Exhibit 99.2
Best Buy Co., Inc.
Unaudited Pro Forma Combined Financial Information
The following unaudited pro forma combined statements of earnings for the year ended February 26, 2000, and the nine months ended November 25, 2000, combine the historical consolidated income statement information of Best Buy Co., Inc. (Best Buy) and Musicland Stores Corporation and Subsidiaries (Musicland) and present pro forma financial results as if the acquisition of Musicland by Best Buy had been consummated at the beginning of the periods presented. The unaudited pro forma combined condensed balance sheet as of November 25, 2000, combines the historical consolidated balance sheet information of Best Buy and Musicland and presents the pro forma financial position as if the acquisition had been consummated on November 25, 2000. The transaction is being accounted for under the purchase method of accounting after giving effect to the pro forma adjustments described in the accompanying notes.
The approximate $425 million purchase price for Musicland, excluding the assumption of debt, has been allocated on a preliminary basis using information currently available. The allocation of the purchase price to the assets and liabilities acquired is expected to be finalized by the end of fiscal 2002. Adjustments to the preliminary purchase price may occur as a result of obtaining more information regarding asset valuations, liabilities assumed and revisions of preliminary estimates of fair values made at the date of purchase. The Company is continuing to evaluate how the acquired operations will be integrated into the Company’s overall business strategy.
The unaudited pro forma financial information has been prepared by management and adjusts the historical statements of earnings and balance sheet for the effect of costs, expenses, assets and liabilities which might have been incurred or assumed had the acquisition been effected on the dates indicated. The unaudited pro forma financial information is provided for information purposes only and does not purport to be indicative of the future results or financial position of the combined companies. This information should be read in conjunction with the consolidated financial statements and notes thereto included in Best Buy’s Form 10-K for the year ended February 26, 2000, and for Musicland in this Form 8-K/A.
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
BEST BUY CO., INC. AND MUSICLAND STORES CORPORATION AND SUBSIDIARIES
FOR THE YEAR ENDED FEBRUARY 26, 2000
$ in thousands, except per share amounts
| BEST BUY | MUSICLAND(E) | PRO FORMA ADJUSTMENTS INCREASE/ (DECREASE) | PRO FORMA COMBINED | |||
| Revenues | $12,494,023 | $1,891,828 | $ - | $14,385,851 | ||
| Cost of goods sold | 10,100,594 | 1,200,993 | - | 11,301,587 | ||
| Gross profit | 2,393,429 | 690,835 | - | 3,084,264 | ||
| Selling, general and administrative expenses | 1,854,170 | 584,794 | 15,906 1,800 | (A) (B) | 2,456,670 | |
| Operating income | 539,259 | 106,041 | (17,706) | 627,594 | ||
| Net interest expense (income) | (23,311) | 22,661 | 19,171 | (C) | 18,521 | |
| Earnings before income tax expense | 562,570 | 83,380 | (36,877) | 609,073 | ||
| Income tax expense | 215,500 | 25,000 | (2,352) | (D) | 238,148 | |
| Net earnings | $347,070 | $58,380 | $(34,525) | $370,925 | ||
| Basic earnings per share | $1.70 | $1.82 | ||||
| Diluted earnings per share | $1.63 | $1.74 | ||||
| Basic weighted average common shares outstanding (000s) | 204,194 | 204,194 | ||||
| Diluted weighted average common shares outstanding (000s) | 212,580 | 212,580 | ||||
| (A) | To record amortization of goodwill based on a 20-year life. The amortization was based on the preliminary allocation of the purchase price as of the actual date of purchase, January 31, 2001. This resulted in goodwill of $318,121. The purchase price allocation is subject to adjustment pending a final assessment of the assets acquired and the liabilities assumed. | |||||
| (B) | To record the net effect of straight-line rent and pension expense adjustments. | |||||
| (C) | To record lost interest income on the cash used to finance the acquisition at a 4.8% interest rate, net of the amortization of the premium assigned to the value of the debt assumed. | |||||
| (D) | To record the tax effect using a 39.1% estimated effective tax rate. The estimated effective tax rate is not necessarily indicative of the future effective tax rate of the combined companies. | |||||
| (E) | Musicland’s calendar year ended December 31, 1999. | |||||
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
BEST BUY CO., INC. AND MUSICLAND STORES CORPORATION AND SUBSIDIARIES
FOR THE NINE MONTHS ENDED NOVEMBER 25, 2000
$ in thousands, except per share amounts
| Unaudited | Unaudited | PRO FORMA ADJUSTMENTS INCREASE/ | PRO FORMA | |||
| BEST BUY | MUSICLAND(E) | (DECREASE) | COMBINED | |||
| Revenues | $9,864,969 | $1,207,700 | $ - | $11,072,669 | ||
| Cost of goods sold | 7,921,590 | 749,712 | - | 8,671,302 | ||
| Gross profit | 1,943,379 | 457,988 | - | 2,401,367 | ||
