Best Buy 2005 Annual Report Download - page 52

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Additional Consolidated Results Impact of Inflation and Changing Prices
Net Interest Income (Expense) The impact of inflation and changing prices has not been
material to our revenue or earnings from continuing
We reported net interest income of $1 million for fiscal operations in any of the last three fiscal years. Highly
2005, compared with net interest expense of $8 million competitive market conditions and the general economic
for fiscal 2004. The change in net interest income environment minimized inflation’s impact on the selling
(expense) was primarily a result of higher yields on prices of our products and our expenses. In addition,
short-term investments, higher average investment price deflation and the continued commoditization of key
balances and the repayment in June 2004 of our technology products affects our ability to increase our
convertible debentures due in 2021. These factors were gross profit rate.
partially offset by a charge of $21 million to correct our
accounting for leases. Liquidity and Capital Resources
Net interest expense increased to $8 million for fiscal Summary
2004, compared with net interest income of $4 million for
We ended fiscal 2005 with $3.3 billion of cash and cash
fiscal 2003. The increase was primarily a result of the
equivalents and short-term investments, an increase from
allocation of interest expense to discontinued operations
$2.6 billion at the end of fiscal 2004. Working capital,
for fiscal 2003. In addition, net interest expense increased
the excess of current assets over current liabilities,
approximately $4 million for fiscal 2004 as a result of
increased to $1.9 billion at the end of fiscal 2005,
interest expense related to the construction of our new
compared with $1.2 billion at the end of fiscal 2004.
corporate campus that was capitalized during fiscal
2003. Cash equivalents consist of highly liquid investments with
original maturities of 90 days or less. Short-term
For additional information regarding net interest income
investments were comprised of municipal and United
(expense), refer to Note 6, Net Interest Income (Expense),
States government debt securities with original maturities
of the Notes to Consolidated Financial Statements,
greater than 90 days but less than one year. In
included in Item 8, Financial Statements and
accordance with our investment policy, we place our
Supplementary Data, of this Annual Report on Form 10-K.
investments in debt securities with issuers who have
Effective Income Tax Rate high-quality credit and limit the amount of investment
exposure to any one issuer. We seek to preserve principal
Our effective income tax rate decreased to 35.3% for and minimize exposure to interest-rate fluctuations by
fiscal 2005, compared with 38.3% for fiscal 2004. The limiting default risk, market risk and reinvestment risk.
decrease in the effective income tax rate for fiscal 2005
was due to various state and federal tax matters Historically, we have classified investments in auction-rate
described below. debt securities as cash and cash equivalents based on our
ability to market and sell these investments at periodic
During fiscal 2005, we reduced our tax contingencies interest rate reset dates. Despite the long-term stated
reserve due to the favorable resolution and clarification of maturities of auction-rate debt securities, the interest rates
certain federal and state income tax matters, including a on these investments are reset periodically in an auction
favorable ruling from the IRS and the completion of IRS process that generally occurs every 90 days or less,
and certain state tax audits for fiscal 2000 through fiscal resulting in a highly liquid market for such securities. We
2002. have liquidated these investments at the periodic interest
Our effective income tax rate decreased to 38.3% for rate reset dates as necessary to fund current operations.
fiscal 2004, down from 38.7% for fiscal 2003. The To classify auction-rate debt securities as a cash
decrease was due primarily to a lower effective state equivalent, the stated maturity of the security must
income tax rate. generally be within three months of the date of purchase.
36