Best Buy 2003 Annual Report Download - page 168

$ in millions, except per share amounts
The mortgage and other debt are secured by certain property and equipment with a net book value of $30 and $43 at March 1, 2003,
and March 2, 2002, respectively.
Convertible Debentures
In January 2002, we sold convertible subordinated debentures having an aggregate principal amount of $402. The proceeds from the
offering, net of $6 in offering expenses, were $396. The debentures mature in 20 years and are callable at our option on or after
January 15, 2007. Holders may require us to purchase all or a portion of their debentures on January 15, 2007; January 15, 2012; and
January 15, 2017, at a purchase price equal to 100% of the principal amount of the debentures plus accrued and unpaid interest up to
but not including the date of purchase. The debentures will be convertible into shares of our common stock at a conversion rate of
14.4927 shares per $0.001 principal amount of debentures, equivalent to an initial conversion price of $69.00 per share, if the closing
price of our common stock exceeds a specified price for a specified period of time, or otherwise upon the occurrence of certain events.
The debentures have an initial interest rate of 2.25% per annum. The interest rate may be reset, but not below 2.25% or above 3.25%,
on July 15, 2006; July 15, 2011; and July 15, 2016.
In June 2001, we sold convertible debentures having an initial aggregate principal amount at maturity of $492. The proceeds from the
offering, net of $7 in offering expenses, were $330. The debentures mature in 20 years and are callable at our option on or after June
27, 2004. Holders may require us to purchase all or a portion of their debentures on June 27, 2004; June 27, 2009; and June 27, 2014,
at a purchase price equal to the accreted value of the debentures plus accrued and unpaid cash interest up to but not including the date
of purchase. The debentures will be convertible into shares of our common stock at a conversion rate of 11.8071 shares per $0.001
initial principal amount at maturity of the debentures, equivalent to an initial conversion price of $57.91 per share, if the closing price
of our common stock exceeds a specified price for a specified period of time, or otherwise upon the occurrence of certain events. The
debentures have an initial yield to maturity of 2.75% per annum, and a portion of the yield to maturity is paid as cash interest at the
rate of 1.0% per annum. The yield to maturity may be reset, but not below 2.75% or above 3.75%, on December 27, 2003; December
27, 2008; and December 27, 2013.
Certain of our wholly owned subsidiaries have guaranteed the debentures on an unsecured and subordinated basis.
Credit Agreements
We have two credit agreements that provide bank revolving credit facilities under which we can borrow up to $200 and $37,
respectively. Certain of our subsidiaries guarantee the $200 facility. Best Buy Co., Inc. and a wholly owned subsidiary have
guaranteed the $37 facility. Outstanding letters of credit reduce amounts available under the agreements. The $200 facility expires on
March 21, 2005, and the $37 facility expires on September 12, 2003. Borrowings under each of these facilities are unsecured and bear
interest at rates specified in the credit agreements, as we have elected. We also pay certain facility and agent fees. The credit
agreements contain covenants that require us to maintain certain financial ratios and minimum net worth. The $200 agreement also
requires that we have no outstanding principal balance for a period not less than 30 consecutive days.
As of March 1, 2003, and March 2, 2002, respectively, $212 and $221 were available under these two credit agreements. There were
no borrowings outstanding under our $200 facility for any period presented. The interest rates on amounts outstanding under the $37
facility were 4.75% and 3.75% at March 1, 2003, and March 2, 2002, respectively.
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$ in millions, except per share amounts
Master Lease
We have a master lease program which was used for the purpose of constructing and leasing new retail locations. At end of fiscal
2003, $59 in leases for new stores had been financed under the master lease program. The master lease program is now complete, and
there will be no further new store development under this program. The program is set to expire on January 1, 2006, and is renewable
for one year, subject to lenders’ consent. The lease is guaranteed by Best Buy Co., Inc.
Inventory Financing
We have a $200 inventory financing line. Borrowings are collateralized by a security interest in certain merchandise inventories
approximating the outstanding borrowings. The terms of this arrangement allow us to extend the due dates of invoices beyond their
normal terms. The amounts extended generally bear interest at rates ranging from 1.5% below prime rate to 0.5% above prime rate.
The prime rate was 4.25% and 4.75% as of March 1, 2003, and March 2, 2002, respectively. The line has provisions that give the