-----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, HnxwnqIbsG0Me5sL6QFyQhyZWrPD0VVqOJTHtWf5DfGx9LMQl6J7/ix31klM/jgu y+wTLQUpqdQgcJgktIM5rA== 0000912057-94-000018.txt : 19940113 0000912057-94-000018.hdr.sgml : 19940113 ACCESSION NUMBER: 0000912057-94-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19931127 FILED AS OF DATE: 19940106 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: 34 SEC FILE NUMBER: 001-09595 FILM NUMBER: 94500517 BUSINESS ADDRESS: STREET 1: 4400 W 78TH ST CITY: BLOOMINGTON STATE: MN ZIP: 55435 BUSINESS PHONE: 6128962300 FORMER COMPANY: FORMER CONFORMED NAME: BEST BUYS CO INC DATE OF NAME CHANGE: 19900809 10-Q 1 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 November 27, 1993 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) 4400 West 78th Street 55435 Bloomington, Minnesota (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: 612/896-2300 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 November 27, 1993, there were 20,854,005 shares of common stock, $.10 par value, outstanding. BEST BUY CO., INC. FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 27, 1993 INDEX Page ---- Part I. Financial Information Item 1. Financial Statements: a. Balance sheets as of November 27, 1993, February 27, 1993, and November 28, 1992 3-4 b. Statements of operations for the three and nine months ended November 27, 1993, 5 and November 28, 1992 c. Statement of changes in shareholders' equity for the nine months ended November 27, 1993 6 d. Statements of cash flows for the nine months ended November 27, 1993, and November 28, 1992 7 e. Notes to financial statements 8-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-13 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 2 Part I - Financial Information Item 1. Financial Statements BEST BUY CO., INC. BALANCE SHEETS ASSETS (unaudited)
November 27, February 27, November 28, 1993 1993 1992 ---------------- ------------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 74,977,000 $ 7,138,000 $ 13,852,000 Receivables 86,196,000 37,968,000 73,978,000 Merchandise inventories 823,875,000 249,991,000 411,120,000 Deferred income taxes 10,368,000 9,497,000 7,928,000 Prepaid expenses 3,044,000 332,000 4,780,000 -------------- ------------- ------------- Total current assets 998,460,000 304,926,000 511,658,000 PROPERTY AND EQUIPMENT, at cost: Land and buildings 28,093,000 45,676,000 41,051,000 Property under capital leases 15,478,000 14,163,000 5,675,000 Leasehold improvements 49,637,000 33,222,000 23,814,000 Furniture, fixtures, and equipment 115,356,000 76,806,000 86,881,000 -------------- ------------- ------------- 208,564,000 169,867,000 157,421,000 Less accumulated depreciation and 56,017,000 43,425,000 39,100,000 amortization -------------- ------------- ------------- Property and equipment, net 152,547,000 126,442,000 118,321,000 OTHER ASSETS: Deferred income taxes 6,882,000 6,284,000 5,607,000 Other assets 10,863,000 1,490,000 1,144,000 -------------- ------------- ------------- Total other assets 17,745,000 7,774,000 6,751,000 -------------- ------------- ------------- TOTAL ASSETS $1,168,752,000 $439,142,000 $636,730,000 -------------- ------------- ------------- -------------- ------------- -------------
See notes to financial statements. 3 BEST BUY CO., INC. BALANCE SHEETS (continued) LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited)
November 27, February 27, November 28, 1993 1993 1992 -------------- ------------- ------------- CURRENT LIABILITIES: Note payable, bank $ 3,700,000 $ 46,800,000 Obligations under financing arrangements $ 36,324,000 4,871,000 58,490,000 Accounts payable 521,027,000 118,338,000 245,001,000 Accrued salaries and related expenses 17,304,000 12,350,000 11,705,000 Other accrued liabilities 34,062,000 18,221,000 23,268,000 Deferred revenue and warranty obligations--short term 17,891,000 16,240,000 18,101,000 Accrued income tax 5,918,000 6,545,000 1,795,000 Current portion of long term debt 7,302,000 5,740,000 4,330,000 -------------- ------------ ------------ Total current liabilities 639,828,000 186,005,000 409,490,000 DEFERRED REVENUE AND WARRANTY OBLIGATIONS-long term 26,796,000 22,724,000 18,261,000 LONG TERM DEBT, less current portion 212,504,000 48,130,000 40,553,000 SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value; authorized 400,000 shares; none issued Common stock, $.10 par value; authorized 30,000,000 shares; issued and outstanding 20,854,000, 17,242,000, and 16,997,000 shares, respectively 2,085,000 1,149,000 1,133,000 Additional paid-in capital 223,710,000 137,151,000 134,086,000 Retained earnings 63,829,000 43,983,000 33,207,000 -------------- ------------ ------------ Total shareholders' equity 289,624,000 182,283,000 168,426,000 -------------- ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,168,752,000 $439,142,000 $636,730,000 -------------- ------------ ------------ -------------- ------------ ------------
