BEST BUY CO INC, 10-Q filed on 1/3/2012
Quarterly Report
Document and Entity Information
9 Months Ended
Nov. 26, 2011
Dec. 29, 2011
Document and Entity Information [Abstract}
 
 
Entity Registrant Name
BEST BUY CO INC 
 
Current Fiscal Year End Date
--03-03 
 
Document Fiscal Year Focus
2012 
 
Amendment Flag
FALSE 
 
Entity Current Reporting Status
Yes 
 
Entity Common Stock, Shares Outstanding
 
350,316,613 
Document Fiscal Period Focus
Q3 
 
Document Type
10-Q 
 
Entity Central Index Key
0000764478 
 
Document Period End Date
Nov. 26, 2011 
 
Entity Filer Category
Large Accelerated Filer 
 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Millions
Nov. 26, 2011
Feb. 26, 2011
Nov. 27, 2010
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$ 2,392 
$ 1,103 
$ 925 
Short-term investments
22 
Receivables
3,212 
2,348 
2,793 
Merchandise inventories
9,220 
5,897 
10,064 
Other current assets
1,085 
1,103 
1,045 
Total current assets
15,909 
10,473 
14,829 
PROPERTY AND EQUIPMENT, NET
3,567 
3,823 
3,994 
GOODWILL
2,420 
2,454 
2,441 
TRADENAMES, NET
129 
133 
145 
CUSTOMER RELATIONSHIPS, NET
165 
203 
220 
EQUITY AND OTHER INVESTMENTS
146 
328 
343 
OTHER ASSETS
412 
435 
380 
TOTAL ASSETS
22,748 
17,849 
22,352 
CURRENT LIABILITIES
 
 
 
Accounts payable
10,064 
4,894 
9,858 
Unredeemed gift card liabilities
428 
474 
424 
Accrued compensation and related expenses
497 
570 
464 
Accrued liabilities
1,976 
1,471 
1,920 
Accrued income taxes
11 
256 
31 
Short-term debt
163 
557 
690 
Current portion of long-term debt
427 1
441 1
33 1
Total current liabilities
13,566 
8,663 
13,420 
LONG-TERM LIABILITIES
1,119 
1,183 
1,166 
LONG-TERM DEBT
1,687 
711 
1,101 
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 - 353,991,000, 392,590,000 and 394,067,000 shares, respectively
35 
39 
39 
Additional paid-in capital
18 
Retained earnings
5,663 
6,372 
5,824 
Accumulated other comprehensive income
12 
173 
138 
Total Best Buy Co., Inc. shareholders' equity
5,710 
6,602 
6,001 
Noncontrolling interests
666 
690 
664 
Total equity
6,376 
7,292 
6,665 
TOTAL LIABILITIES AND EQUITY
$ 22,748 
$ 17,849 
$ 22,352 
CONDENSED CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) (USD $)
Nov. 26, 2011
Feb. 26, 2011
Nov. 27, 2010
Preferred stock, par value (in dollars per share)
$ 1 
$ 1 
$ 1 
Preferred stock, Authorized shares
400,000 
400,000 
400,000 
Preferred stock, Issued shares
Preferred stock, outstanding shares
Common stock, par value (in dollars per share)
$ 0.10 
$ 0.10 
$ 0.10 
Common stock, Authorized shares
1,000,000,000 
1,000,000,000 
1,000,000,000 
Common stock, Issued shares
353,991,000 
392,590,000 
394,067,000 
Common stock, outstanding shares
353,991,000 
392,590,000 
394,067,000 
CONSOLIDATED STATEMENTS OF EARNINGS (USD $)
In Millions, except Per Share data
3 Months Ended
Nov. 26, 2011
3 Months Ended
Nov. 27, 2010
9 Months Ended
Nov. 26, 2011
9 Months Ended
Nov. 27, 2010
Revenue
$ 12,099 
$ 11,890 
$ 34,386 
$ 34,016 
Cost of goods sold
9,155 
8,907 
25,802 
25,322 
Restructuring charges - cost of goods sold
13 
13 
Gross profit
2,931 
2,983 
8,571 
8,694 
Selling, general and administrative expenses
2,616 
2,598 
7,683 
7,585 
Restructuring charges
137 
141 
Operating income
178 
385 
747 
1,109 
Other income (expense)
 
 
 
 
Gain on sale of investments
55 
55 
Investment income and other
26 
33 
Interest expense
(37)
(20)
(102)
(64)
Earnings before income tax expense and equity in loss of affiliates
204 
373 
726 
1,078 
Income tax expense
72 
133 
270 
400 
Equity in loss of affiliates
(1)
(2)
Net earnings (loss) including noncontrolling interests
131 
240 
454 
678 
Net loss (earnings) attributable to noncontrolling interests
23 
(23)
13 
(52)
Net earnings (loss) attributable to Best Buy Co., Inc.
$ 154 
$ 217 
$ 467 
$ 626 
Earnings per share attributable to Best Buy Co., Inc.
 
 
 
 
Basic (in dollars per share)
$ 0.43 
$ 0.55 
$ 1.25 
$ 1.53 
Diluted (in dollars per share)
$ 0.42 
$ 0.54 
$ 1.23 
$ 1.50 
Dividends declared per common share (in dollars per share)
$ 0.16 
$ 0.15 
$ 0.46 
$ 0.43 
Weighted-average common shares outstanding (in millions)
 
 
 
 
Basic (in shares)
359.7 
397.1 
373.1 
410.3 
Diluted (in shares)
368.8 
407.8 
382.4 
420.7 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (USD $)
In Millions
Total
Total Best Buy Co., Inc.
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Noncontrolling Interests
Beginning balances at Feb. 27, 2010
$ 6,964 
$ 6,320 
$ 42 
$ 441 
$ 5,797 
$ 40 
$ 644 
Beginning balances (in shares) at Feb. 27, 2010
 
 
419 
 
 
 
 
Increase (Decrease) in Shareholders' Equity
 
 
 
 
 
 
 
Net earnings, nine months ended
678 
626 
626 
52 
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
40 
40 
(35)
Unrealized gains on available-for-sale investments
55 
55 
55 
Cash flow hedging instruments - unrealized gains (losses)
Total comprehensive income (loss)
744 
724 
 
 
 
 
20 
Stock-based compensation
87 
87 
87 
Stock options exercised (in shares)
 
 
 
 
 
 
Stock options exercised
127 
127 
127 
Issuance of common stock under employee stock purchase plan (in shares)
 
