | — |
| | (0.21 | ) |
Basic earnings (loss) per share | $ | (0.03 | ) | | $ | 0.43 |
| | $ | 0.47 |
| | $ | 1.32 |
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| | | | | | | |
Diluted earnings (loss) per share attributable to Best Buy Co., Inc. | | | | | | | |
Continuing operations | $ | (0.04 | ) | | $ | 0.47 |
| | $ | 0.47 |
| | $ | 1.51 |
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Discontinued operations | 0.01 |
| | (0.05 | ) | | — |
| | (0.21 | ) |
Diluted earnings (loss) per share | $ | (0.03 | ) | | $ | 0.42 |
| | $ | 0.47 |
| | $ | 1.30 |
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| | | | | | | |
Dividends declared per common share | $ | 0.17 |
| | $ | 0.16 |
| | $ | 0.49 |
| | $ | 0.46 |
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| | | | | | | |
Weighted-average common shares outstanding (in millions) | |
| | |
| | | | |
Basic | 337.2 |
| | 363.4 |
| | 339.3 |
| | 376.9 |
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Diluted | 337.2 |
| | 372.4 |
| | 340.4 |
| | 386.2 |
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Comprehensive income including noncontrolling interests | $ | 34 |
| | $ | 6 |
| | $ | 191 |
| | $ | 511 |
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Comprehensive (income) loss attributable to noncontrolling interests | (25 | ) | | 14 |
| | — |
| | (23 | ) |
Comprehensive income attributable to Best Buy Co., Inc. | $ | 9 |
| | $ | 20 |
| | $ | 191 |
| | $ | 488 |
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See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED NOVEMBER 3, 2012, AND OCTOBER 29, 2011
($ and shares in millions)
(Unaudited)
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 March 3, 2012 | 341 |
| | $ | 34 |
| | $ | — |
| | $ | 3,621 |
| | $ | 90 |
| | $ | 3,745 |
| | $ | 621 |
| | $ | 4,366 |
|
Adjustment for fiscal year-end change (Note 2) | 5 |
| | — |
| | — |
| | (108 | ) | | (16 | ) | | (124 | ) | | — |
| | (124 | ) |
Balances at January 28, 2012 | 346 |
| | 34 |
| | — |
| | 3,513 |
| | 74 |
| | 3,621 |
| | 621 |
| | 4,242 |
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Net earnings, 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 |
|
Restricted stock vested and stock options exercised | 2 |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
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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 |
|
| | | | | | | | | | | | | | | |
Balances at February 26, 2011 | 393 |
| | $ | 39 |
| | $ | 18 |
| | $ | 6,372 |
| | $ | 173 |
| | $ | 6,602 |
| | $ | 690 |
| | $ | 7,292 |
|
Adjustment for fiscal year-end change (Note 2) | — |
| | — |
| | (18 | ) | | (115 | ) | | (20 | ) | | (153 | ) | | — |
| | (153 | ) |
Balances at January 29, 2011 | 393 |
| | 39 |
| | — |
| | 6,257 |
| | 153 |
| | 6,449 |
| | 690 |
| | 7,139 |
|
Net earnings, nine months ended October 29, 2011 | — |
| | — |
| | — |
| | 496 |
| | — |
| | 496 |
| | 28 |
| | 524 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | 10 |
| | 10 |
| | (5 | ) | | 5 |
|
Unrealized losses on available-for-sale investments | — |
| | — |
| | — |
| | — |
| | (18 | ) | | (18 | ) | | — |
| | (18 | ) |
Cash flow hedging instruments – unrealized losses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Dividend distribution | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7 | ) | | (7 | ) |
Stock-based compensation | — |
| | — |
| | 99 |
| | — |
| | — |
| | 99 |
| | — |
| | 99 |
|
Restricted stock vested and stock options exercised | 1 |
| | — |
| | 28 |
| | — |
| | — |
| | 28 |
| | — |
| | 28 |
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Issuance of common stock under employee stock purchase plan | 2 |
| | — |
| | 39 |
| | — |
| | — |
| | 39 |
| | — |
| | 39 |
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Tax deficit from stock options canceled or exercised, restricted stock vesting and employee stock purchase plan | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Common stock dividends, $0.46 per share | — |
| | — |
| | — |
| | (171 | ) | | — |
| | (171 | ) | | — |
| | (171 | ) |
Repurchase and retirement of common stock | (38 | ) | | (3 | ) | | (164 | ) | | (906 | ) | | — |
