<PAGE>
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 27, 1995
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 1-9595
BEST BUY CO., INC.
(Exact Name of Registrant as Specified in Charter)
Minnesota 41-0907483
(State of Incorporation) (IRS Employer Identification Number)
7075 Flying Cloud Drive 55344
Eden Prairie, Minnesota (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 612/947-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
At May 27, 1995, there were 42,594,444 shares of common stock, $.10 par value,
outstanding.
<PAGE>
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED MAY 27, 1995
INDEX
Page
----
Part I. Financial Information
Item 1. Consolidated Financial Statements:
a. Consolidated balance sheets as of May 27, 1995,
February 25, 1995, and May 28, 1994 3-4
b. Consolidated statements of earnings for the three
months ended May 27, 1995, and May 28, 1994 5
c. Consolidated statement of changes in shareholders'
equity for the three months ended May 27, 1995 6
d. Consolidated statements of cash flows for the
three months ended May 27, 1995, and
May 28, 1994 7
e. Notes to consolidated financial statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
Part I - Financial Information
Item 1. Consolidated Financial Statements
BEST BUY CO., INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
($ in 000, except per share amounts)
<TABLE>
<CAPTION>
May 27, February 25, May 28,
1995 1995 1994
(Unaudited) (Unaudited)
----------- ------------ -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 51,669 $ 144,700 $ 10,226
Receivables 100,005 84,440 64,451
Recoverable costs from developed
properties 103,523 86,222 42,227
Merchandise inventories 1,002,391 907,677 704,518
Deferred income taxes 16,218 15,022 14,880
Prepaid expenses 5,439 2,606 1,222
---------- ---------- ----------
Total current assets 1,279,245 1,240,667 837,524
PROPERTY AND EQUIPMENT, at cost:
Land and buildings 15,414 13,524 13,524
Property under capital leases 28,146 27,096 17,908
Leasehold improvements 97,770 93,889 64,330
Furniture, fixtures, and equipment 208,708 191,084 125,423
---------- ---------- ----------
350,038 325,593 221,185
Less accumulated depreciation and
amortization 100,785 88,116 68,907
---------- ---------- ----------
Total property and equipment 249,253 237,477 152,278
OTHER ASSETS:
Deferred income taxes 9,940 9,223 6,163
Other assets 19,604 19,758 8,765
---------- ---------- ----------
Total other assets 29,544 28,981 14,928
---------- ---------- ----------
TOTAL ASSETS $1,558,042 $1,507,125 $1,004,730
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
BEST BUY CO., INC.
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
($ in 000, except per share amounts)
<TABLE>
<CAPTION>
May 27, February 25, May 28,
1995 1995 1994
(Unaudited) (Unaudited)
----------- ------------ -------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Note payable, bank $ 50,000 $ 32,500
Obligations under financing arrangements 41,367 $ 81,755 13,558
Accounts payable 448,545 406,682 312,664
Accrued salaries and related expenses 24,127 23,785 17,213
Other accrued liabilities 64,814 65,757 40,179
Deferred service plan revenue
and warranty reserve 26,759 24,942 19,909
Accrued income taxes 3,443 14,979 3,717
Current portion of long-term debt 13,664 13,718 9,003
---------- ---------- ----------
Total current liabilities 672,719 631,618 448,743
Deferred Service Plan Revenue and Warranty
Reserve, Long-Term 45,197 42,138 29,667
Long-Term Debt 224,723 227,247 208,711
Convertible Preferred Securities of Subsidiary 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 42,594,000, 42,216,000,
and 41,854,000 shares, respectively 4,259 4,221 4,185
Additional paid-in capital 233,553 228,982 223,915
Retained earnings 147,591 142,919 89,509
---------- ---------- ----------
Total shareholders' equity 385,403 376,122 317,609
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,558,042 $1,507,125 $1,004,730
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF EARNINGS
($ in 000, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
May 27, May 28,
1995 1994
------------ ------------
<S> <C> <C>
Revenues $1,274,696 $849,403
Cost of goods sold 1,092,408 730,451
---------- --------
Gross profit 182,288 118,952
Selling, general and administrative
expenses 165,925 107,266
---------- --------
Income from operations 16,363 11,686
Interest expense, net 8,616 4,676
---------- --------
Net earnings before income taxes 7,747 7,010
Income taxes 3,075 2,769
---------- --------
Net earnings $ 4,672 $ 4,241
---------- --------
---------- --------
Net earnings per share $ .11 $ .10
---------- --------
---------- --------
Weighted average common shares
outstanding (000) 43,423 43,257
---------- --------
---------- --------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
BEST BUY CO., INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MAY 27, 1995
($ in 000)
(unaudited)
<TABLE>
<CAPTION>
Additional
paid in Retained
Common stock capital earnings
------------ ------------ ------------
<S> <C> <C> <C>
Balance, February 25, 1995 $4,211 $228,982 $142,919
Stock options exercised 38 4,571
Net earnings, three months ended
May 27, 1995 4,672
------ -------- --------
Balance, May 27, 1995 $4,259 $233,553 $147,591
------ -------- --------
------ -------- --------
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in 000)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
May 27, May 28,
1995 1994
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 4,672 $ 4,241
Charges to earnings not affecting cash:
Depreciation and amortization 12,763 8,139