| Selling, general and administrative expenses | 1,634,498 | 437,351 | 11,930 1,350 | (A) (B) | 2,085,129 | |
| Operating income | 308,881 | 20,637 | (13,280) | 316,238 | ||
| Net interest expense (income) | (25,188) | 14,374 | 15,332 | (C) | 4,518 | |
| Earnings before income tax expense | 334,069 | 6,263 | (28,612) | 311,720 | ||
| Income tax expense | 127,900 | 2,443 | (8,460) | (D) | 121,883 | |
| Net earnings | $206,169 | $3,820 | $(20,152) | $189,837 | ||
| Basic earnings per share | $1.00 | $0.92 | ||||
| Diluted earnings per share | $0.97 | $0.89 | ||||
| Basic weighted average common shares outstanding (000s) | 206,277 | 206,277 | ||||
| Diluted weighted average common shares outstanding (000s) | 212,688 | 212,688 | ||||
| (A) | To record amortization of goodwill based on a 20-year life. The amortization was based on the preliminary allocation of the purchase price as of the actual date of purchase, January 31, 2001. This resulted in goodwill of $318,121. The purchase price allocation is subject to adjustment pending a final assessment of the assets acquired and the liabilities assumed. | |||||
| (B) | To record the net effect of straight-line rent and pension expense adjustments. | |||||
| (C) | To record lost interest income on the cash used to finance the acquisition at a 5.1% interest rate, net of the amortization of the premium assigned to the value of the debt assumed. | |||||
| (D) | To record the tax effect using a 39.1% estimated effective tax rate. The estimated effective tax rate is not necessarily indicative of the future effective tax rate of the combined companies. | |||||
| (E) | Musicland’s nine-month period ended September 30, 2000. | |||||
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
BEST BUY CO., INC. AND MUSICLAND STORES CORPORATION AND SUBSIDIARIES
NOVEMBER 25, 2000
$ in thousands
| Unaudited BEST BUY | PRO FORMA ADJUSTMENTS INCREASE/ (DECREASE) | PRO FORMA COMBINED | |||
| MUSICLAND(C) | |||||
| Assets | |||||
| Current Assets | |||||
| Cash and cash equivalents | $728,796 | $255,742 | $(423,865) | (A) | $560,673 |
| Short-term investments | - | 60,182 | - | 60,182 | |
| Receivables | 427,113 | - | - | 427,113 | |
| Recoverable costs from developed properties | 110,854 | - | - | 110,854 | |
| Merchandise inventories | 2,327,798 | 451,421 | (25,474) | (B) | 2,753,745 |
| Other current assets | 58,139 | 40,664 | 15,489 | (B) | 114,292 |
| Total current assets | 3,652,700 | 808,009 | (433,850) | 4,026,859 | |
| Investment in Musicland | - | - | 425,130 | (A) | - |
| (425,130) | (B) | ||||
| Net Property and Equipment | 1,049,801 | 261,198 | (9,912) | (B) | 1,301,087 |
| Goodwill | - | - | 331,561 | (B) | 331,561 |
| Other Assets | 79,463 | 22,609 | 403 | (B) | 102,475 |
| Total Assets | $4,781,964 | $1,091,816 | $(111,798) | $5,761,982 | |
| Liabilities and Stockholders’ Equity | |||||
| Current Liabilities | |||||
| Accounts payable | $2,483,262 | $480,372 | $2,963,634 | ||
| Other current liabilities | 531,930 | 184,761 | 21,500 | (B) | 738,191 |
| Total current liabilities | 3,015,192 | 665,133 | 21,500 | 3,701,825 | |
| Long-Term Liabilities | 119,921 | 34,922 | (13,964) | (B) | 140,879 |
| Long-Term Debt | 20,948 | 258,538 | 12,624 | (B) | 292,110 |
| Shareholders’ Equity | |||||
| Common stock, at par | 20,776 | 367 | (367) | (B) | 20,776 |
| Additional paid-in capital | 570,501 | 262,573 | (262,573) | (B) | 571,766 |
| 1,265 | (A) | ||||
| Retained earnings (deficit) | 1,034,626 | (87,857) | 87,857 | (B) | 1,034,626 |
| Other | - | (41,860) | 41,860 | (B) | - |
| Total shareholders’ equity | 1,625,903 | 133,223 | (131,958) | 1,627,168 | |
Total Liabilities and Shareholders’ Equity | $4,781,964 | $1,091,816 | $(111,798) | $5,761,982 |
| (A) | To establish investment in Musicland and give effect to the cash and options assumed that were used to finance the acquisition. |
| (B) | To eliminate investment in Musicland and record goodwill based upon the purchase price less fair value of assets acquired and liabilities assumed. The goodwill is based on the preliminary allocation of purchase price and is subject to change. Included in the pro forma balance sheet is a reduction in the valuation of inventories to reflect the expected net realizable value of excess Musicland inventory resulting from the combination of Best Buy and Musicland as well as the expected realization from products to be discontinued under the Company’s new business strategy. The adjustment to current liabilities includes an estimate for employee termination benefits expected to be paid as a result of the transaction. Other long-term liabilities were adjusted to eliminate the deferred credit related to the excess of historical rent expense over cash rents paid as well as an adjustment to increase the net pension liability to its expected termination value. Long-term debt assumed was recorded at its fair value. The increase in other current assets principally reflects the deferred tax attributes of the above adjustments. |
| (C) | Musicland’s financial position as of December 31, 2000. |