| | (1,073 | ) | | — |
| | (1,073 | ) |
Balances at October 29, 2011 (recast) | 358 |
| | $ | 36 |
| | $ | — |
| | $ | 5,676 |
| | $ | 145 |
| | $ | 5,857 |
| | $ | 706 |
| | $ | 6,563 |
|
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited)
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| | | | | | | |
| Nine Months Ended |
| November 3, 2012 | | October 29, 2011 |
| | | (recast) |
OPERATING ACTIVITIES | | | |
Net earnings including noncontrolling interests | $ | 146 |
| | $ | 524 |
|
Adjustments to reconcile net earnings including noncontrolling interests to total cash provided by (used in) operating activities | | | |
Depreciation | 657 |
| | 669 |
|
Amortization of definite-lived intangible assets | 30 |
| | 39 |
|
Restructuring charges | 251 |
| | 52 |
|
Stock-based compensation | 95 |
| | 99 |
|
Deferred income taxes | (96 | ) | | (53 | ) |
Other, net | 19 |
| | 13 |
|
Changes in operating assets and liabilities | | | |
Receivables | 216 |
| | 322 |
|
Merchandise inventories | (1,330 | ) | | (393 | ) |
Other assets | (167 | ) | | (58 | ) |
Accounts payable | 967 |
| | 938 |
|
Other liabilities | (541 | ) | | (78 | ) |
Income taxes | (368 | ) | | (174 | ) |
Total cash provided by (used in) operating activities | (121 | ) | | 1,900 |
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| | | |
INVESTING ACTIVITIES | |
| | |
|
Additions to property and equipment | (522 | ) | | (580 | ) |
Purchases of investments | (13 | ) | | (111 | ) |
Sales of investments | 68 |
| | 153 |
|
Change in restricted assets | 59 |
| | (17 | ) |
Other, net | (4 | ) | | — |
|
Total cash used in investing activities | (412 | ) | | (555 | ) |
| | | |
FINANCING ACTIVITIES | |
| | |
|
Repurchase of common stock | (255 | ) | | (1,056 | ) |
Borrowings of debt | 1,034 |
| | 2,467 |
|
Repayments of debt | (1,234 | ) | | (1,886 | ) |
Dividends paid | (166 | ) | | (172 | ) |
Issuance of common stock under employee stock purchase plan and for the exercise of stock options | 26 |
| | 67 |
|
Other, net | (12 | ) | | (31 | ) |
Total cash used in financing activities | (607 | ) | | (611 | ) |
| | | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 48 |
| | 1 |
|
| | | |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS BEFORE ADJUSTMENT | (1,092 | ) | | 735 |
|
| | | |
ADJUSTMENT FOR FISCAL YEAR-END CHANGE (NOTE 2) | 202 |
| | 235 |
|
| | | |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AFTER ADJUSTMENT | (890 | ) | | 970 |
|
| | | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 1,199 |
| | 1,103 |
|
| | | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 309 |
| | $ | 2,073 |
|
See Notes to Condensed Consolidated Financial Statements.
BEST BUY CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share amounts)
(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.
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 March 3, 2012.
Beginning in the first quarter of fiscal 2013, we changed our fiscal year-end. As a result of the change in our fiscal year-end, the comparable prior year financial statements have been recast to conform to the new fiscal calendar. The third quarter of fiscal 2013 included 13 weeks and the recast third quarter of 2012 included 13 weeks. The first nine months of fiscal 2013 included 40 weeks and the recast nine months of 2012 included 39 weeks. See Note 2, Fiscal Year-end Change, for further information.
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 and Mexico operations ("lag entities") 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. There were no significant intervening events which would have materially affected our financial condition, results of operations or liquidity had they been recorded during the three months ended November 3, 2012.
In preparing the accompanying condensed consolidated financial statements, we evaluated the period from November 4, 2012 through the date the financial statements were issued, for material subsequent events requiring recognition or disclosure. Other than the verdict in the trade secrets action, as described in Note 14, Contingencies, no such events were identified for this period.