 
 
 
 
 
Issuance of common stock under employee stock purchase plan
44 
44 
44 
Tax benefit (deficit) from stock options exercised, restricted stock vesting and employee stock purchase plan
Common stock dividends, $0.46 per share during the period ended November 26, 2011 and $0.43 per share during the period ended November 27, 2010, respectively
(178)
(178)
(178)
Repurchase of common stock (in shares)
 
 
(31)
 
 
 
 
Repurchase of common stock
(1,128)
(1,128)
(3)
(704)
(421)
Ending balances at Nov. 27, 2010
6,665 
6,001 
39 
5,824 
138 
664 
Ending balances (in shares) at Nov. 27, 2010
 
 
394 
 
 
 
 
Beginning balances at Feb. 26, 2011
7,292 
6,602 
39 
18 
6,372 
173 
690 
Beginning balances (in shares) at Feb. 26, 2011
 
 
393 
 
 
 
 
Increase (Decrease) in Shareholders' Equity
 
 
 
 
 
 
 
Net earnings, nine months ended
454 
467 
467 
(13)
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(88)
(84)
(84)
(4)
Unrealized gains on available-for-sale investments
(29)
(29)
(29)
Reclassification adjustment for gain on available-for-sale securities included in net earnings
(48)
(48)
(48)
Cash flow hedging instruments - unrealized gains (losses)
Total comprehensive income (loss)
289 
306 
 
 
 
 
(17)
Dividend distribution
(7)
(7)
Stock-based compensation
93 
93 
93 
Stock options exercised (in shares)
 
 
 
 
 
 
Stock options exercised
26 
26 
26 
Issuance of common stock under employee stock purchase plan (in shares)
 
 
 
 
 
 
Issuance of common stock under employee stock purchase plan
38 
38 
38 
Tax benefit (deficit) from stock options exercised, restricted stock vesting and employee stock purchase plan
(6)
(6)
(6)
Common stock dividends, $0.46 per share during the period ended November 26, 2011 and $0.43 per share during the period ended November 27, 2010, respectively
(171)
(171)
(171)
Repurchase of common stock (in shares)
 
 
(42)
 
 
 
 
Repurchase of common stock
(1,178)
(1,178)
(4)
(169)
(1,005)
Ending balances at Nov. 26, 2011
$ 6,376 
$ 5,710 
$ 35 
$ 0 
$ 5,663 
$ 12 
$ 666 
Ending balances (in shares) at Nov. 26, 2011
 
 
354 
 
 
 
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (PARENTHETICAL)
3 Months Ended
Nov. 26, 2011
3 Months Ended
Nov. 27, 2010
9 Months Ended
Nov. 26, 2011
9 Months Ended
Nov. 27, 2010
Statement of Stockholders' Equity [Abstract]
 
 
 
 
Dividends declared per common share (in dollars per share)
$ 0.16 
$ 0.15 
$ 0.46 
$ 0.43 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions
9 Months Ended
Nov. 26, 2011
9 Months Ended
Nov. 27, 2010
OPERATING ACTIVITIES
 
 
Net earnings including noncontrolling interests
$ 454 
$ 678 
Adjustments to reconcile net earnings including noncontrolling interests to total cash provided by operating activities
 
 
Depreciation
668 
668 
Amortization of definite-lived intangible assets
38 
63 
Restructuring charges
154 
Realized gain on sale of investments
(55)
Stock-based compensation
93 
87 
Deferred income taxes
148 
(6)
Other, net
16 
Changes in operating assets and liabilities
 
 
Receivables
(761)
(805)
Merchandise inventories
(3,402)
(4,561)
Other assets
20 
80 
Accounts payable
5,278 
4,492 
Other liabilities
340 
159 
Income taxes
(364)
(313)
Total cash provided by (used in) operating activities
2,627 
545 
INVESTING ACTIVITIES
 
 
Additions to property and equipment
(616)
(529)
Purchases of investments
(111)
(245)
Sales of investments
167 
383 
Proceeds from sale of business, net of cash transferred
21 
Change in restricted assets
(31)
(1)
Other, net
(7)
10 
Total cash provided by (used in) investing activities
(598)
(361)
FINANCING ACTIVITIES
 
 
Repurchase of common stock
(1,165)
(1,128)
Borrowings of debt
2,438 
1,925 
Repayments of debt
(1,870)
(1,884)
Dividends paid
(172)
(178)
Issuance of common stock under employee stock purchase plan and for the exercise of stock options
64 
171 
Other, net
(22)
Total cash provided by (used in) financing activities
(727)
(1,093)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(13)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1,289 
(901)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
1,103 
1,826 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ 2,392 
$ 925 
Basis of Presentation
Basis of Presentation
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.
 
Historically, we have realized more of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Europe and Canada, than in any other fiscal quarter. 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 26, 2011.
 
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 Europe, China and Mexico operations on a two-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our consolidated financial statements. In November 2011, we announced plans to close our large-format Best Buy branded stores in the United Kingdom ("U.K."). Accordingly, $109 of restructuring charges related to the store closures were included in our third quarter of fiscal 2012 results. Except for these restructuring activities, no significant intervening events occurred which would have materially affected our financial condition, results of operations or liquidity had they been recorded during the three months ended November 26, 2011. We plan to close our large-format Best Buy branded stores in the U.K. during the fourth quarter of fiscal 2012; however, the stores remained open and continued operations throughout the third quarter of fiscal 2012. For further information about our fiscal 2012 restructuring and the nature of the charges we recorded, refer to Note 5, Restructuring Charges.
 
In preparing the accompanying condensed consolidated financial statements, we evaluated the period from November 27, 2011, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. Other than as described in Note 13, Subsequent Event, no such events were identified for this period.

Fiscal Year

On November 7, 2011, we announced our intention to change our fiscal year-end from the Saturday nearest the end of February to the Saturday nearest the end of January, effective beginning with our fiscal year 2013. This change will not impact our current fiscal year (fiscal year 2012), which will end on March 3, 2012. However, our fiscal year 2013 will be shortened from 12 months to 11 months and end on February 2, 2013.

New Accounting Standards
 
Comprehensive Income — In June 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance on the presentation of comprehensive income. Specifically, the new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. We do not believe our adoption of the new guidance in the first quarter of fiscal 2013 will have an impact on our consolidated financial position, results of operations or cash flows.
Fair Value Measurement — In April 2011, the FASB issued new guidance to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. This new guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. We do not believe our adoption of the new guidance in the first quarter of fiscal 2013 will have an impact on our consolidated financial position, results of operations or cash flows.

