-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M2wmUATHEU7xUsrQSC4rmYDL2V1PWG6v/e7AoNGJyluoWaLZmfQmdAyd1buYd0X7 JV9w8XJ9dkQXbl3IufwTeA== 0001047469-99-027127.txt : 19990713 0001047469-99-027127.hdr.sgml : 19990713 ACCESSION NUMBER: 0001047469-99-027127 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990529 FILED AS OF DATE: 19990712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEST BUY CO INC CENTRAL INDEX KEY: 0000764478 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RADIO TV & CONSUMER ELECTRONICS STORES [5731] IRS NUMBER: 410907483 STATE OF INCORPORATION: MN FISCAL YEAR END: 0301 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09595 FILM NUMBER: 99662922 BUSINESS ADDRESS: STREET 1: 7075 FLYING CLOUD DR CITY: EDIN PRARIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6129472000 MAIL ADDRESS: STREET 1: P O BOX 9312 CITY: MINNEAPOLIS STATE: MN ZIP: 55440-9312 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 29, 1999 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 its 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 29, 1999, there were 203,806,000 shares of common stock, $.10 par value, outstanding. BEST BUY CO., INC. FORM 10-Q FOR THE QUARTER ENDED MAY 29, 1999 INDEX
Page ---- Part I. Financial Information Item 1. Consolidated Financial Statements: a) Consolidated balance sheets as of 3-4 May 29, 1999, February 27, 1999 and May 30, 1998 b) Consolidated statements of earnings 4 for the three months ended May 29, 1999 and May 30, 1998 c) Consolidated statement of changes in 4 shareholders' equity for the three months ended May 29, 1999 d) Consolidated statements of cash flows 4 for the three months ended May 29, 1999 and May 30, 1998 e) Notes to consolidated financial statements 8-4 Item 2. Management's Discussion and Analysis of 10-13 Financial Condition and Results of Operations Item 3: Quantitative and Qualitative Disclosures 13 About Market Risk Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
2 PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS BEST BUY CO., INC. CONSOLIDATED BALANCE SHEETS ASSETS ($ in 000)
May 29, February 27, May 30, 1999 1999 1998 (Unaudited) (Unaudited) ------------ ------------ -------------- CURRENT ASSETS: Cash and cash equivalents $ 510,883 $ 785,777 $ 397,298 Receivables 145,699 132,401 75,563 Recoverable costs from developed properties 84,258 73,956 25,917 Merchandise inventories 1,111,396 1,046,366 1,101,144 Other current assets 25,233 24,591 29,787 ------------- ------------ ------------ Total current assets 1,877,469 2,063,091 1,629,709 PROPERTY AND EQUIPMENT: Land and buildings 24,524 23,158 21,200 Leasehold improvements 177,805 174,495 161,797 Furniture, fixtures and equipment 537,611 505,232 380,907 Property under capital leases 29,079 29,079 29,079 ------------- ------------ ------------ 769,019 731,964 592,983 Less accumulated depreciation and amortization 331,632 308,324 265,345 ------------- ------------ ------------ Net property and equipment 437,387 423,640 327,638 OTHER ASSETS 28,984 25,762 9,948 ------------- ------------ ------------ TOTAL ASSETS $2,343,840 $2,512,493 $1,967,295 ============= ============ ============
See notes to consolidated financial statements. 3 BEST BUY CO., INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND SHAREHOLDERS' EQUITY ($ in 000)
May 29, February 27, May 30, 1999 1999 1998 (Unaudited) (Unaudited) CURRENT LIABILITIES: ------------ ------------- ----------- Accounts payable $ 867,329 $1,011,746 $703,301 Accrued compensation and related expenses 53,834 86,667 40,702 Accrued liabilities 225,931 211,555 164,074 Income taxes payable 10,682 46,851 - Current portion of long-term debt 29,191 30,088 14,390 ------------ ------------ ----------- Total current liabilities 1,186,967 1,386,907 922,467 LONG-TERM LIABILITIES 39,356 30,943 26,187 LONG-TERM DEBT 28,402 30,509 207,247 CONVERTIBLE PREFERRED SECURITIES OF SUBSIDIARY - - 671 SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - none - - - Common stock, $.10 par value: Authorized - 400,000,000 shares; Issued and outstanding 203,806,000 203,621,000, and 200,619,000 shares, respectively 20,380 10,181 10,031 Additional paid-in capital 509,884 542,377 497,828 Retained earnings 558,851 511,576 302,864 ------------- ------------ ----------- Total shareholders' equity 1,089,115 1,064,134 810,723 ------------- ------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,343,840 $2,512,493 $1,967,295 ============= ============ ===========
See notes to consolidated financial statements. 4 BEST BUY CO., INC. CONSOLIDATED STATEMENTS OF EARNINGS ($ in 000, except per share amounts) (Unaudited)
THREE MONTHS ENDED ------------------------------------ May 29, May 30, 1999 1998 ------------ ------------ Revenues $2,386,188 $1,943,664 Cost of goods sold 1,923,429 1,589,445 ------------ ------------ Gross profit 462,759 354,219 Selling, general and administrative expenses 390,301 326,154 ------------ ------------ Operating income 72,458 28,065 Net interest income (expense) 4,413 (2,495) ------------ ------------ Earnings before income tax expense 76,871 25,570 Income tax expense 29,596 9,845 ------------ ------------ Net earnings $ 47,275 $ 15,725 ============ ============ Basic earnings per share $ .23 $ .08 Diluted earnings per share $ .22 $ .08 Basic weighted average common shares outstanding (000's) 204,034 191,571 Diluted weighted average common shares outstanding (000's) 213,279 199,781
See notes to consolidated financial statements. 5 BEST BUY CO., INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MAY 29, 1999 ($ in 000) (Unaudited)
Additional Common paid-in Retained stock capital earnings -------- ---------- -------- Balance, February 27, 1999 $ 10,181 $542,377 $511,576 Stock options exercised 119 9,243 - Tax benefit from stock options exercised - 20,782 - Two-for-one stock split 10,190 (10,190) - Repurchase of common stock (110) (52,328) - Net earnings, three months ended May 29, 1999 - - 47,275 ------------- ------------- ------------ Balance, May 29, 1999 $ 20,380 $509,884 $558,851 ============ ============= ============
See notes to consolidated financial statements. 6 BEST BUY CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in 000) (Unaudited)
THREE MONTHS ENDED --------------------------------- May 29, May 30, 1999 1998 ----------- ---------- OPERATING ACTIVITIES: Net earnings $ 47,275 $ 15,725 Depreciation, amortization and other non-cash charges 23,638 17,604 ----------- ---------- 70,913 33,329 Changes in operating assets and liabilities: Receivables (13,298) 20,139 Merchandise inventories (65,030) (40,356) Other current assets (642) 4,342 Accounts payable (144,417) (59,350) Other liabilities (10,543) (25,439) Income taxes payable (15,387) (24,608) ----------- ---------- Total cash used in operating activities (178,404) (91,943) ----------- ---------- INVESTING ACTIVITIES: Additions to property and equipment (36,937) (12,084) Increase in recoverable costs from developed properties (10,302) (17,702) Increase in other assets (2,949) (3,580) ----------- ---------- Total cash used in investing activities (50,188) (33,366) ----------- ---------- FINANCING ACTIVITIES: Repurchase of common stock (52,438) - Common stock issued 9,140 6,165 Long-term debt payments (3,004) (3,685) ----------- ---------- Total cash (used in) provided by financing activities (46,302) 2,480 ----------- ---------- DECREASE IN CASH AND CASH EQUIVALENTS (274,894) (122,829) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 785,777 520,127 ----------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $510,883 $397,298 =========== ==========
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 $ 1,328 $ 9,443 Income taxes $ 44,048 $28,891
See notes to consolidated financial statements. 7 BEST BUY CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: The consolidated balance sheets as of May 29, 1999, and May 30, 1998, the related consolidated statements of earnings and cash flows for the three months then ended and the consolidated statement of changes in shareholders' equity for the three months ended May 29, 1999, 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. The Company's business is seasonal in nature and interim results are not necessarily indicative of results for a full year. These interim financial statements and the related notes 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, 1999, and incorporated by reference into the Company's 10-K. Certain prior year amounts have been reclassified to conform to current year presentation. 2. INCOME TAXES: Income taxes are provided on an interim basis based upon management's estimate of the annual effective tax rate. 3. EARNINGS PER SHARE: The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per common share:
THREE MONTHS ENDED ----------------------------- May 29, May 30, 1999 1998 ---- ---- Numerator (000's): Net earnings $47,275 $15,725 ======== ======= Denominator (000's): Weighted average common shares outstanding 204,034 191,571 Dilutive effect of employee stock options 9,245 8,210 -------- -------- Weighted average common shares outstanding assuming dilution 213,279 199,781 ======== ======== Basic earnings per share $ .23 $ .08 Diluted earnings per share $ .22 $ .08
In March 1999, the Company effected a two-for-one stock split in the form of a stock dividend. All common share and per share information reflects the stock split. 4. RETIREMENT OF DEBT: On October 5, 1998, the Company redeemed its $150 million, 8 5/8% Senior Subordinated Notes due 2000, at 102.5% of their par value. In addition, in April 1998, over 99% of the Company's 6.5% Convertible Monthly Income Preferred Securities were converted into approximately 20.4 million shares of common stock, increasing shareholders' equity by over $222 million net of $6.8 million in deferred offering costs. The remaining outstanding preferred securities were redeemed for cash of $671,000. 8 5. SHARE REPURCHASE PROGRAM: In October 1998, the Company's Board of Directors approved the purchase of up to $100 million of the Company's common stock from time to time through open market purchases over the following twelve months. As of May 29, 1999, 1.1 million shares have been purchased at a cost of approximately $55 million. 9 BEST BUY CO., INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net earnings for the first quarter of fiscal 2000 were a record $47.3 million, or $.22 per share on a diluted basis, compared to $15.7 million, or $.08 per share, for the comparable period last year. Strong consumer spending and market share gains combined with continued improvement in gross profit margins were the principal factors generating the record results. In addition, earnings of over $250 million in the past four quarters, the retirement of over $380 million in debt in fiscal 1999 and improved inventory management strengthened the Company's balance sheet and reduced net interest by $6.9 million compared to the first quarter one year ago. Revenues in the first quarter increased 23% to $2.386 billion compared to $1.944 billion in the first quarter last year. A comparable store sales increase of 13.3% on top of 15.3% for the first quarter last year and the operation of 24 net additional stores drove the increase in revenues. The comparable store sales increase was the sixth consecutive quarter of sales gains in excess of 10%. Improved store execution, better in-stock levels and more effective advertising allowed the Company to capitalize on the continued strength in its retail sector and achieve market share gains. Each of the Company's major product categories generated double-digit comparable store sales increases. As of May 29,1999, the Company operated 313 stores compared to 289 stores one year ago. In the first quarter, the Company opened three of the approximately 45 new stores planned for fiscal 2000. New stores opened in the quarter included one store each in Reno, Nevada; Ft. Worth, Texas; and Sacramento, California. The Company also closed one store during the quarter. Of the remaining stores scheduled to open in fiscal 2000, 20 are expected to open during the second quarter, including entry into the new major markets of San Francisco, California and Jacksonville, Florida. Included in the total number of fiscal 2000 new store openings are about six new, small market format stores of approximately 30,000 square feet. In the home office category, unit volume sales of personal computers increased significantly as compared to one year ago as average selling prices declined approximately 20% and the popularity of the Internet increased demand. The stronger unit volumes contributed to increased sales of the higher margin products and services that accompany the sales of personal computers. Sales of analog video products such as televisions benefited from lower average selling prices and drove the sales increase in the consumer electronics category. Rapid acceptance of digital technology, such as DVD, digital camcorders and Digital Broadcast Satellite also contributed to the sales increase. Sales of DVD players continue to exceed industry expectations and the Company continues to effectively capitalize on the popularity of this new product. Increased sales of entertainment software, which includes music and movies, computer software and video games were fueled by new releases from popular artists. In addition, the release of new DVD titles coupled with the increasing base of installed DVD players further drove the sales increases in this category. By year-end, the Company expects to offer over 2,000 DVD movie titles. The appliance category continued to perform better than the industry as a whole. Strong new housing starts and a strengthened product assortment, including the addition of the Whirlpool line in the second quarter of last year, contributed to the gains in this category in the first quarter. 10 Retail store sales mix by major product category for the first quarter of the current and prior fiscal years was as follows:
THREE MONTHS ENDED ------------------------------------ MAY 29, 1999 MAY 30, 1998 ------------ ------------ Home Office 37% 37% Consumer Electronics Video 16 15 Audio 11 11 Entertainment Software 18 19 Appliances 9 9 Other 9 9 ---- ---- Total 100% 100% ==== ====
Gross profit margins improved significantly in the first quarter of fiscal 2000 to 19.4% of sales compared to 18.2% of sales in the first quarter of fiscal 1999. This improvement reflects the continuing benefit from the Company's marketing initiatives including improved inventory management, more effective advertising, and more profitable assortments within product categories. Also, the increase in sales of higher margin performance service plans in the first quarter to 4.1% of sales from 3.7% of sales last year contributed to the increased gross profit margin. Selling, general and administrative expenses (SG&A) decreased to 16.4% of sales in the quarter, compared to 16.8% of sales in the first quarter last year. The improvement was due to leverage on operating expenses, in particular overhead and net advertising costs, resulting from the strong sales gains. SG&A as a percent of sales declined while the Company continued to invest in initiatives to improve business processes and operating performance. The year over year increase in SG&A spending was due principally to payroll-related expenses to support the Company's growth and strategic initiatives as well as increased retail store compensation due to the competitive labor market and continuing efforts to build a higher caliber staff. The Company's ability to report a 3% operating margin in the lowest volume quarter illustrates the return being generated by its investment in strategic initiatives. SG&A as a percent of gross margin fell to 84% from 92% in the first quarter of the prior year as gross margin gains continue to fund the Company's initiatives. Net interest income was $4.4 million in the first quarter compared to net interest expense of $2.5 million in the same period last year. The improvement was primarily due to the conversion of the Company's 6.5% Convertible Monthly Income Preferred Securities into equity in the first quarter of fiscal 1999 and the early redemption of the Company's $150 million 8 5/8% Senior Subordinated Notes in the third quarter of fiscal 1999. Interest earned on higher cash balances resulting from faster inventory turns and earnings over the past four quarters in excess of $250 million also contributed to the improvement. The Company's effective income tax rate for the first quarter was 38.5%, unchanged from the same quarter a year ago. The Company's effective tax rate could be impacted by changes in the taxability of investment income and state income tax rates. FINANCIAL CONDITION Working capital of $691 million at May 29,1999, was essentially unchanged from a year ago even after the