Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in the following sections:

•Overview
•Business Strategy
•Best Buy 2020: Building the New Blue
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
•New Accounting Pronouncements

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Overview

We are a leading provider of technology products, services and solutions. We offer these products and services to customers who visit our stores, engage with Geek Squad agents or use our websites or mobile applications. We have operations in the U.S., Canada and Mexico. We operate two reportable segments: Domestic and International. The Domestic segment is comprised of all operations within the U.S. and its districts and territories. The International segment is comprised of all operations outside the U.S. and its territories.

Our fiscal year ends on the Saturday nearest the end of January. Fiscal 2017, 2016 and 2015 each included 52 weeks, noting that fiscal 2018 will include 53 weeks with the additional week included in the fourth quarter. Our business, like that of many

retailers, is seasonal. A higher proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico ("Holiday").

Throughout this MD&A, we refer to comparable sales. Our comparable sales calculation compares revenue from stores, websites and call centers operating for at least 14 full months, as well as revenue related to certain other comparable sales channels for a particular period to the corresponding period in the prior year. Relocated stores, as well as remodeled, expanded and downsized stores closed more than 14 days, are excluded from the comparable sales calculation until at least 14 full months after reopening. Acquisitions are included in the comparable sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The calculation of comparable sales excludes the impact of revenue from discontinued operations and the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only). The Canadian brand consolidation, which included the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website, had a material impact on a year-over-year basis on the remaining Canadian retail stores and the website. As such, from the first quarter of fiscal 2016 through the third quarter of fiscal 2017, all Canadian store and website revenue was removed from the comparable sales base and the International segment no longer had a comparable metric. Therefore, Consolidated comparable sales equaled the Domestic segment comparable sales. Beginning in the fourth quarter of fiscal 2017, we resumed reporting International comparable sales as revenue in the International segment was once again deemed to be comparable and, as such, Consolidated comparable sales are once again equal to the aggregation of Domestic and International comparable sales. However, we have not provided International comparable sales for fiscal 2017 as the calculation would only include comparable revenue from the fourth quarter of fiscal 2017 and may be misleading in future periods when used for comparison purposes. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers' methods.

Non-GAAP Financial Measures

This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), as well as certain adjusted or non-GAAP financial measures such as constant currency, non-GAAP operating income, non-GAAP effective tax rate, non-GAAP net earnings from continuing operations, non-GAAP diluted earnings per share ("EPS") from continuing operations and non-GAAP debt to earnings before interest, income taxes, depreciation, amortization and rent ("EBITDAR") ratio. We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, our internal management reporting also includes non-GAAP measures. Generally, our non-GAAP measures include adjustments for items such as restructuring charges, goodwill impairments, non-restructuring asset impairments and gains or losses on investments. In addition, certain other items may be excluded from non-GAAP financial measures when we believe this provides greater clarity to management and our investors. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.

In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment’s operating results from local currencies into U.S. dollars for reporting purposes. We also use the term "constant currency", which represents results adjusted to exclude foreign currency impacts. We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates. We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates and our inability to report comparable store sales for the International segment in fiscal 2016 as a result of the Canadian brand consolidation.

Refer to the Non-GAAP Financial Measures section below for the detailed reconciliation of items that impacted the non-GAAP operating income, non-GAAP effective tax rate, non-GAAP net earnings from continuing operations and non-GAAP diluted EPS from continuing operations in the presented periods.

Refer to the Other Financial Measures section below for the detailed reconciliation of items that impacted the non-GAAP debt to EBITDAR ratio. Management believes this ratio is an important indicator of our creditworthiness. Furthermore, we believe that our non-GAAP debt to EBITDAR ratio is important for understanding our financial position and provides meaningful additional information about our ability to service our long-term debt and other fixed obligations and to fund our future growth. We also believe our non-GAAP debt to EBITDAR ratio is relevant because it enables investors to compare our indebtedness to

that of retailers who own, rather than lease, their stores. Our decision to own or lease real estate is based on an assessment of our financial liquidity, our capital structure, our desire to own or to lease the location, the owner’s desire to own or to lease the location and the alternative that results in the highest return to our shareholders.

Business Strategy

During fiscal 2017, we executed against the three priorities we shared at the beginning of the year:

1.Build on our strong industry position and multi-channel capabilities to drive the existing business;
2.Drive cost reduction and efficiencies; and
3.Advance key initiatives to drive future growth and differentiation.

Below is summary of our progress against these priorities:

•We believe we continued to gain market share in most of our product categories. We believe the total market for our product categories was down low-single digits in calendar 2016 and that our market share gains helped us offset the market decline;
•We increased our Net Promoter Score by over 350 basis points;
•We grew the Domestic segment online revenue with comparable sales of 20.8% in fiscal 2017;
•The successful Canadian brand consolidation was the primary driver of operating income of $90 million in our International segment for fiscal 2017 compared to a loss of $210 million in fiscal 2016;
•We continued to progress against our three-year target to reduce cost and optimize gross profit by $400 million and achieved $350 million cumulative savings by the end of fiscal 2017; these savings enable us to invest in customer experience improvements while maintaining near flat SG&A;
•As for the third priority, fiscal 2017 was a year of exploration and experimentation, and we are continuing to test several concepts around the country that we believe have the potential to be compelling customer experiences; we expect to launch some of these concepts in fiscal 2018.

Best Buy 2020: Building the New Blue

In November 2012, we introduced our transformation strategy called Renew Blue. Since then we have stabilized comparable sales and increased our profitability. A little more than four years later, we have now completed Renew Blue and unveiled a new strategy: Best Buy 2020: Building the New Blue.

Our customers are at the core of Best Buy 2020. Technology continues to evolve, creating more excitement and opening up an increasing range of possibilities for our customers. It is also creating more complexity and we believe many of our customers need our help. Our purpose is to help customers pursue their passions and enrich their lives with the help of technology. We want to play two roles for them: be their trusted adviser and solution provider; and be their source for technology services for their home. Our customer value proposition is to be the leading technology expert who makes it easy for our customers to learn about and confidently enjoy the best technology.

From a financial standpoint, we seek to gradually grow our revenue, pursue ongoing cost savings necessary to both offset inflationary pressures and fund investments and build a more predictable set of revenue streams built on more recurring revenues and stickier customer relationships. There are three growth pillars we will be pursuing as part of Best Buy 2020:

1.Maximize the multi-channel retail business by continuing to enhance the customer experience, investing in growth of certain key product categories and developing broader and stickier customer relationships;
2.Provide services and solutions that solve real customer needs and help us build deeper customer relationships - for example, by meeting the significant technical support needs of our customers and providing more complete solutions such as security monitoring and home automation services as well as the associated products; and
3.Accelerate growth in our International segment, which consists of Canada and Mexico.

With the launch of Best Buy 2020, fiscal 2018 will revolve around the following four priorities:

1.Driving growth from the pillars described above; for example:
•We will continue to innovate our digital capabilities to effectively help our customers in their shopping journey;
•We will pursue growth around key product categories, including emerging product categories like connected home, appliances where we believe we can continue to grow revenue and mobile where we have the opportunity to return to growth by providing a more compelling experience to our customers;
•We plan to expand our in-home advisor program ("IHA") to more markets. With our IHA program, customers receive a free in-home consultation with an experienced technology advisor who can identify their needs, design personalized solutions and become a personal resource over time;
•We will continue to test new concepts around the country that have the potential to be compelling customer experiences. We have a pipeline of opportunities, some of which we will expect to expand later in fiscal 2018; and
•We will pursue growth in our International segment by continuing to drive our online channel and by expanding the launch of the successful store remodels in Canada and opening nine new stores in Mexico over the next two years.
2.The second priority is to improve our execution in key areas. We believe we continue to have significant opportunities from improving our sales effectiveness and proficiency, our supply chain for large product fulfillment and small package delivery and our services fulfillment capabilities.
3.The third priority is to continue to reduce costs and drive efficiencies through the business. As stated previously, we have achieved $350 million of our current $400 million cost reduction target. We are working on the next phase of cost savings and will provide updates on the next goal once we complete our current program.
4.The fourth priority is to build the capabilities necessary to deliver on the first three priorities, which will involve making investments in people and systems to drive growth, execution and efficiencies.