Investments
Investments
Investments
 
Investments were comprised of the following:

 
 
November 26,
2011
 
February 26,
2011
 
November 27,
2010
Short-term investments
 

 
 

 
 

Money market fund
$

 
$
2

 
$
2

U.S. Treasury bills

 
20

 

Total short-term investments
$

 
$
22

 
$
2

 
 
 
 
 
 
Equity and other investments
 

 
 

 
 

Debt securities (auction rate securities)
$
81

 
$
110

 
$
131

Marketable equity securities
1

 
146

 
145

Other investments
64

 
72

 
67

Total equity and other investments
$
146

 
$
328

 
$
343


Debt Securities
 
Our debt securities are comprised of auction rate securities (“ARS”). ARS were intended to behave like short-term debt instruments because their interest rates reset periodically through an auction process, most commonly at intervals of seven, 28 and 35 days. The auction process had historically provided a means by which we could rollover the investment or sell these securities at par in order to provide us with liquidity as needed. As a result, we classify our investments in ARS as available-for-sale and carry them at fair value.
 
In February 2008, auctions began to fail due to insufficient buyers, as the amount of securities submitted for sale in auctions exceeded the aggregate amount of the bids. For each failed auction, the interest rate on the security moves to a maximum rate specified for each security, and generally resets at a level higher than specified short-term interest rate benchmarks. To date, we have collected all interest due on our ARS and expect to continue to do so in the future. Due to persistent failed auctions, and the uncertainty of when these investments could be liquidated at par, we have classified all of our investments in ARS as non-current assets within equity and other investments in our condensed consolidated balance sheet at November 26, 2011.
 
We sold $4 of ARS at par during the third quarter of fiscal 2012. However, at November 26, 2011, our entire remaining ARS portfolio, consisting of 18 investments in ARS having an aggregate value at par of $89, was subject to failed auctions.
 
Our ARS portfolio consisted of the following, at fair value:
 
Description
 
Nature of collateral or guarantee
 
November 26,
2011
 
February 26,
2011
 
November 27,
2010
Student loan bonds
 
Student loans guaranteed 95% to 100% by the U.S. government
 
$
79

 
$
108

 
$
113

Municipal revenue bonds
 
100% insured by AA/Aa-rated bond insurers at November 26, 2011
 
2

 
2

 
18

Total fair value plus accrued interest(1)
 
 
 
$
81

 
$
110

 
$
131

 
(1) 
The par value and weighted-average interest rates (taxable equivalent) of our ARS were $89, $115 and $141, and 0.46%, 0.80% and 0.91%, respectively, at November 26, 2011, February 26, 2011, and November 27, 2010, respectively.
 
At November 26, 2011, our ARS portfolio was 88% AAA/Aaa-rated, 3% AA/Aa-rated and 9% A/A-rated.
 
The investment principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, or final payments are due according to the contractual maturities of the debt issuances, which range from five to 30 years. We do not intend to sell our remaining ARS until we can recover the full principal amount through one of the means described above. In addition, we do not believe it is more likely than not that we would be required to sell our remaining ARS until we can recover the full principal amount based on our other sources of liquidity.

We evaluated our entire ARS portfolio of $89 (par value) for impairment at November 26, 2011, based primarily on the methodology described in Note 3, Fair Value Measurements. As a result of this review, we determined that the fair value of our ARS portfolio at November 26, 2011, was $81. Accordingly, a $8 pre-tax unrealized loss is recognized in accumulated other comprehensive income. This unrealized loss reflects a temporary impairment on all of our investments in ARS. The estimated fair value of our ARS portfolio could change significantly based on future market conditions. We will continue to assess the fair value of our ARS portfolio for substantive changes in relevant market conditions, changes in our financial condition or other changes that may alter our estimates described above.
 
We may be required to record an additional unrealized holding loss or an impairment charge to earnings if we determine that our ARS portfolio has incurred a further decline in fair value that is temporary or other-than-temporary, respectively. Factors that we consider when assessing our ARS portfolio for other-than-temporary impairment include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period, the nature of the collateral or guarantees in place and our intent and ability to hold an investment.
 
We had $(5), $(3) and $(6) of unrealized loss, net of tax, recorded in accumulated other comprehensive income at November 26, 2011, February 26, 2011, and November 27, 2010 respectively, related to our investments in debt securities.
 
Marketable Equity Securities
 
We invest in marketable equity securities and classify them as available-for-sale. Investments in marketable equity securities are classified as non-current assets within equity and other investments in our condensed consolidated balance sheets and are reported at fair value based on quoted market prices.
 
Our investments in marketable equity securities were as follows:
 
 
November 26,
2011
 
February 26,
2011
 
November 27,
2010
Common stock of TalkTalk Telecom Group PLC
$

 
$
62

 
$
63

Common stock of Carphone Warehouse Group plc

 
84

 
78

Other
1

 

 
4

Total
$
1

 
$
146

 
$
145


 
We purchased shares of The Carphone Warehouse Group PLC (“CPW”) common stock in fiscal 2008, representing nearly 3% of CPW’s then outstanding shares. In March 2010, CPW demerged into two new holding companies: TalkTalk Telecom Group PLC (“TalkTalk”), which is the holding company for the fixed line voice and broadband telecommunications business of the former CPW, and Carphone Warehouse Group plc (“Carphone Warehouse”), which includes the former CPW’s 50% ownership interest in Best Buy Europe Distributions Limited (“Best Buy Europe”). Accordingly, our investment in CPW was exchanged for equivalent levels of investment in TalkTalk and Carphone Warehouse. In the third quarter of fiscal 2012, we sold our shares of TalkTalk and Carphone Warehouse for $112 ($51 for TalkTalk and $61 for Carphone Warehouse) and recognized a $55 pre-tax gain on the sale.
 
We review all investments for other-than-temporary impairment at least quarterly or as indicators of impairment exist. Indicators of impairment include the duration and severity of the decline in fair value as well as the intent and ability to hold the investment to allow for a recovery in the market value of the investment. In addition, we consider qualitative factors that include, but are not limited to: (i) the financial condition and business plans of the investee including its future earnings potential, (ii) the investee’s credit rating, and (iii) the current and expected market and industry conditions in which the investee operates. If a decline in the fair value of an investment is deemed by management to be other-than-temporary, the cost basis of the investment is written down to fair value, and the amount of the write-down is included in net earnings.
 
