-----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, LunHVZhsJPltU2P+X0j0cg8EHngD2AbFLE69Sh34rYcl7o/FqzDQ0zsNaJeBsL5c egaObZCCwxvCsk511xd7cA== 0000912057-96-014664.txt : 19960716 0000912057-96-014664.hdr.sgml : 19960716 ACCESSION NUMBER: 0000912057-96-014664 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960601 FILED AS OF DATE: 19960715 SROS: NYSE 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: 0303 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09595 FILM NUMBER: 96595017 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 June 1, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from to ------------------ ------------------ Commission File Number: 1-9595 BEST BUY CO., INC. (Exact Name of Registrant as Specified in Charter) Minnesota 41-0907483 (State of Incorporation) (IRS Employer Identification Number) 7075 Flying Cloud Drive 55344 Eden Prairie, Minnesota (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: 612/947-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- At June 1, 1996, there were 43,123,795 shares of common stock, $.10 par value, outstanding. BEST BUY CO., INC. FORM 10-Q FOR THE QUARTER ENDED JUNE 1, 1996 INDEX Page ---- Part I. Financial Information Item 1. Consolidated Financial Statements: a. Consolidated balance sheets as of June 1, 1996, 3-4 March 2, 1996 and May 27, 1995 b. Consolidated statements of earnings for the three 5 months ended June 1, 1996, and May 27, 1995 c. Consolidated statement of changes in shareholders' 6 equity for the three months ended June 1, 1996 d. Consolidated statements of cash flows for the 7 three months ended June 1, 1996, and May 27, 1995 e. Notes to consolidated financial statements 8 Item 2. Management's Discussion and Analysis of Financial 9-11 Condition and Results of Operations Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 2 Part I - Financial Information Item 1. Consolidated Financial Statements BEST BUY CO., INC. CONSOLIDATED BALANCE SHEETS ASSETS ($ in 000, except per share amounts) June 1, March 2, May 27, 1996 1996 1995 (Unaudited) (Unaudited) ----------- ----------- ----------- CURRENT ASSETS: Cash and cash equivalents $ 20,604 $ 86,445 $ 51,669 Receivables 104,732 121,438 100,005 Recoverable costs from developed properties 122,773 126,237 103,523 Merchandise inventories 1,368,959 1,201,142 1,002,391 Deferred income taxes 21,191 20,165 16,218 Prepaid expenses 15,070 5,116 5,439 ----------- ----------- ----------- Total current assets 1,653,329 1,560,543 1,279,245 PROPERTY AND EQUIPMENT, at cost: Land and buildings 16,559 16,423 15,414 Property under capital leases 29,421 29,421 28,146 Leasehold improvements 135,466 131,289 97,770 Furniture, fixtures, and equipment 278,083 266,582 208,708 ----------- ----------- ----------- 459,529 443,715 350,038 Less accumulated depreciation and amortization 149,449 132,676 100,785 ----------- ----------- ----------- Net property and equipment 310,080 311,039 249,253 OTHER ASSETS: Deferred income taxes 2,977 7,204 9,940 Other assets 12,183 12,046 19,604 ----------- ----------- ----------- Total other assets 15,160 19,250 29,544 ----------- ----------- ----------- TOTAL ASSETS $ 1,978,569 $ 1,890,832 $ 1,558,042 ----------- ----------- ----------- ----------- ----------- ----------- See notes to consolidated financial statements. 3 BEST BUY CO., INC. CONSOLIDATED BALANCE SHEETS (continued) LIABILITIES AND SHAREHOLDERS' EQUITY ($ in 000, except per share amounts)
June 1, March 2, May 27, 1996 1996 1995 (Unaudited) (Unaudited) ----------- ----------- ----------- CURRENT LIABILITIES: Note payable, bank $ 185,000 $ 50,000 Obligations under financing arrangements 142,456 $ 93,951 41,367 Accounts payable 515,297 673,852 435,406 Accrued salaries and related expenses 28,183 26,890 24,127 Other accrued liabilities 140,709 125,582 77,953 Deferred service plan revenue and warranty reserve 29,469 30,845 26,759 Accrued income taxes 3,443 Current portion of long-term debt 23,362 23,568 13,664 ----------- ----------- ----------- Total current liabilities 1,064,476 974,688 672,719 Deferred Service Plan Revenue and Warranty Reserve, Long-Term 41,409 48,243 45,197 Long-Term Debt 207,855 206,287 224,723 Convertible Preferred Securities of Subsidiary 230,000 230,000 230,000 SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value; authorized 400,000 shares; none issued Common stock, $.10 par value; authorized 120,000,000 shares; issued and outstanding 43,124,000, 42,842,000, and 42,594,000 shares, respectively 4,312 4,284 4,259 Additional paid-in capital 239,170 236,392 233,553 Retained earnings 191,347 190,938 147,591 ----------- ----------- ----------- Total shareholders' equity 434,829 431,614 385,403 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,978,569 $ 1,890,832 $ 1,558,042 ----------- ----------- ----------- ----------- ----------- -----------