Results of Operations

In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to these operations is also presented on a lag. Our policy is to accelerate the recording of events occurring in the lag period that significantly affect our consolidated financial statements. No such events were identified for the periods presented.

The results of Jiangsu Five Star Appliance Co., Limited ("Five Star"), in our International segment, are presented as discontinued operations in our Consolidated Statements of Earnings. Unless otherwise stated, financial results discussed herein refer to continuing operations.

Consolidated Results

The following table presents selected consolidated financial data for each of the past three fiscal years ($ in millions, except per share amounts):

Consolidated Performance Summary201720162015
Revenue$39,403$39,528$40,339
Revenue % decline(0.3)%(2.0)%(0.7)%
Comparable sales % gain (1)0.3%0.5%0.5%
Comparable sales % gain (decline), excluding estimated impact of installment billing(1)(2)n/a(0.1)%—%
Restructuring charges - cost of goods sold$—$3$—
Gross profit$9,440$9,191$9,047
Gross profit as a % of revenue(3)24.0%23.3%22.4%
SG&A$7,547$7,618$7,592
SG&A as a % of revenue19.2%19.3%18.8%
Restructuring charges$39$198$5
Operating income$1,854$1,375$1,450
Operating income as a % of revenue4.7%3.5%3.6%
Net earnings from continuing operations$1,207$807$1,246
Gain (loss) from discontinued operations(4)$21$90$(13)
Net earnings attributable to Best Buy Co., Inc. shareholders$1,228$897$1,233
Diluted earnings per share from continuing operations$3.74$2.30$3.53
Diluted earnings per share$3.81$2.56$3.49
(1)The Canadian brand consolidation that was initiated in the first quarter of fiscal 2016 had a material impact on a year-over-year basis on the Canadian retail stores and website. As such, beginning in the first quarter of fiscal 2016 through the third quarter of fiscal 2017, all store and website revenue was removed from the comparable sales base, and an International segment (comprised of Canada and Mexico) comparable sales metric has not been provided. Therefore, Consolidated comparable sales for fiscal 2017 include revenue from continuing operations in the Domestic segment for the full year and the International segment for the fourth quarter only, and Consolidated comparable sales for fiscal 2016 equal the Domestic segment comparable sales.
(2)Represents comparable sales, excluding the estimated revenue benefit from installment billing. In fiscal 2015, we began selling installment billing plans offered by mobile carriers to our customers to complement the more traditional two-year plans. While the two types of contracts have broadly similar overall economics, installment billing plans typically generate higher revenues due to higher proceeds for devices and higher cost of sales due to lower device subsidies. As we increased our mix of installment billing plans, we had an associated increase in revenue and cost of goods sold and a decrease in gross profit rate, with gross profit dollars relatively unaffected. This change in plan offer did not impact our International segment. Beginning in fiscal 2017, we no longer reported comparable sales, excluding the estimated revenue benefit from installment billing, as the mix of installment billing plans became comparable on a year-over-year basis.
(3)Because retailers vary in how they record costs of operating their supply chain between cost of goods sold and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers' corresponding rates. For additional information regarding costs classified in cost of goods sold and SG&A, refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
(4)Includes both gain (loss) from discontinued operations and net earnings from discontinued operations attributable to noncontrolling interests.

In addition, we generated $2.5 billion in operating cash flow in fiscal 2017, compared to $1.3 billion in fiscal 2016, and we ended fiscal 2017 with $3.9 billion of cash, cash equivalents and short-term investments, compared to $3.3 billion at the end of fiscal 2016. During fiscal 2017, we made four regular dividend and one special dividend payments totaling $1.57 per share, or $505 million in the aggregate.

Fiscal 2017 Results Compared With Fiscal 2016

Consolidated revenue of $39.4 billion in fiscal 2017 decreased 0.3% compared to fiscal 2016. The components of the 0.3% revenue decrease in fiscal 2017 were as follows:

Impact of foreign currency exchange rate fluctuations(0.2)%
Non-comparable sales(1)(0.3)%
Comparable sales impact0.2%
Total revenue decrease(0.3)%
(1)Non-comparable sales reflects the impact of revenue in our International segment for the first through third quarters of fiscal 2017, net store opening and closing activity, as well as, the impact of revenue streams not included within our comparable sales calculation, such as profit share revenue, certain credit card revenue, gift card breakage and sales of merchandise to wholesalers and dealers, as applicable.

Our gross profit rate increased 0.7% of revenue in fiscal 2017. Our Domestic segment contributed a rate increase of 0.5% of revenue, while our International segment contributed 0.2%. For further discussion of each segment's gross profit rate changes, see Segment Performance Summary, below.

The SG&A rate remained flat on a year-over-year basis with both our Domestic and International segments contributing flat year-over-year SG&A as a percentage of revenue. For further discussion of each segment's SG&A rate changes, see Segment Performance Summary, below.

SG&A restructuring charges decreased from $198 million in fiscal 2016 to $39 million in fiscal 2017. The fiscal 2017 activity primarily related to our Domestic segment, while our fiscal 2016 activity was driven by our International segment. For further discussion of each segment's SG&A restructuring charges, see Segment Performance Summary, below.

Our operating income increased $479 million, and our operating income as a percent of revenue increased to 4.7% of revenue in fiscal 2017, compared to operating income of 3.5% of revenue in fiscal 2016. The increase in our operating income was primarily due to an increase in our gross profit rate and a decrease in our restructuring activity.

Fiscal 2016 Results Compared With Fiscal 2015

The components of the 2.0% revenue decrease in fiscal 2016 were as follows:

Impact of foreign currency exchange rate fluctuations(1.3)%
Non-comparable sales(1)(1.1)%
Comparable sales impact0.4%
Total revenue decrease(2.0)%
(1)Non-comparable sales reflects the impact of revenue in our International segment, net store opening and closing activity, as well as, the impact of revenue streams not included within our comparable sales calculation, such as profit share revenue, certain credit card revenue, gift card breakage and sales of merchandise to wholesalers and dealers, as applicable.

Our gross profit rate increased 0.9% of revenue in fiscal 2016. Our Domestic segment contributed a rate increase of 0.9% of revenue and there was no change in our International segment. For further discussion of each segment's gross profit rate changes, see Segment Performance Summary, below.

The SG&A rate increased 0.5% of revenue in fiscal 2016. Our Domestic segment contributed a rate increase of 0.5% of revenue and there was no change in our International segment. For further discussion of each segment's SG&A rate changes, see Segment Performance Summary, below.

SG&A restructuring charges increased from $5 million in fiscal 2015 to $198 million in fiscal 2016. Our International segment drove this increase. For further discussion of each segment’s SG&A restructuring charges, see Segment Performance Summary, below.

Our operating income decreased $75 million, and our operating income as a percent of revenue decreased to 3.5% of revenue in fiscal 2016, compared to operating income of 3.6% of revenue in fiscal 2015. The decrease in our operating income was primarily due to an increase in restructuring charges partially offset by net CRT/LCD legal settlement proceeds received in fiscal 2016.

Segment Performance Summary

Domestic Segment

The following table presents selected financial data for our Domestic segment for each of the past three fiscal years ($ in millions):

Domestic Segment Performance Summary201720162015
Revenue$36,248$36,365$36,055
Revenue % gain (decline)(0.3)%0.9%0.6%
Comparable sales % gain(1)0.2%0.5%1.0%
Comparable sales % gain (decline), excluding the estimated impact of installment billing(1)(2)n/a(0.1)%0.5%
Gross profit$8,650$8,484$8,080
Gross profit as % of revenue23.9%23.3%22.4%
SG&A$6,855$6,897$6,639
SG&A as % of revenue18.9%19.0%18.4%
Restructuring charges$31$2$4
Operating income$1,764$1,585$1,437
Operating income as % of revenue4.9%4.4%4.0%
Selected Online Revenue Data:
Online revenue as a % of total segment revenue13.4%11.0%9.8%
Comparable online sales % gain(1)20.8%13.5%16.7%
(1)Comparable online sales gain is included in the total comparable sales gain (decline).
(2)Represents comparable sales, excluding the estimated revenue benefit from installment billing. In fiscal 2015, we began selling installment billing plans offered by mobile carriers to our customers to complement the more traditional two-year plans. While the two types of contracts have broadly similar overall economics, installment billing plans typically generate higher revenues due to higher proceeds for devices and higher cost of sales due to lower device subsidies. As we increased our mix of installment billing plans, we had an associated increase in revenue and cost of goods sold and a decrease in gross profit rate, with gross profit dollars relatively unaffected. Beginning in fiscal 2017, we no longer reported comparable sales, excluding the estimated revenue benefit from installment billing, as the mix of installment billing plans became comparable on a year-over-year basis.

