Best Buy 2013 Annual Report Download - page 44

Download and view the complete annual report

Please find page 44 of the 2013 Best Buy annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

44
result of changes in our international expansion strategy. These restructuring charges resulted in a decrease in our operating
income in fiscal 2012 and 2011 of 0.1% of revenue and 0.9% of revenue, respectively.
During the fourth quarter of fiscal 2012, we recorded a $1.2 billion goodwill impairment charge relating to our Best Buy
Europe reporting unit, as a result of the our purchase of CPW's interest in the Best Buy Mobile profit share agreement (the
"Mobile buy-out"). The cash flows attributable to Best Buy Europe under the profit share agreement represented a significant
proportion of the fair value attributable to the Best Buy Europe reporting unit. Accordingly, the Mobile buy-out resulted in
these cash flows no longer being available to the reporting unit. Upon completion of the Mobile buy-out, we performed an
impairment review of the associated goodwill and determined that the entire amount of $1.2 billion was impaired. Refer to
Note 3, Profit Share Buy-Out, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and
Supplementary Data, of this Transition Report on Form 10-K for further information about the goodwill impairment.
The International segment experienced an operating loss in fiscal 2012, compared to operating income in fiscal 2011, primarily
due to the write-off of $1.2 billion of goodwill at our Best Buy Europe reporting unit, partially offset by improved operating
income in Canada and lower ongoing support costs due to previous restructuring activities. The goodwill write-off more than
offset the increase in revenue and improvement in the gross profit rate in fiscal 2012. For further information on the Mobile
buy-out, see Additional Consolidated Results, below.
Additional Consolidated Results
Other Income (Expense)
In fiscal 2013 (11-month), we sold an equity method investment for a gain of $18 million. In fiscal 2012 (11-month recast) and
fiscal 2012, we sold our shares of common stock in TalkTalk Telecom Group PLC and Carphone Warehouse Group plc for
$112 million and recorded a pre-tax gain of $55 million related to the sale.
In fiscal 2013 (11-month), our investment income and other was $33 million, compared to $37 million in fiscal 2012 (11-month
recast). The decrease in fiscal 2013 (11-month) was primarily due to a lower average cash and cash equivalents balance,
partially offset by a higher weighted average interest rate on cash balances. Our investment income and other in fiscal 2012 was
$37 million, compared to $43 million in fiscal 2011. The decrease in investment income in fiscal 2012 compared to fiscal 2011
was primarily the result of lower returns on our deferred compensation assets.
Interest expense was $112 million in fiscal 2013 (11-month), compared to $121 million in fiscal 2012 (11-month recast). The
reduction in interest expense from the repayment of our convertible debt in January 2012, as well as the acceleration of
amortization costs from the early cancellation of our receivables credit facility in Europe in July 2011, was partially offset by
an increase in interest expense on our $1 billion of long-term debt securities that remained outstanding for all 11 months in
fiscal 2013 (11-month), compared to 9 months in fiscal 2012 (11-month recast). Interest expense in fiscal 2012 was
$134 million, compared to $86 million in fiscal 2011. 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.
Effective Income Tax Rate
Our effective income tax rate ("ETR") was (124.2)% in fiscal 2013 (11-month), compared to 83.7% in fiscal 2012 (11-month
recast). Excluding the impact of the goodwill impairments (which are not tax deductible), the ETR would have been 36.3% in
fiscal 2013 (11-month) and 31.9% in fiscal 2012 (11-month recast). The ETR, excluding goodwill impairments, in fiscal 2013
(11-month) was higher due to decreased tax benefits from foreign operations, which were due primarily to a decrease in foreign
earnings. Our 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 in fiscal 2012 would
have been approximately 32.7%.
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. federal 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.
Table of Contents