Best Buy 2001 Annual Report Download - page 27

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Best Buy Co., Inc.
28
Selling, general and administrative expenses (SG&A) increased to 16.0% of revenues in fiscal 2001 compared with 14.8% one
year ago, primarily as a result of the Company’s increased investment in strategic initiatives combined with a more modest sales growth
environment. The launch and operation of BestBuy.com was a significant component of the increase in the SG&A ratio. The start-up
costs associated with the opening of the N ew York market, as well as lower than anticipated productivity from the initial operations
of these stores, also added to the increase in the SG&A rate. Similar to the entry into Los Angeles, management currently expects
that the N ew York market will take longer to reach its projected productivity. Fiscal 2001 expenses also were impacted by the $15
million write-off of e-commerce company investments that increased SG&A by approximately 0.1% of revenues. In addition, the
costs associated with the operation, acquisition and integration of Musicland increased fiscal 2001 SG&A by approximately 0.2%
of revenues. The Company’s overall financial performance in fiscal 2001 benefited from its strategic alliance with M icrosoft
Corporation in the form of profit sharing and technology and marketing support.
The increase in SG &A as a percentage of revenues in fiscal 2000 compared with fiscal 1999 was primarily due to increased
spending on the Company’s strategic initiatives and expenses related to the greater number of new store openings. Fiscal 2000
strategic initiatives included the enhancement of operating systems and processes in Best Buy’s services area, which provides
product installation and repair services; early development of Best Buy’s e-commerce business; and refinement of Best Buy’s retail
operating model. Compensation costs also increased in fiscal 2000 to support the development of a more effective sales staff, the
hiring and training of store managers to support growth and the increase in corporate staff to drive strategic initiatives.
N et interest income increased to $37.2 million in fiscal 20 01 compared with $23.3 million in the same period last year. The increase
is due to higher cash balances compared to the prior fiscal year. The higher cash balances are the result of cash flows generated
from operations during the last 12 months, including improved inventory management and a $200 million investment in Best Buy
common stock by M icrosoft Corporation as part of the strategic alliance. Interest expense on the Musicland debt and lost interest
income on the cash used to acquire Musicland and Magnolia Hi-Fi reduced net interest income by approximately $4 million.
The Company’s effective income tax rate in fiscal 2 001 was 38.3%, unchanged from fiscal 2000. Historically, the Company’s
effective tax rate has been impacted primarily by the taxability of investment income and state income taxes.
MD&A