New Accounting Standards
Goodwill Impairment — In September 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance on the testing of goodwill for impairment. Under the new guidance, entities may make a qualitative assessment of the likelihood of goodwill impairment in order to determine whether a detailed quantitative analysis is required. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. Accordingly, we adopted the new guidance on March 4, 2012, and determined that it did not have an impact on our consolidated financial position, results of operations, or cash flows.
Comprehensive Income — In June 2011, the FASB issued new guidance on the presentation of comprehensive income. Specifically, the new guidance requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate but consecutive statements. The new guidance eliminated the previous option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changed the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. Accordingly, we adopted the new guidance on March 4, 2012, and have presented total comprehensive income in our Condensed Consolidated Statements of Earnings and Comprehensive Income.
Fair Value Measurement — In April 2011, the FASB issued new guidance to converge fair value measurement and disclosure guidance with International Financial Reporting Standards. This new guidance amended current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. This new
guidance is effective for fiscal years and interim periods beginning after December 15, 2011. Accordingly, we adopted the new guidance on March 4, 2012, and determined that it did not have an impact on our consolidated financial position, results of operations, or cash flows.
Beginning in the first quarter of fiscal 2013, we changed our fiscal year-end from the Saturday nearest the end of February to the Saturday nearest the end of January. As a result of this change, our fiscal year 2013 is an 11-month transition period ending on February 2, 2013. As a result of this change, in the first quarter of fiscal 2013, we also began consolidating the results of our Europe, China and Mexico operations on a one-month lag, compared to a two-month lag in fiscal year 2012, to continue to align our fiscal reporting periods with statutory filing requirements.
In order to allow an immediate transition to our new fiscal calendar and to maintain transparency and comparability of financial information included in our quarterly Form 10-Q filings, we are presenting such quarterly information on a three- and nine-month basis for both the current and prior fiscal years, in both instances based on the new fiscal calendar. Following the change to our fiscal calendar, the third quarter of fiscal 2013 is the three months ended November 3, 2012. Therefore, the Condensed Consolidated Statements of Earnings and Comprehensive Income, Consolidated Statements of Changes in Shareholders' Equity, and Consolidated Statements of Cash Flows reflect results for the three and nine month periods ended November 3, 2012. The results for the nine months ended November 3, 2012 include our fiscal month ended March 3, 2012 (“February 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. The change in fiscal calendar does not impact our quarterly financial statements for our lag entities because the reduction in the lag period from two months to one month occurred concurrent with the change in our fiscal calendar.
The following table shows the fiscal months included in the third quarters of fiscal 2013 and 2012 under our new fiscal calendar, as well as the fiscal months included in the third quarter of fiscal 2012 under our previous fiscal calendar:
|
| | | | |
New Fiscal Calendar(1) | | Previous Fiscal Calendar(1) |
2013 | | 2012 | | 2012 |
August 2012 - October 2012 | | August 2011 - October 2011 | | September 2011 - November 2011 |
| |
(1) | For entities reported on a lag, the fiscal months included in the third quarters of fiscal 2013 and 2012 were July through September under both the new and previous fiscal calendars. |
The Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Earnings and Comprehensive Income, Consolidated Statements of Changes in Shareholders' Equity, Consolidated Statements of Cash Flows, and corresponding Notes are presented based on the new fiscal calendar (November 3, 2012 for fiscal 2013 and October 29, 2011 for fiscal 2012) and the most recent audited fiscal year (March 3, 2012).
Results for February 2012 and February 2011
As a result of the overlap of February 2012 between the fourth quarter of fiscal 2012 (previous fiscal calendar) and the first quarter of fiscal 2013 (new fiscal calendar), $3,908 of revenue from February 2012 is included in our Condensed Consolidated Statements of Earnings and Comprehensive Income for the nine months ended November 3, 2012, which was also included in our results for the fiscal year ended March 3, 2012, included in our fiscal 2012 Form 10-K.