The following table reconciles our Domestic segment stores open at the end of each of the last three fiscal years:

Fiscal 2015Fiscal 2016Fiscal 2017
Total Stores at End of Fiscal YearStores OpenedStores ClosedTotal Stores at End of Fiscal YearStores OpenedStores ClosedTotal Stores at End of Fiscal Year
Best Buy1,050—(13)1,037—(11)1,026
Best Buy Mobile stand-alone367—(17)350—(41)309
Pacific Sales29—(1)28——28
Magnolia Audio Video2—(2)————
Total Domestic segment stores1,448—(33)1,415—(52)1,363

We continuously monitor store performance. As we approach the expiration date of our stores leases, we evaluate various options for each location, including whether a store should remain open.

Fiscal 2017 Results Compared With Fiscal 2016

Domestic segment revenue of $36.2 billion in fiscal 2017 decreased 0.3% compared to the prior year. The components of the 0.3% revenue decrease in the Domestic segment in fiscal 2017 were as follows:

Comparable sales impact0.2%
Non-comparable sales(1)(0.5)%
Total revenue decrease(0.3)%
(1)Non-comparable sales reflects the impact of net store opening and closing activity, as well as the impact of revenue streams not included within our comparable sales calculation, such as profit share revenue, credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers.

The net store changes did not have a material impact on our revenue in fiscal 2017, as the majority of closures related to our small-format Best Buy Mobile stand-alone stores. The closing of small-format Best Buy Mobile stores have a significantly smaller impact given their smaller size and limited category focus compared to our large-format stores.

The profit-share revenue included in our non-comparable sales relate to our extended warranty protection plans that are managed by a third party underwriter. We may be eligible to receive profit-sharing payments, depending on the performance of the portfolio. When performance of the portfolio is strong and the claims cost to the third party underwriter declines, we are entitled to share in the excess premiums. In fiscal 2017, we recognized $110 million of such profit-share revenue, with an equal impact to gross profit and operating income. In fiscal 2016, we recognized $148 million. The fiscal 2017 profit-share revenue decrease from fiscal 2016 reflects reductions to the premiums that we pay to the third party underwriter. In light of the continued impact of these lower premiums, we expect the profit share payments to continue to decrease in future periods.

In fiscal 2017, Domestic segment online revenue of $4.8 billion increased 20.8% on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 240 basis points to 13.4% versus 11.0% last year.

The following table presents the Domestic segment's revenue mix percentages and comparable sales percentage changes by revenue category in fiscal 2017 and 2016:

Revenue Mix SummaryComparable Sales Summary
Year EndedYear Ended
January 28, 2017January 30, 2016January 28, 2017January 30, 2016
Consumer Electronics34%32%5.0%4.7%
Computing and Mobile Phones45%46%(1.8)%(2.6)%
Entertainment7%8%(13.8)%(3.6)%
Appliances9%8%7.8%15.4%
Services5%5%(3.3)%(11.6)%
Other—%1%n/an/a
Total100%100%0.2%0.5%

The following is a description of the notable comparable sales changes in our Domestic segment by revenue category:

•Consumer Electronics: The 5.0% comparable sales increase was primarily due to an increase in the sales of connected home products, streaming devices and large screen televisions.
•Computing and Mobile Phones: The 1.8% comparable sales decline was primarily due to continued industry declines in tablets and product constraints in, and to a lesser effect, lower sales of mobile phones. This decline was partially offset by an increase in the sale of computers.
•Entertainment: The 13.8% comparable sales decrease was driven by declines in gaming, music and movies due to continued industry declines.
•Appliances: The 7.8% comparable sales gain was a result of continued growth in both large and small appliance sales.
•Services: The 3.3% comparable sales decline was primarily due to lower reimbursement revenue from our third party underwriter on extended protection plan claims. This trend, which primarily related to mobile phones, was a reflection of changes to the design of our extended protection plans in fiscal 2016, improvements to our repair and fulfillment operations and industry trends.

Our Domestic segment experienced an increase in gross profit rate to 23.9% in fiscal 2017 from 23.3% in fiscal 2016. This rate increase was primarily due to (1) rate improvements in computing hardware, and (2) an increase in CRT legal settlements, partially offset by (1) lower margins from mobile phones due to changes in device mix, and (2) a decrease in our periodic profit share revenue as described above.

Our Domestic segment SG&A rate slightly decreased to 18.9% of revenue in fiscal 2017 compared to 19.0% of revenue in the prior year. The decrease in rate was primarily driven by cost reductions and lower incentive compensation, partially offset by investments in growth initiatives.

Our Domestic segment recorded $31 million of restructuring charges in fiscal 2017 and incurred $2 million of restructuring charges in fiscal 2016. The restructuring charges in fiscal 2017 related to the Renew Blue Phase 2 plan that began in the first quarter of fiscal 2017. 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 Domestic segment’s operating income increased $179 million in fiscal 2017 compared to fiscal 2016. In addition, the operating income rate increased to 4.9% of revenue in fiscal 2017 compared to 4.4% of revenue in the prior year. The increase was driven by the revenue, gross profit rate and SG&A rate improvements described above.

Fiscal 2016 Results Compared With Fiscal 2015

Domestic segment revenue of $36.4 billion in fiscal 2016 increased 0.9% compared to the prior year. This increase was primarily driven by a comparable sales growth of 0.5%, which included an estimated 0.6% of revenue benefit associated with installment billing, and a periodic profit sharing benefit based on performance of our externally managed extended service plan portfolio.

Similar to fiscal 2017, we recognized $148 million of profit-share revenue in fiscal 2016, with an equal impact to gross profit and operating income. The amount recognized in fiscal 2016 was substantially higher than for prior periods. The unusually strong performance of the portfolio for fiscal 2016, which particularly related to mobile phones, was due to changes to the design of our extended service plans, improvements to our repair and fulfillment operations and industry trends. These trends have also led to lower revenues from repairs we undertake on behalf of the insurers, as discussed further below.

Domestic segment online revenue of $4.0 billion increased 13.5% on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 120 basis points to 11.0% versus 9.8% in fiscal 2015.

The components of the 0.9% revenue increase in the Domestic segment in fiscal 2016 were as follows:

Comparable sales impact0.5%
Non-comparable sales(1)0.4%
Total revenue increase0.9%
(1)Non-comparable sales reflects the impact of revenue streams not included within our comparable sales calculation, such as credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers.

The net store changes did not have a material impact on our revenue in fiscal 2016, as the majority of closures occurred in the fourth quarter and related to our small-format Best Buy Mobile stand-alone stores. The closing of small-format Best Buy Mobile stores have a significantly smaller impact given their smaller size and limited category focus compared to our large-format stores.

