Edgar Filing: BEST BUY CO INC

BBY (11/1/14) 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 1, 2014



¨	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 or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7601 Penn Avenue South
Richfield, Minnesota		55423
(Address of principal executive offices)		(Zip Code)

(612) 291-1000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x		Accelerated filer ¨

Non-accelerated filer ¨		Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The registrant had 350,759,999 shares of common stock outstanding as of November 28, 2014.

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BEST BUY CO., INC.

FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 1, 2014

TABLE OF CONTENTS



Part I — Financial Information				3

	Item 1.		Financial Statements	3

		a)	Condensed Consolidated Balance Sheets as of November 1, 2014, February 1, 2014, and November 2, 2013	3

		b)	Consolidated Statements of Earnings for the three and nine months ended November 1, 2014 and November 2, 2013	4

		c)	Consolidated Statements of Comprehensive Income for the three and nine months ended November 1, 2014 and November 2, 2013	5

		d)	Consolidated Statements of Changes in Shareholders' Equity for the nine months ended November 1, 2014 and November 2, 2013	6

		e)	Consolidated Statements of Cash Flows for the nine months ended November 1, 2014 and November 2, 2013	7

		f)	Notes to Condensed Consolidated Financial Statements	8

	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

	Item 3.		Quantitative and Qualitative Disclosures About Market Risk	39

	Item 4.		Controls and Procedures	39

Part II — Other Information				40

	Item 1.		Legal Proceedings	40

	Item 6.		Exhibits	40

Signatures				41

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PART I — FINANCIAL INFORMATION


Item 1.	Financial Statements

Condensed Consolidated Balance Sheets

($ in millions) (unaudited)



	November 1, 2014		February 1, 2014		November 2, 2013
Assets
Current assets
Cash and cash equivalents	$	1,929	$	2,678	$	2,170
Short-term investments	1,209		223		—
Receivables, net	1,066		1,308		1,123
Merchandise inventories	6,900		5,376		6,978
Other current assets	959		900		963
Total current assets	12,063		10,485		11,234
Property and equipment, net	2,524		2,598		2,726
Goodwill	425		425		528
Intangibles, net	99		101		175
Other assets	651		404		405
Total assets	$	15,762	$	14,013	$	15,068

Liabilities and equity
Current liabilities
Accounts payable	$	6,626	$	5,122	$	6,578
Unredeemed gift card liabilities	381		406		368
Deferred revenue	449		399		418
Accrued compensation and related expenses	305		444		350
Accrued liabilities	788		873		815
Accrued income taxes	33		147		91
Current portion of long-term debt	44		45		45
Total current liabilities	8,626		7,436		8,665
Long-term liabilities	972		976		1,035
Long-term debt	1,591		1,612		1,624
Equity
Best Buy Co., Inc. shareholders’ equity
Preferred stock, $1.00 par value: Authorized — 400,000 shares; Issued and outstanding — none	—		—		—
Common stock, $0.10 par value: Authorized — 1.0 billion shares; Issued and outstanding — 350,407,000, 346,751,000 and 345,564,000 shares, respectively	35		35		35
Additional paid-in capital	377		300		253
Retained earnings	3,689		3,159		2,926
Accumulated other comprehensive income	468		492		528
Total Best Buy Co., Inc. shareholders’ equity	4,569		3,986		3,742
Noncontrolling interests	4		3		2
Total equity	4,573		3,989		3,744
Total liabilities and equity	$	15,762	$	14,013	$	15,068

NOTE: The Consolidated Balance Sheet as of February 1, 2014, has been condensed from the audited consolidated financial statements.

See Notes to Condensed Consolidated Financial Statements.

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Consolidated Statements of Earnings

($ in millions, except per share amounts) (unaudited)



	Three Months Ended						Nine Months Ended
	November 1, 2014			November 2, 2013			November 1, 2014			November 2, 2013
Revenue	$	9,380		$	9,327		$	27,311		$	27,940
Cost of goods sold	7,252			7,170			21,108			21,167
Gross profit	2,128			2,157			6,203			6,773
Selling, general and administrative expenses	1,929			2,036			5,561			6,058
Restructuring charges	9			31			17			44
Operating income	190			90			625			671
Other income (expense)
Gain on sale of investments	5			4			7			18
Investment income and other	3			8			17			18
Interest expense	(22		)	(24		)	(68		)	(77		)
Earnings from continuing operations before income tax (benefit) expense	176			78			581			630
Income tax (benefit) expense	69			34			(133		)	252
Net earnings from continuing operations	107			44			714			378
Gain (loss) from discontinued operations (Note 2), net of tax benefit (expense) of $0, $10, ($1) and $34	—			10			1			(149		)
Net earnings including noncontrolling interests	107			54			715			229
Net earnings from continuing operations attributable to noncontrolling interests	—			(1		)	(1		)	(1		)
Net loss from discontinued operations attributable to noncontrolling interests	—			1			—			11
Net earnings attributable to Best Buy Co., Inc. shareholders	$	107		$	54		$	714		$	239