The following table provides a summary of the adjustment to Retained earnings within the Consolidated Statements of Changes in Shareholders' Equity as a result of the overlap of February 2012 between the fourth quarter of fiscal 2012 (previous fiscal calendar) and the first quarter of fiscal 2013 (new fiscal calendar), as well as the equivalent overlap in the prior-year period. The primary components of the net reconciling item to Retained earnings include the net earnings from the Domestic segment and Canadian operations, offset by the impact of share repurchases which reduced Retained earnings upon their retirement.
|
| | | | | | | |
| February 2012 | | February 2011 |
Net earnings | $ | 206 |
| | $ | 115 |
|
Impact of share repurchases(1) | (98 | ) | | — |
|
Net reconciling item to Retained earnings | $ | 108 |
| | $ | 115 |
|
| |
(1) | Share repurchases reduced Retained earnings after the Additional paid-in capital balance was reduced to zero during February 2012. |
In addition, the Consolidated Statements of Cash Flows includes a net reconciling item (adjustment) for the cash flows as a result of the overlap described above. The total adjustment for the overlap of February 2012 was $202, primarily due to $135 of cash used in financing activities and $46 of cash used in investing activities. The total adjustment for February 2011 was $235, due almost entirely to $228 of cash used in operating activities. The adjustments for both periods included the effect of exchange rate changes on our cash balances.
| |
3. | Discontinued Operations |
Discontinued operations comprise: (i) Napster operations within our Domestic segment; (ii) large-format Best Buy branded store operations in China, Turkey, and the United Kingdom ("U.K.") within our International segment; and (iii) The Phone House stores in Belgium within our International Segment. The presentation of discontinued operations has been retrospectively applied to all prior periods presented.
The financial results of discontinued operations for the three and nine months ended November 3, 2012 and October 29, 2011, were as follows ($ in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| November 3, 2012 | | October 29, 2011 | | November 3, 2012 | | October 29, 2011 |
| | | (recast) | | | | (recast) |
Revenue | $ | — |
| | $ | 95 |
| | $ | 8 |
| | $ | 312 |
|
| | | | | | | |
Restructuring charges(1) | (8 | ) | | 19 |
| | (3 | ) | | 48 |
|
| | | | | | | |
Earnings (loss) from discontinued operations before income tax benefit (expense) | 8 |
| | (63 | ) | | (5 | ) | | (190 | ) |
Income tax benefit (expense) | (2 | ) | | 17 |
| | 2 |
| | 49 |
|
Gain on sale of discontinued operations | — |
| | — |
| | — |
| | 4 |
|
Net gain (loss) from discontinued operations, including noncontrolling interests | 6 |
| | (46 | ) | | (3 | ) | | (137 | ) |
Net (gain) loss from discontinued operations attributable to noncontrolling interests | (3 | ) | | 29 |
| | 3 |
| | 55 |
|
Net gain (loss) from discontinued operations attributable to Best Buy Co., Inc. | $ | 3 |
| | $ | (17 | ) | | $ | — |
| | $ | (82 | ) |
| |
(1) | See Note 7, Restructuring Charges, for further discussion of the restructuring charges associated with discontinued operations. |
Investments were comprised of the following:
|
| | | | | | | | | | | |
| November 3, 2012 | | March 3, 2012 | | October 29, 2011 |
| | | | | (recast) |
Short-term investments | |
| | |
| | |
|
U.S. Treasury bills | $ | — |
| | $ | — |
| | $ | 20 |
|
| | | | | |
Equity and other investments | |
| | |
| | |
|
Debt securities (auction rate securities) | 21 |
| | 82 |
| | 84 |
|
Marketable equity securities | 3 |
| | 3 |
| | 131 |
|
Other investments | 67 |
| | 55 |
| | 64 |
|
Total equity and other investments | $ | 91 |
| | $ | 140 |
| | $ | 279 |
|
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 7, 28, and 35 days. The auction process had historically provided a means by which we could roll over 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 as of November 3, 2012 and October 29, 2011.
We sold $1 of ARS at par during the third quarter of fiscal 2013. However, at November 3, 2012, our entire remaining ARS portfolio, consisting of six investments in ARS with an aggregate value at par of $23, was subject to failed auctions.