The following table presents the Domestic segment's revenue mix percentages and comparable sales percentage changes by revenue category in fiscal 2016 and 2015:

Revenue Mix SummaryComparable Sales Summary
Year EndedYear Ended
January 30, 2016January 31, 2015January 30, 2016January 31, 2015
Consumer Electronics32%31%4.7%3.7%
Computing and Mobile Phones46%47%(2.6)%(0.6)%
Entertainment8%9%(3.6)%4.5%
Appliances8%7%15.4%7.5%
Services5%5%(11.6)%(11.1)%
Other1%1%n/an/a
Total100%100%0.5%1.0%

The following is a description of the notable comparable sales changes in our Domestic segment by revenue category:

•Consumer Electronics: The 4.7% comparable sales increase was primarily due to an increase in the sales of large screen televisions, the expansion of Magnolia Design Center stores-within-a-store, and expanded assortment of streaming devices. This increase was partially offset by industry declines in point and shoot cameras and lower sales in small and mid-size televisions.
•Computing and Mobile Phones: The 2.6% comparable sales decline was primarily due to continued industry declines in tablets and to a lesser extent lower demand for mobile phones.
•Entertainment: The 3.6% comparable sales decrease was driven by declines in music and movies due to continued industry declines as well as declines in gaming hardware.
•Appliances: The 15.4% comparable sales gain was a result of continued growth in major appliances sales as well as the expansion of Pacific Kitchen & Home stores-within-a-store.
•Services: The 11.6% comparable sales decline was primarily due to lower repair revenue from extended protection plan claims. This trend, which primarily related to mobile phones, was a reflection of changes to the design of our extended protection plans, improvements to our repair and fulfillment operations and industry trends.

Our Domestic segment experienced an increase in gross profit of $404 million, or 5.0%, in fiscal 2016 compared to fiscal 2015. Excluding the $88 million of CRT/LCD litigation settlement proceeds received in fiscal 2016, we experienced an increase in gross profit of $316 million, or 3.9%. Refer to Note 12, Contingencies and Commitments, in the Notes to the Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information. This rate increase was primarily due to (1) the periodic profit-share revenue described above; (2) rate improvements in computing hardware driven by our more disciplined promotional strategy; (3) an additional positive mix shift due to significantly decreased revenue in the lower-margin tablet category; (4) the positive impact of lower repair revenue (as discussed above), which typically earns a low gross profit rate; (5) an increased mix of higher-margin large screen televisions; and (6) positive revenue impact related to our credit card portfolio. These increases were partially offset by (1) lower rates related to large appliances; (2) a lower rate in the mobile category driven by increased sales of higher priced iconic mobile phones, which have higher gross profit dollars but carry a lower gross profit rate; (3) decrease in margin for portable audio products; (4) a decreased mix of higher-margin digital imaging products; (5) an increased mix of lower-margin wearable devices; and (6) an investment in services pricing.

Our Domestic segment's SG&A increased $258 million, or 3.9%, in fiscal 2016 compared to fiscal 2015. In addition, the SG&A rate increased to 19.0% of revenue compared to 18.4% of revenue in the prior year. The increases in SG&A and SG&A rate were primarily driven by investments in growth initiatives, a greater portion of our vendor funding being recorded as an offset to cost of goods sold rather than SG&A and higher incentive compensation. This increase was partially offset by the implementation of Renew Blue Phase 2 cost reductions.

Our Domestic segment recorded $2 million of restructuring charges in fiscal 2016 and incurred $4 million of restructuring charges in fiscal 2015. The restructuring charges had an immaterial impact on our operating income rate in fiscal 2016 and fiscal 2015. 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 Domestic segment’s operating income increased $148 million in fiscal 2016 compared to fiscal 2015. In addition, the operating income rate increased to 4.4% of revenue in fiscal 2016 compared to 4.0% of revenue in the prior year. The increase was driven by higher revenue and margin and $75 million in net CRT/LCD litigation settlement proceeds received in fiscal 2016, partially offset by the increase in SG&A as described above.

International Segment

During the first quarter of fiscal 2016, we consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores and the conversion of the remaining 65 Future Shop stores to the Best Buy brand. The costs of implementing these changes primarily consisted of lease exit costs, a tradename impairment, property and equipment impairments, employee termination benefits and inventory write-downs.

The following table presents selected financial data for our International segment for each of the past three fiscal years ($ in millions):

International Segment Performance Summary201720162015
Revenue$3,155$3,163$4,284
Revenue decline %(0.3)%(26.2)%(10.4)%
Comparable sales % decline(1)n/an/a(3.5)%
Restructuring charges - cost of goods sold$—$3$—
Gross profit$790$707$967
Gross profit as % of revenue25.0%22.4%22.6%
SG&A$692$721$953
SG&A as % of revenue21.9%22.8%22.2%
Restructuring charges$8$196$1
Operating income (loss)$90$(210)$13
Operating income (loss) as % of revenue2.9%(6.6)%0.3%
(1)The Canadian brand consolidation has a material impact on a year-over-year basis on the Canadian retail stores and the website. As such, beginning in the first quarter of fiscal 2016 through the third quarter of fiscal 2017, all store and website revenue was removed from the comparable sales base, and an International segment (comprised of Canada and Mexico) comparable sales metric for the full year has not been provided. International comparable sales for the fourth quarter of fiscal 2017 was 0.9%.

The following table reconciles our International segment stores open at the end of each of the last three fiscal years:

Fiscal 2015Fiscal 2016Fiscal 2017
Total Stores at End of Fiscal YearStores OpenedStores ClosedStores ConvertedTotal Stores at End of Fiscal YearStores OpenedStores ClosedTotal Stores at End of Fiscal Year
Canada
Future Shop133—(68)(65)————
Best Buy713(3)65136—(2)134
Best Buy Mobile56———561(4)53
Mexico
Best Buy18——182—20
Express51——6—(1)5
Total International segment stores2834(71)—2163(7)212

Fiscal 2017 Results Compared With Fiscal 2016

International segment revenue of $3.2 billion in fiscal 2017 decreased 0.3% compared to the prior year. The components of the 0.3% revenue decrease in the International segment in fiscal 2017 were as follows:

Non-comparable sales(1)1.8%
Comparable sales impact0.3%
Impact of foreign currency exchange rate fluctuations(2.4)%
Total revenue decrease(0.3)%
(1)Non-comparable sales reflects the impact of net store opening and closing activity, including the Canadian brand consolidation activity in the first three quarters of fiscal 2017, as well as the impact of revenue streams not included within our comparable sales calculation, such as certain credit card revenue, gift card breakage and sales of merchandise to wholesalers and dealers, as applicable.

The following table presents the International segment's revenue mix percentages by revenue category in fiscal 2017 and 2016:

Revenue Mix Summary
Year Ended
January 28, 2017January 30, 2016
Consumer Electronics31%31%
Computing and Mobile Phones48%48%
Entertainment7%9%
Appliances6%5%
Services7%6%
Other1%1%
Total100%100%

As noted above, comparable sales information has not been provided for the International segment for fiscal 2017 or 2016 due to the Canadian brand consolidation. As such, it is also impractical to provide such information on a revenue category basis. However, as noted above, the revenue mix by category has not changed significantly from fiscal 2016.

Our International segment experienced a gross profit increase of $83 million, or 11.7%, in fiscal 2017 compared to fiscal 2016. Excluding the impact of foreign currency exchange rate fluctuations, the increase in gross profit was $98 million. The gross profit rate increased to 25.0% in fiscal 2017 from 22.4% of revenue in fiscal 2016. This increase was primarily due to the increased promotional activity in fiscal 2016 as a result of the Canada brand consolidation which did not reoccur and to a lesser extent rate growth in computing and home theater.

Our International segment's SG&A decreased $29 million, or 4.0%, in fiscal 2017 compared to the prior year. Excluding the impact of foreign currency exchange rate fluctuations, the decrease in SG&A was $9 million. The SG&A rate decreased to 21.9% in fiscal 2017 from 22.8% of revenue in fiscal 2016. The decrease in SG&A rate was driven by year-over-year sales leverage.

Our International segment recorded $8 million of restructuring charges in fiscal 2017 and incurred $199 million of restructuring charges in fiscal 2016. The fiscal 2017 restructuring charges related to adjustments to our vacant space liabilities outstanding as a result of the Canadian brand consolidation and the Renew Blue plan. The adjustments were due to changes in estimates related to sublease income. The fiscal 2016 restructuring charges primarily related to the Canadian brand consolidation and consisted of facility closure costs, tradename impairments, property and equipment impairments, and employee termination benefits. 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 was $90 million in fiscal 2017 compared to a loss of $210 million in the prior-year period. The improvement in operating income was primarily driven by lower restructuring costs and gross profit and SG&A rate improvements.