Basic earnings (loss) per share attributable to Best Buy Co., Inc. shareholders
Continuing operations	$	0.30		$	0.13		$	2.05		$	1.11
Discontinued operations	—			0.03			—			(0.41		)
Basic earnings per share	$	0.30		$	0.16		$	2.05		$	0.70

Diluted earnings (loss) per share attributable to Best Buy Co., Inc. shareholders
Continuing operations	$	0.30		$	0.12		$	2.02		$	1.09
Discontinued operations	—			0.04			—			(0.40		)
Diluted earnings per share	$	0.30		$	0.16		$	2.02		$	0.69

Dividends declared per common share	$	0.19		$	0.17		$	0.53		$	0.51

Weighted-average common shares outstanding (in millions)
Basic	350.1			342.8			349.0			340.7
Diluted	354.0			348.9			352.5			345.3

See Notes to Condensed Consolidated Financial Statements.

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Consolidated Statements of Comprehensive Income

($ in millions) (unaudited)



	Three Months Ended						Nine Months Ended
	November 1, 2014			November 2, 2013			November 1, 2014			November 2, 2013
Net earnings including noncontrolling interests	$	107		$	54		$	715		$	229
Foreign currency translation adjustments	(25		)	(2		)	(22		)	(106		)
Unrealized gain (loss) on available-for-sale investments	(1		)	1			(2		)	1
Reclassification of foreign currency translation adjustments into earnings due to sale of business	—			—			—			654
Reclassification of losses on available-for-sale investments into earnings	—			—			—			2
Comprehensive income including noncontrolling interests	81			53			691			780
Comprehensive income attributable to noncontrolling interests	—			—			(1		)	(125		)
Comprehensive income attributable to Best Buy Co., Inc. shareholders	$	81		$	53		$	690		$	655

See Notes to Condensed Consolidated Financial Statements.

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Consolidated Statements of Change in Shareholders' Equity

($ and shares in millions) (unaudited)



	Best Buy Co., Inc.
	Common Shares	Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Best Buy Co., Inc.			Non- controlling Interests			Total
Balances at February 1, 2014	347	$	35	$	300		$	3,159		$	492		$	3,986		$	3		$	3,989
Net earnings, nine months ended November 1, 2014	—	—		—			714			—			714			1			715
Foreign currency translation adjustments	—	—		—			—			(22		)	(22		)	—			(22		)
Unrealized losses on available-for-sale investments	—	—		—			—			(2		)	(2		)	—			(2		)
Stock-based compensation	—	—		64			—			—			64			—			64
Restricted stock vested and stock options exercised	3	—		19			—			—			19			—			19
Issuance of common stock under employee stock purchase plan	—	—		8			—			—			8			—			8
Tax deficit from stock options exercised, restricted stock vesting and employee stock purchase plan	—	—		(14		)	—			—			(14		)	—			(14		)
Common stock dividends, $0.53 per share	—	—		—			(184		)	—			(184		)	—			(184		)
Balances at November 1, 2014	350	$	35	$	377		$	3,689		$	468		$	4,569		$	4		$	4,573

Balances at February 2, 2013	338	$	34	$	54		$	2,861		$	112		$	3,061		$	654		$	3,715
Net earnings (loss), nine months ended November 2, 2013	—	—		—			239			—			239			(10		)	229
Foreign currency translation adjustments	—	—		—			—			(95		)	(95		)	(11		)	(106		)
Unrealized gains (losses) on available-for-sale investments	—	—		—			—			2			2			(1		)	1
Sale of noncontrolling interest	—	—		—			—			—			—			(776		)	(776		)
Dividend distribution	—	—		—			—			—			—			(1		)	(1		)
Reclassification of foreign currency translation adjustments into earnings	—	—		—			—			508			508			146			654
Reclassification of losses on available-for-sale investments into earnings	—	—		—			—			1			1			1			2
Stock-based compensation	—	—		74			—			—			74			—			74
Restricted stock vested and stock options exercised	7	1		135			—			—			136			—			136
Issuance of common stock under employee stock purchase plan	1	—		13			—			—			13			—			13
Tax deficit from stock options exercised, restricted stock vesting and employee stock purchase plan	—	—		(23		)	—			—			(23		)	—			(23		)
Common stock dividends, $0.51 per share	—	—		—			(174		)	—			(174		)	—			(174		)
Balances at November 2, 2013	346	$	35	$	253		$	2,926		$	528		$	3,742		$	2		$	3,744

See Notes to Condensed Consolidated Financial Statements.

