-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, TAqKYkrJQyEbGpt1aTqlV1Q1xUlvVvPntLwG9pFnch0Atmf9QK3v/E7sujBUJKZs noV4HgA7UVIY4NIi/T4DDg== 0000912057-94-002271.txt : 19940719 0000912057-94-002271.hdr.sgml : 19940719 ACCESSION NUMBER: 0000912057-94-002271 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940528 FILED AS OF DATE: 19940711 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEST BUY CO INC CENTRAL INDEX KEY: 0000764478 STANDARD INDUSTRIAL CLASSIFICATION: 5731 IRS NUMBER: 410907483 STATE OF INCORPORATION: MN FISCAL YEAR END: 0303 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13860 FILM NUMBER: 94538454 BUSINESS ADDRESS: STREET 1: 4400 W 78TH ST CITY: BLOOMINGTON STATE: MN ZIP: 55435 BUSINESS PHONE: 6129472000 FORMER COMPANY: FORMER CONFORMED NAME: BEST BUYS CO INC DATE OF NAME CHANGE: 19900809 10-Q 1 FORM 10-Q 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 May 28, 1994 OR ___ 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 Charter) Minnesota 41-0907483 (State of Incorporation) (IRS Employer Identification Number) 7075 Flying Cloud Drive 55344 Eden Prairie, Minnesota (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: 612/947-2000 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 ___ ___ At May 28, 1994, there were 41,857,684 shares of common stock, $.10 par value, outstanding. BEST BUY CO., INC. FORM 10-Q FOR THE QUARTER ENDED MAY 28, 1994 INDEX PAGE Part I. Financial Information Item 1. Financial Statements: a. Balance sheets as of May 28, 1994, 3-4 February 26, 1994, and May 29, 1993 b. Statements of earnings for the three 5 months ended May 28, 1994, and May 29, 1993 c. Statement of changes in shareholders' equity 6 for the three months ended May 28, 1994 d. Statements of cash flows for the three months 7 ended May 28, 1994, and May 29, 1993 e. Notes to financial statements 8 Item 2. Management's Discussion and Analysis of Financial 9-11 Condition and Results of Operations Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 2 Part I - Financial Information Item 1. Financial Statements BEST BUY CO., INC. BALANCE SHEETS ASSETS ($ in 000, except per share amounts)
May 28, February 26, May 29, 1994 1994 1993 (Unaudited) (Unaudited) ------------- ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 10,226 $ 59,872 $ 95,451 Receivables 67,331 52,944 40,172 Merchandise inventories 704,518 637,950 328,453 Deferred income taxes 14,880 13,088 9,346 Prepaid expenses 1,222 756 1,406 ------------- ------------ ------------ Total current assets 798,177 764,610 474,828 PROPERTY AND EQUIPMENT, at cost: Land and buildings 52,871 37,660 2,898 Property under capital leases 17,908 17,870 14,101 Leasehold improvements 64,330 55,279 35,174 Furniture, fixtures, and equipment 125,423 122,683 82,116 ------------- ------------ ------------ 260,532 233,492 134,289 Less accumulated depreciation and amortization 68,907 60,768 45,869 ------------- ------------ ------------ Total property and equipment 191,625 172,724 88,420 OTHER ASSETS: Deferred income taxes 6,163 7,078 6,230 Other assets 8,765 8,082 1,039 ------------- ------------ ------------ Total other assets 14,928 15,160 7,269 ------------- ------------ ------------ TOTAL ASSETS $1,004,730 $952,494 $570,517 ------------- ------------ ------------ ------------- ------------ ------------
See notes to financial statements. 3 BEST BUY CO., INC. BALANCE SHEETS (CONTINUED) LIABILITIES AND SHAREHOLDERS' EQUITY ($ in 000, except per share amounts)
May 28, February 26, May 29, 1994 1994 1993 (Unaudited) (Unaudited) ------------- ------------ ------------ CURRENT LIABILITIES: Note payable, bank $ 32,500 Obligations under financing arrangements 13,558 $ 11,156 $ 19,618 Accounts payable 312,664 294,060 160,150 Accrued salaries and related expenses 17,213 19,319 10,654 Other accrued liabilities 40,179 37,754 18,806 Deferred service plan revenue and warranty reserve 19,909 19,146 12,759 Accrued income taxes 3,717 11,694 1,025 Current portion of long-term debt 9,003 8,899 5,666 ------------- ------------ ------------ Total current liabilities 448,743 402,028 228,678 Deferred Service Plan Revenue and Warranty Reserve 29,667 28,211 26,781 LONG-TERM DEBT 208,711 210,811 49,081 SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value; authorized 400,000 shares; none issued Common stock, $.10 par value; authorized 120,000,000 shares; issued and outstanding 41,854,000, 41,742,000, and 41,283,000 shares, respectively 4,185 2,087 1,376 Additional paid-in capital 223,915 224,089 219,527 Retained earnings 89,509 85,268 45,074 ------------- ------------ ------------ Total shareholders' equity 317,609 311,444 265,977 ------------- ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,004,730 $952,494 $570,517 ------------- ------------ ------------ ------------- ------------ ------------