All unrealized holding gains or losses related to our investments in marketable equity securities are reflected net of tax in accumulated other comprehensive income in shareholders’ equity. The total unrealized gain, net of tax, included in accumulated other comprehensive income was $0, $75 and $75 at November 26, 2011, February 26, 2011, and November 27, 2010, respectively.
 
Other Investments
 
The aggregate carrying values of investments accounted for using either the cost method or the equity method, at November 26, 2011, February 26, 2011, and November 27, 2010, were $64, $72 and $67, respectively.
Fair Value Measurements
Fair Value Measurements
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 in which 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. 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 26, 2011, February 26, 2011, and November 27, 2010, according to the valuation techniques we used to determine their fair values.
 
 
 
 
Fair Value Measurements
Using Inputs Considered as
 
Fair Value at
November 26, 2011
 
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
$
851

 
$
851

 
$

 
$

Commercial paper
60

 

 
60

 

Other current assets
 

 
 

 
 

 
 

Money market funds (restricted cash)
160

 
160

 

 

U.S. Treasury bills (restricted cash)
20

 
20

 

 

Foreign currency derivative instruments
4

 

 
4

 

Equity and other investments
 

 
 

 
 

 
 

Auction rate securities
81

 

 

 
81

Marketable equity securities
1

 
1

 

 

Other assets
 

 
 

 
 

 
 

Marketable equity securities that fund deferred compensation
81

 
81

 

 

 
 
 
 
 
 
 
 
LIABILITIES
 

 
 

 
 

 
 

Long-term liabilities
 

 
 

 
 

 
 

Deferred compensation
63

 
63

 

 

 
 
 
Fair Value Measurements
Using Inputs Considered as
 
Fair Value at
February 26, 2011
 
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
$
70

 
$
70

 
$

 
$

Short-term investments
 

 
 

 
 

 
 

Money market fund
2

 

 
2

 

U.S. Treasury bills
20

 
20

 

 

Other current assets
 

 
 

 
 

 
 

Money market funds (restricted cash)
63

 
63

 

 

U.S. Treasury bills (restricted cash)
105

 
105

 

 

Foreign currency derivative instruments
2

 

 
2

 

Equity and other investments
 

 
 

 
 

 
 

Auction rate securities
110

 

 

 
110

Marketable equity securities
146

 
146

 

 

Other assets
 

 
 

 
 

 
 

Marketable equity securities that fund deferred compensation
83

 
83

 

 

 
 
 
 
 
 
 
 
LIABILITIES
 

 
 

 
 

 
 

Accrued liabilities
 

 
 

 
 

 
 

Foreign currency derivative instruments
1

 

 
1

 

Long-term liabilities
 

 
 

 
 

 
 

Deferred compensation
64

 
64

 

 

Foreign currency derivative instruments
2

 

 
2

 

 
 
 
 
Fair Value Measurements
Using Inputs Considered as
 
Fair Value at
November 27, 2010
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
ASSETS
 

 
 

 
 

 
 

Short-term investments
 

 
 

 
 

 
 

Money market fund
2

 

 
2

 

Other current assets
 

 
 

 
 

 
 

Money market funds (restricted assets)
66

 
66

 

 

U.S. Treasury bills (restricted assets)
85

 
85

 

 

Foreign currency derivative instruments
5

 

 
5

 

Equity and other investments
 

 
 

 
 

 
 

Auction rate securities
131

 

 

 
131

Marketable equity securities
145

 
145

 

 

Other assets
 

 
 

 
 

 
 

Marketable equity securities that fund deferred compensation
80

 
80

 

 

Foreign currency derivative instruments
4

 

 
4

 

 
 
 
 
 
 
 
 
LIABILITIES
 

 
 

 
 

 
 

Long-term liabilities
 

 
 

 
 

 
 

Deferred compensation
67

 
67

 

 



The following tables provide a reconciliation between 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 26, 2011, and November 27, 2010.
 
 
Debt securities-
Auction rate securities only
 
Student loan
bonds
 
Municipal
revenue bonds
 
Total
Balances at August 27, 2011
$
86

 
$
2

 
$
88

Changes in unrealized losses included in other comprehensive income
(3
)
 

 
(3
)
Sales
(4
)
 

 
(4
)
Balances at November 26, 2011
$
79

 
$
2

 
$
81

 
 
Debt securities-
Auction rate securities only
 
Student loan
bonds
 
Municipal
revenue bonds
 
Total
Balances at February 26, 2011
$
108

 
$
2

 
$
110

Changes in unrealized losses included in other comprehensive income
(3
)
 

 
(3
)
Sales
(26
)
 

 
(26
)
Balances at November 26, 2011
$
79

 
$
2

 
$
81

 

 
Debt securities-
Auction rate securities only
 
Student loan
bonds
 
Municipal
revenue bonds
 
Total
Balances at August 28, 2010
$
116

 
$
18

 
$
134

Changes in unrealized losses included in other comprehensive income

 

 

Sales
(3
)
 

 
(3
)
Balances at November 27, 2010
$
113

 
$
18

 
$
131

 
 
Debt securities-
Auction rate securities only
 
Student loan
bonds
 
Municipal
revenue bonds
 
Total
Balances at February 27, 2010
$
261

 
$
19

 
$
280

Changes in unrealized losses included in other comprehensive income
(5
)
 

 
(5
)
Sales
(142
)
 
(1
)
 
(143
)
Interest received
(1
)
 

 
(1
)
Balances at November 27, 2010
$
113

 
$
18

 
$
131



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 that are traded in an active market were measured at fair value using quoted market prices and, therefore, were classified as Level 1. Our money market fund investments not traded on a regular basis or in an active market, and for which we have been unable to obtain pricing information on an ongoing basis, were measured using inputs other than quoted market prices that are observable for the investments and, therefore, were classified as Level 2.
 
U.S. Treasury Bills.  Our U.S. Treasury notes were classified as Level 1 as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.
 
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.
 
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 ARS were classified as Level 3 as quoted prices were unavailable due to events described in Note 2, Investments. 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.
 
Deferred Compensation.  Our deferred compensation liabilities and 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.

Assets and Liabilities 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 condensed 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. Other than as described below, we had no significant remeasurements of such assets or liabilities to fair value during the nine months ended November 26, 2011, and November 27, 2010.