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Consolidated Statements of Cash Flows

($ in millions) (unaudited)



	Nine Months Ended
	November 1, 2014			November 2, 2013
Operating activities
Net earnings including noncontrolling interests	$	715		$	229
Adjustments to reconcile net earnings including noncontrolling interests to total cash provided by operating activities:
Depreciation	484			537
Amortization of definite-lived intangible assets	—			13
Restructuring charges	17			144
(Gain) loss on sale of business, net	(1		)	123
Stock-based compensation	63			70
Deferred income taxes	(381		)	(3		)
Other, net	4			6
Changes in operating assets and liabilities:
Receivables	237			208
Merchandise inventories	(1,541		)	(974		)
Other assets	14			(102		)
Accounts payable	1,526			465
Other liabilities	(263		)	(347		)
Income taxes	(100		)	(45		)
Total cash provided by operating activities	774			324

Investing activities
Additions to property and equipment	(425		)	(422		)
Purchases of investments	(2,067		)	(5		)
Sales of investments	1,084			49
Proceeds from sale of business, net of cash transferred upon sale	38			67
Change in restricted assets	25			(3		)
Other, net	3			(1		)
Total cash used in investing activities	(1,342		)	(315		)

Financing activities
Borrowings of debt	—			2,414
Repayments of debt	(19		)	(2,027		)
Dividends paid	(185		)	(174		)
Issuance of common stock	27			147
Other, net	2			(1		)
Total cash provided by (used in) financing activities	(175		)	359
Effect of exchange rate changes on cash	(6		)	(24		)
Increase (decrease) in cash and cash equivalents	(749		)	344
Cash and cash equivalents at beginning of period	2,678			1,826
Cash and cash equivalents at end of period	$	1,929		$	2,170

See Notes to Condensed Consolidated Financial Statements.

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Notes to Condensed Consolidated Financial Statements

(unaudited)


1.	Basis of Presentation

Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us,” and “our” in these Notes to Condensed Consolidated Financial Statements refers to Best Buy Co., Inc. and its consolidated subsidiaries.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.

Description of Business

Historically, we have generated a higher proportion of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2014. The first nine months of fiscal 2015 and fiscal 2014 included 39 weeks.

In order to align our fiscal reporting periods and comply with statutory filing requirements in certain foreign jurisdictions, we consolidate the financial results of our China and Mexico operations on a one-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our consolidated financial statements. No such events were identified for this period.

In preparing the accompanying condensed consolidated financial statements, we evaluated the period from November 2, 2014, through the date the financial statements were issued, for material subsequent events requiring recognition or disclosure. Other than as disclosed in Note 13, Subsequent Event, no such events were identified for this period.


2.	Discontinued Operations

On June 26, 2013, we completed the sale of our 50% ownership interest in Best Buy Europe to Carphone Warehouse Group plc ("CPW") in return for the following consideration upon closing: net cash of £341 million ($526 million); £80 million ($123 million) of ordinary shares of CPW; £25 million ($39 million), plus 2.5% interest, to be paid by CPW on June 26, 2014; and £25 million ($39 million), plus 2.5% interest, to be paid by CPW on June 26, 2015. We subsequently sold the ordinary shares of CPW for $123 million on July 3, 2013, and we received the first such deferred cash payment on June 26, 2014.

Discontinued operations are comprised of mindSHIFT Technologies, Inc. ("mindSHIFT") operations within our Domestic segment, which we sold in the fourth quarter of fiscal 2014, and Best Buy Europe operations within our International segment, as described above. The presentation of discontinued operations has been retrospectively applied to all prior periods presented.

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The aggregate financial results of all discontinued operations for the three and nine months ended November 1, 2014 and November 2, 2013, respectively, were as follows ($ in millions):



	Three Months Ended				Nine Months Ended
	November 1, 2014		November 2, 2013		November 1, 2014			November 2, 2013
Revenue	$	—	$	35	$	—		$	2,785

Restructuring charges⁽¹⁾	—		—		—			100

Loss from discontinued operations before income tax benefit	—		—		—			(235		)
Income tax benefit⁽²⁾	—		10		—			34
Gain on sale of discontinued operations	—		—		2			52
Income tax expense on sale	—		—		(1		)	—
Net gain (loss) from discontinued operations, including noncontrolling interests	—		10		1			(149		)
Net loss from discontinued operations attributable to noncontrolling interests	—		1		—			11
Net gain (loss) from discontinued operations attributable to Best Buy Co., Inc. shareholders	$	—	$	11	$	1		$	(138	)


(1)	See Note 5, Restructuring Charges, for further discussion of the restructuring charges associated with discontinued operations.

(2)

Income tax benefit for the three months ended November 2, 2013 includes a $16 million benefit related to the impairment of our investment in Best Buy Europe, partially offset by $6 million of expense related to a tax allocation between continuing and discontinued operations. The fiscal 2014 effective tax rate for discontinued operations differs from the statutory tax rate primarily due to the tax allocation, restructuring charges and the impairment of our investment in Best Buy Europe. The restructuring charges and impairment generally included minimal related tax benefit. The deferred tax assets related to the restructuring charges generally resulted in an increase in the valuation allowance in an equal amount, while the investment impairment is generally not tax deductible.

3. Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs:

Level 1 — Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.

Level 2 — Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:


•	Quoted prices for similar assets or liabilities in active markets;


•	Quoted prices for identical or similar assets in non-active markets;


•	Inputs other than quoted prices that are observable for the asset or liability; and


•	Inputs that are derived principally from or corroborated by other observable market data.