Our ARS portfolio consisted of the following, at fair value:
|
| | | | | | | | | | | | | | |
Description | | Nature of collateral or guarantee | | November 3, 2012 | | March 3, 2012 | | October 29, 2011 |
| | | | | | | | (recast) |
Student loan bonds | | Student loans guaranteed 95% to 100% by the U.S. government | | $ | 19 |
| | $ | 80 |
| | $ | 82 |
|
Municipal revenue bonds | | 100% insured by AA/Aa-rated bond insurers at November 3, 2012 | | 2 |
| | 2 |
| | 2 |
|
Total fair value plus accrued interest(1) | | | | $ | 21 |
| | $ | 82 |
| | $ | 84 |
|
| |
(1) | The par value and weighted-average interest rates (taxable equivalent) of our ARS were $23, $88 and $89, and 0.81%, 0.50% and 0.51%, respectively, at November 3, 2012, March 3, 2012 and October 29, 2011, respectively. |
At November 3, 2012, our ARS portfolio was 37% AAA/Aaa-rated, 30% AA/Aa-rated, and 33% A/A-rated.
The investment principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, or final payments are due according to the contractual maturities of the debt issuances, which range from 10 to 29 years. We do not intend to sell our remaining ARS until we can recover the full principal amount through one of the means described above. 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.
We evaluated our entire ARS portfolio of $23 (par value) for impairment at November 3, 2012, based primarily on the methodology described in Note 5, Fair Value Measurements. As a result of this review, we determined that the fair value of our ARS portfolio at November 3, 2012 was $21. Accordingly, a $2 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, the nature of the collateral or guarantees in place, and our intent and ability to hold an investment.
We had $(1), $(3) and $(3) of unrealized loss, net of tax, recorded in accumulated other comprehensive income at November 3, 2012, March 3, 2012 and October 29, 2011, 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 3, 2012 | | March 3, 2012 | | October 29, 2011 |
| | | | | (recast) |
Common stock of TalkTalk Telecom Group PLC | $ | — |
| | $ | — |
| | $ | 74 |
|
Common stock of Carphone Warehouse Group plc | — |
| | — |
| | 56 |
|
Other | 3 |
| | 3 |
| | 1 |
|
Total | $ | 3 |
| | $ | 3 |
| | $ | 131 |
|
We review all investments for other-than-temporary impairment at least quarterly or as indicators of impairment exist. Indicators of impairment include the duration and severity of the decline in fair value, as well as the intent and ability to hold the investment to allow for a recovery in the market value of the investment. In addition, we consider qualitative factors that include, but are not limited to: (i) the financial condition and business plans of the investee, including its future earnings potential, (ii) the 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, the cost basis of the investment is written down to fair value, and the amount of the write-down is included in net earnings.
All unrealized holding gains or losses related to our investments in marketable equity securities are reflected net of tax in accumulated other comprehensive income in shareholders’ equity. The total unrealized gain, net of tax, included in accumulated other comprehensive income was $1, $0 and $62 at November 3, 2012, March 3, 2012 and October 29, 2011, respectively.
Other Investments
The aggregate carrying values of investments accounted for using either the cost method or the equity method at November 3, 2012, March 3, 2012 and October 29, 2011 were $67, $55 and $64, respectively.
| |
5. | 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 3, 2012, March 3, 2012 and October 29, 2011, according to the valuation techniques we used to determine their fair values.
|
| | | | | | | | | | | | | | | |
| | | 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 |
| | — |
|
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Inputs Considered as |
| Fair Value at March 3, 2012 | | 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 | $ | 272 |
| | $ | 272 |
| | $ | — |
| | $ | — |
|
Other current assets | |
| | |
| | |
| | |
|
Money market funds (restricted cash) | 119 |
| | 119 |
| | — |
| | — |
|
U.S. Treasury bills (restricted cash) | 30 |
| | 30 |
| | — |
| | — |
|
Foreign currency derivative instruments | 1 |
| | — |
| | 1 |
| | — |
|
Equity and other investments | |
| | |
| | |
| | |
|
Auction rate securities | 82 |
| | — |
| | — |
| | 82 |
|
Marketable equity securities | 3 |
| | 3 |
| | — |
| | — |
|
| | | | | | | |
LIABILITIES | |
| | |
| | |
| | |
|
Accrued liabilities | |
| | |
| | |
| | |
|
Foreign currency derivative instruments | 2 |
| | — |
| | 2 |
| | — |
|
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Inputs Considered as |
| Fair Value at October 29, 2011 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (recast) | | (recast) | | (recast) | | (recast) |
ASSETS | |
| | |
| | |
| | |
|
Cash and cash equivalents | | | | | | | |
Money market funds | $ | 796 |
| | $ | 796 |
| | $ | — |
| | $ | — |
|
Short-term investments | |
| | |
| | |
| | |
|
U.S. Treasury bills | 20 |
| | 20 |
| | — |
| | — |
|
Other current assets | |
| | |
| | |
| | |
|
Money market funds (restricted assets) | 163 |
| | 163 |
| | — |
| | — |
|
U.S. Treasury bills (restricted assets) | 20 |
| | 20 |
| | — |
| | — |
|
Foreign currency derivative instruments | 1 |
| | — |
| | 1 |
| | — |
|
Equity and other investments | |
| | |
| | |
| | |
|
Auction rate securities | 84 |
| | — |
| | — |
| | 84 |
|
Marketable equity securities | 131 |
| | 131 |
| | — |
| | — |
|
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 eight months ended November 3, 2012 and October 29, 2011.