early redemption of the Notes in the third quarter of fiscal 1999 and the acceleration of the Company's expansion plans which are being funded through operations. Cash and cash equivalents increased by $114 million as a result of improved inventory management and profitability improvements over the past four quarters. Merchandise inventories were essentially unchanged compared to last year, even with the net addition of 24 stores, as inventory turns approached seven times. The Company's net investment in inventory, inventory net of accounts payable, improved by approximately $150 million compared to last year's first quarter as a result of the faster inventory turns. The Company's cash position and net investment in inventory is impacted by the timing of payments to vendors and can vary significantly. Receivables increased by $70 million due primarily to higher business volumes as compared to last year's first quarter. The receivable balance was relatively unchanged from fiscal 1999 year-end. Recoverable costs from developed properties increased by $58 million due to development of new stores and a new distribution center which opened in May 1999. Accounts payable increased as compared to year ago levels as a result of the higher business volume. Accruals for payroll related liabilities increased as compared to 11 last year's first quarter consistent with an expanding employee base needed to support the Company's growth. Other accrued liabilities increased as a result of outside services fees, the generally higher levels of business activity and increased income taxes due to the significant increase in earnings as compared to last year. Capital spending in the first quarter of fiscal 2000 was $37 million compared to $12 million for the first quarter of fiscal 1999 as the Company invested in the stores scheduled to open in fiscal 2000. The majority of the stores to be opened in fiscal 2000 will incorporate the features of the Company's Concept IV store format. This format utilizes the 45,000 square foot prototype, features improved merchandising, signage and customer service and is expected to better address consumers needs as the industry progresses into new digital products. Also, during the quarter, the Company completed and opened a new distribution center in Dinuba, CA, which replaced a leased facility in Ontario, CA. Additionally, the Company continued its investment in new systems and technology to better position the Company for continued growth and generate improvements in its existing businesses. Management expects total capital spending for fiscal 2000 to be approximately $400 million, exclusive of amounts to be recovered through subsequent sales and leasebacks, to support the Company's plans to open approximately 45 new stores and remodel or relocate approximately 20 stores. The Company also continues to invest in information systems to support the development of its e-commerce business and improve its Services division. In October 1998, the Company's Board of Directors authorized the purchase of up to $100 million of the Company's common stock during the ensuing 12 months. Through May 29, 1999, 1.1 million shares had been purchased at a cost of $55 million. The Company expects to complete the repurchase program in the next four months. In May 1998, the Company entered into an unsecured $220 million revolving credit facility, replacing the $365 million facility that was scheduled to mature in June 1998. The Company was able to reduce the size of the facility due to improved operating performance and better inventory management. The current facility is scheduled to mature on June 30, 2000 and can be extended for one year if certain conditions are met. Management is currently negotiating to reduce the facility to $100 million and extend the terms for an additional one to two years. The modification of the facility is also expected to make certain financial covenants less restrictive thereby providing the Company with additional flexibility. Management believes that funds from the expected results of operations and available cash and cash equivalents will be sufficient to support the Company's anticipated expansion plans and strategic initiatives for the next year. The revolving credit facility and the Company's inventory financing program are also available for additional working capital needs or opportunities. Year 2000 Readiness The Company understands the material nature of the business issues surrounding computer processing of dates into and beyond the year 2000 (Y2K). Any computer program or computer chip-controlled device could harbor a Y2K processing issue. Typically, Y2K issues arise from systems or software processing only two digits representing a year. The absence of century digits (e.g., "19" for years 1900-1999, or "20" for years beginning in 2000) usually leads to false results from computer-controlled systems. The Company recognized that Y2K issues existed within its computer programs and computer chip-controlled devices and has taken corrective action. The Company's actions to address Y2K issues began with the selection of a nationally recognized, experienced computer hardware and consulting firm to assist in both identifying and resolving these issues. The Company developed specific and detailed plans to correct Y2K issues and management believes the Company has made significant progress to date. The majority of the Company's business processing applications operate on mainframe computer systems. Over five million lines of computer programming were scanned and analyzed to identify Y2K issues in these systems. To date, the Company has replaced approximately 95% of its existing computer code for these Y2K issues with corrective programming logic. Corrected logic was tested as changes were made. This portion of the Company's plan was completed in fiscal 1999 at a total cost of approximately $9 million in outside professional fees. In addition, the Company has dedicated a staff of its internal resources to address Y2K issues. Although the change 12 to the calendar year 2000 is responsible for the majority of the Y2K issues, the Company's systems are fully functional in its current fiscal year 2000, which began February 28, 1999. The Company is also replacing or installing certain computer hardware and software which will address new business applications, as well as Y2K issues. The timing of some of these projects has been accelerated to meet Y2K compliance. The Company expects to fund both the capital and expensed elements of resolving Y2K issues through funds generated from operations. In addition to the mainframe system Y2K issues, the Company has substantially completed efforts to identify non-mainframe computer system Y2K issues and other potential Y2K issues. These issues include the Company's communication systems and operating systems at and between the Company's locations and support facilities. The Company has corresponded with its business partners, including merchandise suppliers and service providers to assess their ability to support the Company's operations with respect to their individual Y2K issues. These issues include data exchange with the Company, as well as the partners' production and shipping processes. The issues that were identified as part of this process have been prioritized in order of significance to the Company's operations and corrective action is being taken as appropriate. This portion of the Company's plan is expected to be completed at a total cost of approximately $8 million, of which the majority will be incurred in fiscal 2000. The Company generally believes that the vendors that supply products to the Company for resale are responsible for the Y2K functionality of those products. However, should product failures occur, the Company may be required to address the administrative aspects of those failures such as handling product returns or repairs. While the Company believes that it is pursuing the appropriate courses of action to ensure Y2K readiness, there can be no assurance that the objective will be achieved either internally or as it relates to business partners. Also, the Company can provide no assurance regarding potential impact on consumer spending that may result from concerns regarding the Y2K functionality of products. For the Y2K issues which, if not timely resolved, could have a significant impact on the Company's operations, the Company is continuing to develop contingency plans to minimize the impact of failure to achieve Y2K compliance. The Company has also devoted significant attention to planning for what could be the result of the most adverse consequence of Y2K issues. Management believes that adequate contingency plans are being developed to minimize the financial impact to the Company. SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "1995 ACT") The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies. With the exception of historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as "believe," "expect," "anticipate," "plan," "estimate," "intend" and "potential." Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. A variety of factors could cause the Company's actual results to differ materially from the anticipated results expressed in such forward-looking statements, including, among other things, general economic conditions, sales volumes, profit margins, the Company's and its suppliers' Year 2000 readiness, and the impact of labor markets and new product introductions on the Company's overall profitability. Readers are encouraged to review the Company's Current Report on Form 8-K filed on May 15, 1998, that describes additional important factors that could cause actual results to differ materially from those contemplated by the statements made herein. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's operations are not currently subject to market risks for interest rates, foreign currency rates, commodity prices or other market price risks of a material nature. 13 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: a. Exhibits: METHOD OF FILING 10.1 1997 Employee Non-Qualified Stock Filed herewith Option Plan, 1999 Amendment and Restatement 10.2 1997 Directors' Non-Qualified Stock Filed herewith Option Plan, 1999 Amendment and Restatement 10.3 1994 Full-Time Employee Non-Qualified Filed herewith Stock Option Plan, 1999 Amendment and Restatement 27.1 Financial Data Schedule Filed herewith b. Reports on Form 8-K: None 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: July 6, 1999 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) 15 EX-10.1 2 EXHIBIT 10.1 BEST BUY CO., INC. 1997 EMPLOYEE NON-QUALIFIED STOCK OPTION PLAN 1999 AMENDMENT AND RESTATEMENT A. PURPOSE. The purpose of this Employee Non-Qualified Stock Option Plan ("Plan") is to further the growth and general prosperity of Best Buy Co., Inc. (the "Company"), and its directly and indirectly wholly-owned subsidiaries (collectively, the "Companies") by enabling current key employees of the Companies, who have been or will be given responsibility for the administration of the affairs of the Companies and upon whose judgment, initiative and effort the Companies were or are largely dependent for the successful conduct of their business, to acquire shares of the common stock of the Company under the terms and conditions and in the manner contemplated by this Plan, thereby increasing their personal involvement in the Companies and enabling the Companies to obtain and retain the services of such employees. Options granted under the Plan are intended to be options which do not meet the requirements of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"). B. ADMINISTRATION. This Plan shall be administered by the Compensation and Human Resources Committee (the "Committee") of the Company's Board of Directors (the "Board"). Options may not be granted to any person while serving on the Committee unless approved by a majority of the disinterested members of the Board. Subject to such orders and resolutions not inconsistent with the provisions of this Plan as may from time to time be issued or adopted by the Board, the Committee shall have full power and authority to interpret the Plan and, to the extent contemplated herein, shall exercise the discretion granted to it regarding participation in the Plan and the number of shares to be optioned and sold to each participant. All decisions, determinations and selections made by the Committee pursuant to the provisions of the Plan and applicable orders and resolutions of the Board shall be final. Each option granted shall be evidenced by a written agreement containing such terms and conditions as may be approved by the Committee and which shall not be inconsistent with the Plan and the orders and resolutions of the Board with respect thereto. C. ELIGIBILITY AND PARTICIPATION. Options may be granted under the Plan to (i) key executive personnel, including officers, senior management employees and members of the Board who are employees of any of the Companies; (ii) staff employees, including managers, supervisors, and their functional equivalents for: warehousing, service, merchandising, leaseholds, installation, and finance and administration; (iii) line management employees, including retail store and field managers, supervisors and their functional equivalents; and (iv) any employee having served the Companies continuously for a period of not less than ten (10) years. The Committee shall grant to such participants options to purchase shares in such amounts as the Committee shall from time to time determine. D. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in Section E. herein, an aggregate of 40,000,000 shares of $0.10 par value common stock of the Company shall be subject to this Plan from authorized but unissued shares of the Company. Such number and kind of shares shall be appropriately adjusted in the event of any one or more stock splits, reverse stock splits or stock dividends hereafter paid or declared with respect to such stock. If, prior to the termination of the Plan, shares issued pursuant hereto shall have been repurchased by the Company pursuant to this Plan, such repurchased shares shall again become available for issuance under the Plan. Any shares which, after the effective date of this Plan, shall become subject to valid outstanding options under this Plan may, to the extent of the release of any such shares from option by termination or expiration of option(s) without valid exercise, be made the subject of additional options under this Plan. E. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of a merger, consolidation, reorganization, stock dividend, stock split, or other change in corporate structure or capitalization affecting the common stock of the Company, an appropriate adjustment may be made in the number and kind of shares subject to and the exercise prices of options granted under the Plan as determined by the Committee. F. TERMS AND CONDITIONS OF OPTIONS. The Committee shall have the power, subject to the limitations contained in this Plan, to prescribe any terms and conditions in respect of the granting or exercise of any option under this Plan and, in particular, shall prescribe the following terms and conditions: (1) Each option shall state the number of shares to which it pertains. (2) The price at which shares shall be sold to participants hereunder (the "Exercise Price") shall be the Fair Market Value of the Company's common stock on the date of grant. Payment of the Exercise Price shall be made (a) if payment is made by check payable to the Company, at the time the shares are sold hereunder, or (b) if payment is made pursuant to an irrevocable election to surrender outstanding shares of common stock of the Company which have a Fair Market Value on the date of surrender equal to the Exercise Price of the shares as to which the option is being exercised, no later than the settlement date for the shares sold in the market to cover the Exercise Price, or (c) by a combination thereof, UNLESS an option is exercised in connection with a deferral election pursuant to the Deferred Compensation Plan, defined below, in which case payment of the Exercise Price shall be made as provided in Section N herein. 