Level 3 — Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

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The following tables set forth by level within the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis at November 1, 2014, February 1, 2014, and November 2, 2013, according to the valuation techniques we used to determine their fair values ($ in millions).



			Fair Value Measurements Using Inputs Considered as
	Fair Value at November 1, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS
Cash and cash equivalents
Money market funds	$	74	$	74	$	—	$	—
Corporate bonds	31		—		31		—
Commercial paper	91		—		91		—
Short-term investments
Corporate bonds	97		—		97		—
Commercial paper	381		—		381		—
Other current assets
Foreign currency derivative instruments	4		—		4		—
Other assets
Auction rate securities	9		—		—		9
Marketable equity securities	9		9		—		—
Marketable securities that fund deferred compensation	97		97		—		—



			Fair Value Measurements Using Inputs Considered as
	Fair Value at February 1, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS
Cash and cash equivalents
Money market funds	$	53	$	53	$	—	$	—
Commercial paper	80		—		80		—
Treasury bills	263		263		—		—
Short-term investments
Commercial paper	100		—		100		—
Other current assets
Foreign currency derivative instruments	2		—		2		—
Other assets
Auction rate securities	9		—		—		9
Marketable securities that fund deferred compensation	96		96		—		—

LIABILITIES
Accrued liabilities
Foreign currency derivative instruments	5		—		5		—

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			Fair Value Measurements Using Inputs Considered as
	Fair Value at November 2, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS
Cash and cash equivalents
Money market funds	$	495	$	495	$	—	$	—
Other assets
Auction rate securities	9		—		—		9
Marketable equity securities	10		10		—		—
Marketable securities that fund deferred compensation	94		94		—		—
LIABILITIES
Accrued liabilities
Foreign currency derivative instruments	2		—		2		—

There was no change in the beginning and ending balances of items measured at fair value on a recurring basis in the tables above that used significant unobservable inputs (Level 3) for the three and nine months ended November 1, 2014.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Money Market Funds. Our money market fund investments were measured at fair value as they trade in an active market using quoted market prices and therefore, were classified as Level 1.

Corporate Bonds. Our corporate bond investments were measured at fair value using quoted market prices. They were classified as Level 2 as they trade in a non-active market for which bond prices are readily available.

Commercial Paper. Our investments in commercial paper were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2.

Treasury Bills. Our Treasury bills were classified as Level 1 as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.

Foreign Currency Derivative Instruments. Comprised primarily of foreign currency forward contracts and foreign currency swap contracts, our foreign currency derivative instruments were measured at fair value using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. Our foreign currency derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

Auction Rate Securities. Our investments in auction rate securities ("ARS") were classified as Level 3 as quoted prices were unavailable. Due to limited market information, we utilized a discounted cash flow ("DCF") model to derive an estimate of fair value. The assumptions we used in preparing the DCF model included estimates with respect to the amount and timing of future interest and principal payments, forward projections of the interest rate benchmarks, the probability of full repayment of the principal considering the credit quality and guarantees in place, and the rate of return required by investors to own such securities given the current liquidity risk associated with ARS.

Marketable Equity Securities. Our marketable equity securities were measured at fair value using quoted market prices. They were classified as Level 1 as they trade in an active market for which closing stock prices are readily available.

Marketable Securities that Fund Deferred Compensation. The assets that fund our deferred compensation consist of investments in mutual funds. These investments were classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.

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Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on our Consolidated Balance Sheets. For these assets, we do not periodically adjust carrying value to fair value, except in the event of impairment. When we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded within operating income in our Consolidated Statements of Earnings.

The following table summarizes the fair value remeasurements for non-restructuring property and equipment impairments and restructuring activities recorded during the nine months ended November 1, 2014, and November 2, 2013 ($ in millions):



	Nine Months Ended				Nine Months Ended
	November 1, 2014				November 2, 2013
	Impairments		Remaining Net Carrying Value⁽¹⁾		Impairments		Remaining Net Carrying Value⁽¹⁾
Continuing operations
Property and equipment (non-restructuring)	$	28	$	17	$	37	$	—
Restructuring activities⁽²⁾
Property and equipment	—		—		4		—
Investments	—		—		16		—
Total continuing operations	$	28	$	17	$	57	$	—
Discontinued operations⁽³⁾
Property and equipment⁽⁴⁾	$	—	$	—	$	220	$	—
Tradename	—		—		4		—
Total discontinued operations	$	—	$	—	$	224	$	—


(1)	Remaining net carrying value approximates fair value.


(2)	See Note 5, Restructuring Charges, for additional information.


(3)	Property and equipment and tradename impairments associated with discontinued operations are recorded within gain (loss) from discontinued operations in our Consolidated Statements of Earnings.


(4)	Includes the $175 million impairment to write down the book value of our investment in Best Buy Europe to fair value based on expected net proceeds as described in Note 2, Discontinued Operations. The impairment was calculated based on the fair value and foreign currency translation adjustment associated with the business and was applied to the fixed assets.