Fiscal 2016 Results Compared With Fiscal 2015

In our International segment, revenue declined 26.2% to $3.2 billion in fiscal 2016 due to (1) the loss of revenue associated with closed stores as part of the Canadian brand consolidation; (2) a negative foreign currency impact of 12.5%; and (3) ongoing softness in the Canadian economy and consumer electronics industry.

The components of the International segment's 26.2% revenue decrease in fiscal 2016 were as follows:

Impact of foreign currency exchange rate fluctuations(12.5)%
Non-comparable sales(1)(13.7)%
Total revenue decrease(26.2)%
(1)Non-comparable sales reflects the impact of net store opening and closing activity, including the Canadian brand consolidation activity, as well as the impact of revenue streams not included within our comparable sales calculation, such as certain credit card revenue, gift card breakage and sales of merchandise to wholesalers and dealers, as applicable.

The following table presents the International segment's revenue mix percentages by revenue category in fiscal 2016 and 2015:

Revenue Mix Summary
Year Ended
January 30, 2016January 31, 2015
Consumer Electronics31%30%
Computing and Mobile Phones48%49%
Entertainment9%9%
Appliances5%5%
Services6%6%
Other1%1%
Total100%100%

As noted above, comparable sales information has not been provided for the International segment for fiscal 2016 due to the Canadian brand consolidation. As such, it is also impractical to provide such information on a revenue category basis. However, as noted above, the revenue mix by category has not changed significantly from fiscal 2015.

Our International segment experienced a gross profit decline of $260 million, or 26.9%, in fiscal 2016 compared to fiscal 2015. Excluding the impact of foreign currency exchange rate fluctuations, the decrease in gross profit was $141 million. The gross profit rate declined to 22.4% of revenue in fiscal 2016 from 22.6% of revenue in fiscal 2015. This decline was primarily due to the disruptive impacts from the Canadian brand consolidation and increased promotional activity in Canada.

Our International segment's SG&A decreased $232 million, or 24.3%, in fiscal 2016 compared to the prior year. Excluding the impact of foreign currency exchange rate fluctuations, the decrease in SG&A was $115 million. However, the SG&A expense rate increased to 22.8% of revenue in fiscal 2016 from 22.2% of revenue in fiscal 2015. The decrease in SG&A expense was driven by the elimination of expenses associated with closed stores as part of the Canadian brand consolidation. The increase in the SG&A rate was driven by year-over-year sales deleverage.

Our International segment recorded $199 million of restructuring charges in fiscal 2016 and incurred $1 million of restructuring charges in fiscal 2015. The fiscal 2016 restructuring charges primarily related to the Canadian brand consolidation and consisted of facility closure costs, tradename impairments, property and equipment impairments, and employee termination benefits. The restructuring charges in fiscal 2015 had an immaterial impact on our operating income rate. 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 loss was $210 million in fiscal 2016 compared to income of $13 million in the prior-year period. The decline in operating income was driven primarily by a decrease in revenue and gross profit rate and restructuring charges, partially offset by lower SG&A expenses as described above.

Additional Consolidated Results

Other Income (Expense)

In fiscal 2017, our gain on sale of investments was $3 million compared to $2 million and $13 million in fiscal 2016 and fiscal 2015, respectively. These gains were due to the sale of cost-based investments.

In fiscal 2017, our investment income and other was $31 million, compared to $13 million in fiscal 2016. The increase in fiscal 2017 was primarily due to higher interest rates in the U.S. In fiscal 2016, our investment income and other was $13 million, compared to $14 million in fiscal 2015. The decrease in fiscal 2016 was primarily due to lower interest rates in Canada and the unfavorable impact of foreign currency translation.

Interest expense was $72 million in fiscal 2017, compared to $80 million in fiscal 2016 due to a lower debt balance for a majority of the year caused by the March 2016 payment of our $350 million principal amount notes. 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.

Income Tax Expense

Income tax expense increased to $609 million in fiscal 2017, compared to $503 million in fiscal 2016, primarily as a result of an increase in pre-tax earnings, partially offset by a higher mix of pre-tax income from foreign operations and the resolution of certain tax matters in the current year. Our effective income tax rate ("ETR") for fiscal 2017 was 33.5%, compared to a rate of 38.4% in fiscal 2016. The decrease in the ETR was primarily due to a higher mix of pre-tax income from foreign operations and the resolution of certain tax matters in the current year.

Income tax expense increased to $503 million in fiscal 2016, compared to a tax expense of $141 million in fiscal 2015, primarily due to a $353 million discrete benefit related to reorganizing certain European legal entities in fiscal 2015, 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 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.

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 35.0% 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 are primarily comprised of Five Star within our International segment. Gain from discontinued operations in fiscal 2017 was $21 million primarily related to the sale of the remaining Five Star property assets that were held for sale as of January 30, 2016. Gain from discontinued operations in fiscal 2016 of $90 million was primarily related to the gain recognized on the sale of Five Star. Loss from discontinued operations of $11 million in fiscal 2015 was driven by other charges related to Five Star.

Non-GAAP Financial Measures

The following table reconciles operating income, effective tax rate, net earnings from continuing operations and diluted earnings per share from continuing operations (GAAP financial measures) for the periods presented to non-GAAP operating income, non-GAAP effective tax rate, non-GAAP net earnings from continuing operations and non-GAAP diluted earnings per share from continuing operations (non-GAAP financial measures) for the periods presented ($ in millions, except per share amounts):

Fiscal Year
201720162015
Operating income$1,854$1,375$1,450
Net CRT/LCD settlements(1)(161)(77)—
Restructuring charges - COGS(2)—3—
Other Canada brand consolidation charges - SG&A(3)16—
Non-restructuring asset impairments - SG&A(4)266142
Restructuring charges(2)391985
Non-GAAP operating income$1,759$1,566$1,497
Income tax expense$609$503$141
Effective tax rate33.5%38.4%10.1%
Income tax impact of Europe legal entity reorganization(5)——353
Income tax impact of Non-GAAP adjustments(6)(38)3011
Non-GAAP income tax expense$571$533$505
Non-GAAP effective tax rate33.2%35.4%35.5%
Net earnings from continuing operations$1,207$807$1,246
Net CRT/LCD settlements(1)(161)(77)—
Restructuring charges - COGS(2)—3—
Other Canada brand consolidation charges - SG&A(3)16—
Non-restructuring asset impairments - SG&A(4)266142
Restructuring charges(2)391985
(Gain) loss on sale of investments(2)5(11)
Income tax impact of Europe legal entity reorganization(5)——(353)
Income tax impact of Non-GAAP adjustments(6)38(30)(11)
Non-GAAP net earnings from continuing operations$1,148$973$918
Diluted earnings per share from continuing operations$3.74$2.30$3.53
Per share impact of net CRT/LCD settlements(1)(0.50)(0.22)—
Per share impact of restructuring charges - COGS(2)—0.01—
Per share impact of other Canada brand consolidation charges - SG&A(3)0.010.02—
Per share impact of non-restructuring asset impairments - SG&A(4)0.080.170.12
Per share impact of restructuring charges(2)0.120.580.01
Per share impact of (gain) loss on sale of investments(0.01)0.01(0.03)
Per share income tax effect of Europe legal entity reorganization(5)——(1.00)
Per share income tax impact of Non-GAAP adjustments(6)0.12(0.09)(0.03)
Non-GAAP diluted earnings per share from continuing operations$3.56$2.78$2.60
(1)Represents cathode ray tube ("CRT") and LCD litigation settlements reached, net of related legal fees and costs. Settlements related to products purchased and sold in prior fiscal years. For the fiscal year ended January 28, 2017, the full balance related to the United States. For the fiscal year ended January 30, 2016, $75 million related to the United States and $2 million related to Canada. Refer to Note 12, Contingencies and Commitments, in 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.
(2)Refer to Note 4, Restructuring Charges, in 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 regarding the nature of these charges. For the fiscal year ended January 28, 2017, $31 million related to the United States and $8 million related to Canada. For the fiscal year ended January 30, 2016, $2 million related to the United States and $199 million related to Canada. For the fiscal year ended January 31, 2015, $4 million related to the United States and $1 million related to Canada.
(3)Represents charges related to the Canadian brand consolidation initiated in the first quarter of fiscal 2016, primarily due to retention bonuses and other store-related costs that were a direct result of the consolidation but did not qualify as restructuring charges.
(4)Refer to Note 3, Fair Value Measurements, in 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 regarding the nature of these charges. For the fiscal year ended January 28, 2017, $24 million related to the United States and $2 million related to Canada. For the fiscal year ended January 30, 2016, $58 related to the United States and $3 million related to Canada. For the fiscal year ended January 31, 2015, $31 million related to the United States and $11 million related to Canada.
(5)Represents the acceleration of a non-cash tax benefit of $353 million as a result of reorganizing certain European legal entities to simplify our overall structure in the first quarter of fiscal 2015.
(6)Income tax impact of non-GAAP adjustments is the summation of the calculated income tax charge related to each non-GAAP non-income tax adjustment. The non-GAAP adjustments relate primarily to adjustments in the United States and Canada. As such, the income tax charge is calculated using the statutory rates of 38.0% for the United States and 26.4% for Canada, applied to the Non-GAAP adjustments of each country.