As a result of our fiscal 2011 and 2012 restructuring activities described in Note 5, Restructuring Charges, we remeasured the fair value of certain fixed assets and tradenames and recorded the consequent impairments. The following table summarizes the fair value remeasurements (impairments) recorded during the nine months ended November 26, 2011:
 
 
Nine Months Ended
 
November 26, 2011
 
Impairments
 
Remaining Net Carrying Value
Property and equipment
$
124

 
$

Tradename
3

 

Total
$
127

 
$



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 discounted cash flow ("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, as described in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 26, 2011. In the case of these specific assets, for which their 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, other investments, accounts payable, accrued liabilities and short- and long-term debt. The fair values of cash, receivables, accounts payable, accrued liabilities and short-term debt approximated carrying values because of the short-term nature of these instruments. 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.

Goodwill and Intangible Assets
Goodwill and Intangible Assets
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 26, 2011, and November 27, 2010:
 
 
Goodwill
 
Indefinite-lived Tradenames
 
Domestic
 
International
 
Total
 
Domestic
 
International
 
Total
Balances at February 26, 2011
$
422

 
$
2,032

 
$
2,454

 
$
21

 
$
84

 
$
105

Changes in foreign currency exchange rates

 
(38
)
 
(38
)
 

 
(2
)
 
(2
)
Acquisitions
4

 

 
4

 
1

 

 
1

Impairments

 

 

 
(3
)
 

 
(3
)
Other(1)

 

 

 

 
28

 
28

Balances at November 26, 2011
$
426

 
$
1,994

 
$
2,420

 
$
19

 
$
110

 
$
129

 
(1)         
Represents the transfer of certain definite-lived tradenames (at their net book value) to indefinite-lived tradenames following our decision to no longer phase out certain tradenames. We believe these tradenames will continue to contribute to our future cash flows indefinitely.
 
 
Goodwill
 
Indefinite-lived Tradenames
 
Domestic
 
International
 
Total
 
Domestic
 
International
 
Total
Balances at February 27, 2010
$
434

 
$
2,018

 
$
2,452

 
$
32

 
$
80

 
$
112

Sale of business(1)
(12
)
 

 
(12
)
 
(1
)
 

 
(1
)
Acquisition of noncontrolling interests

 
5

 
5

 

 

 

Changes in foreign currency exchange rates

 
(4
)
 
(4
)
 

 
2

 
2

Balances at November 27, 2010
$
422

 
$
2,019

 
$
2,441

 
$
31

 
$
82

 
$
113

 
(1)            
As a result of the sale of our Speakeasy business in the second quarter of fiscal 2011, we eliminated the carrying value of the related goodwill and indefinite-lived tradenames as of the date of sale.

The following table provides the gross carrying amount of goodwill and cumulative goodwill impairment losses:
 
 
November 26, 2011
 
February 26, 2011
 
November 27, 2010
 
Gross
Carrying
Amount
 
Cumulative
Impairment
 
Gross
Carrying
Amount
 
Cumulative
Impairment
 
Gross
Carrying
Amount
 
Cumulative
Impairment
Goodwill
$
2,485

 
$
(65
)
 
$
2,519

 
$
(65
)
 
$
2,506

 
$
(65
)

 
The following table provides the gross carrying values and related accumulated amortization of definite-lived intangible assets:
 
 
November 26, 2011
 
February 26, 2011
 
November 27, 2010
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Tradenames
$

 
$

 
$
73

 
$
(45
)
 
$
74

 
$
(42
)
Customer relationships
382

 
(217
)
 
383

 
(180
)
 
387

 
(167
)
Total
$
382

 
$
(217
)
 
$
456

 
$
(225
)
 
$
461

 
$
(209
)


Total amortization expense for the three months ended November 26, 2011, and November 27, 2010, was $8 and $20, respectively, and was $38 and $63 for the nine months then ended, respectively. The estimated future amortization expense for identifiable intangible assets is as follows:
 
Fiscal Year
 
Remainder of fiscal 2012
$
9

2013
35

2014
35

2015
35

2016
35

Thereafter
16


 
Best Buy Europe

In November 2011, we announced strategic changes in respect of Best Buy Europe, our consolidated subsidiary in which Carphone Warehouse holds a 50% noncontrolling interest. The strategic changes included an agreement to buy out Carphone Warehouse's share of the interest in the profit share-based management fee paid to Best Buy Europe pursuant to the 2007 Best Buy Mobile agreement (the "profit share agreement") for approximately $1,300 (the "Mobile buy-out"), subject to Carphone Warehouse shareholder approval. This transaction would result in the profit share agreement being fully assigned to a wholly-owned subsidiary of Best Buy and, accordingly, no further profit share payments would be payable to Best Buy Europe. The strategic changes also included plans to close our large-format Best Buy branded stores in the U.K. in the fourth quarter of fiscal 2012.

As of the end of the third quarter of fiscal 2012 and in light of strategic changes outlined above, we performed an interim evaluation of potential impairment of goodwill associated with the Best Buy Europe reporting unit. The fair value of the reporting unit, adjusted to reflect the exit plans for our large-format Best Buy branded stores in the U.K. and the fair value of the profit share agreement indicated by the Mobile buy-out price agreed upon with Carphone Warehouse, was determined to be in excess of carrying value of the Best Buy reporting unit as of the end of the third quarter of fiscal 2012.

However, upon approval by the shareholders of Carphone Warehouse of the Mobile buy-out, no further profit share payments would be payable to Best Buy Europe, which would lead to the new fair value of the reporting unit being significantly lower than the carrying value. Analysis to determine the extent of goodwill impairment that would arise as a result of the Mobile buy-out is ongoing, and preliminary estimates suggest substantially all of the goodwill attributable to the Best Buy Europe reporting unit (approximately $1,200 as of the end of the third quarter of fiscal 2012) would be impaired. If the shareholders of Carphone Warehouse approve the Mobile buy-out, we would record this non-cash impairment of goodwill in the consolidated statement of earnings in the fourth quarter of fiscal 2012.

Restructuring Charges
Restructuring Charges
Restructuring Charges
 
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 fiscal 2012 restructuring included plans to close our Best Buy branded large-format stores in the U.K. by the end of the fourth quarter of fiscal 2012 and refocus our Best Buy Europe strategy on our small-format stores. Within our Domestic segment, the actions included a decision to modify our strategy for certain mobile broadband offerings. We view these restructuring activities as necessary to meet our long-term financial performance objectives by refocusing our investments on areas that meet our return expectations.