See notes to financial statements. 4 BEST BUY CO., INC. STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended Nine Months Ended ---------------------------- -------------------------------- November 27, November 28, November 27, November 28, 1993 1992 1993 1992 -------------- ----------- ------------- ------------- REVENUES $808,476,000 $474,442,000 $1,813,375,000 $1,006,353,000 COST OF GOODS SOLD 687,368,000 396,640,000 1,523,593,000 825,078,000 ------------ ------------ -------------- -------------- GROSS PROFIT 121,108,000 77,802,000 289,782,000 181,275,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 100,259,000 67,977,000 252,169,000 164,262,000 ------------ ------------ -------------- -------------- INCOME FROM OPERATIONS 20,849,000 9,825,000 37,613,000 17,013,000 INTEREST EXPENSE, NET 2,560,000 1,409,000 4,509,000 2,372,000 ------------ ------------ -------------- -------------- INCOME BEFORE INCOME TAXES 18,289,000 8,416,000 33,104,000 14,641,000 INCOME TAXES 7,128,000 3,196,000 12,833,000 5,562,000 ------------ ------------ -------------- -------------- EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 11,161,000 5,220,000 20,271,000 9,079,000 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES (425,000) ------------ ------------ -------------- -------------- NET EARNINGS $ 11,161,000 $ 5,220,000 $ 19,846,000 $ 9,079,000 ------------ ------------ -------------- -------------- ------------ ------------ -------------- -------------- EARNINGS PER COMMON SHARE BEFORE ACCOUNTING CHANGE $ .52 $ .30 $ 1.00 $ .53 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES (.02) ------------ ------------ -------------- -------------- NET EARNINGS PER SHARE $ .52 $ .30 $ .98 $ .53 ------------ ------------ -------------- -------------- ------------ ------------ -------------- -------------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 21,558,000 17,368,000 20,353,000 17,253,000 ------------ ------------ -------------- -------------- ------------ ------------ -------------- --------------
See notes to financial statements. 5 BEST BUY CO., INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED NOVEMBER 27, 1993 (unaudited)
Additional Common paid in Retained stock capital earnings ---------- ------------ ----------- BALANCE, February 27, 1993 $1,149,000 $137,151,000 $43,983,000 STOCK OPTIONS EXERCISED 8,000 1,961,000 SALE OF COMMON STOCK 234,000 85,294,000 ADJUSTMENT TO REFLECT 3-FOR-2 STOCK SPLIT 694,000 (696,000) NET EARNINGS, nine months ended November 27, 1993 19,846,000 ----------- ------------- ----------- BALANCE, November 27, 1993 $2,085,000 $223,710,000 $63,829,000 ----------- ------------- ----------- ----------- ------------- -----------
See notes to financial statements. 6 BEST BUY CO., INC. STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended -------------------------------- November 27, November 28, 1993 1992 ------------- ------------ OPERATIONS: Net earnings $ 19,846,000 $ 9,079,000 Charges to earnings not affecting cash: Depreciation and amortization 15,055,000 9,982,000 Loss on disposal of property and equipment 909,000 169,000 Cumulative effect of change in accounting 425,000 ----------- ------------ 36,235,000 19,230,000 Changes in operating assets and liabilities: Receivables (48,228,000) (57,997,000) Merchandise inventories (573,884,000) (275,282,000) Deferred income taxes and prepaid expenses (4,606,000) (4,265,000) Accounts payable 402,689,000 176,331,000 Accrued salaries and related expenses 4,954,000 3,781,000 Other current liabilities 10,275,000 11,977,000 Deferred revenue and warranty obligations 5,723,000 3,546,000 ----------- ------------ Total cash used in operations (166,842,000) (122,679,000) INVESTMENT ACTIVITIES: Additions to property and equipment (71,521,000) (70,066,000) Sale of property and equipment 44,506,000 46,000 Increase in other assets (9,373,000) (834,000) ----------- ------------ Total cash used in investment activities (36,388,000) (70,854,000) FINANCING ACTIVITIES: Common stock issued 87,495,000 1,779,000 Borrowings on revolving credit line 79,500,000 200,100,000 Payments on revolving credit line (83,200,000) (153,300,000) Long term debt borrowings 160,311,000 25,000,000 