Non-GAAP operating income for fiscal 2017 increased $193 million compared to fiscal 2016, and non-GAAP operating income as a percent of revenue increased to 4.5%. The increase was driven by increased Consolidated gross profit rate and continued SG&A cost reductions in both segments primarily due to the realization of our Renew Blue Phase 2 cost reduction initiatives and tighter expense management. The increase in non-GAAP operating income resulted in a year-over-year increase in non-GAAP net earnings from continuing operations and non-GAAP diluted earnings per share from continuing operations in fiscal 2016 compared to fiscal 2015.

Non-GAAP operating income for fiscal 2016 increased $69 million compared to fiscal 2015. The increase was driven by increased revenue in the Domestic segment, increased Consolidated gross profit rate and continued SG&A cost reductions in both segments primarily due to the realization of our Renew Blue Phase 2 cost reduction initiatives and tighter expense management. The increase in non-GAAP operating income resulted in a year-over-year increase in non-GAAP net earnings from continuing operations and non-GAAP diluted earnings per share from continuing operations in fiscal 2016 compared to fiscal 2015.

Liquidity and Capital Resources

Summary

We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment required to support our business strategies, the performance of our business, capital expenditures, credit facilities and short-term borrowing arrangements and working capital management. Capital expenditures and share repurchases are a component of our cash flow and capital management strategy which, to a large extent, we can adjust in response to economic and other changes in our business environment. We have a disciplined approach to capital allocation, which focuses on investing in key priorities that support our Renew Blue and Best Buy 2020: Building the New Blue strategies.

The following table summarizes our cash and cash equivalents and short-term investments at January 28, 2017, and January 30, 2016 ($ in millions):

January 28, 2017January 30, 2016
Cash and cash equivalents$2,240$1,976
Short-term investments1,6811,305
Total cash and cash equivalents and short-term investments$3,921$3,281

Existing cash and cash equivalents and short-term investments as well as cash generated from operations were sufficient to fund share repurchases, capital expenditures, dividends and repayment of our 2016 Notes in fiscal 2017 without the need to utilize our credit facilities or other debt arrangements.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years ($ in millions):

201720162015
Total cash provided by (used in):
Operating activities$2,545$1,322$1,935
Investing activities(887)(419)(1,712)
Financing activities(1,404)(1,515)(223)
Effect of exchange rate changes on cash10(38)(52)
Increase (decrease) in cash and cash equivalents$264$(650)$(52)

Operating Activities

The increase in cash provided by operating activities in fiscal 2017 compared to fiscal 2016 was primarily due to the timing of inventory purchasing and payments and increased earnings. During fiscal 2017 we purchased and paid for inventory later in the Holiday season than in the prior year, discussed below, positively impacting operating cash flows. This was partially offset by the timing of collection of receivables.

The decrease in cash provided by operating activities in fiscal 2016 compared to fiscal 2015 was primarily due to the timing of inventory receipts and income tax payments. During fiscal 2016, we decided to bring Holiday inventory in early and the Super Bowl shifted to the first quarter of fiscal 2016, which caused us to hold our inventory longer and settle our accounts payable related to that inventory prior to year-end. In addition, we paid more income taxes in fiscal 2016 primarily due to the timing of when payments were made.

Investing Activities

The increase in cash used in investing activities in fiscal 2017 compared to fiscal 2016 was primarily due to an increase in the net investment into short-term investments in fiscal 2017.

The decrease in cash used in investing activities in fiscal 2016 compared to fiscal 2015 was primarily due to increased sales of short-term investments partially offset by capital expenditures (see Capital Expenditures below).

Financing Activities

The decrease in cash used in financing activities in fiscal 2017 compared to fiscal 2016 was primarily due to a decline in the number of shares repurchased, which was substantially offset by the repayment of our $350 million principal amount of notes due March 15, 2016.

The increase in cash used by financing activities in fiscal 2016 compared to fiscal 2015 was primarily due to share repurchases and dividend payments. In fiscal 2016, we purchased $1.0 billion of common stock as part of our June 2011 share repurchase program. In addition, we increased our normal dividend from 2015 to 2016 and paid a special dividend in 2016.

Sources of Liquidity

Funds generated by operating activities, available cash and cash equivalents, short-term investments, our credit facilities, and other debt arrangements are our most significant sources of liquidity. We believe our sources of liquidity will be sufficient to fund operations and anticipated capital expenditures, strategic initiatives, share repurchases and dividends. However, in the event our liquidity is insufficient, we may be required to limit our spending. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms.

On June 26, 2016, we entered into a $1.25 billion five-year senior unsecured revolving credit facility (the "Five-Year Facility Agreement") with a syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.25 billion unsecured revolving credit facility (the "Previous Facility"), which was originally scheduled to expire in June 2019, but was terminated on June 27, 2016. The Five-Year Facility Agreement permits borrowings up to $1.25 billion and expires in June 2021. At January

28, 2017, and January 30, 2016, we had no borrowings outstanding under the Five-Year Facility Agreement nor its predecessor the Previous Facility. Refer to Note 5, Debt, 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 credit facilities.

Our ability to access our revolving credit facility under the Five-Year Facility Agreement is subject to our compliance with the terms and conditions of the facility, including financial covenants. The financial covenants require us to maintain certain financial ratios. At January 28, 2017, we were in compliance with all such financial covenants. If an event of default were to occur with respect to any of our other debt, it would likely constitute an event of default under our facilities as well.

An interest coverage ratio represents the ratio of pre-tax earnings before fixed charges (interest expense and the interest portion of rent expense) to fixed charges. Our interest coverage ratio, calculated as reported in Exhibit No. 12.1 of this Annual Report on Form 10-K, was 6.97 and 5.16 in fiscal 2017 and fiscal 2016, respectively.

Our credit ratings and outlooks at March 20, 2017, are summarized below. In fiscal 2017, Standard & Poor's Rating Services upgraded its long-term credit rating from BB+ to BBB- with a Stable outlook; Moody's Investors Service, Inc. affirmed its long-term credit rating of Baa1 with a Stable outlook; and Fitch Ratings Limited affirmed its long-term credit rating of BBB- with a Stable outlook.

Rating AgencyRatingOutlook
Standard & Poor'sBBB-Stable
Moody'sBaa1Stable
FitchBBB-Stable

Credit rating agencies review their ratings periodically and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Accordingly, we are not able to predict whether our current credit ratings will remain as disclosed above. Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the retail and consumer electronics industries, our financial position and changes in our business strategy. If further changes in our credit ratings were to occur, they could impact, among other things, interest costs for certain of our credit facilities, our future borrowing costs, access to capital markets, vendor financing terms and future new-store leasing costs.