We incurred $131 of charges related to the fiscal 2012 restructuring in the first nine months of fiscal 2012. Of the total charges, $17 related to our Domestic segment and consisted primarily of property and equipment impairments (primarily information technology assets) resulting from the modified strategy for certain mobile broadband offerings. The remaining $114 of charges related to our International segment and consisted primarily of property and equipment impairments, inventory write-downs, termination benefits and other costs, and were directly associated with the closure of our Best Buy branded stores in the U.K.

We expect further restructuring charges related to these activities to impact both our Domestic and International segments in the fourth quarter of fiscal 2012. We expect to incur approximately $10 of restructuring charges in our Domestic segment in the fourth quarter of fiscal 2012 related to the changes in our mobile broadband offerings discussed above. In addition, we expect to incur between $100 and $115 of restructuring charges in our International segment in the fourth quarter of fiscal 2012 related to the closure of the Best Buy branded stores in the U.K. The remaining charges in the International segment will consist primarily of facility closure costs, employee termination benefits and other contractual obligations and costs. We expect to substantially complete these restructuring activities in fiscal 2012.

Of the charges incurred in the first nine months of fiscal 2012 related to these restructuring activities, the inventory write-downs are presented in the restructuring charges – cost of goods sold line item in our condensed consolidated statements of earnings, and the remainder of the restructuring charges are included in the restructuring charges line item in our condensed consolidated statements of earnings. The composition of the restructuring charges we incurred in the nine months ended November 26, 2011, as well as the cumulative amount incurred through November 26, 2011, for our fiscal 2012 restructuring activities for both the Domestic and International segments, were as follows:

 
Domestic
 
International
 
Total
 
Nine Months
Ended
November 26, 2011
 
Cumulative
Amount
through
November 26, 2011
 
Nine Months
Ended
November 26, 2011
 
Cumulative
Amount
through
November 26, 2011
 
Nine Months
Ended
November 26, 2011
 
Cumulative
Amount
through
November 26, 2011
Inventory write-downs
$

 
$

 
$
13

 
$
13

 
$
13

 
$
13

Property and equipment impairments
17

 
17

 
92

 
92

 
109

 
109

Termination benefits

 

 
7

 
7

 
7

 
7

Facility closure and other costs, net

 

 
2

 
2

 
2

 
2

Total
$
17

 
$
17

 
$
114

 
$
114

 
$
131

 
$
131


 
The following table summarizes our restructuring accrual activity related to our fiscal 2012 restructuring activities during the nine months ended November 26, 2011, related to termination benefits and facility closure and other costs:
 
 
Termination
Benefits
 
Facility
Closure and
Other Costs
 
Total
Balance at February 26, 2011
$

 
$

 
$

Charges
7

 
2

 
9

Cash payments

 

 

Adjustments

 

 

Changes in foreign currency exchange rates

 

 

Balance at November 26, 2011
$
7

 
$
2

 
$
9


 
Fiscal 2011 Restructuring

In the fourth quarter of fiscal 2011, we implemented a series of actions to restructure operations in our domestic and international businesses. The fiscal 2011 restructuring included plans to exit the Turkey market, restructure the Best Buy branded stores in China and improve efficiencies in our Domestic segment’s operations. As part of the international restructuring, we also recognized the impairment of certain information technology assets supporting the restructured activities in our International segment. We view these restructuring activities as necessary to meet our long-term growth goals by investing in businesses that have the potential to meet our internal rate of return expectations. We believe these actions will improve the financial performance of our International segment and increase efficiency, enhance customer service and reduce costs in our Domestic segment’s operations.

We incurred $23 of charges related to the fiscal 2011 restructuring in the first nine months of fiscal 2012. Of the total charges, $23 related to our Domestic segment and consisted primarily of property and equipment impairments (notably information technology assets), facility closure costs and a tradename impairment. The restructuring charges recorded in the third quarter of fiscal 2012 were primarily related to our exit from certain digital delivery services within our entertainment product category, for which we entered into a sale agreement with a third party during the quarter. As the proceeds from the sale were lower than original expectations, additional impairments totaling $18 were recorded during the third quarter of fiscal 2012 to write down the tangible and intangible assets to their realizable value. Within our International segment, charges resulting from the completion of our exit from the Turkey market were effectively offset by adjustments associated with the restructure of our Best Buy branded stores in China during the first nine months of fiscal 2012. The net reduction in restructuring charges recorded in the third quarter of fiscal 2012 were primarily associated with adjustments to estimated facility closure costs, as we exited leased locations in China.

We do not expect to incur further material restructuring charges related to our fiscal 2011 restructuring activities in either our Domestic or International segments. We expect to substantially complete these restructuring activities in fiscal 2012.

All charges incurred in the first nine months of fiscal 2012 related to our fiscal 2011 restructuring activities are included in the restructuring charges line item in our consolidated statements of earnings. The composition of the restructuring charges we incurred in the nine months ended November 26, 2011, as well as the cumulative amount incurred through November 26, 2011, for our fiscal 2011 restructuring activities for both the Domestic and International segments, were as follows:
 
 
Domestic
 
International
 
Total
 
Nine Months
Ended
November 26, 2011
 
Cumulative
Amount
through
November 26, 2011
 
Nine Months
Ended
November 26, 2011
 
Cumulative
Amount
through
November 26, 2011
 
Nine Months
Ended
November 26, 2011
 
Cumulative
Amount
through
November 26, 2011
Inventory write-downs
$

 
$
10

 
$

 
$
14

 
$

 
$
24

Property and equipment impairments
15

 
30

 

 
132

 
15

 
162

Termination benefits
1

 
17

 
7

 
19

 
8

 
36

Intangible asset impairments
3

 
13

 

 

 
3

 
13

Facility closure and other costs, net
4

 
4

 
(7
)
 
6

 
(3
)
 
10

Total
$
23

 
$
74

 
$

 
$
171

 
$
23

 
$
245


 
The following table summarizes our restructuring accrual activity related to our fiscal 2011 restructuring activities during the nine months ended November 26, 2011, related to termination benefits and facility closure and other costs:
 
 
Termination
Benefits
 
Facility
Closure and
Other Costs(1)
 
Total
Balance at February 26, 2011
$
28

 
$
13

 
$
41

Charges
11

 
2

 
13

Cash payments
(26
)
 
(13
)
 
(39
)
Adjustments
(3
)
 
4

 
1

Changes in foreign currency exchange rates

 
1

 
1

Balance at November 26, 2011
$
10

 
$
7

 
$
17

 
(1) 
Included within the facility closure and other costs adjustments is $10 from the first quarter of fiscal 2011, representing an adjustment to exclude non-cash charges or benefits, which had no impact on our consolidated statements of earnings in the first nine months of fiscal 2012.