Long term debt payments (4,490,000) (33,299,000) Increase in obligations under financing arrangements 31,453,000 54,316,000 ----------- ------------ Total cash provided by financing activities 271,069,000 94,596,000 ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 67,839,000 (98,937,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,138,000 112,789,000 ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 74,977,000 $ 13,852,000 ----------- ------------ ----------- ------------ 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: Non-cash investing and financing activities: Leased asset additions $ 1,415,000 $ 202,000 Purchased land and building on contract for deed 8,700,000 Payables for property and equipment 4,939,000 Cash paid during the period for: Interest, net of amount capitalized $ 2,477,000 $ 3,698,000 Income taxes 2,562,000 3,201,000
See notes to financial statements. 7 BEST BUY CO., INC. NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: The balance sheets as of November 27, 1993, and November 28, 1992, the related statements of operations and cash flows for the three and nine months ended November 27, 1993, and November 28, 1992, and the statement of changes in shareholders' equity for the nine months ended November 27, 1993, 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 27, 1993. 2. CHANGE IN ACCOUNTING PRINCIPLE: Effective February 28, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes." As permitted under the new rules, prior years' financial statements have not been restated. The cumulative effect of adopting Statement 109 as of February 28, 1993, was to decrease net earnings in the first quarter by $425,000, or $.02 per share. Application of the new rules did not change earnings before cumulative effect of change in accounting principle for the first nine months. 3. ISSUANCE OF SENIOR NOTES: In October, the Company completed the sale of $150 million principal amount of 8 5/8% Senior Subordinated Notes due 2000. 4. PUBLIC STOCK OFFERING: In May, the Company completed the sale of 3,375,000 shares of its common stock at $25.67 per share. In June, the underwriters of this offering exercised their overallotment option and an additional 135,000 shares were issued. Proceeds from the offering were $85,528,000 after deducting the underwriting costs and offering expenses. 8 BEST BUY CO., INC. NOTES TO FINANCIAL STATEMENTS, (Cont.) 5. STOCK SPLIT: In July, the Company's Board of Directors declared a three-for-two stock split payable in the form of a stock dividend, effective September 1, 1993, to the shareholders of record on July 30, 1993. Except as otherwise indicated, all common share and per share amounts herein have been adjusted to give retroactive effect to the stock split, with the adjustment within shareholders' equity shown net of amounts paid for redemption of fractional shares. 6. BANK REVOLVING LINE OF CREDIT: In September, the Company increased its bank line of credit to allow seasonal borrowings of up to $125 million. 9 BEST BUY CO., INC. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three and nine months ended November 27, 1993 and November 28, 1992: Earnings for the third quarter increased 114% to $11.2 million, or 52 cents per share. This compares to earnings of $5.2 million, or 30 cents per share, for the comparable quarter last year. For the first nine months of fiscal 1994, earnings have increased 123% to $20.3 million, or $1.00 per share, before a cumulative effect adjustment relating to a change in accounting for income taxes. Earnings for the first nine months of last year were $9.1 million, or 53 cents per share. Per share amounts reflect a three-for-two stock split effective on September 1, 1993. The improved earnings reflect the operating leverage the Company has achieved through increased sales per store and an increased number of stores. Sales increased 70% in the third quarter to $808 million from $474 million last year, and increased 80% to $1.8 billion for the nine-month period. The Company operated 149 stores at November 27, 1993. Third quarter sales benefitted from the Company's entry into three new major metropolitan markets. The Company opened six stores at the end of the second quarter in Detroit and opened six stores each in Atlanta and Phoenix in the third quarter. A total of 38 new stores have been opened in the current year through November. Two additional stores opened in the metropolitan Chicago area in December, where Best Buy now operates 23 stores. Comparable store sales increased 21% in both the quarter and nine-month