------ ------
17,435 12,380
Changes in operating assets and liabilities:
Receivables (15,565) (11,507)
Merchandise inventories (94,714) (66,568)
Prepaid income taxes and expenses (4,746) (1,343)
Accounts payable 41,863 18,604
Accrued salaries and related expenses 342 (2,106)
Other current liabilities (9,482) (4,509)
Deferred service plan revenue and warranty
reserve 4,876 2,219
Total cash used in operating activities ------- -------
(59,991) (52,830)
INVESTING ACTIVITIES:
Additions to property and equipment (23,489) (25,231)
Recoverable costs from developed properties (17,301) (4,521)
(Increase) decrease in other assets 154 (683)
------- -------
Total cash used in investing activities (40,636) (30,435)
FINANCING ACTIVITIES:
Common stock issued 1,612 772
Borrowings on revolving credit line, net 50,000 32,500
Payments on long-term debt (3,628) (2,055)
(Decrease) increase in obligations under
financing arrangements (40,388) 2,402
------- -------
Total cash provided by
financing activities 7,596 33,619
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (93,031) (49,646)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 144,700 59,872
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $51,669 $10,226
------- -------
------- -------
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 $11,105 $ 6,765
Income taxes $13,273 $10,470
</TABLE>
See notes to consolidated financial statements.
7
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BEST BUY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The consolidated balance sheets as of May 27, 1995, and May 28, 1994, the
related consolidated statements of earnings and cash flows for the three
months ended May 27, 1995, and May 28, 1994, and the consolidated statement
of changes in shareholders' equity for the three months ended May 27, 1995,
are unaudited; in the opinion of management, all adjustments necessary for
a fair presentation of such financial statements have been included and
were normal and recurring in nature. Interim results are not necessarily
indicative of results for a full year. The 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 February 25, 1995.
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. STOCK SPLIT:
The Company effected a two-for-one stock split in the form of a stock
dividend in April 1994. All common share and per share data reflect this
stock split.
5. EARNINGS PER SHARE:
Earnings per share relate to fully diluted earnings per share.
8
<PAGE>
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 were $4,672,000, or $.11 per share, compared
to net earnings of $4,241,000, or $.10 per share, in the comparable period last
year. Operating income increased 40% over the first quarter of last year.
Higher interest expense reduced the impact of the improvement on net earnings.
Revenues increased 50% to $1.275 billion from $849 million in last year's first
quarter. This increase in revenues is the result of a comparable store sales
increase of 6% and the revenues generated from the 60 stores opened in the past
12 months. Comparable store sales growth in the first quarter of last year was
37% due, in part, to the significant expansion of the lines of personal
computers that the Company carries. Absent significant changes in the economy,
the Company expects comparable store sales increases to remain in the single
digit range throughout most of the current fiscal year, more in line with
industry averages. The mix of product sales continues to reflect an increasing
contribution of home office and entertainment software categories which
comprised 40% and 16% of total sales, respectively, for the quarter. The
Company expects the launch of Microsoft's "Windows '95" software, scheduled for
late August, to increase the contribution of these two categories beginning in
the third quarter by generating additional computer software as well as hardware
revenues. In addition, the Company has announced that late in the second
quarter it will begin selling office supplies as a logical extension of its home
office product category.
Gross profit margin was 14.3% of sales for the first quarter of this year, up
from the 14.0% in the first quarter of last year and 13.6% for fiscal 1995. The
improvement was primarily due to Company initiatives directed at increasing
gross profit margins, including increased levels of customer service to enhance
sales of certain products and services. Although margins improved, competition
remains strong, particularly in the home office and entertainment software
categories. While the Company continues to develop the initiatives instituted
in the first quarter, the continuing competitive environment, a slowing economy
and promotional pricing associated with new store openings will impact gross
profit margins achieved.
Selling, general and administrative (SG&A) expenses were 13.0% of sales
compared to 12.6% of sales in the same period last year. The higher expense
ratio was the result of the higher costs associated with the new markets entered
in the past year. The fixed costs of the larger 45,000 and 58,000 square foot
stores opened last year, the distribution capacity added
9
<PAGE>
last year and the higher cost of advertising associated with the new markets,
which are not yet fully developed, contributed to the reduction in leverage
during the seasonally slower first quarter of the fiscal year. Management does
not expect improvement in the SG&A percentage until the third quarter of this
year when activity levels increase and leverage from additional new stores is
anticipated.