Restricted Cash

Our liquidity is also affected by restricted cash balances that are pledged as collateral or restricted to use for general liability insurance and workers' compensation insurance. Restricted cash and cash equivalents related to our continuing operations, which are included in other current assets, remained relatively flat at $193 million and $185 million at January 28, 2017, and January 30, 2016, respectively.

Capital Expenditures

Our capital expenditures typically include investments in our stores, distribution capabilities and information technology enhancements (including e-commerce). During fiscal 2017, we invested $582 million in property and equipment, primarily related to upgrading our information technology systems and capabilities and store-related projects.

The following table presents our capital expenditures for each of the past three fiscal years ($ in millions):

201720162015
New stores$3$5$3
Store-related projects(1)208241177
E-commerce and information technology371390355
Other—1316
Total capital expenditures(2)(3)$582$649$551
(1)Includes store remodels and various merchandising projects.
(2)Excludes $10 million for fiscal 2015 related to Five Star.
(3)Total capital expenditures exclude non-cash capital expenditures of $48 million, $92 million and $14 million for fiscal 2017, fiscal 2016 and 2015, respectively. Non-cash capital expenditures are comprised of capitalized leases, as well as additions to property and equipment included in accounts payable.

In fiscal 2018, we estimate cash capital expenditures of approximately $650 million to $700 million, with the focus on retail store, e-commerce and information technology projects.

Debt and Capital

In March 2016, we repaid our $350 million principal amount of notes due March 15, 2016 (the "2016 Notes"), using existing cash resources. As of January 28, 2017, we have $500 million principal amount of notes due August 1, 2018 (the "2018 Notes") and $650 million principal amount of notes due March 15, 2021 (the "2021 Notes") outstanding. Refer to Note 5, Debt, in 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 2016 Notes, 2018 Notes and 2021 Notes.

Share Repurchases and Dividends

We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors ("Board"). Our long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment grade credit metrics.

On March 1, 2017, we announced our intent to repurchase $3.0 billion shares over the next two years. In order to execute this plan, our Board approved a new $5.0 billion share repurchase authorization in February 2017. This share repurchase program supersedes the previous $5.0 billion authorization dated June 2011, which had $2.2 billion remaining as of January 28, 2017. There is no expiration date governing the period over which we can repurchase shares under the February 2017 share repurchase program. Repurchased shares are retired and constitute authorized but unissued shares.

The following table presents our share repurchase history for each of the past three fiscal years (in millions, except per share amounts):

20172016(1)2015
Total cost of shares repurchased$751$1,000$—
Average price per share$35.54$—$—
Number of shares repurchased21.132.8—
(1)Share repurchases included the use of an accelerated share repurchase contract. Refer to Note 7, Shareholders' Equity, 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.

In fiscal 2004, our Board initiated the payment of a regular quarterly cash dividend on common stock. A quarterly cash dividend has been paid in each subsequent quarter. The payment of cash dividends is subject to customary legal and contractual restrictions. The following table presents our dividend activity for each of the past three fiscal years (in millions, except per share amounts):

201720162015
Regular quarterly cash dividends per share$1.12$0.92$0.72
Special cash dividends per share(1)0.450.51—
Total cash dividends per share$1.57$1.43$0.72
Cash dividends declared and paid$505$499$251
(1)Special cash dividends are authorized by our Board of Directors and issued upon their discretion. Dividend paid in fiscal 2017 related to the net after-tax proceeds from certain legal settlements and asset disposals, while the dividends paid in fiscal 2016 related to the net after-tax proceeds from LCD-related legal settlements.

Dividends declared and paid in fiscal 2017 were relatively unchanged from fiscal 2016, noting that the quarterly dividend per share increased from $0.23 in fiscal 2016 to $0.28 in fiscal 2017. The increase in the regular dividend rate was substantially offset by fewer common shares, due to a return of capital to shareholders through share repurchases, and a smaller special dividend. Dividends declared and paid in fiscal 2016 increased compared to the prior year due to an increase in the quarterly dividend per share increase from $0.18 in fiscal 2015 to $0.23 in fiscal 2016 and the payment of a special dividend in fiscal 2016.

On March 1, 2017, we announced a 21.0% increase in the regular quarterly dividend to $0.34 per share.

Other Financial Measures

Our current ratio, calculated as current assets divided by current liabilities, was 1.5 as of January 28, 2017, compared to 1.4 at the end of fiscal 2016. The higher current ratio in fiscal 2017 was driven by an increase in cash and short-term investments, related to our higher earnings, and a decrease in current portion of long-term debt related to the payment of our 2016 Notes, partially offset by an increase in accounts payable related to the timing of our inventory purchases.

Our debt to earnings ratio was 1.1 as of January 28, 2017, compared to 2.1 as of January 30, 2016, due to higher earnings in the current year and a reduction in debt related to the payment of our 2016 Notes. Our non-GAAP debt to EBITDAR ratio, which includes capitalized operating lease obligations in its calculation, was 1.6 and 1.8 as of January 28, 2017, and January 30, 2016, respectively. The decrease in the ratio was due to a decrease in debt and capitalized operating lease obligations and an increase in earnings.

Commencing in fiscal 2017, we modified the multiple used to calculate our estimated capitalized operating lease obligation included in our non-GAAP debt calculation. Due to changes in the average remaining lease life of our operating lease portfolio, we have lowered the multiple used from eight times annual rent expense to five times annual rent expense. The multiple of five aligns with the multiple used by one of the nationally recognized credit rating agencies when evaluating the creditworthiness of companies within the retail sector. Prior periods presented have been adjusted to use this new multiple.

Our non-GAAP debt to EBITDAR ratio is calculated as follows:

Non-GAAP debt to EBITDAR =Non-GAAP debt
Non-GAAP EBITDAR

The most directly comparable GAAP financial measure to our non-GAAP debt to EBITDAR ratio is our debt to net earnings ratio, which excludes capitalized operating lease obligations from debt in the numerator of the calculation and does not adjust net earnings in the denominator of the calculation.

The following table presents a reconciliation of our debt to net earnings ratio to our non-GAAP debt to EBITDAR ratio for continuing operations ($ in millions):

2017(1)2016(1)
Debt (including current portion)$1,365$1,734
Capitalized operating lease obligations (5 times rental expense)(2)3,8723,916
Non-GAAP debt$5,237$5,650
Net earnings from continuing operations$1,207$807
Other income (expense) (including interest expense, net)3865
Income tax expense609503
Depreciation and amortization expense654656
Rental expense774783
Restructuring charges and other(3)65263
Non-GAAP EBITDAR$3,347$3,077
Debt to net earnings ratio1.12.1
Non-GAAP debt to EBITDAR ratio1.61.8
(1)Debt is reflected as of the balance sheet dates for each of the respective fiscal periods, while rental expense and the other components of non-GAAP EBITDAR represent activity for the 12 months ended January 28, 2017 and January 30, 2016.
(2)The multiple of five times annual rental expense in the calculation of our capitalized operating lease obligations is the multiple used for the retail sector by one of the nationally recognized credit rating agencies that rate our creditworthiness, and we consider it to be an appropriate multiple for our lease portfolio. Historically, we used a capitalized lease multiple of eight times annual rent expense; however, due to changes in the average remaining lease life of our operating leases, we have lowered the multiple to five. The prior period calculation has been updated to reflect the use of the changes.
(3)Includes the impact of restructuring charges and non-restructuring asset impairments. Refer to Note 3, Fair Value Measurements, and Note 4, Restructuring Charges, in 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 regarding the nature of these charges.