|
| | | | | | | | | | | |
| Debt securities- Auction rate securities only |
| Student loan bonds | | Municipal revenue bonds | | Total |
Balances at August 4, 2012 | $ | 20 |
| | $ | 2 |
| | $ | 22 |
|
Changes in unrealized losses included in other comprehensive income | — |
| | — |
| | — |
|
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 |
|
|
| | | | | | | | | | | |
| Debt securities- Auction rate securities only |
| Student loan bonds | | Municipal revenue bonds | | Total |
Balances at July 30, 2011 | $ | 89 |
| | $ | 2 |
| | $ | 91 |
|
Changes in unrealized losses included in other comprehensive income | (3 | ) | | — |
| | (3 | ) |
Sales | (4 | ) | | — |
| | (4 | ) |
Balances at October 29, 2011 (recast) | $ | 82 |
| | $ | 2 |
| | $ | 84 |
|
|
| | | | | | | | | | | |
| Debt securities- Auction rate securities only |
| Student loan bonds | | Municipal revenue bonds | | Total |
Balances at February 26, 2011 | $ | 108 |
| | $ | 2 |
| | $ | 110 |
|
Changes in unrealized losses included in other comprehensive income | — |
| | — |
| | — |
|
Sales | (26 | ) | | — |
| | (26 | ) |
Balances at October 29, 2011 (recast) | $ | 82 |
| | $ | 2 |
| | $ | 84 |
|
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.
U.S. Treasury Bills. Our U.S. Treasury bills 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 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 4, 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 other intangible assets, which are remeasured when the derived 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 Condensed Consolidated Statements of Earnings and Comprehensive Income.
With the exception of fixed asset impairments associated with our restructuring activities described in Note 7, Restructuring Charges, we had no significant remeasurements of such assets or liabilities to fair value during the nine months ended November 3, 2012 and October 29, 2011.
The following table summarizes the fair value remeasurements recorded during the nine months ended November 3, 2012 and October 29, 2011:
|
| | | | | | | | | | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| November 3, 2012 | | October 29, 2011 |
| Impairments | | Remaining Net Carrying Value | | Impairments | | Remaining Net Carrying Value |
| | | | | (recast) | | (recast) |
Continuing operations | | | | | | | |
Property and equipment | $ | 29 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Discontinued operations(1) | | | | | | | |
Property and equipment | — |
| | — |
| | 15 |
| | — |
|
Tradename | — |
| | — |
| | 3 |
| | — |
|
Total | $ | — |
| | $ | — |
| | $ | 18 |
| | $ | — |
|
| |
(1) | Fixed asset and tradename impairments associated with discontinued operations are recorded within Loss from discontinued operations in our Consolidated Statement of Earnings and Comprehensive Income. |
The fair value remeasurements included in the table above were based on significant unobservable inputs (Level 3). Fixed asset 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, 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 8, Debt, for information about the fair value of our long-term debt.