All of the fair value remeasurements included in the table above were based on significant unobservable inputs (Level 3). Fixed asset fair values were derived using a DCF model to estimate the present value of net cash flows that the asset or asset group was expected to generate. The key inputs to the DCF model generally included our forecasts of net cash generated from revenue, expenses and other significant cash outflows, such as capital expenditures, as well as an appropriate discount rate. For the tradename, fair value was derived using the relief from royalty method. In the case of assets for which the impairment was the result of restructuring activities, no future cash flows have been assumed as the assets will cease to be used and expected sale values are nominal.

Fair Value of Financial Instruments

Our financial instruments, other than those presented in the disclosures above, include cash, receivables, short-term investments, other investments, accounts payable, other payables, and long-term debt. The fair values of cash, receivables, short-term investments, accounts payable and other payables approximated carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. Short-term investments other than those disclosed in the tables above represent time deposits. Fair values for other investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate fair value. See Note 6, Debt, for information about the fair value of our long-term debt.

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4. Goodwill and Intangible Assets

The changes in the carrying values of goodwill and indefinite-lived tradenames by segment were as follows in the nine months ended November 1, 2014, and November 2, 2013 ($ in millions):



	Goodwill						Indefinite-lived Tradenames
	Domestic		International		Total		Domestic		International			Total
Balances at February 1, 2014	$	425	$	—	$	425	$	19	$	82		$	101
Changes in foreign currency exchange rates	—		—		—		—		(2		)	(2		)
Balances at November 1, 2014	$	425	$	—	$	425	$	19	$	80		$	99



	Goodwill						Indefinite-lived Tradenames
	Domestic		International		Total		Domestic		International			Total
Balances at February 2, 2013	$	528	$	—	$	528	$	19	$	112		$	131
Changes in foreign currency exchange rates	—		—		—		—		(2		)	(2		)
Sale of Best Buy Europe	—		—		—		—		(22		)	(22		)
Impairments	—		—		—		—		(4		)	(4		)
Balances at November 2, 2013	$	528	$	—	$	528	$	19	$	84		$	103

The following table provides the gross carrying amount of goodwill and cumulative goodwill impairment losses ($ in millions):



	November 1, 2014					February 1, 2014					November 2, 2013
	Gross Carrying Amount⁽¹⁾		Cumulative Impairment⁽¹⁾			Gross Carrying Amount⁽¹⁾		Cumulative Impairment⁽¹⁾			Gross Carrying Amount		Cumulative Impairment
Goodwill	$	1,308	$	(883	)	$	1,308	$	(883	)	$	1,412	$	(884	)


(1)	Excludes the gross carrying amount and cumulative impairment related to mindSHIFT goodwill, which was sold during the fourth quarter of fiscal 2014.

5. Restructuring Charges

Charges incurred in the nine months ended November 1, 2014, and November 2, 2013, for our restructuring activities were as follows ($ in millions):



	Nine Months Ended
	November 1, 2014			November 2, 2013
Continuing operations
Renew Blue	$	23		$	52
Fiscal 2013 U.S. restructuring	(6		)	(8		)
Total continuing operations	17			44
Discontinued operations
Fiscal 2013 Europe restructuring	—			95
Fiscal 2012 restructuring	—			5
Total discontinued operations (Note 2)	—			100
Total restructuring charges	$	17		$	144

Renew Blue

In the fourth quarter of fiscal 2013, we began implementing initiatives intended to reduce costs and improve operating performance. These initiatives included focusing on core business activities, reducing headcount, updating our store operating model and optimizing our real estate portfolio. These cost reduction initiatives represented one of the key Renew Blue priorities for fiscal 2014 and cost reduction continues to be a priority in fiscal 2015. We incurred $23 million and $52 million of restructuring charges related to Renew Blue initiatives during the first nine months of fiscal 2015 and 2014, respectively. The charges in the first nine months of fiscal 2015 were primarily due to employee termination benefits and facility closure costs. The charges in the first nine months of fiscal 2014 were primarily comprised of employee termination benefits, investment

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impairments, and facility closure costs. We expect to continue to implement cost reduction initiatives throughout the remainder of fiscal 2015, as we further analyze our operations and strategies.

All restructuring charges related to this program are from continuing operations and are presented in restructuring charges in our Consolidated Statements of Earnings. The composition of the restructuring charges we incurred for this program in the nine months ended November 1, 2014, and November 2, 2013, as well as the cumulative amount incurred through November 1, 2014, was as follows ($ in millions):



	Domestic						International						Total
	Nine Months Ended				Cumulative Amount		Nine Months Ended				Cumulative Amount		Nine Months Ended				Cumulative Amount
	November 1, 2014		November 2, 2013		Cumulative Amount		November 1, 2014		November 2, 2013		Cumulative Amount		November 1, 2014		November 2, 2013		Cumulative Amount
Continuing operations
Inventory write-downs	$	—	$	—	$	1	$	—	$	—	$	—	$	—	$	—	$	1
Property and equipment impairments	—		2		14		1		2		26		1		4		40
Termination benefits	11		16		163		5		10		42		16		26		205
Investment impairments	—		16		43		—		—		—		—		16		43
Facility closure and other costs	1		—		4		5		6		66		6		6		70
Total	$	12	$	34	$	225	$	11	$	18	$	134	$	23	$	52	$	359