Off-Balance-Sheet Arrangements and Contractual Obligations

Other than operating leases, we do not have any off-balance-sheet financing. A summary of our operating lease obligations by fiscal year is included in the "Contractual Obligations" table below. Additional information regarding our operating leases is available in Item 2, Properties, and Note 8, Leases, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

The following table presents information regarding our contractual obligations as of January 28, 2017, with payments due by period ($ in millions):

Payments Due by Period
Contractual ObligationsTotalLess Than 1 Year1-3 Years3-5 YearsMore Than 5 Years
Long-term debt obligations(1)$1,150$—$500$650$—
Capital lease obligations36911511
Financing lease obligations22646764856
Interest payments(2)192608745—
Operating lease obligations(3)3,1258031,222696404
Purchase obligations(4)1,7971,752432—
Unrecognized tax benefits(5)374
Deferred compensation(6)31
Total$6,931$2,670$1,939$1,446$471

Note: For additional information refer to Note 5, Debt; Note 8, Leases; Note 10, Income Taxes; and Note 12, Contingencies and Commitments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

(1)Represents principal amounts only and excludes interest rate swap valuation adjustments.
(2)Interest payments related to our 2018 Notes and 2021 Notes include the fixed interest rate payments for the balances not impacted by our interest rate swap and the variable interest rate payments for the balances included in our interest rate swap. For additional information 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.
(3)Operating lease obligations do not include payments to landlords covering real estate taxes and common area maintenance. These charges, if included, would increase total operating lease obligations by $1.0 billion at January 28, 2017.
(4)Purchase obligations include agreements to purchase goods or services that are enforceable, are legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include agreements that are cancelable without penalty. Additionally, although they are not legally binding agreements, we included open purchase orders in the table above. Substantially all open purchase orders are fulfilled within 30 days.
(5)Unrecognized tax benefits relate to uncertain tax positions. As we are not able to reasonably estimate the timing of the payments or the amount by which the liability will increase or decrease over time, the related balances have not been reflected in the "Payments Due by Period" section of the table.
(6)Included in long-term liabilities on our Consolidated Balance Sheet at January 28, 2017, was a $31 million obligation for deferred compensation. As the specific payment dates for the deferred compensation are unknown, the related balances have not been reflected in the "Payments Due by Period" section of the table.

Additionally, we have $1.25 billion in undrawn capacity on our credit facilities at January 28, 2017, which if drawn upon, would be included as short-term debt in our Consolidated Balance Sheets.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements requires us to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results. These estimates require our most difficult, subjective or complex judgments, because they relate to matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board.

Except where noted, we have not made any material changes to the accounting methodologies for the areas described below.

Inventory

We value our inventory at the lower of cost or market through the establishment of markdown and inventory loss adjustments. Markdown adjustments reflect the excess of cost over the net proceeds we expect to realize from the ultimate sale or other disposal of inventory and establish a new cost basis. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis. Markdown adjustments involve uncertainty because the calculations require management to make assumptions and to apply judgment regarding factors such as forecast consumer demand, the promotional environment and technological obsolescence.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our markdown adjustments. However, if actual outcomes are different than we anticipated, we may be exposed to losses or gains that could be material. A 10% change in our markdown adjustment at January 28, 2017, would have affected net earnings by approximately $8 million in fiscal 2017.

Vendor Allowances

We receive allowances from certain vendors through a variety of programs and arrangements. We treat a substantial majority of these allowances as an offset to the cost of the product or services provided. Sell-through allowances are collected when inventory is sold to customers and recognized as a reduction in cost of sales at that time. Certain other types of funding, most notably receipt-based allowances, are collected when we take receipt of inventory and deferred as a reduction of inventory until inventory is sold. The estimation of the deferral for these types of funding is complex and requires detailed analysis of factors such as product and vendor mix, inventory turn and a range of allowance programs.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our vendor funding deferral. A 10% difference in our vendor funding deferral at January 28, 2017, would have affected net earnings by approximately $23 million in fiscal 2017.

We also receive vendor allowances for achieving certain volume targets. These vendor allowances are accrued as earned over the incentive period, based on estimates of purchases or sales. Amounts accrued throughout the program year could require adjustment if actual purchase or sales volumes differ from projected volumes, especially in the case of programs that provide for increased funding when graduated volume tiers are met. We believe that our estimate of vendor allowances earned based on expected volume of purchases or sales over the incentive period is an accurate reflection of the ultimate allowances to be received from our vendors. Since most volume-based programs apply to a calendar year or our fiscal year, the amount of judgment required as of any fiscal year end is minimal.

Property and Equipment Impairments

Property and equipment assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

When evaluating property and equipment assets with impairment indicators for potential impairment, we first compare the carrying value of the asset to its estimated undiscounted future cash flows. If the sum of the estimated undiscounted future cash flows is less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to its estimated fair value, which is typically based on estimated discounted future cash flows. We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable asset, the new cost basis is depreciated over the remaining useful life of that asset.

When reviewing property and equipment assets for impairment, we group assets with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For assets deployed at store

locations, we review for impairment at the individual store level. These reviews involve comparing the carrying value of all property and equipment located at each store to the net cash flow projections for each store. In addition, we conduct separate impairment reviews at other levels as appropriate. For example, a shared asset such as a distribution center or an IT asset would be evaluated by reference to the aggregate assets and projected cash flows of all areas of the businesses utilizing those shared assets.

Our impairment loss calculations require management to make assumptions and to apply judgment in order to estimate fair values, including estimating cash flows and useful lives and selecting a discount rate that reflects the risk inherent in future cash flows. If actual results are not consistent with our estimates and assumptions we may be exposed to impairments that could be material. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate property and equipment asset impairment losses.

Goodwill

Goodwill is not amortized but is evaluated for impairment annually in the fiscal fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be recoverable.

We test for goodwill impairment at the reporting unit level and our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management. Our detailed impairment testing involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on discounted cash flows or relative market-based approaches. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value.

The carrying value of goodwill at January 28, 2017, was $425 million, which related entirely to our Domestic segment. In fiscal 2017, we determined that the excess of fair value over carrying value was substantial. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.

Tax Contingencies

Our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of income and deductions and the allocation of income among various tax jurisdictions. At any time, many tax years are subject to audit by various tax authorities. In evaluating the exposures associated with our various tax filing positions, we may record a liability for such exposures. A number of years may elapse before a particular matter, for which we have established a liability, is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provisions in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.

Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and apply judgment to estimate the exposures associated with our various filing positions.

Our effective income tax rate is also affected by changes in tax law, the tax jurisdiction of new stores or business ventures, the level of earnings and the results of tax audits.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.

To the extent we prevail in matters for which a liability has been established, or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax

rate in the period of resolution. A favorable tax settlement may reduce our effective income tax rate and would be recognized in the period of resolution.

Revenue Recognition

The following accounting estimates relating to revenue recognition contain uncertainty because they require management to make assumptions and to apply judgment regarding the effects of future events.

Returns – We recognize revenue, net of estimated returns and sales incentives or allowances, at the time the customer takes possession of merchandise or receives services. We estimate the liability for sales returns with a corresponding reduction to revenue and cost of sales based on historical return data. We believe that our estimate for sales returns, which represents the estimated gross margin impact of returns, is a reasonable reflection of future returns and financial impacts. However, if our estimates are significantly below or above the actual return amounts, our reported revenue and cost of sales could be impacted. A 10% difference in our returns reserve at January 28, 2017, would have affected net earnings by approximately $2 million in fiscal 2017.

Gift Card Breakage – We sell gift cards to customers in our retail stores, through our websites and through select third parties. A liability is initially established for the value of the gift card when sold. We recognize revenue from gift cards when the card is redeemed by the customer. For unredeemed gift cards, we recognize breakage when the likelihood of the gift card being redeemed by the customer is deemed remote, and we determine that we do not have a legal obligation to remit the value of the unredeemed gift cards to a relevant jurisdiction. We determine the breakage rate based on historical redemption patterns and record projected breakage 24 months after card issuance. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to record breakage. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to a charge that could be material.

Customer Loyalty Programs – We have customer loyalty programs which allow members to earn points for each purchase completed with us or when using our co-branded credit cards. Points earned enable members to receive a certificate that may be redeemed on future purchases. The value of points earned by our loyalty program members is included in accrued liabilities and recorded as a reduction in revenue at the time the points are earned, based on the value of points that are projected to be redeemed. Our estimate of the amount and timing of redemptions of certificates is based primarily on historical data. A 10% difference in our customer redemption rates at January 28, 2017, would have affected net earnings by approximately $13 million in fiscal 2017.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions of our revenue recognition critical accounting estimates. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

New Accounting Pronouncements

For a description of new applicable accounting pronouncements, see Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

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