See notes to financial statements. 4 BEST BUY CO., INC. STATEMENTS OF EARNINGS ($ in 000, except per share amounts) (Unaudited)
Three Months Ended ----------------------------------- May 28, May 29, 1994 1993 -------------- ------------- Revenues $849,403 $441,919 Cost of goods sold 730,451 367,443 ----------- ---------- Gross profit 118,952 74,476 Selling, general and administrative expenses 107,266 70,802 ----------- ---------- Income from operations 11,686 3,674 Interest expense, net 4,676 1,229 ----------- ---------- Earnings before income taxes and cumulative effect of change in accounting principle 7,010 2,445 Income taxes 2,769 929 ----------- ---------- Earnings before cumulative effect of change in accounting principle 4,241 1,516 Cumulative effect of change in accounting for income taxes (425) ----------- ---------- Net earnings $ 4,241 $ 1,091 ----------- ---------- ----------- ---------- Earnings per share: Earnings before cumulative effect of change in accounting principle $ .10 $ .04 Cumulative effect of change in accounting for income taxes (.01) ----------- ---------- Net earnings per share $ .10 $ .03 ----------- ---------- ----------- ---------- Weighted average common shares outstanding (000) 43,257 36,144 ----------- ---------- ----------- ----------
See notes to financial statements. 5 BEST BUY CO., INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MAY 28, 1994 ($ in 000) (unaudited)
Additional paid in Retained Common stock capital earnings ------------ ------------ ---------- Balance, February 26, 1994 $2,087 $224,089 $85,268 Stock options exercised 9 1,915 Effect of two-for-one stock split 2,089 (2,089) Net Earnings, three months ended May 28, 1994 4,241 ------ -------- ------- Balance, May 28, 1994 $4,185 $223,915 $89,509 ------ -------- ------- ------ -------- -------
See notes to financial statements. 6 BEST BUY CO., INC. STATEMENTS OF CASH FLOWS ($ in 000) (unaudited)
Three Months Ended ----------------------------------- May 28, May 29, 1994 1993 -------------- ------------- OPERATIONS: Net earnings $ 4,241 $ 1,091 Charges to earnings not affecting cash: Depreciation and amortization 8,139 4,476 Loss on disposal of property and equipment 206 Cumulative effect of change in accounting for income taxes 425 ------- ------- 12,380 6,198 Changes in operating assets and liabilities: Receivables (14,387) (2,204) Merchandise inventories (66,568) (78,462) Prepaid income taxes and expenses (1,343) (1,294) Accounts payable 18,604 41,812 Accrued salaries and related expenses (2,106) (1,696) Other current liabilities (5,661) (4,935) Deferred service plan revenue and warranty 2,219 576 reserve ------- ------- Total cash used in operations (56,862) (40,005) INVESTING ACTIVITIES: Additions to property and equipment (31,572) (11,165) Proceeds from sale/leasebacks 4,700 44,505 (Increase)decrease in other assets (683) 451 ------- ------- Total cash provided by (used in) investing activities (27,555) 33,791 FINANCING ACTIVITIES: Common stock issued 1,924 82,603 Borrowings on revolving credit line 58,800 59,300 Payments on revolving credit line (26,300) (63,000) Borrowings (payments) on long-term debt (2,055) 877 Increase in obligations under financing arrangements 2,402 14,747 Total cash provided by ------- ------- financing activities 34,771 94,527 ------- ------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (49,646) 88,313 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 59,872 7,138 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $10,226 $95,451 ------- ------- ------- -------
Amounts in this statement are presented on a cash basis and therefore may differ from those shown in other sections of this quarterly report. Supplemental cash flow information: Cash paid during the period for: Interest $ 6,765 $ 743 Income taxes $10,470 $ 6,495
See notes to financial statements. 7 BEST BUY CO., INC. NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: The balance sheets as of May 28, 1994, and May 29, 1993, the related statements of earnings and cash flows for the three months ended May 28, 1994, and May 29, 1993, and the statement of changes in shareholders' equity for the three months ended May 28, 1994, are unaudited; in the opinion of management all adjustments necessary for a fair presentation of such financial statements have been included and were normal and recurring in nature. Interim results are not necessarily indicative of results for a full year. The financial statements and notes thereto should be read in conjunction with the financial statements and notes included in the Company's annual report to shareholders for the fiscal year ended February 26, 1994. 