Best Buy 2005 Annual Report Download - page 100

$ in millions, except per share amounts
The following table reconciles the changes in our liability are accounted for under the equity method. We
for our acquired extended service contracts for the years reclassified certain prior-year amounts to conform to the
ended February 26, 2005, and February 28, 2004: current-year presentation. The aggregate principal
balance and carrying amount of our convertible
Balance at March 1, 2003 $ 28 debentures, which mature in 2022, is $402.
Service charges (13) In June 2004, we redeemed our convertible debentures
Foreign currency exchange rate fluctuation 3 due in 2021 for $355. These debentures were
Balance at February 28, 2004 18 guaranteed by Best Buy Stores, L.P. and certain of our
Service charges (10) other wholly owned subsidiaries.
Foreign currency exchange rate fluctuation 1 Additional information regarding the convertible
Balance February 26, 2005 $ 9 debentures is included in Note 4, Debt.
In fiscal 2004, we sold our interest in Musicland. The
12. Related-Party Transactions
statement of earnings for the year ended February 28,
Elliot S. Kaplan, a director, is a partner with the law firm 2004, includes a loss on disposal of discontinued
of Robins, Kaplan, Miller & Ciresi L.L.P. (RKMC), which operations (which was primarily noncash) of $66, net of
serves as our primary outside general counsel. Our Board tax, related to the sale of Musicland. In addition,
periodically reviews the fees paid to RKMC to ensure that approximately $198 of Musicland’s intercompany
they are competitive with fees charged by other law firms indebtedness to Best Buy Co., Inc. was eliminated in fiscal
comparable in size and expertise. We paid legal fees of 2004. This resulted in a loss of $198 that was recorded
$6, $4 and $4 to RKMC during fiscal 2005, 2004, and in Best Buy Co., Inc. with an offsetting $198 gain
2003, respectively. In addition, RKMC earned a recorded in the Non-Guarantor Subsidiaries, which
contingent fee of $6 in connection with the settlement of included Musicland. The elimination of intercompany
our claims against two credit card companies, which we indebtedness had no impact on our consolidated net
believe resulted in a significantly greater recovery for us earnings, financial position or cash flows.
than we would have received if we had not opted out of
a related class action lawsuit against the same Best Buy Co., Inc.’s fiscal 2005 gain on disposal of
defendants. The Board has approved the transactions with discontinued operations includes a $50 tax benefit
RKMC and our continued business dealings with the firm. resulting from the favorable resolution of outstanding tax
matters with the IRS regarding the disposition of our
We purchase certain store fixtures from Phoenix
interest in Musicland. Additional information regarding
Fixtures, Inc. (Phoenix), a company owned by the brother
Musicland is included in Note 2, Discontinued
of Richard M. Schulze, our Chairman of the Board. The
decision to conduct business with Phoenix was based on Operations.
both qualitative and quantitative factors including product Effective March 2, 2003, we revised our legal entity
quality, pricing, customer service and design flexibility. structure. This change resulted in including certain assets
Our Board reviewed our transactions with Phoenix and and liabilities, operating results and cash flows in the
determined that the transactions were at arm’s-length and Non-Guarantor Subsidiaries column that in prior periods
that Phoenix provides significant advantages with respect had been recorded in the Best Buy Co., Inc. or Guarantor
to service and delivery. Accordingly, the Board has Subsidiaries columns. The change had no impact on our
approved the transactions and our continued business consolidated net earnings, financial position or cash
dealings with Phoenix. The total amount paid to Phoenix flows. The Condensed Consolidating Financial Statements
during fiscal 2005, 2004 and 2003, was $20, $14 and for periods prior to March 2, 2003, have not been
$12, respectively. revised to reflect this change.
13. Condensed Consolidating Financial We file a consolidated U.S. federal income tax return.
Information Beginning with fiscal 2004, income taxes are allocated in
accordance with our tax allocation agreement. U.S.
Our convertible debentures, due in 2022, are guaranteed
affiliates receive no tax benefit for taxable losses, but are
by our wholly owned indirect subsidiary Best Buy Stores,
allocated taxes at the required effective income tax rate if
L.P. Investments in subsidiaries of Best Buy Stores, L.P.,
which have not guaranteed the convertible debentures, they have taxable income.
84