2 (3) The vested portion of an option shall be exercisable in whole or in part with respect to the shares included therein until the earlier of (a) the close of business on the tenth day prior to the proposed effective date of (i) any merger or consolidation of the Company with any other corporation or entity as a result of which the holders of the common stock of the Company will own less than a majority voting control of the surviving corporation; (ii) any sale of substantially all of the assets of the Companies or (iii) any sale of common stock of the Company to a person not a shareholder on the date of issuance of the option who thereby acquires majority voting control of the Company, subject to any such transaction actually being consummated, or (b) the close of business on the date ten (10) years after the date the option was granted. The Company shall give written notice to the optionee not less than 30 days prior to the proposed effective date of any of the transactions described in (a) above. (4) Except in the event of disability, death or normal retirement, an option shall be exercisable with respect to the shares included therein not earlier than the date one (1) year following the date of grant of the option, nor later than the date ten (10) years following the date of grant of the option; provided, however, that during the second through fourth years following the date of grant, the optionee may exercise such optionee's right to acquire only twenty-five percent (25%) of the shares subject to such option together with any shares that the optionee had previously been able to acquire; and provided further, however, that in the event of a change in status of an employee from full-time or part-time to occasional/seasonal, such employee shall continue to have the right to exercise an option following such change in status but only to the extent of the shares available for acquisition on the date of such change in status (the "Change in Status Date"). (5) Except as in the event of disability, death or normal retirement, an option may be exercised only by the optionee while such optionee is, and has continually been, since the date of the grant of the option, an employee of any of the Companies; provided, however, that a former employee shall continue to have the right to exercise an option for a period of thirty (30) days following such termination to the extent of the shares available for acquisition on the date of such former employee's termination but in no event later than the date ten (10) years after the date of grant of such option. If the continuous employment of an optionee terminates by reason of disability, death or normal retirement, an option granted hereunder held by the disabled, deceased or retired employee may be exercised to the extent of all shares subject to the option (or, with respect to a disabled, deceased or retired occasional/seasonal employee, to the extent of the shares available for acquisition on the Change in Status Date) within one (1) year following the date of disability or death or five (5) years following the date of normal retirement, but in no event later than ten (10) years after the date of grant of such option, by the disabled or retired employee or the person or persons to whom the deceased employee's rights under such option shall have passed by will or by the applicable laws of descent and distribution. For purposes of this Plan only, (a) an employee shall be deemed "disabled" if the employee is unable to perform his or her usual duties for the Companies as a result of physical or mental disability, and such inability to perform continues or is expected to continue for at least twelve (12) consecutive months, and (b) "normal 3 retirement" shall mean retirement on or after age 60 so long as the employee has served the Companies continuously for at least the three (3) years immediately preceding retirement. Notwithstanding the foregoing, the changes made in Sections F(4) and (5) pursuant to the amendments hereto adopted on April 24, 1998 (relating to the vesting of options in the event of normal retirement), shall be effective only for options granted hereunder on and after April 24, 1998. (6) An option shall be exercised when notice of such exercise, either in writing or orally, has been given to the Company at its principal business office or to its designated agent by the person entitled to exercise the option and full payment for the shares with respect to which the option is exercised has been received by the Company. Until the stock certificates are issued, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to optioned shares, notwithstanding the exercise of the option. (7) Each optionee shall be obligated to maintain the confidentiality of all of the confidential and proprietary information of the Companies and, in the event of a breach by the optionee of such obligation, all of the optionee's options granted pursuant to the Plan and all rights thereunder shall immediately terminate including, notwithstanding the up to thirty (30) day grace period provided in Section F(5), in the event of termination of the optionee's employment. To evidence the foregoing, each optionee shall sign and deliver to the Company prior to exercising such options an agreement documenting the optionee's understanding of and agreement to the confidentiality restrictions imposed hereby. Notwithstanding the foregoing, this Section F(7), adopted as of April 16, 1999, shall be effective only for options granted hereunder on and after April 16, 1999. G. OPTIONS NOT TRANSFERRABLE. Options under the Plan may not be sold, pledged, assigned or transferred in any manner, whether by operation of law or otherwise except by will or the laws of descent, and may be exercised during the lifetime of an optionee only by such optionee. H. AMENDMENT OR TERMINATION OF THE PLAN. The Board may amend this Plan from time to time as it may deem advisable and may at any time terminate the Plan, provided that any such termination of the Plan shall not adversely affect options already granted and such options shall remain in full force and effect as if the Plan had not been terminated. I. AGREEMENT AND REPRESENTATIONS OF OPTIONEES. As a condition precedent to the exercise of any option or portion thereof, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required 4 under the Securities Act of 1933 or any other applicable law, regulation or rule of any governmental agency. In the event legal counsel to the Company renders an opinion to the Company that shares for options exercised pursuant to this Plan cannot be issued to the optionee because such action would violate any applicable federal or state securities laws, then in that event the optionee agrees that the Company shall not be required to issue said shares to the optionee and shall have no liability to the optionee other than the return to optionee of amounts tendered to the Company upon exercise of the option. J. EFFECTIVE DATE AND TERMINATION OF THE PLAN. The Plan shall become effective as of April 18, 1997, if approved thereafter by the Company's shareholders. The Plan shall terminate on the earliest of: (1) The date when all the shares available under the Plan shall have been acquired through the exercise of options granted under the Plan; or (2) Ten (10) years after the date of approval of the Plan by the Company's shareholders; or (3) Such other earlier date as the Board may determine. K. WITHHOLDING TAXES. The Companies shall have the right to take any action that may be necessary in the opinion of the Companies to satisfy all obligations for the payment of any federal, state or local taxes of any kind, including FICA taxes, required by law to be withheld with respect to the exercise of an option granted hereunder. If stock is withheld or surrendered to satisfy tax withholding, such stock shall be the Fair Market Value of the Company's common stock on the date of exercise. L. FAIR MARKET VALUE. "Fair Market Value" shall mean the last reported sale price of the Company's common stock on the date of grant, as quoted on by the New York Stock Exchange. If the Company's common stock ceases to be listed for trading on the New York Stock Exchange, "Fair Market Value" shall mean the value determined in good faith by the Board. M. COMPLIANCE WITH RULE 16b-3 AND SECTION 162(m). With respect to employees subject to Section 16 of the Securities Exchange Act of 1934, as amended, or Section 162(m) of the Code, transactions under the Plan are intended to comply with all applicable conditions of such Rule 16b-3 and avoid loss of the deduction referred to in paragraph (1) of such Section 162(m). Anything in the Plan to the contrary notwithstanding, to the extent any provision of the Plan or action by the Committee fails to so comply or avoid the loss of such 5 deduction, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. N. DEFERRAL OF OPTION GAIN. Participants in the Company's Deferred Compensation Plan, effective as of April 1, 1998 (the "Deferred Compensation Plan"), may be able to defer the gain, if any, upon exercise of options granted hereunder pursuant to and in accordance with the terms of the Deferred Compensation Plan. To the extent that the Deferred Compensation Plan permits a participant to defer any gain with respect to an option, the Exercise Price must be satisfied utilizing shares of the Company's common stock held at least six months prior to exercise. In the event a deferral election is made with respect to an option, if the optionee is unable to deliver the requisite number of shares of the Company's common stock to cover the full Exercise Price prior to the expiration of such option, the portion of the option that corresponds to the portion of the full Exercise Price not covered shall be forfeited. O. FORM OF OPTION. Options shall be issued in substantially the form as the Committee or the Board may approve. 