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MD&A pg 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 |
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Discontinued Operations During the fourth quarter of fiscal 2003, we committed to a plan to sell our interest in Musicland. In accordance with SFAS No. 144, we have reported the results of operations and financial position of Musicland in discontinued operations. Fiscal 2003, 2002 as adjusted, 2002 and 2001, reflect the classification of Musicland’s financial results as discontinued operations. |
| The results from discontinued operations for the past three fiscal years are as follows ($ in millions): |
| Discontinued
Operations Performance Summary (unaudited) |
2003 |
As-Adjusted 2002(1) | 2002 |
2001(2) |
| Revenue | $ 1,727 | $ 1,886 | $ 1,886 | $ 138 |
| Operating (loss) income before impairment | (72) | 31 | 29 | (7) |
| Long-lived asset impairment charge | (166) | — | — | — |
| Operating (loss) income | (238) | 31 | 29 | (7) |
| Interest expense | (6) | (20) | (19) | (1) |
| (Loss) earnings before income tax expense | (244) | 11 | 10 | (8) |
| Income tax (benefit) expense(3) | (119) | 11 | 10 | (3) |
| Loss before cumulative effect of accounting changes, net of tax | (125) | — | — | (5) |
| Cumulative effect of changes in accounting principles, net of tax | (316) | — | — | — |
| Loss from discontinued operations, net of tax | $ (441) |
$ — |
$ — | $ (5) |
| (1) As-adjusted
information conforms the accounting for vendor allowances to the
fiscal 2003 method. (2) Reflects results of operations of Musicland subsequent to its acquisition in the fourth quarter of fiscal 2001. (3) Fiscal 2003 includes a $25 million tax benefit resulting from the differences between the basis of assets and liabilities for financial reporting and income taxes arising at acquisition which will be realized upon the disposition of Musicland. |
| Musicland incurred an
operating loss of $72 million before impairment in fiscal 2003
compared with $31 million of operating income on an as-adjusted basis
in the prior fiscal year. The decline in operating income was
primarily due to reduced revenue and a lower gross profit rate. The
reduced revenue resulted from the continued decline in revenue from
prerecorded music, a reduction in the number of customers visiting
shopping malls and increased competition from discount stores and
big-box retailers. The gross profit rate declined in fiscal 2003 as a
result of a change in the revenue mix at Musicland stores, due to
increased revenue from lower-margin DVD movies and video gaming hardware and software and decreased revenue from higher-margin prerecorded music. In addition, a more promotional environment negatively impacted Musicland’s gross profit rate. The loss from discontinued operations, net of tax, was $441 million in fiscal 2003, compared with break-even results in fiscal 2002 as adjusted and a $5 million loss in fiscal 2001, which included results of operations only subsequent to the date of acquisition. In fiscal 2003, the $441 million loss from discontinued operations, net of tax, includes significant non-cash charges totaling $418 million. The charges include a $308 million after-tax goodwill impairment charge, an $8 million after-tax charge related to the change in accounting for vendor allowances and a $102 million after-tax charge ($166 million before tax) related to impairment of long-lived assets. In addition, discontinued operations includes a $23 million net loss from operations comprised of a $72 million operating loss before asset impairment charge, $6 million of interest expense and $55 million of income tax benefit. The $55 million income tax benefit includes $25 million resulting from differences between the basis of assets and liabilities for financial reporting and income taxes arising at acquisition which will be realized upon disposition of Musicland. Refer to the Significant Accounting Matters section for additional details. The fiscal 2003 loss from discontinued operations excludes future operating results and any future gains or losses resulting from the potential sale of our interest in Musicland. The final financial impact of the planned sale of our interest in Musicland is dependent upon the results of negotiations with the ultimate buyer(s). >> |
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