See notes to consolidated financial statements. 5 BEST BUY CO., INC. CONSOLIDATED STATEMENTS OF EARNINGS ($ in 000, except per share amounts) (Unaudited) Three Months Ended ---------------------------- June 1, May 27, 1996 1995 ---------- ---------- Revenues $1,637,184 $1,274,696 Cost of goods sold 1,404,534 1,092,408 ---------- ---------- Gross profit 232,650 182,288 Selling, general and administrative expenses 219,698 165,925 ---------- ---------- Operating income 12,952 16,363 Interest expense, net 12,281 8,616 ---------- ---------- Earnings before income taxes 671 7,747 Income taxes 262 3,075 ---------- ---------- Net earnings $ 409 $ 4,672 ---------- ---------- ---------- ---------- Net earnings per share $ .01 $ .11 ---------- ---------- ---------- ---------- Weighted average common shares outstanding (000) 43,564 43,423 ---------- ---------- ---------- ---------- See notes to consolidated financial statements. 6 BEST BUY CO., INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED JUNE 1, 1996 ($ in 000) (unaudited) Additional paid-in Retained Common stock capital earnings ------------ ---------- -------- Balance, March 2, 1996 $4,284 $236,392 $190,938 Stock options exercised 28 2,778 Net earnings, three months ended June 1, 1996 409 ------ -------- -------- Balance, June 1, 1996 $4,312 $239,170 $191,347 ------ -------- -------- ------ -------- -------- See notes to consolidated financial statements. 6 BEST BUY CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in 000) (unaudited)
Three Months Ended ----------------------- June 1, May 27, 1996 1995 --------- --------- OPERATING ACTIVITIES: Net earnings $ 409 $ 4,672 Charges to earnings not affecting cash: Depreciation and amortization 17,042 12,763 --------- --------- 17,451 17,435 Changes in operating assets and liabilities: Receivables 16,706 (15,565) Merchandise inventories (167,817) (94,714) Prepaid income taxes and expenses (5,191) (4,746) Accounts payable (158,555) 28,724 Other current liabilities 16,420 3,999 Deferred service plan revenue and warranty reserve (8,210) 4,876 --------- --------- Total cash used in operating activities (289,196) (59,991) INVESTING ACTIVITIES: Additions to property and equipment (16,083) (23,489) Recoverable costs from developed properties 3,464 (17,301) (Increase)decrease in other assets (137) 154 --------- --------- Total cash used in investing activities (12,756) (40,636) FINANCING ACTIVITIES: Borrowings on revolving credit line, net 185,000 50,000 Increase(decrease) in obligations under financing arrangements 48,505 (40,388) Long-term borrowings 5,000 Payments on long-term debt (3,638) (3,628) Common stock issued 1,244 1,612 --------- --------- Total cash provided by financing activities 236,111 7,596 --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (65,841) (93,031) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 86,445 144,700 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,604 $ 51,669 --------- --------- --------- --------- 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 $ 13,347 $ 11,105 Income taxes $ 1,063 $ 13,273
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 June 1, 1996, and May 27, 1995, the related consolidated statements of earnings and cash flows for the three months ended June 1, 1996, and May 27, 1995, and the consolidated statement of changes in shareholders' equity for the three months ended June 1, 1996, 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. These interim 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 March 2, 1996. 2. RECLASSIFICATION: Certain prior year amounts have been reclassified to conform to current year presentation. 3. INCOME TAXES: Income taxes are provided on an interim basis based upon management's estimate of the annual effective tax rate. 4. EARNINGS PER SHARE: Earnings per share relate to fully diluted earnings per share. 