2. INCOME TAXES: Income taxes are provided based upon management's estimate of the annual effective tax rate. 3. STOCK SPLIT: The Company effected a two-for-one stock split in the form of a stock dividend in April 1994. All common share and per share data reflect this stock split. In September 1993 the Company effected a three-for-two stock split and per share information for fiscal 1994 has also been adjusted to reflect that split. 8 BEST BUY CO., INC. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Earnings for the three months ended May 28, 1994 were $4.2 million, or $.10 per share, compared to $1.5 million, or $.04 per share, for the three months ended May 29, 1993. Prior year amounts are before the cumulative effect of a change in accounting for income taxes. The increase in earnings is the result of a comparable store sales increase of 37% for the quarter, the addition of 37 stores opened during the past twelve months and increased leverage of selling, general and administrative expenses. Operating income in the first quarter of fiscal 1995 improved to 1.4% of sales compared to .8% in the first quarter of fiscal 1994. The change in accounting for income taxes reduced net earnings by $425,000, or $.01 per share, in the first quarter of fiscal 1994. Revenues increased 92% over the same period last year to $849 million. The increase was due to the 37 new stores and the substantial comparable store sales increase experienced in the first quarter of the current year. The comparable store sales growth benefitted from sales of several new personal computer name brands the Company introduced in the second quarter of the prior fiscal year. Sales contributed by the home office and personal computer category increased from 29% of store sales in the first quarter of last year to 37% of sales in the first quarter of the current year. While the addition of the new brand names has contributed to the year over year growth in the sales of personal computers, the rate of growth in comparable store sales of that product line is expected to decline as these products have now been available for over one year. Additionally, as consumers await the next generation of personal computer technology, growth in this category could slow in the coming months. In June 1993, the Company introduced a new financing program which management believes has also contributed to increased sales since its introduction. In addition, the Company believes that its sales growth has been aided by an increase in the inventory levels it is maintaining in the stores, which provide a better in-stock position for the consumer to make a selection from. Comparable store sales also increased due to increasing sales of entertainment software (compact discs, pre-recorded audio and video tapes and computer software) as product assortment in this category has been significantly expanded in the past year. The entertainment software category contributed 14% of store sales in the first quarter, compared to 11% of sales for the same period last year. Gross profit margin was 14.0% of sales compared to 16.9% in the first quarter of last year; however, it was unchanged from the margin achieved in the fourth quarter of last year. The change in gross profit margin from the first quarter 9 of fiscal 1994 is primarily due to the competitive conditions encountered in new markets entered and increased competition in existing markets. Margin declines experienced in recent quarters have moderated as competitive conditions have begun to stabilize and the impact of the growth of lower margin personal computers in the Company's sales mix has become less significant. Selling, general and administrative expenses (SG&A) for the first quarter were 12.6% of sales compared to 16.0% for the same period last year. Improvement in the SG&A ratio in the quarter exceeded the decline in gross profit margin. This improvement of 3.4% of sales is mainly a result of increased sales per store and higher leverage of the costs of operations. In addition, advertising expenditures have become more efficient due to a reduction in the size of some of the Company's weekly newspaper inserts and a higher concentration of stores within selected markets. The first quarter of last year also included expenses related to the conversion of some of the Company's traditional superstores to the current store format totaling approximately $550,000. Extended service plan revenues represented .7% and 1.2% of revenues for the first quarter of 1995 and 1994, respectively. Profit earned on extended service plans contributed $3.7 million and $2.9 million to the Company's operating income in the first quarter of fiscal 1995 and 1994, respectively. This profit is before the allocation of