6 EX-10.2 3 EXHIBIT 10.2 BEST BUY CO., INC. 1997 DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN 1999 AMENDMENT AND RESTATEMENT A. PURPOSE. The purpose of this Directors' Non-Qualified Stock Option Plan ("Plan") is to further the growth and general prosperity of Best Buy Co., Inc. (the "Company"), and its directly and indirectly wholly-owned subsidiaries (collectively, the "Companies") by enabling current directors of the Company, who have been or are serving on the Company's Board of Directors (the "Board") and upon whose judgment, initiative and effort the Companies were or are largely dependent for the successful conduct of their business, to acquire shares of the common stock of the Company under the terms and conditions and in the manner contemplated by this Plan, thereby increasing their personal involvement in the Companies. Options granted under the Plan are intended to be options which do not meet the requirements of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"). B. ADMINISTRATION. This Plan shall be administered by the Compensation and Human Resources Committee (the "Committee") of the Board. Subject to such orders and resolutions not inconsistent with the provisions of this Plan as may from time to time be issued or adopted by the Board, the Committee shall have full power and authority to interpret the Plan. All decisions and determinations made by the Committee pursuant to the provisions of the Plan and applicable orders and resolutions of the Board shall be final. Each option granted shall be evidenced by a written agreement containing such terms and conditions as may be approved by the Committee and which shall not be inconsistent with the Plan and the orders and resolutions of the Board with respect thereto. C. ELIGIBILITY, PARTICIPATION AND GRANTS. Options shall be granted under the Plan to current members of the Board. The Committee shall grant to each director options to purchase shares in such amounts as the Committee shall from time to time determine. D. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below, an aggregate of 2,800,000 shares of $0.10 par value common stock of the Company shall be subject to this Plan from authorized but unissued shares of the Company. Such number and kind of shares shall be appropriately adjusted in the event of any one or more stock splits, reverse stock splits or stock dividends hereafter paid or declared with respect to such stock. If, prior to the termination of the Plan, shares issued pursuant hereto shall have been repurchased by the Company pursuant to this Plan, such repurchased shares shall again become available for issuance under the Plan. Any shares which, after the effective date of this Plan, shall become subject to valid outstanding options under this Plan may, to the extent of the release of any such shares from option by termination or expiration of option(s) without valid exercise, be made the subject of additional options under this Plan. E. NO ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Except as expressly provided herein, in the event of a merger, consolidation, reorganization, stock dividend, stock split, or other change in corporate structure or capitalization affecting the common stock of the Company, there shall be no change in the number of shares subject to options to be granted thereafter pursuant to the Plan; provided, however, that in such event, an appropriate adjustment may be made in the number and kind of shares subject to and the exercise prices of outstanding options granted under the Plan as determined by the Committee. F. TERMS AND CONDITIONS OF OPTIONS. The Committee shall have the power, subject to the limitations contained in this Plan, to prescribe any terms and conditions in respect of the granting or exercise of any option under this Plan and, in particular, shall prescribe the following terms and conditions: (1) Each option shall state the number of shares to which it pertains. (2) The price at which shares shall be sold to participants hereunder (the "Exercise Price") shall be the Fair Market Value of the Company's common stock on the date of grant. Payment of the Exercise Price shall be made (a) if payment is made by check payable to the Company, at the time the shares are sold hereunder, or (b) if payment is made pursuant to an irrevocable election to surrender outstanding shares of common stock of the Company which have a Fair Market Value on the date of surrender equal to the Exercise Price of the shares as to which the option is being exercised, no later than the settlement date for the shares sold in the market to cover the Exercise Price, or (c) by a combination thereof, UNLESS an option is exercised in connection with a deferral election pursuant to the Deferred Compensation Plan, defined below, in which case payment of the Exercise Price shall be made as provided in Section M herein. (3) An option shall be exercisable in whole or in part with respect to the shares included therein until the earlier of (a) the close of business on the tenth day prior to the proposed effective date of (i) any merger or consolidation of the Company with any other -2- corporation or entity as a result of which the holders of the common stock of the Company will own less than a majority voting control of the surviving corporation; (ii) any sale of substantially all of the assets of the Companies or (iii) any sale of common stock of the Company to a person not a shareholder on the date of issuance of the option who thereby acquires majority voting control of the Company, subject to any such transaction actually being consummated, or (b) the close of business on the date ten (10) years after the date the option was granted. The Company shall give written notice to the optionee not less than 30 days prior to the proposed effective date of any of the transactions described in (a) above. (4) An option shall be exercised when notice of such exercise, whether in writing or orally, has been given to the Company at its principal business office or to its designated agent by the person entitled to exercise the option and full payment for the shares with respect to which the option is exercised has been received by the Company. Until the stock certificates are issued, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to optioned shares, notwithstanding the exercise of the option. (5) Each optionee shall be obligated to maintain the confidentiality of all of the confidential and proprietary information of the Companies and, in the event of a breach by the optionee of such obligation, all of the optionee's options granted pursuant to the Plan and all rights thereunder shall immediately terminate. Notwithstanding the foregoing, this Section F(5), adopted as of April 16, 1999, shall be effective only for options granted hereunder on and after April 16, 1999. G. OPTIONS NOT TRANSFERABLE. Options under the Plan may not be sold, pledged, assigned or transferred in any manner, whether by operation of law or otherwise, except by will, the laws of descent or a qualified domestic relations order. H. AMENDMENT OR TERMINATION OF THE PLAN. The Board may amend this Plan from time to time as it may deem advisable and may at any time terminate the Plan, provided that any such termination of the Plan shall not adversely affect options already granted and such options shall remain in full force and effect as if the Plan had not been terminated. I. AGREEMENT AND REPRESENTATIONS OF PARTICIPANTS. As a condition precedent to the exercise of any option or portion