8 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 1997 were $409,000, or $.01 per share, compared to net earnings of $4,672,000, or $.11 per share, in the comparable period last year. Operating income compared to the prior year's first quarter was impacted, in part, by higher selling, general and administrative expenses. Higher interest expense during the period also applied pressure on earnings. Revenues in the quarter increased 28% to $1.637 billion compared to $1.275 billion in the first quarter last year. The increase was due in part to the contribution from the 47 new stores and sixteen remodeled/relocated stores in fiscal 1996 and a comparable store sales increase of 4% during the period. The Company also opened eight new stores during the quarter, including five stores in the new market of Philadelphia, Pennsylvania, on May 3. Comparable store sales increases of appliances were strong in comparison to the prior year due to a significant expansion of product assortment in May. The Company introduced the Amana, General Electric, Hotpoint, GE Profile and Tappan lines of appliances, greatly enhancing that category's consumer appeal and the Company's competitive position. Total Company comparable store sales comparisons are expected to become more difficult beginning in August due to the high levels of promotional activity that began in August of last year and continued through much of the remainder of the year. Retail store sales mix by major product category for the first quarter was as follows: Quarter Ended -------------------------------- June 1, 1996 May 27, 1995 ------------ ------------ Home Office 41% 40% Consumer Electronics Audio 12% 13% Video 17% 18% Entertainment Software 15% 16% Appliances 8% 7% Other 7% 6% ---- ---- Total 100% 100% ---- ---- ---- ---- The Company currently plans to open approximately 14 additional new stores during the remainder of the fiscal year, including entry into the new market of Tampa, Florida, in the third quarter. Three of the remaining 9 stores to be opened are expected to open in the second quarter and the remaining openings anticipated in the third quarter. Gross profit margin was 14.2% of sales for the first quarter of this year, compared to 14.3% in the first quarter of last year and 13.0% in fiscal 1996. Gross profit margin was essentially flat with the first quarter of the prior year as an increased contribution from the sale of higher margin appliances and extended service plans helped offset weaker margins in the home office category. Sales of extended service plans increased to 1.5% of store sales compared to less than 1% in each of the last three fiscal years. These plans are now administered by a third party, resulting in recognition of revenue and profit on the sale of the plans at the time of sale. Prior to the fourth quarter of fiscal 1996, revenue and profit from extended service plans was recognized over the term of the contract. Management expects that price competition and promotional offers to stimulate spending will continue, particularly in personal computers. While competition and promotions may limit the Company's ability to increase margins, the Company believes that increased contributions from appliances and extended service plans provide an opportunity to increase overall margins in fiscal 1997. Additional employee training programs and other planned initiatives should result in a further increase in the contribution of extended service plans. In addition, management anticipates that the appliance category should continue to increase as a percentage of total Company sales, increasing to approximately 9% of sales for the fiscal year. Selling, general and administrative (SG&A) expenses increased to 13.4% of sales compared to 13.0% in the first quarter of the prior year. This increase is mainly due to higher occupancy and fixed costs associated with the new and remodeled or relocated stores in fiscal 1996 and costs attributable to the rollout of the expanded appliance assortment. Costs associated with improving sales execution and supporting the expanded appliance assortment will further increase the Company's SG&A expense ratio in fiscal 1997. Also, as the Company's rate of sales growth slows in the current fiscal year, both in terms of the number of new stores opened and comparable store sales increases, management expects that the SG&A ratio for the year will be higher than fiscal 1996's ratio of 11.3%. Net interest expense increased $3.7 million compared to the first quarter of fiscal 1996. The increase was due principally to a higher level of completed properties held for sale and borrowings to support higher working capital needs. Additionally, in the first quarter of fiscal 1996 the Company financed working capital with the proceeds from the $230 million November 1994 preferred securities offering. 