Debt
Debt
Debt
 
Short-Term Debt
 
Short-term debt consisted of the following:
 
 
November 26,
2011
 
February 26,
2011
 
November 27,
2010
U.S. revolving credit facility – 364-Day
$

 
$

 
$

U.S. revolving credit facility – Five-Year

 

 

JPMorgan revolving credit facility

 

 
500

New Europe revolving credit facility
155

 

 

Europe receivables financing facility

 
455

 
136

Europe revolving credit facility

 
98

 

Canada revolving demand facility

 

 

China revolving demand facilities
8

 
4

 
54

Total short-term debt
$
163

 
$
557

 
$
690

 
U.S. Revolving Credit Facilities

In October 2011, Best Buy Co., Inc. entered into a $1,000 364-day senior unsecured revolving credit facility agreement (the “364-Day Facility Agreement”) and a $1,500 five-year senior unsecured revolving credit facility agreement (the “Five-Year Facility Agreement”) (collectively the “Agreements”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, and a syndicate of banks. The Agreements replaced the $2,300 senior unsecured revolving credit facility, as amended (the “Credit Facility”), with a syndicate of banks, including JPMorgan acting as administrative agent. The Credit Facility was originally scheduled to expire in September 2012.

The Agreements permit borrowings up to $2,500 (which may be increased to up to $3,000 at our option under certain circumstances) and a $300 letter of credit sublimit. The 364-Day Facility Agreement and Five-Year Facility Agreement terminate in October 2012 (subject to a one-year term-out option) and October 2016, respectively.

Interest rates under the Agreements are variable and are determined at the our option as: (i) the sum of (a) the greatest of JPMorgan's prime rate, the federal funds rate plus 0.5%, or the one-month London Interbank Offered Rate (“LIBOR”) plus 1% and (b) a margin (the “ABR Margin”) or (ii) the LIBOR plus a margin (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 our current senior unsecured debt rating. Under the 364-Day Facility Agreement, the ABR Margin ranges from 0.0% to 0.525%, the LIBOR Margin ranges from 0.925% to 1.525%, and the facility fee ranges from 0.075% to 0.225%. Under the Five-Year Facility Agreement, the ABR Margin ranges from 0.0% to 0.475%, the LIBOR Margin ranges from 0.875% to 1.475%, and the facility fee ranges from 0.125% to 0.275%.

The Agreements are guaranteed by specified subsidiaries of Best Buy Co., Inc. and contain customary affirmative and negative covenants. Among other things, these covenants restrict Best Buy Co., Inc. and 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 Agreements also contain covenants that require the maintenance of a maximum quarterly cash flow leverage ratio and a minimum quarterly interest coverage ratio. The Agreements contain customary default provisions including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants.

Europe Revolving Credit Facility

In July 2011, Best Buy Europe entered into a new £400 ($623 based on the exchange rate in effect as of the end of the third quarter of fiscal 2012) unsecured revolving credit facility agreement (the “New RCF”) with ING Bank N.V., London Branch, as agent, and a syndicate of banks to finance its working capital needs. The New RCF expires in July 2015.

Interest rates under the New RCF are variable, based on LIBOR plus an applicable margin based on Best Buy Europe’s fixed charges coverage ratio. The New RCF includes a commitment fee of 40% of the applicable margin on unused available capacity, as well as a utilization fee ranging from 0.0% to 0.5% of the aggregate amount outstanding based on the percentage of the aggregate amount outstanding to the total New RCF. The New RCF also required an initial arrangement fee of 0.75%.

The New RCF is guaranteed by certain subsidiaries of Best Buy Europe and does not provide for any recourse to Best Buy Co., Inc. The New RCF contains customary affirmative and negative covenants. Among other things, these covenants restrict or prohibit Best Buy Europe’s ability to incur certain types or amounts of indebtedness, make material changes in the nature of its business, dispose of material assets, make guarantees, or engage in a change in control transaction. The New RCF also contains covenants that require Best Buy Europe to comply with a maximum annual leverage ratio and a maximum fixed charges coverage ratio.

The New RCF replaced the existing £350 receivables financing facility (the “ERF”) between a subsidiary of Best Buy Europe and a syndicate of banks, including Barclays Bank PLC acting as administrative agent. The ERF was originally scheduled to expire in July 2012. The New RCF also replaced Best Buy Europe’s existing £125 revolving credit facility (the “RCF”) with one of Best Buy Co., Inc.’s subsidiaries and Carphone Warehouse as lenders. The RCF was originally scheduled to expire in March 2013.
  
Long-Term Debt
 
Long-term debt consisted of the following:
 
 
November 26,
2011
 
February 26,
2011
 
November 27,
2010
2021 Notes
$
648

 
$

 
$

2013 Notes
500

 
500

 
500

2016 Notes
349

 

 

Convertible debentures
387

 
402

 
402

Financing lease obligations
160

 
170

 
173

Capital lease obligations
68

 
79

 
57

Other debt
2

 
1

 
2

Total long-term debt
2,114

 
1,152

 
1,134

Less: current portion(1)
(427
)
 
(441
)
 
(33
)
Total long-term debt, less current portion
$
1,687

 
$
711

 
$
1,101

 
(1)           
Since holders of our convertible debentures may require us to purchase all or a portion of the debentures on January 15, 2012, we classified the $387 for such debentures in the current portion of long-term debt at November 26, 2011, and February 26, 2011.
 
The fair value of long-term debt approximated $2,121, $1,210 and $1,235 at November 26, 2011, February 26, 2011, and November 27, 2010, respectively, based primarily on the ask prices quoted from external sources, compared with carrying values of $2,114, $1,152 and $1,134, respectively.
 
2016 and 2021 Notes
 
In March 2011, we issued $350 principal amount of notes due March 15, 2016 (the “2016 Notes”) and $650 principal amount of notes due March 15, 2021 (the “2021 Notes” and, together with the 2016 Notes, the “Notes”). The 2016 Notes bear interest at a fixed rate of 3.75% per year, while the 2021 Notes bear interest at a fixed rate of 5.50% per year. Interest on the Notes is payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2011. The Notes were issued at a slight discount to par, which when coupled with underwriting discounts of $6, resulted in net proceeds from the sale of the Notes of $990.
 