The following tables summarize our restructuring accrual activity during the nine months ended November 1, 2014, and November 2, 2013, related to termination benefits and facility closure and other costs associated with this program ($ in millions):



	Termination Benefits			Facility Closure and Other Costs			Total
Balances at February 1, 2014	$	111		$	51		$	162
Charges	35			12			47
Cash payments	(117		)	(16		)	(133		)
Adjustments⁽¹⁾	(19		)	(5		)	(24		)
Changes in foreign currency exchange rates	—			(6		)	(6		)
Balances at November 1, 2014	$	10		$	36		$	46


(1)	Adjustments to termination benefits were due to higher-than-expected employee retention. Adjustments to facility closure and other costs represent changes in sublease assumptions and reductions in our remaining lease obligations.



	Termination Benefits			Facility Closure and Other Costs			Total
Balances at February 2, 2013	$	54		$	54		$	108
Charges	25			14			39
Cash payments	(65		)	(16		)	(81		)
Adjustments	(7		)	8			1
Changes in foreign currency exchange rates	1			(1		)	—
Balances at November 2, 2013	$	8		$	59		$	67

Fiscal 2013 U.S. Restructuring

In the first quarter of fiscal 2013, we initiated a series of actions to restructure operations in our Domestic segment intended to improve operating performance. The actions included closure of 49 large-format Best Buy branded stores in the U.S. and changes to the store and corporate operating models. The costs of implementing the changes were primarily comprised of

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facility closure costs, employee termination benefits, and property and equipment (primarily store fixtures) impairments. We recognized a reduction to restructuring charges of $6 million and $8 million in the nine months ended November 1, 2014, and November 2, 2013, respectively, as a result of changes in sublease assumptions and the buyout of a lease for less than the remaining vacant space liability. We have completed activities under this restructuring program and do not expect to incur further material restructuring charges, with the exception of potential additional adjustments to facility closure and other costs. In addition, lease payments for vacated stores will continue until leases expire or are terminated.

The restructuring charges related to this program are from continuing operations and are presented in restructuring charges in our Consolidated Statements of Earnings. The composition of the restructuring charges we incurred for this program in the nine months ended November 1, 2014 and November 2, 2013, as well as the cumulative amount incurred through November 1, 2014, was as follows ($ in millions):



	Nine Months Ended						Cumulative Amount
	November 1, 2014			November 2, 2013			Cumulative Amount
Continuing operations
Property and equipment impairments	$	—		$	—		$	29
Termination benefits	—			—			77
Facility closure and other costs	(6		)	(8		)	139
Total	$	(6	)	$	(8	)	$	245



	Facility Closure and Other Costs
Balances at February 1, 2014	$	58
Charges	2
Cash payments	(16		)
Adjustments	(6		)
Balances at November 1, 2014	$	38



	Termination Benefits			Facility Closure and Other Costs			Total
Balances at February 2, 2013	$	4		$	113		$	117
Charges	—			3			3
Cash payments	(2		)	(39		)	(41		)
Adjustments⁽¹⁾	(2		)	(13		)	(15		)
Balances at November 2, 2013	$	—		$	64		$	64


(1)	Adjustments to facility closure and other costs represent reductions in our remaining lease obligations.

Fiscal 2013 Europe Restructuring

In the third quarter of fiscal 2013, we initiated a series of actions to restructure our Best Buy Europe operations in our International segment intended to improve operating performance. As described in Note 2, Discontinued Operations, we completed the sale of our 50% ownership interest in Best Buy Europe on June 26, 2013. This program ended as of the date of sale, at which time we wrote off all remaining restructuring liabilities. The cumulative amount of charges we incurred under this program was $131 million, which included $95 million in the first nine months of fiscal 2014, primarily related to property and equipment impairments and termination benefits. All restructuring charges related to this program are reported within gain (loss) from discontinued operations in our Consolidated Statements of Earnings.

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The following table summarizes our restructuring accrual activity during the nine months ended November 2, 2013, related to termination benefits and facility closure and other costs associated with this program ($ in millions):



	Termination Benefits			Facility Closure and Other Costs			Total
Balances at February 2, 2013	$	—		$	5		$	5
Charges	36			2			38
Cash payments	(2		)	(7		)	(9		)
Adjustments⁽¹⁾	(34		)	—			(34		)
Balances at November 2, 2013	$	—		$	—		$	—


(1)	Represents the remaining liability written off as a result of the sale of Best Buy Europe, as described in Note 2, Discontinued Operations.

Fiscal 2012 Restructuring

In the third quarter of fiscal 2012, we implemented a series of actions to restructure operations in our Domestic and International segments. The actions within our Domestic segment included a decision to modify our strategy for certain mobile broadband offerings. In our International segment, we closed our large-format Best Buy branded stores in the U.K. and impaired certain information technology assets supporting the restructured operations. The cumulative amount of charges we incurred under this program was $246 million, comprised of $22 million within our Domestic segment and $224 million within our International segment, primarily related to property and equipment impairments and facility closure and other costs. We incurred $5 million of charges related to this program in the first nine months of fiscal 2014, representing a change in sublease assumptions. We did not incur any charges related to this program in the first nine months of fiscal 2015 and do not expect to incur further material restructuring charges related to this program, as we have completed these restructuring activities.

