Best Buy 2016 Annual Report Download - page 48

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40
decrease in our operating income rate in fiscal 2014 of 0.5% of revenue. Refer to Note 4, Restructuring Charges, of the Notes
to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report
on Form 10-K for further information about our restructuring activities.
Our International segment operating income of $13 million in fiscal 2015 compared to a loss of $1 million in the prior-year
period. The improvement in operating income was driven primarily by a decrease in SG&A, partially offset by a decrease in
gross profit as described above.
Additional Consolidated Results
Other Income (Expense)
In fiscal 2016, our gain on sale of investments was $2 million compared to $13 million and $20 million in fiscal 2015 and fiscal
2014, respectively. These gains were due to the sale of cost-based investments.
In fiscal 2016, our investment income and other was $13 million, compared to $14 million in the prior year. The decrease in
fiscal 2016 was primarily due to lower interest rates in Canada and the unfavorable impact of foreign currency translations. In
fiscal 2015, our investment income and other was $14 million, compared to $19 million in fiscal 2014. The decrease in fiscal
2015 was due to lower returns on our deferred compensation assets, partially offset by an increase in interest income driven by
higher average cash and cash equivalents and short-term investment balances.
Interest expense was $80 million in fiscal 2016, compared to $90 million in fiscal 2015. The decrease in interest expense was
primarily due to swapping a portion of our fixed rate debt to floating rate, which was lower than our fixed rate. Refer to Note 6,
Derivative Instruments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on Form 10-K for additional information. Interest expense was $90 million in fiscal
2015, compared to $100 million in fiscal 2014. The decrease in interest expense was primarily due to obtaining a lower interest
rate of 5.00% on our 2018 Notes compared to our previously held notes that bore interest at 6.75%.
Income Tax Expense
Income tax expense increased to $503 million in fiscal 2016, compared to a tax expense of $141 million in the prior year,
primarily due to a $353 million discrete benefit related to reorganizing certain European legal entities in the prior year period,
as well as a lower mix of pre-tax earnings from foreign operations in fiscal 2016, partially offset by a decrease in pre-tax
earnings in fiscal 2016. Our effective income tax rate ("ETR") for fiscal 2016 was 38.4%, compared to a rate of 10.1% in fiscal
2015. Excluding the impact of reorganizing certain European legal entities, the ETR would have been 35.6% in fiscal 2015.
Refer to Note 10, Income Taxes, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form 10-K for additional information.
Income tax expense decreased to $141 million in fiscal 2015, compared to a tax expense of $388 million in the fiscal 2014,
primarily due to a $353 million discrete benefit related to reorganizing certain European legal entities, partially offset by an
increase in pre-tax earnings in the current-year period. Our ETR was 10.1% in fiscal 2015, compared to 35.8% in fiscal 2014.
Our consolidated ETR 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.
Discontinued Operations
Discontinued operations consists primarily of Best Buy Europe and Five Star in our International segment, as well as
mindSHIFT in our Domestic segment.
The earnings from discontinued operations was $90 million in fiscal 2016 compared to a loss of $11 million and $172 million
in fiscal 2015 and fiscal 2014, respectively. Earnings in fiscal 2016 were due to the gain recognized on the sale of Five Star.
The loss from discontinued operations of $11 million in fiscal 2015 was driven by charges related to Five Star. The loss from
discontinued operation of $172 million in fiscal 2014 was primarily due to the impairment of our investment in Best Buy
Europe, as well as the loss on the sale of mindSHIFT.
Non-GAAP Financial Measures