period, contributing $77 million and $187 million of the sales increase for the respective periods. The Company attributes its comparable store sales increases to its distinctive retailing strategy and continued sales growth in the personal computer product line. Average sales per store have risen to $20.2 million for the trailing twelve-month period. In addition, the Company's new private label credit card program, introduced near the beginning of the second quarter, made special financing offers more attractive and available to consumers. The gross profit margin was 15.0% for the third quarter and 16.0% for the nine-month period. These compare to 16.4% and 18.0% for the respective periods last year. The changes in margin reflect a reduced emphasis on the sale of higher margin extended service plans and the impact of increased competition and the promotional product pricing associated with the opening of stores in new markets. The increased volume of personal computers in the Company's sales mix also has contributed to the change in gross profit margin. 10 BEST BUY CO., INC. RESULTS OF OPERATIONS, cont. Sales of extended service plans represented less than 1.0% of retail sales in both the quarter and year to date periods. This compares to 1.1% and 1.5%, respectively, for the same periods in fiscal 1993. Pretax profit from extended service plans, before allocation of any selling, general and administrative expenses, other than direct selling expenses, was $3.2 million and $9.4 million for the quarter and year to date periods, respectively, as compared to $3.0 million and $8.9 million in the third quarter and year to date periods of fiscal 1993. Selling, general and administrative expense as a percentage of sales was 12.4% for the quarter and 13.9% for the nine-month period. This is an improvement of 1.9% and 2.0% of sales, respectively, as compared to the same periods last year. Improvement in this expense percentage continues to exceed the change in gross profit margin. Higher sales per store have resulted in increased productivity at the stores and in the corporate support areas. Additionally, the growth in sales volume and number of stores have enabled the Company to enhance the efficiency of its advertising expenditures. The Company's operating income margins of 2.6% for the third quarter and 2.1% for the nine-month period represent improvements of .5% and .4% of revenues, respectively, compared to the same periods last year. The Company's effective tax rates of 39.0% and 38.8% for the quarter and year to date periods, respectively, are up slightly from the 38% rate in the same periods last year. This increase reflects the new tax legislation which increased the statutory federal tax rate. The Company's net earnings were reduced in the first quarter of fiscal 1994 by $425,000, or 2 cents per share, due to the one-time cumulative effect adjustment resulting from the adoption of the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", as of the beginning of the current fiscal year. 11 BEST BUY CO., INC. FINANCIAL CONDITION Total assets were $1.2 billion at November 27, 1993, with $359 million in working capital, compared to working capital of $119 million at February 27, 1993, and $102 million at November 28, 1992. Inventories have increased since February 1993 as a result of the increased number of stores, the seasonal increase to support higher holiday sales levels, the expansion of the personal computer product line, the increased selling space at certain existing stores, and to support the increased sales trend being experienced by the Company. Inventory growth has been funded by increases in accounts payable, obligations under financing arrangements and the proceeds from the financing transactions discussed below. The increase in receivables from February 1993 is primarily the result of the volume of credit card sales during the Thanksgiving weekend. These receivables were collected in the first week of December. Receivables arising out of the Company's private label credit card program are sold to a third party financial institution without recourse. In April 1993, the Company completed the sale and leaseback of 17 stores. The net proceeds from this transaction were approximately $44 million. In May 1993, the Company completed a public offering of 3,375,000 shares of its common stock. The offering price was $25.67 per share and the net proceeds to the Company, including the proceeds from the issuance in June of an additional 135,000 shares pursuant to the underwriters' overallotment option, were $85.5 