The following table summarizes our restructuring accrual activity during the nine months ended November 2, 2013, related to facility closure and other costs associated with this program ($ in millions):



	Facility Closure and Other Costs
Balances at February 2, 2013	$	36
Cash payments	(33		)
Adjustments⁽¹⁾	(1		)
Changes in foreign currency exchange rates	(2		)
Balances at November 2, 2013	$	—


(1)	Included within Adjustments is a $5 million charge related to a change in sublease assumptions, offset by a $6 million adjustment to write off the remaining liability as a result of the sale of Best Buy Europe, as described in Note 2, Discontinued Operations.

6. Debt

U.S. Revolving Credit Facilities

Our $500 million 364-day senior unsecured revolving credit facility agreement with a syndicate of banks, which was entered into on June 25, 2013, expired on June 25, 2014.

On June 30, 2014, we entered into a $1.25 billion five-year senior unsecured revolving credit facility agreement (the "Five-Year Facility Agreement") with a syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.5 billion senior unsecured revolving credit facility with a syndicate of banks, which was originally scheduled to expire in October 2016, but was terminated on June 30, 2014.

The interest rate under the Five-Year Facility Agreement is variable and is determined at our option as: (i) the sum of (a) the greatest of (1) JPMorgan's prime rate, (2) the federal funds rate plus 0.5%, and (3) the one-month London Interbank Offered Rate (“LIBOR”) plus 1.0%, and (b) a variable margin rate (the “ABR Margin”); or (ii) the LIBOR plus a variable margin rate (the “LIBOR Margin”). In addition, a facility fee is assessed on the commitment amount. The ABR Margin, LIBOR Margin and the facility fee are based upon the registrant’s current senior unsecured debt rating. Under the Five-Year Facility Agreement, the ABR Margin ranges from 0.0% to 0.925%, the LIBOR Margin ranges from 1.000% to 1.925%, and the facility fee ranges from 0.125% to 0.325%.

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The Five-Year Facility Agreement is guaranteed by specified subsidiaries of Best Buy Co., Inc. and contains affirmative and negative covenants. Among other things, these covenants restrict Best Buy Co., Inc. and certain of its subsidiaries’ ability to incur certain types or amounts of indebtedness, incur liens on certain assets, make material changes in corporate structure or the nature of its business, dispose of material assets, engage in a change in control transaction, make certain foreign investments, enter into certain restrictive agreements, or engage in certain transactions with affiliates. The Five-Year Facility Agreement also contains financial covenants that require us to maintain a maximum cash flow leverage ratio and a minimum interest coverage ratio (both ratios measured quarterly for the previous 12 months). The Five-Year Facility Agreement contains default provisions including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants.

Long-Term Debt

Long-term debt consisted of the following ($ in millions):



	November 1, 2014			February 1, 2014			November 2, 2013
2016 Notes	$	350		$	349		$	349
2018 Notes	500			500			500
2021 Notes	649			649			649
Financing lease obligations	77			95			103
Capital lease obligations	59			63			67
Other debt	—			1			1
Total long-term debt	1,635			1,657			1,669
Less: current portion	(44		)	(45		)	(45		)
Total long-term debt, less current portion	$	1,591		$	1,612		$	1,624

The fair value of long-term debt approximated $1,672 million, $1,690 million, and $1,717 million at November 1, 2014, February 1, 2014, and November 2, 2013, respectively, based primarily on the market prices quoted from external sources, compared with carrying values of $1,635 million, $1,657 million, and $1,669 million, respectively. If long-term debt was measured at fair value in the financial statements, it would be classified primarily as Level 2 in the fair value hierarchy.

See Note 7, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2014, for additional information regarding the terms of our debt facilities, debt instruments and other obligations.

7. Derivative Instruments

We manage our economic and transaction exposure to certain risks through the use of foreign currency derivative instruments. Our objective in holding these derivatives is to reduce the volatility of net earnings and cash flows, as well as net asset value associated with changes in foreign currency exchange rates. We do not hold derivative instruments for trading or speculative purposes. We have no derivatives that have credit risk-related contingent features, and we mitigate our credit risk by engaging with major financial institutions as our counterparties.

We record all foreign currency derivative instruments on our Condensed Consolidated Balance Sheets at fair value and evaluate hedge effectiveness prospectively and retrospectively when electing to apply hedge accounting. We formally document all hedging relations at inception for derivative hedges and the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transaction. In addition, we have derivatives which are not designated as hedging instruments.