10 FINANCIAL CONDITION Working capital of $589 million at June 1, 1996 was unchanged from the prior fiscal year end as cash, bank borrowings and inventory financing arrangements were used to support higher inventories and reduce accounts payable. Inventories increased during the first quarter from a seasonally low point at the end of the prior fiscal year, due, in part, to the opening of eight new stores and the increased appliance assortment. Receivables at June 1, 1996 decreased $16.7 million from March 2, 1996 as a result of the change in the volume of business prior to each period end. Prepaid expenses increased from March 2, 1996 primarily due to an increase in refundable income taxes. Deferred service plan revenues are decreasing as revenues from plans sold prior to the fourth quarter of fiscal 1996 are recognized. Revenues from extended service plans sold in subsequent periods are recognized at the time of sale. At June 1, 1996, the Company owned 12 retail locations and a distribution center that were available for sale and leaseback and included in recoverable costs from developed properties. Proceeds from the sale of developed properties were approximately $7 million in the first quarter. Subsequent to the end of the quarter, three properties, including the distribution center, were sold resulting in proceeds of approximately $34 million. The Company plans to sell and lease back the remaining properties, as well as four additional retail locations under development for fiscal 1997, during the current fiscal year. Conditions in the marketplace for retail real estate and the economy in general may affect the timing of sale/leaseback transactions. During the first quarter the Company received $5 million in proceeds from a state government agency loan. In June, the Company repaid the $8.7 million contract for deed on the corporate headquarters facility. The Company plans to obtain a long-term mortgage on this facility. The Company currently expects that capital spending for the fiscal year, exclusive of property development costs anticipated to be recovered through long-term financing, will approximate $80 million. Management expects that funds available through cash flow from operations, the Company's credit facility, inventory financing facilities and customary vendor terms, will be sufficient to meet the Company's working capital needs for the fiscal year. SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company filed a Current Report on Form 8-K on May 8, 1996, with the Securities and Exchange Commission. The Report contains cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward looking statements made by the Company herein. 11 BEST BUY CO., INC. Part II - Other Information Item 6. EXHIBITS AND REPORTS ON FORM 8-K: a. Exhibits: Method of Filing ---------------- 11.1 Computation of net earnings per common share Filed herewith 27.1 Financial Data Schedule Filed herewith b. Reports on Form 8-K: A Current Report on Form 8-K was filed with the Securities and Exchange Commission on May 8, 1996 in connection with the "Safe Harbor" of the Private Securities Litigation Reform Act of 1995. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BEST BUY CO., INC. (Registrant) Date: July 12, 1996 By: /s/ ALLEN U. LENZMEIER ------------------------------------------ Allen U. Lenzmeier, Executive Vice President & Chief Financial Officer (principal financial officer) By: /s/ ROBERT C. FOX ------------------------------------------ Robert C. Fox, Senior Vice President- Finance & Treasurer (principal accounting officer) 13 EX-11.1 2 EXHIBIT 11.1 EXHIBIT 11.1 BEST BUY CO., INC. COMPUTATION OF NET EARNINGS PER COMMON SHARE (Amounts in 000, except per share amounts) (unaudited) Three Months Ended ---------------------- June 1, May 27, 1996 1995 ------- ------- Earnings: Net earnings available to common shares $ 409 $ 4,672 ------- ------- ------- ------- Shares: Weighted average common shares outstanding 42,967 42,379 Adjustments: Assumed issuance of shares purchased under stock option plans 597 1,044 ------- ------- Total common equivalent shares 43,564 43,423 ------- ------- ------- ------- Net earnings per common share $ .01 $ .11 ------- ------- ------- ------- Note: The computation of earnings per common share assuming full dilution results in anti-dilution. EX-27 3 FINANCIAL DATA SCHEDULE
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 MAR-01-1997 MAR-03-1996 JUN-01-1996 20,604 0 104,732 0 1,368,959 1,653,329 459,529 149,449 1,978,569 1,064,476 207,855 0 0 4,312 430,517 1,978,569 1,637,184 1,637,184 1,404,534 1,404,534 219,698 0 12,281 671 262 409 0 0 0 409 .01 .01
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