thereof, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required -3- under the Securities Act of 1933 or any other applicable law, regulation or rule of any governmental agency. In the event legal counsel to the Company renders an opinion to the Company that shares for options exercised pursuant to this Plan cannot be issued to the optionee because such action would violate any applicable federal or state securities laws, then in that event the optionee agrees that the Company shall not be required to issue said shares to the optionee and shall have no liability to the optionee other than the return to optionee of amounts tendered to the Company upon exercise of the option. J. EFFECTIVE DATE AND TERMINATION OF THE PLAN. The Plan shall become effective as of April 18, 1997 if approved thereafter by the Company's shareholders. The Plan shall terminate on the earliest of: (1) The date when all the shares available under the Plan shall have been acquired through the exercise of options granted under the Plan; or (2) Ten (10) years after the date of approval of the Plan by the Company's shareholders; or (3) Such other earlier date as the Board may determine. K. FAIR MARKET VALUE. "Fair Market Value" shall mean the last reported sale price of the Company's common stock on the date of grant, as quoted on by the New York Stock Exchange. If the Company's common stock ceases to be listed for trading on the New York Stock Exchange, "Fair Market Value" shall mean the value determined in good faith by the Board. L. COMPLIANCE WITH RULE 16b-3 AND SECTION 162(m). Transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and avoid loss of the deduction referred to in paragraph (1) of Section 162(m) of the Code. Anything in the Plan to the contrary notwithstanding, to the extent any provision of the Plan or action by the Committee fails to so comply or avoid the loss of such deduction, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. -4- M. DEFERRAL OF OPTION GAIN. Participants in the Company's Deferred Compensation Plan, effective as of April 1, 1998 (the "Deferred Compensation Plan"), may be able to defer the gain, if any, upon exercise of options granted hereunder pursuant to and in accordance with the terms of the Deferred Compensation Plan. To the extent that the Deferred Compensation Plan permits a participant to defer any gain with respect to an option, the Exercise Price must be satisfied utilizing shares of the Company's common stock held at least six months prior to exercise. In the event any deferral election is made with respect to an option, if the optionee is unable to deliver the requisite number of shares of the Company's common stock to cover the full Exercise Price prior to the expiration of such option, the portion of the option that corresponds to the portion of the full Exercise Price not covered shall be forfeited. N. FORM OF OPTION. Options shall be issued in substantially the same form as the Committee or the Board may approve. -5- EX-10.3 4 EXHIBIT 10.3 BEST BUY CO., INC. 1994 FULL-TIME EMPLOYEE NON-QUALIFIED STOCK OPTION PLAN 1999 AMENDMENT AND RESTATEMENT A. PURPOSE. The purpose of this Full-Time Employee Non-Qualified Stock Option Plan ("Plan") is to further the growth and general prosperity of Best Buy Co., Inc. (the "Company"), and its directly and indirectly wholly-owned subsidiaries (collectively, the "Companies") by enabling full-time employees of the Companies to acquire shares of the common stock of the Company under the terms and conditions and in the manner contemplated by this Plan, thereby increasing their personal interest in the success of the Companies and enabling the Companies to obtain and retain the services of such employees. Options granted under the Plan are intended to be options which do not meet the requirements of Section 422A of the Internal Revenue Code of 1986, as amended. B. ADMINISTRATION. This Plan shall be administered by the Compensation and Human Resources Committee (the "Committee") of the Company's Board of Directors (the "Board"). Options may not be granted to any person while serving on the Committee unless approved by a majority of the disinterested members of the Board. Subject to such orders and resolutions not inconsistent with the provisions of this Plan as may from time to time be issued or adopted by the Board, the Committee shall have full power and authority to interpret the Plan and, to the extent contemplated herein, shall exercise the discretion granted to it regarding participation in the Plan and the number of shares to be optioned and sold to each participant. All decisions, determinations and selections made by the Committee pursuant to the provisions of the Plan and applicable orders and resolutions of the Board shall be final. Each option granted shall be evidenced by a written agreement containing such terms and conditions as may be approved by the Committee and which shall not be inconsistent with the Plan and the orders and resolutions of the Board with respect thereto. C. ELIGIBILITY AND PARTICIPATION. Options may be granted under the Plan to any full-time employee of the Companies who is not an officer of the Companies. The Committee shall grant to such participants options to purchase shares in such amounts as the Committee shall from time to time determine. D. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in Section E. herein, an aggregate of 6,000,000 shares of $0.10 par value common stock of the Company shall be subject to this Plan from authorized but unissued shares of the Company. Such number and kind of shares shall be appropriately adjusted in the event of any one or more stock splits, reverse stock splits or stock dividends hereafter paid or declared with respect to such stock. If, prior to the termination of the Plan, shares issued pursuant hereto shall have been repurchased by the Company pursuant to this Plan, such repurchased shares shall again become available for issuance under the Plan. Any shares which, after the effective date of this Plan, shall become subject to valid outstanding options under this Plan may, to the extent of the release of any such shares from option by termination or expiration of option(s) without valid exercise, be made the subject of additional options under this Plan. E. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of a merger, consolidation, reorganization, stock dividend, stock split, or other change in corporate structure or capitalization affecting the common stock of the Company, an appropriate adjustment may be made in the number and kind of shares subject to and the exercise prices of options granted under the Plan as determined by the Committee. F. TERMS AND CONDITIONS OF OPTIONS. The Committee shall have the power, subject to the limitations contained in this Plan, to prescribe any terms and conditions in respect of the granting or exercise of any option under this Plan and, in particular, shall prescribe the following terms and conditions: (1) Each option shall state the number of shares to which it pertains. (2) The price at which shares shall be sold to participants hereunder (the "Exercise Price") shall be the Fair Market Value of the Company's common stock on the date of grant. Payment of the Exercise Price shall be made at the time the shares are sold hereunder by check payable to the Company, or by surrender of outstanding shares of common stock of the Company which have a Fair Market Value on the date of surrender equal to the Exercise Price of the shares as to which the option is being exercised, or by a combination thereof. (3) The vested portion of an option shall be exercisable in whole or in part with respect to the shares included therein until the earlier of (a) the close of business on the tenth day prior to the proposed effective date of (i) any merger or consolidation of the Company with any other corporation or entity as a result of which the holders of the common stock of the Company will own less than a majority voting control of the surviving corporation; (ii) any sale of substantially all of the assets of the Companies or (iii) any sale of common -2- stock of the Company to a person not a shareholder on the date of issuance of the option who thereby acquires majority voting control of the Company, subject to any such transaction actually being consummated, or (b) the close of business on the date ten (10) years after the date the option was granted. The