Net Investment Hedges

During the third quarter of fiscal 2015, we entered into foreign exchange forward contracts to hedge against the effect of Canadian dollar exchange rate fluctuations on a portion of our net investment in our Canadian operations. The contracts have terms up to 12 months. For a net investment hedge, we recognize changes in the fair value of the derivative as a component of foreign currency translation within other comprehensive income to offset a portion of the change in translated value of the net investment being hedged, until the investment is sold or liquidated. We limit recognition in net earnings of amounts previously recorded in other comprehensive income to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. We report the ineffective portion of the gain or loss, if any, in net earnings. At November 1, 2014, the notional amount of these instruments was $106 million, and we recognized a pre-tax gain of $1 million

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in other comprehensive income in our Condensed Consolidated Balance Sheets. We did not reclassify any amount from accumulated other comprehensive income to net earnings, and we did not recognize any amount related to ineffectiveness in net earnings during the three and nine months ended November 1, 2014.

Derivatives Not Designated as Hedging Instruments

We use foreign currency forward contracts to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies, and on certain forecast inventory purchases denominated in non-functional currencies. The contracts generally have terms of up to 12 months. These derivative instruments are not designated in hedging relationships and, therefore, we record gains and losses on these contracts directly to net earnings. At November 1, 2014, February 1, 2014, and November 2, 2013, the notional amount of these instruments was $111 million, $157 million, and $138 million, respectively. We recognized a gain of $4 million in selling general and administrative ("SG&A") expenses in our Consolidated Statements of Earnings during the three months ended November 1, 2014 related to these instruments. We recognized no material SG&A impact from these instruments during the nine months ended November 1, 2014. For the three and nine months ended November 2, 2013, we recognized a $3 million loss and $3 million gain, respectively, in SG&A expenses.

In conjunction with our agreement to sell our 50% ownership interest in Best Buy Europe as described in Note 2, Discontinued Operations, we entered into a deal-contingent foreign currency forward contract to hedge £455 million of the total £471 million of net proceeds. The contract was settled in cash following the completion of the sale on June 26, 2013. This instrument had no effect on our Consolidated Statements of Earnings in the three months ended November 2, 2013, and we recognized a $2 million loss recognized in gain (loss) from discontinued operations in the nine months ended November 2, 2013.

8. Earnings per Share

We compute our basic earnings per share based on the weighted-average number of common shares outstanding and our diluted earnings per share based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had potentially dilutive common shares been issued. Potentially dilutive securities include stock options, nonvested share awards and shares issuable under our employee stock purchase plan. Nonvested market-based share awards and nonvested performance-based share awards are included in the average diluted shares outstanding for each period if established market or performance criteria have been met at the end of the respective periods.

The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share from continuing operations attributable to Best Buy Co., Inc. ($ and shares in millions):



	Three Months Ended					Nine Months Ended
	November 1, 2014		November 2, 2013			November 1, 2014			November 2, 2013
Numerator
Net earnings from continuing operations	$	107	$	44		$	714		$	378
Net earnings from continuing operations attributable to noncontrolling interests	—		(1		)	(1		)	(1		)
Net earnings from continuing operations attributable to Best Buy Co., Inc.	$	107	$	43		$	713		$	377

Denominator
Weighted-average common shares outstanding	350.1		342.8			349.0			340.7
Effect of potentially dilutive securities:
Nonvested share awards	3.9		6.1			3.5			4.6
Weighted-average common shares outstanding, assuming dilution	354.0		348.9			352.5			345.3

Net earnings per share from continuing operations attributable to Best Buy Co., Inc.
Basic	$	0.30	$	0.13		$	2.05		$	1.11
Diluted	$	0.30	$	0.12		$	2.02		$	1.09

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The computation of weighted-average common shares outstanding, assuming dilution, excluded options to purchase 11.6 million and 12.6 million shares of our common stock for the three months ended November 1, 2014, and November 2, 2013, respectively, and options to purchase 13.8 million and 16.4 million shares of our common stock for the nine months ended November 1, 2014, and November 2, 2013, respectively. These amounts were excluded as the options’ exercise prices were greater than the average market price of our common stock for the periods presented and, therefore, the effect would be anti-dilutive (i.e., including such options would result in higher earnings per share).

9. Comprehensive Income

The following tables provide a reconciliation of the components of accumulated other comprehensive income, net of tax, attributable to Best Buy Co., Inc. for the three and nine months ended November 1, 2014, and the three and nine months ended November 2, 2013, respectively ($ in millions).



	Foreign Currency Translation			Available-For-Sale Investments			Total
Balances at August 2, 2014	$	488		$	6		494
Foreign currency translation adjustments	(25		)	—			(25		)
Unrealized losses on available-for-sale investments	—			(1		)	(1		)
Balances at November 1, 2014	$	463		$	5		$	468

	Foreign Currency Translation			Available-For-Sale Investments			Total
Balances at February 1, 2014	$	485		$	7		$	492
Foreign currency translation adjustments	(22		)	—			(22		)
Unrealized losses on available-for-sale investments	—			(2		)	(2		)
Balances at November 1, 2014	$	463		$	5		$	468



	Foreign Currency Translation		Available-For-Sale Investments		Total
Balances at August 3, 2013	$	528	$	<