million. In October 1993, the Company received net proceeds of $146.6 million from the public offering of $150 million aggregate principal amount of its 8% Senior Subordinated Notes due 2000. In addition to funding inventory growth, the proceeds from these financing transactions have supported the Company's expansion during the current year. Through the first nine months of the fiscal year, the Company has invested approximately $72 million in capital expenditures related to new store expansion, and the relocation and remodeling of existing stores, including the conversion of the Company's remaining traditional superstores to its current store format. The Company expects total capital expenditures for the year to be approximately $110 million, with approximately $20 million of this total for the purchase of new store locations. Market conditions in certain locations have made it necessary for the Company to purchase or provide interim financing for development of some of its store locations. The Company's strategy is to lease, rather than own, its stores, and it will likely enter into sale/leasebacks of most of these owned stores in the future. In October 1993, the Company completed the purchase of an expanded corporate headquarters facility. This acquisition was financed by the seller on a contract for deed due in 1996. 12 BEST BUY CO., INC. FINANCIAL CONDITION, cont. The Company has an agreement with a bank that provides for an unsecured revolving credit facility under which up to an aggregate principal amount of $125 million is available to provide working capital to the Company. The agreement provides that up to $40 million of the credit facility is available to the Company at all times and that an additional $85 million is available to fund seasonal working capital needs between August 1 and December 31 of each year. The Company's borrowing under this facility during the third quarter was minimal. The Company also has secured inventory financing credit lines available through arrangements with two credit corporations. The total amount available under these lines is approximately $120 million. Management feels that cash on hand, available credit facilities, and cash flow from operations will be adequate to meet the Company's cash requirements for the immediate future. 13 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 report on Form 8-K was filed on September 15, 1993, containing the Company's press release announcing the results of operations for the quarter ended August 28, 1993. The Form 8-K was filed to update the preliminary prospectus being used by the Company in the public offering of its Senior Subordinated Notes. 14 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: January 3, 1994 By: /s/ ALLEN U. LENZMEIER --------------------------------------------- Allen U. Lenzmeier, Executive Vice President, and Chief Financial Officer (Principal Financial Officer) Date: January 3, 1994 By: /s/ ROBERT C. FOX --------------------------------------------- Robert C. Fox, Vice President-Controller and Treasurer (Principal Accounting Officer) 15 EX-11 2 EXHIBIT 11 EXHIBIT 11.1 BEST BUY CO., INC. COMPUTATION OF EARNINGS PER COMMON SHARE (unaudited)
Three Months Ended Nine Months Ended ------------------------------------------------------------------------- November 27, November 28, November 27, November 28, 1993 1992 1993 1992 ------------- ------------- --------------- ------------- Earnings: Net earnings available to common shares $ 11,161,000 $ 5,220,000 $ 19,846,000 $ 9,079,000 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Shares: Weighted average common shares outstanding 20,840,000 16,910,000 19,737,000 16,856,000 Adjustments: Assumed issuance of shares purchased under stock option plans 718,000 458,000 616,000 397,000 ------------- ------------- ------------- ------------- Total common equivalent shares 21,558,000 17,368,000 20,353,000 17,253,000 ------------- ------------- ------------- ------------- Earnings per common share: Earnings before cumulative effect of change in accounting principle $ .52 $ .30 $ 1.00 $ .53 Cumulative effect of change in accounting for income taxes (.02) ------------- ------------- ------------- ------------- Net earnings per share $ .52 $ .30 $ .98 $ .53 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Note: The computation of earnings per common share assuming full dilution is substantially the same as set forth above. The share and per share amounts reflect the three-for-two stock split effective September 1, 1993. -----END PRIVACY-ENHANCED MESSAGE-----