Extended service plan revenues represented less than 1% of revenues for the
first quarter of 1996 and 1995. Profit earned on extended service plans
contributed $4.2 million and $3.7 million to the Company's operating income in
the first quarter of fiscal 1996 and 1995, respectively. This profit is before
the allocation of any selling, general or administrative expenses, except for
direct selling expenses.
Interest expense increased to $8.6 million in the first quarter of this year
compared to $4.7 million in the first quarter of last year. The increase is
primarily attributable to interest on the $230 million convertible preferred
securities issued in November 1994.
Income tax expense in the first quarter was 39.7% of pre-tax income compared to
38.7% in the last fiscal year. The increase in the effective tax rate is
primarily a result of the elimination of the targeted jobs tax credit, which
expired December 31, 1994.
FINANCIAL CONDITION
Total assets and working capital at May 27, 1995 were basically unchanged from
February 25, 1995. During the first quarter inventories increased $94 million
principally in support of the new stores opened in the quarter and also due to
higher levels of new models of personal computers and an increase in seasonal
appliances as compared to the fiscal year end. The increased inventory levels
were funded through cash and the Company's credit facilities, as vendor
provided financing was unchanged during the quarter. Higher credit card sales
at the end of the period, due to the increased sales level, were responsible
for the majority of the increase in receivables compared to the end of the prior
year.
The Company opened nine new stores in the first quarter, including seven in the
new market of Miami late in the quarter. An additional 38 new stores are
planned for the remainder of the fiscal year with the majority of these stores
scheduled to open in existing markets. In addition to the new stores the
Company plans to expand or relocate approximately 20 stores during the remainder
of the fiscal year.
Approximately 20 of the new or relocated stores, as well as a new distribution
center in Findlay, Ohio, have been or will be developed by the Company.
Following development of the properties, the Company expects to recover the
development costs through long-term sale/leaseback
10
<PAGE>
financing. At the end of the first quarter eleven owned store locations,
aggregating approximately $60 million in cost, were under contract to sell and
lease back. The majority of the proceeds from the sale of these properties is
expected in the second quarter. Management is in the process of establishing a
program with an investment banking firm to sell and lease back the majority of
the other owned store locations and the new distribution facility. Costs of
development of these properties are classified as current assets and are
included in recoverable costs from developed properties.
Management expects capital expenditures for this fiscal year will be
approximately $100 million. This amount is net of the expected expenditure and
recovery of costs from the sale and lease back of developed properties.
Management believes that inventory credit facilities combined with long term
real estate development financing, primarily through sale/leasebacks, and cash
generated from operations will be sufficient to meet the Company's financing
needs for the current fiscal year.
11
<PAGE>
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:
No reports on Form 8-K were filed during the period.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BEST BUY CO., INC.
(Registrant)
Date: July 7, 1995 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
<PAGE>
EXHIBIT 11.1
BEST BUY CO., INC.
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Amounts in 000, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
May 27, May 28,
1995 1994
----------- ----------
<S> <C> <C>
Earnings:
Net earnings available to common shares $4,672 $4,241
------ ------
------ ------
Shares:
Weighted average common shares
outstanding 42,379 41,783
Adjustments:
Assumed issuance of shares purchased
under stock option plans 1,044 1,474
------ ------
Total common equivalent shares 42,423 43,257
------ ------
------ ------
Net earnings per common share $ .11 $ .10
------ ------
------ ------
</TABLE>
Note: The computation of earnings per common share assuming full dilution
results in anti-dilution.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements for the periods indicated and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-02-1996
<PERIOD-START> FEB-26-1995
<PERIOD-END> MAY-27-1995
<CASH> 51,669
<SECURITIES> 0
<RECEIVABLES> 100,005
<ALLOWANCES> 0
<INVENTORY> 1,002,391
<CURRENT-ASSETS> 1,279,245
<PP&E> 350,038
<DEPRECIATION> 100,785
<TOTAL-ASSETS> 1,558,042
<CURRENT-LIABILITIES> 672,719
<BONDS> 224,723
<COMMON> 4,259
0
0
<OTHER-SE> 381,144
<TOTAL-LIABILITY-AND-EQUITY> 1,558,042
<SALES> 1,274,696
<TOTAL-REVENUES> 1,274,696
<CGS> 1,092,408
<TOTAL-COSTS> 1,092,408
<OTHER-EXPENSES> 165,925
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,616
<INCOME-PRETAX> 7,747
<INCOME-TAX> 3,075
<INCOME-CONTINUING> 4,672
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,672
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