| |
6. | Goodwill and Intangible Assets |
The changes in the carrying values of goodwill and indefinite-lived tradenames by segment were as follows in the eight months ended November 3, 2012 and October 29, 2011:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | Indefinite-lived Tradenames |
| Domestic | | International | | Total | | Domestic | | International | | Total |
Balances at March 3, 2012 | $ | 516 |
| | $ | 819 |
| | $ | 1,335 |
| | $ | 19 |
| | $ | 111 |
| | $ | 130 |
|
Changes in foreign currency exchange rates | — |
| | (5 | ) | | (5 | ) | | — |
| | — |
| | — |
|
Acquisitions | 14 |
| | — |
| | 14 |
| | — |
| | — |
| | — |
|
Balances at November 3, 2012 | $ | 530 |
| | $ | 814 |
| | $ | 1,344 |
| | $ | 19 |
| | $ | 111 |
| | $ | 130 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | Indefinite-lived Tradenames |
| Domestic | | International | | Total | | Domestic | | International | | Total |
Balances at February 26, 2011 | $ | 422 |
| | $ | 2,032 |
| | $ | 2,454 |
| | $ | 21 |
| | $ | 84 |
| | $ | 105 |
|
Sale of business | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
Changes in foreign currency exchange rates | — |
| | (7 | ) | | (7 | ) | | — |
| | 1 |
| | 1 |
|
Other(1) | — |
| | — |
| | — |
| | — |
| | 28 |
| | 28 |
|
Balances at October 29, 2011 (recast) | $ | 422 |
| | $ | 2,025 |
| | $ | 2,447 |
| | $ | 18 |
| | $ | 113 |
| | $ | 131 |
|
| |
(1) | Represents the transfer of certain definite-lived tradenames (at their net book value) to indefinite-lived tradenames following our decision not to phase out certain tradenames. We believe these tradenames will continue to contribute to our future cash flows indefinitely. |
The following table provides the gross carrying amount of goodwill and cumulative goodwill impairment losses:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| November 3, 2012 | | March 3, 2012 | | October 29, 2011 |
| Gross Carrying Amount | | Cumulative Impairment | | Gross Carrying Amount | | Cumulative Impairment | | Gross Carrying Amount | | Cumulative Impairment |
| | | | | | | | | (recast) | | (recast) |
Goodwill | $ | 2,605 |
| | $ | (1,261 | ) | | $ | 2,596 |
| | $ | (1,261 | ) | | $ | 2,511 |
| | $ | (64 | ) |
The following table provides the gross carrying values and related accumulated amortization of definite-lived intangible assets:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| November 3, 2012 | | March 3, 2012 | | October 29, 2011 |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| | | | | | | | | (recast) | | (recast) |
Customer relationships | $ | 475 |
| | $ | (262 | ) | | $ | 453 |
| | $ | (224 | ) | | $ | 382 |
| | $ | (217 | ) |
Total amortization expense for the three months ended November 3, 2012 and October 29, 2011, was $10 and $9, respectively, and was $30 and $39 for the nine months then ended, respectively. The estimated future amortization expense for identifiable intangible assets is as follows:
|
| | | |
Fiscal Year | |
Remainder of fiscal 2013 | $ | 11 |
|
2014 | 42 |
|
2015 | 42 |
|
2016 | 42 |
|
2017 | 24 |
|
Thereafter | 52 |
|
Summary
Restructuring charges incurred in the nine months ended November 3, 2012 and October 29, 2011 for our fiscal 2013, fiscal 2012 and fiscal 2011 restructuring activities were as follows:
|
| | | | | | | |
| Nine Months Ended |
| November 3, 2012 | | October 29, 2011 |
| | | (recast) |
Continuing operations | | | |
Fiscal 2013 Europe restructuring | $ | 2 |
| | $ | — |
|
Fiscal 2013 U.S. restructuring | 258 |
| | — |
|
Fiscal 2012 restructuring | 6 |
| | — |
|
Fiscal 2011 restructuring | (12 | ) | | 4 |
|
Total | 254 |
| | 4 |
|
Discontinued operations | | | |
Fiscal 2012 restructuring | (5 | ) | | — |
|
Fiscal 2011 restructuring | 2 |
| | 48 |
|
Total (Note 3) | (3 | ) | | 48 |
|
Total | $ | 251 |
| | $ | 52 |
|
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. We preliminarily expect to incur pre-tax restructuring charges (primarily employee termination benefits, facility closure costs and property and equipment impairments) of between $40 and $60 related to this plan. We expect to substantially complete these restructuring activities in fiscal 2014. We incurred $2 of restructuring charges related to Europe termination benefits in the third quarter of fiscal 2013.
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 include closure of approximately 50 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 primarily consist of facility closure costs, employee termination benefits and property and equipment (primarily store fixtures) impairments.