any selling, general or administrative expenses, except for direct selling expenses. Net interest expense increased to $4.7 million for the first quarter, up from $1.2 million in the first quarter of last year. This increase is the result of the interest expense on the $150 million of senior subordinated notes issued in October 1993. Income taxes are provided for at the rate of 39.5% which is an increase over the 38.0% in the first quarter of fiscal 1994. The increase is primarily due to the increase in the statutory federal rate enacted in the second quarter of fiscal 1994 and a lower level of tax-exempt investment income this year. FINANCIAL CONDITION Total assets at the end of the first quarter were slightly more than $1 billion and working capital of $349 million was essentially unchanged from that at fiscal 1994 year end. Inventories increased ten percent during the quarter as a result of new store openings and seasonal increases in video products, car stereos, and air-conditioners. The increased inventory level was funded by borrowings under the Company's line of credit and vendor credit. Cash flows in the first quarter of fiscal 1994 reflect the proceeds of a 10 $44 million sale/leaseback transaction and $82 million from a common stock offering. Two new stores were opened in the first quarter and the Company expects to open a total of approximately 50 stores during fiscal 1995. Management also plans to expand or relocate approximately 25 stores during the year to accommodate increasing product selection. A 200,000 square foot expansion of the Company's distribution center in Oklahoma was completed in May and construction has begun on a new 700,000 square foot distribution center in Virginia. The Company is also leasing a 300,000 square foot distribution facility in California and a 240,000 square foot entertainment software facility in Minnesota. Management expects that store development and other capital projects will aggregate approximately $220 million for the year, of which about 70% will be developed or financed through long term financing arrangements. At May 28, 1994, the Company had in excess of $45 million in development costs that are expected to be recouped through those financing arrangements in fiscal 1995. The Company currently has a revolving credit facility that allows for seasonal borrowings of up to $125 million. Management is in the process of negotiating an increase of this credit facility to approximately $400 million to support the cash requirements for inventory financing during the holiday selling season. Management believes that the increased credit facilities combined with the store development financing through long term lease arrangements and cash generated from operations will provide sufficient resources to meet the Company's financing needs for the current fiscal year. 11 BEST BUY CO., INC. Part II - Other Information Item 6. EXHIBITS AND REPORTS ON FORM 8-K: a. Exhibits: METHOD OF FILING 11.1 Computation of Earnings per Common Share Filed herewith b. Reports on Form 8-K: A Form 8-K was filed on April 4, 1994 reporting a two-for-one stock split effective on April 28, 1994. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BEST BUY CO., INC. (Registrant) Date: July 7, 1994 By: /s/ ALLEN U. LENZMEIER ------------------------------------------ Allen U. Lenzmeier, Executive Vice President & Chief Financial Officer (principal financial officer) By: /s/ ROBERT C. FOX ------------------------------------------ Robert C. Fox, Senior Vice President- Finance & Treasurer (principal accounting officer) 13 EX-11.1 2 EXHIBIT 11.1 EXHIBIT 11.1 BEST BUY CO., INC. COMPUTATION OF EARNINGS PER COMMON SHARE ($ in 000, except per share amounts) (unaudited)
Three Months Ended ----------------------------------- May 28, May 29, 1994 1993 -------------- ------------- Earnings: Earnings before cumulative effect of change in accounting principle $4,241 $1,516 Cumulative effect of change in accounting for income taxes (425) ------ ------ Net earnings available to common shares $4,241 $1,091 ------ ------ ------ ------ Shares (000): Weighted average common shares outstanding 41,783 35,169 Adjustments: Assumed issuance of shares purchased under stock option plans 1,474 975 ------ ------ Total common equivalent shares 43,257 36,144 ------ ------ ------ ------ Earnings per common share: Earnings before cumulative effect of change in accounting principle $ .10 $ .04 Cumulative effect of change in accounting for income taxes (.01) ------ ------ Net earnings per common share $ .10 $ .03 ------ ------ ------ ------
Note: The computation of earnings per common share assuming full dilution is substantially the same as set forth above. -----END PRIVACY-ENHANCED MESSAGE-----