We may redeem some or all of the Notes at any time at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes redeemed and (ii) the sum of the present values of each remaining scheduled payment of principal and interest on the Notes redeemed discounted to the redemption date on a semiannual basis, plus accrued and unpaid interest on the principal amount of the Notes to the redemption date as described in the indenture (including the supplemental indenture) relating to the Notes. Furthermore, if a change of control triggering event occurs, we will be required to offer to purchase the remaining unredeemed Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the purchase date.

The Notes are unsecured and unsubordinated obligations and rank equally with all of our other unsecured and unsubordinated debt. The Notes contain covenants that, among other things, limit our ability to incur debt secured by liens or to enter into sale and lease-back transactions.

Convertible Debentures

In January 2002, we sold 2.25% convertible subordinated debentures due January 15, 2022, having an aggregate principal amount of $402. Since holders of our convertible debentures may require us to purchase all or a portion of those debentures on January 15, 2012, we have classified the remaining $387 of outstanding debentures in the current portion of long-term debt at November 26, 2011.

In December 2011, subsequent to the end of the third quarter of fiscal 2012, we notified the holders of our outstanding convertible debentures due January 15, 2022, that they have an option to require us to purchase all or a portion of such holders' convertible debentures promptly following the January 15, 2012 purchase date and that we elected to pay for any convertible debentures validly surrendered and not validly withdrawn with cash. The purchase price will be equal to 100% of the principal amount of the convertible debentures, plus any accrued and unpaid interest. Holders that do not surrender their convertible debentures for purchase will maintain the right to convert their convertible debentures into common stock pursuant to the original terms of the convertible debentures. The opportunity for holders to surrender their convertible debentures for purchase will expire on January 17, 2012. Our purchase of the outstanding convertible debentures will result in a reduction of the debt balance in our consolidated balance sheet at that time in an amount which is dependent upon the quantity of convertible debentures surrendered for purchase.

See Note 6, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 26, 2011, for additional information regarding the terms of our debt facilities, debt instruments and other obligations.
Derivative Instruments
Derivative Instruments
Derivative Instruments
 
We manage our economic and transaction exposure to certain market-based risks through the use of foreign currency derivative instruments. Our objective in holding derivatives is to reduce the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates. We do not hold or issue derivative financial instruments for trading or speculative purposes.
 
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 treatment. We formally document all hedging relationships at inception for all derivative hedges and the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transactions. In addition, we have derivatives which are not designated as hedging instruments. 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.
 
Cash Flow Hedges
 
We enter into foreign exchange forward contracts to hedge against the effect of exchange rate fluctuations on certain revenue streams denominated in non-functional currencies. The contracts may have terms of up to two years. We report the effective portion of the gain or loss on a cash flow hedge as a component of other comprehensive income, and it is subsequently reclassified into net earnings in the period in which the hedged transaction affects net earnings or the forecast transaction is no longer probable of occurring. We report the ineffective portion, if any, of the gain or loss in net earnings.
 
Derivatives Not Designated as Hedging Instruments
 
Derivatives not designated as hedging instruments include foreign exchange forward contracts used 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 may have terms of up to six months. These derivative instruments are not designated in hedging relationships and, therefore, we record gains and losses on these contracts directly in net earnings.
 
Summary of Derivative Balances
 
The following table presents the gross fair values for derivative instruments and the corresponding classification at November 26, 2011, February 26, 2011, and November 27, 2010:
 
 
 
November 26, 2011
 
February 26, 2011
 
November 27, 2010
Contract Type
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Cash flow hedges (foreign exchange forward contracts)
 
$

 
$

 
$
1

 
$
(2
)
 
$
9

 
$

No hedge designation (foreign exchange forward contracts)
 
4

 

 
2

 
(2
)
 
1

 
(1
)
Total
 
$
4

 
$

 
$
3

 
$
(4
)
 
$
10

 
$
(1
)


The following tables present the effects of derivative instruments on other comprehensive income (“OCI”) and on our consolidated statements of earnings for the three and nine months ended November 26, 2011 and November 27, 2010:
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
November 26, 2011
 
November 26, 2011
Contract Type
 
Pre-tax
(Loss)
Recognized in
OCI(1)
 
Gain
Reclassified
from
Accumulated
OCI to Earnings
(Effective
Portion)(2)
 
Pre-tax
Gain
Recognized in
OCI(1)
 
Gain
Reclassified
from
Accumulated
OCI to Earnings
(Effective
Portion)(2)
Cash flow hedges (foreign exchange forward contracts)
 
$
(5
)
 
$
1

 
$
8

 
$
8

 
 
 
Three Months Ended
 
Nine Months Ended
 
 
November 27, 2010
 
November 27, 2010
Contract Type
 
Pre-tax
(Loss)
Recognized in
OCI(1)
 
Gain
Reclassified
from
Accumulated
OCI to Earnings
(Effective
Portion)(2)
 
Pre-tax
Gain
Recognized in
OCI(1)
 
Gain
Reclassified
from
Accumulated
OCI to Earnings
(Effective
Portion)(2)
Cash flow hedges (foreign exchange forward contracts)
 
$
(1
)
 
$
2

 
$
9

 
$
3

Net investment hedges (foreign exchange swap contracts)
 

 

 
8

 

Total
 
$
(1
)
 
$
2

 
$
17

 
$
3


(1)          
Reflects the amount recognized in OCI prior to the reclassification of 50% to noncontrolling interests for the cash flow and net investment hedges, respectively.
 
(2)         
Gain reclassified from accumulated OCI is included within selling, general and administrative expenses (“SG&A”) in our consolidated statements of earnings.
 
The following table presents the effects of derivatives not designated as hedging instruments on our consolidated statements of earnings for the three and nine months ended November 26, 2011 and November 27, 2010:
 
 
 
Gain (Loss) Recognized within SG&A
 
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Nine Months Ended
Contract Type
 
November 26, 2011
 
November 26, 2011
 
November 27, 2010
 
November 27, 2010
No hedge designation (foreign exchange forward contracts)
 
$
22

 
$
13

 
$
(4
)
 
$
8


 
The following table presents the notional amounts of our foreign currency exchange contracts at November 26, 2011, February 26, 2011, and November 27, 2010:
 
 
 
Notional Amount
Contract Type
 
November 26,
2011
 
February 26,
2011
 
November 27,
2010
Derivatives designated as cash flow hedging instruments
 
$
228