We incurred $34 of charges related to the fiscal 2013 U.S. restructuring in the third quarter of fiscal 2013, consisting primarily of facility closure and other costs related to our closure of six stores. In the first nine months of fiscal 2013, we incurred $258 of restructuring charges related to the fiscal 2013 U.S. restructuring 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 our fiscal 2013 U.S. restructuring activities, with the exception of lease payments for vacated stores which will continue until the lease expires or we otherwise terminate the lease.
The majority of restructuring charges related to our fiscal 2013 restructuring activities are from continuing operations and are presented in Restructuring charges in our Condensed Consolidated Statements of Earnings and Comprehensive Income. The composition of the restructuring charges we incurred in the nine months ended November 3, 2012 for our fiscal 2013 restructuring activities in the Domestic segment was as follows:
|
| | | |
| Nine Months Ended November 3, 2012 |
Continuing operations | |
Property and equipment impairments | $ | 28 |
|
Termination benefits | 83 |
|
Facility closure and other costs, net | 147 |
|
Total | $ | 258 |
|
The following table summarizes our restructuring accrual activity during the eight months ended November 3, 2012 related to termination benefits and facility closure and other costs associated with our 2013 U.S. restructuring activities:
|
| | | | | | | | | | | |
| 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 | $ | 13 |
| | $ | 124 |
| | $ | 137 |
|
Fiscal 2012 Restructuring
In the third quarter of fiscal 2012, we implemented a series of actions to restructure operations in our Domestic and International segments. The actions within our Domestic segment included a decision to modify our strategy for certain mobile broadband offerings, and in our International segment we closed our large-format Best Buy branded stores in the U.K. to refocus our Best Buy Europe strategy on our small-format stores. In addition, we impaired certain information technology ("IT") assets supporting the restructured activities in our International segment. We view these restructuring activities as necessary to meet our long-term financial performance objectives by refocusing our investments on areas that provide profitable growth opportunities and meet our overall return expectations. All restructuring charges directly related to the large-
format Best Buy branded stores in the U.K. are reported within (Gain) loss from discontinued operations in our Condensed Consolidated Statements of Earnings and Comprehensive Income. Refer to Note 3, Discontinued Operations.
We incurred $1 of charges related to the fiscal 2012 restructuring in the first nine months of fiscal 2013. Of the total charges, $6 related to our Domestic segment and consisted primarily of other costs resulting from the modified strategy for certain mobile broadband offerings. The offsetting $(5) gain in our International segment was primarily due to adjustments to estimated facility closure costs associated with the closure of our Best Buy branded stores in the U.K.
We do not expect to incur further material restructuring charges related to our fiscal 2012 restructuring activities in either our Domestic or International segments, as we have substantially completed these restructuring activities.
All restructuring charges from continuing operations related to our fiscal 2012 restructuring activities are presented in Restructuring charges in our Condensed Consolidated Statements of Earnings and Comprehensive Income, whereas all restructuring charges from discontinued operations related to our fiscal 2012 restructuring activities are presented in Gain (loss) from discontinued operations in our Condensed Consolidated Statements of Earnings and Comprehensive Income.
The composition of the restructuring charges we incurred in the nine months ended November 3, 2012, as well as the cumulative amount incurred through November 3, 2012, for our fiscal 2012 restructuring activities for both the Domestic and International segments was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic | | International | | Total |
| Nine Months Ended November 3, 2012 | | Cumulative Amount through November 3, 2012 | | Nine Months Ended November 3, 2012 | | Cumulative Amount through November 3, 2012 | | Nine Months Ended November 3, 2012 | | Cumulative Amount through November 3, 2012 |
Continuing operations | | | | | | | | | | | |
Property and equipment impairments | $ | 1 |
| | $ | 17 |
| | $ | — |
| | $ | 15 |
| | $ | 1 |
| | $ | 32 |
|
Termination benefits | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Facility closure and other costs, net | 5 |
| | 5 |
| | — |
| | — |
| | 5 |
| | 5 |
|
Total | 6 |
| | 23 |
| | — |
| | 15 |
| | 6 |
| | 38 |
|
| | | | | | | | | | | |
Discontinued operations | | | | | | | | | | | |
Inventory write-downs | — |
| | — |
| | — |
| | 11 |
| | — |
| | 11 |
|
Property and equipment impairments | — |
| | — |
| | — |
| | 96 |
| | — |
| | 96 |
|
Termination benefits | — |