Best Buy 2001 Annual Report Download - page 28

Best Buy Co., Inc.
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Liquidity and Capital Resources
The continued increase in cash flows from operations enabled the Company to internally fund its business expansion plans and
invest $513 million ($3 26 million net of cash acquired) to purchase Musicland and Magnolia Hi-Fi. Cash flow from operations
increased $32 million in fiscal 2001, to $808 million, driven by earnings growth. The Company’s cash flows were supplemented
by M icrosoft Corporation’s $200 million investment in Best Buy common stock. The Company’s financial position and liquidity
remain strong even with the significant investments in new growth and strategic initiatives. Cash and cash equivalents totaled $ 747
million at the end of fiscal 2001, basically unchanged from one year ago. The Company’s debt-to-capitalization ratio at the end
of fiscal 2001 was less than 10%.
Merchandise inventories increased by $144 million as a result of the net addition of 62 new Best Buy stores in the last year. Inventory
turns for Best Buy stores improved to 7.6 times for the fiscal year, compared with 7.2 times for the comparable period one year
ago. Average inventory per Best Buy store declined by approximately 3%, compared to the end of fiscal 2000. The acquisition
of Musicland and Magnolia Hi-Fi increased inventory at fiscal year-end by approximately $400 million.
Receivables, mainly credit card and vendor-related receivables, increased by $7 million compared with the prior year. The increase
was primarily due to higher business volume offset by a reduction in receivables from Internet service providers. Receivables from
sales on the Company’s private-label credit card are sold to third parties, and the Company does not bear risk of loss with respect
to these receivables. O ther assets increased $16 million from the end of fiscal 2000 due to the purchase of real estate associated
with the Company’s corporate facilities expansion plans and the purchase of insurance in connection with the Company’s deferred
compensation plan. The $15 million write-down of minority e-commerce investments offset the increase in other long-term assets. The
acquisition of Musicland and M agnolia Hi-Fi increased receivables and other assets other than goodwill at year-end by approximately
$70 million.
Accounts payable and other liabilities increased as compared with the end of fiscal 2000 as a result of higher business volume.
Accounts payable is impacted by the timing of payments to vendors and can fluctuate significantly. O ther liabilities also increased
due to advances received under alliances and an increase in outstanding gift cards. Increased accrued compensation resulting from
the expanding employee base supporting the Company’s growth and an increase in deferred taxes also contributed to the increase. The
acquisition of Musicland and M agnolia Hi-Fi increased accounts payable and other liabilities at fiscal year-end by approximately
$450 million.
The Company assumed $260 million of debt, with a fair value of $271 million, in connection with the acquisition of M usicland.
Subsequent to the end of fiscal 2001, $94 million of the debt was retired as a result of the debt’s change-in-control provisions.
O ther debt decreased compared to the prior fiscal year-end due to repayments, partially offset by the assumption of a mortgage
related to the investment in corporate real estate.
MD&A