Best Buy 2012 Annual Report Download - page 47

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47
changes in our international expansion strategy. The fiscal 2010 restructuring charges were related primarily to employee
termination benefits and business reorganization costs at Best Buy Europe. These restructuring charges resulted in a decrease in
our operating income in fiscal 2011 and 2010 of 0.9% of revenue and 0.2% of revenue, respectively.
The increase in our International segment's operating income in fiscal 2011 resulted primarily from higher operating income in
Europe and from Five Star, partially offset by an increase in restructuring charges. Our International segment's operating
income in fiscal 2011 included $107 million of restructuring charges recorded in the fourth fiscal quarter, compared to
$27 million of restructuring charges recorded in fiscal 2010.
Additional Consolidated Results
Other Income (Expense)
In fiscal 2012, we sold our shares of common stock in TalkTalk Telecom Group PLC and Carphone Warehouse Group plc for
$112 million. We recorded a pre-tax gain of $55 million related to the sale.
Our investment income and other in fiscal 2012 was $37 million, compared to $43 million and $53 million in fiscal 2011 and
2010, respectively. The decrease in investment income for both fiscal 2012 compared to fiscal 2011 and fiscal 2011 compared
to fiscal 2010 was primarily the result of lower returns on our deferred compensation assets.
Interest expense in fiscal 2012 was $134 million, compared to $86 million and $92 million in fiscal 2011 and 2010,
respectively. The increase in interest expense in fiscal 2012, compared to fiscal 2011, was primarily driven by our issuance of
$1 billion of long-term debt securities in the first quarter of fiscal 2012. The relatively flat interest expense in fiscal 2011 as
compared to fiscal 2010 was the result of lower average short-term borrowings throughout fiscal 2011, partially offset by
higher average interest rates on outstanding short-term borrowings.
Effective Income Tax Rate
Our effective income tax rate ("ETR") was 68.0% in fiscal 2012, compared to 33.4% in fiscal 2011. The increase in the ETR in
fiscal 2012 compared to fiscal 2011 was mainly the result of the $1.2 billion goodwill impairment related to our Best Buy
Europe reporting unit, as the goodwill is not deductible for tax purposes. The tax impacts of foreign operations and other
discrete events had minimal impact on the year-over-year ETR. Excluding the impact of the goodwill impairment, the ETR
would have been approximately 32.7%. Our ETR was 33.4% in fiscal 2011, compared to 35.9% in fiscal 2010. The decrease in
the ETR in fiscal 2011 compared to fiscal 2010 was due primarily to the impact of increased tax benefits from foreign
operations, which in turn were due primarily to an increase in foreign earnings.
Our consolidated effective tax rate is impacted by the statutory income tax rates applicable to each of the jurisdictions in which
we operate. As our foreign earnings are generally taxed at lower statutory rates than the 35% U.S. statutory rate, changes in the
proportion of our consolidated taxable earnings originating in foreign jurisdictions impact our consolidated effective rate. Our
foreign earnings have been indefinitely reinvested outside the U.S. and are not subject to current U.S. income tax.
Discontinued Operations
Discontinued operations consists of our large-format Best Buy branded stores in China, Turkey and the U.K., and The Phone
House retail stores in Belgium in our International segment, as well as Napster and Speakeasy in our Domestic segment.
The increase in loss from discontinued operations in fiscal 2012 compared to fiscal 2011 was primarily the result of increased
restructuring charges. Net loss from discontinued operations included $186 million (net of taxes) of restructuring charges in
fiscal 2012 compared to $54 million (net of taxes) in fiscal 2011. The fiscal 2012 restructuring charges included inventory
write-downs, property and equipment impairments, facility closure costs, employee termination benefits and other costs
primarily related to the closure of our 11 large-format Best Buy branded stores in the U.K. The fiscal 2011 restructuring charges
included inventory write-downs, property and equipment impairments, employee termination benefits and facility closure costs
as a result of our decision to exit the Turkey market and close our Best Buy branded stores in China.
The increase in loss from discontinued operations in fiscal 2011 compared to fiscal 2010 was due to increased restructuring
charges and increased losses related to our large-format Best Buy branded stores in the U.K. Net loss from discontinued
operations included $54 million (net of taxes) of restructuring charges related to our decision to exit the Turkey market and
close our Best Buy branded stores in China. We recorded no restructuring charges related to discontinued operations in fiscal
2010.