Company shall give written notice to the optionee not less than 30 days prior to the proposed effective date of any of the transactions described in (a) above. (4) Except in the event of disability, death or normal retirement, an option shall be exercisable with respect to the shares included therein not earlier than the date one (1) year following the date of grant of the option, nor later than the date ten (10) years following the date of grant of the option; provided, however, that during the first year that the option may be exercised, the optionee may exercise such optionee's right only to the extent of fifty percent (50%) of the shares subject to such option; and provided further, however, that in the event of a change in status of an employee from full-time or part-time to occasional/seasonal, such employee shall continue to have the right to exercise an option following such change in status but only to the extent of the shares available for acquisition on the date of such change in status (the "Change in Status Date"). (5) Except in the event of disability, death or normal retirement, an option may be exercised only by the optionee while such optionee is, and has continually been, since the date of the grant of the option, an employee of any of the Companies; provided, however, that a former employee shall continue to have the right to exercise an option for a period of thirty (30) days following such termination to the extent of the shares available for acquisition on the date of such former employee's termination but in no event later than the date ten (10) years after the date of grant of such option. If the continuous employment of an optionee terminates by reason of disability, death or normal retirement, an option granted hereunder held by the disabled, deceased or retired employee may be exercised to the extent of all shares subject to the option (or, with respect to a disabled, deceased or retired occasional/seasonal employee, to the extent of the shares available for acquisition on the Change in Status Date) within one (1) year following the date of disability or death or five (5) years following the date of normal retirement, but in no event later than ten (10) years after the date of grant of such option, by the disabled or retired employee or the person or persons to whom the participant's rights under such option shall have passed by will or by the applicable laws of descent and distribution. For purposes of this Plan only, (a) an employee shall be deemed "disabled" if the employee is unable to perform his or her usual duties for the Companies as a result of physical or mental disability, and such inability to perform continues or is expected to continue for at least twelve (12) consecutive months, and (b) "normal retirement" shall mean retirement on or after age 60 so long as the employee has served the Companies continuously for at least the three (3) years immediately preceding retirement. Notwithstanding the foregoing, the changes made in Sections F(4) and (5) pursuant to the amendments hereto adopted on April 24, 1998 (relating to the vesting of options in the event of normal retirement), shall be effective only for options granted hereunder on and after April 24, 1998. -3- (6) An option shall be exercised when notice of such exercise, either in writing or orally, has been given to the Company at its principal business office or to its designated agent by the person entitled to exercise the option and full payment for the shares with respect to which the option is exercised has been received by the Company. Until the stock certificates are issued, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to optioned shares, notwithstanding the exercise of the option. (7) Each optionee shall be obligated to maintain the confidentiality of all of the confidential and proprietary information of the Companies and, in the event of a breach by the optionee of such obligation, all of the optionee's options granted pursuant to the Plan and all rights thereunder shall immediately terminate including, notwithstanding the up to thirty (30) day grace period provided in Section F(5), in the event of termination of the optionee's employment. To evidence the foregoing, each optionee shall sign and deliver to the Company prior to exercising such options an agreement documenting the optionee's understanding of and agreement to the confidentiality restrictions imposed hereby. Notwithstanding the foregoing, this Section F(7), adopted as of April 16, 1999, shall be effective only for options granted hereunder on and after April 16, 1999. G. OPTIONS NOT TRANSFERRABLE. Options under the Plan may not be sold, pledged, assigned or transferred in any manner, whether by operation of law or otherwise except by will or the laws of descent, and may be exercised during the lifetime of an optionee only by such optionee. H. AMENDMENT OR TERMINATION OF THE PLAN. The Board may amend this Plan from time to time as it may deem advisable and may at any time terminate the Plan, provided that any such termination of the Plan shall not adversely affect options already granted and such options shall remain in full force and effect as if the Plan had not been terminated. I. AGREEMENT AND REPRESENTATIONS OF OPTIONEES. As a condition precedent to the exercise of any option or portion thereof, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required under the Securities Act of 1933 or any other applicable law, regulation or rule of any governmental agency. In the event legal counsel to the Company renders an opinion to the Company that shares for options exercised pursuant to this Plan cannot be issued to the optionee because such action would violate any applicable federal or state securities laws, then in that event the optionee agrees that the -4- Company shall not be required to issue said shares to the optionee and shall have no liability to the optionee other than the return to optionee of amounts tendered to the Company upon exercise of the option. J. EFFECTIVE DATE AND TERMINATION OF THE PLAN. The Plan is effective as of April 4, 1994. The Plan shall terminate on the earliest of: (1) The date when all the shares available under the Plan shall have been acquired through the exercise of options granted under the Plan; or (2) Ten (10) years after the date of approval of the Plan by the Shareholders of the Company; or (3) Such other earlier date as the Board may determine. K. WITHHOLDING TAXES. The Companies shall have the right to take any action that may be necessary in the opinion of the Companies to satisfy all obligations for the payment of any federal, state or local taxes of any kind, including FICA taxes, required by law to be withheld with respect to the exercise of an option granted hereunder. If stock is withheld or surrendered to satisfy tax withholding, such stock shall be the Fair Market Value of the Company's common stock on the date of exercise. L. FAIR MARKET VALUE. "Fair Market Value" shall mean the last reported sale price of the Company's common stock on the date of grant, as quoted on by the New York Stock Exchange. If the Company's common stock ceases to be listed for trading on the New York Stock Exchange, "Fair Market Value" shall mean the value determined in good faith by the Board. M. COMPLIANCE WITH RULE 16b-3 AND SECTION 162(m). With respect to employees subject to Section 16 of the Securities Exchange Act of 1934, as amended, or Section 162(m) of the Code, transactions under the Plan are intended to comply with all applicable conditions of such Rule 16b-3 and avoid loss of the deduction referred to in paragraph (1) of such Section 162(m). Anything in the Plan to the contrary notwithstanding, to the extent any provision of the Plan or action by the Committee fails to so comply or avoid the loss of such deduction, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. N. FORM OF OPTION. Options shall be issued in substantially the form as the Committee or the Board may approve. -5- EX-27.1 5 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS INDICATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS FEB-26-2000 FEB-28-1999 MAY-29-1999 510,883 0 145,699 0 1,111,369 1,877,469 769,019 331,632 2,343,840 1,186,967 28,402 0 0 20,380 1,068,735 2,343,840 2,386,188 2,386,188 1,923,429 1,923,429 390,301 0 4,413 76,871 29,596 47,275 0 0 0 47,275 .23 .22
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