Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended August 4, 2018

3, 2019

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from            to            


Commission File Number: 1-9595

 bestbuylogoprimaryrgb.jpg

Image - Image1.jpeg

BEST BUY CO., INC.

(Exact name of registrant as specified in its charter)

Minnesota

41-0907483

Minnesota41-0907483

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

7601 Penn Avenue South

Richfield, Minnesota

55423

(Address of principal executive offices)

(Zip Code)

(612) 291-1000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock, $0.10 par value per share

BBY

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, (as defined” and “emerging growth company” in Rule 12b-2 of the Exchange Act).

Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer ¨

Smaller Reporting Company

Smaller reporting company ¨

Emerging growth company ¨

Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No x

The registrant had 274,557,555263,573,258 shares of common stock outstanding as of September 5, 2018.4, 2019.



Table of Contents


BEST BUY CO., INC.

FORM 10-Q FOR THE QUARTER ENDED AUGUST 4, 2018

3, 2019

TABLE OF CONTENTS

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PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

Item 1.    Financial Statements

Condensed ConsolidatedConsolidated Balance Sheets

$ in millions, except per share and share amounts (unaudited)

August 3, 2019

February 2, 2019

August 4, 2018

Assets

Current assets

Cash and cash equivalents

$

1,289 

$

1,980 

$

1,865 

Short-term investments

320 

-

465 

Receivables, net

966 

1,015 

915 

Merchandise inventories

5,208 

5,409 

5,016 

Other current assets

409 

466 

510 

Total current assets

8,192 

8,870 

8,771 

Property and equipment, net

2,361 

2,510 

2,432 

Operating lease assets

2,774 

-

-

Goodwill

965 

915 

425 

Other assets

686 

606 

365 

Total assets

$

14,978 

$

12,901 

$

11,993 

Liabilities and equity

Current liabilities

Accounts payable

$

5,045 

$

5,257 

$

5,338 

Unredeemed gift card liabilities

264 

290 

275 

Deferred revenue

468 

446 

438 

Accrued compensation and related expenses

343 

482 

318 

Accrued liabilities

799 

982 

813 

Current portion of operating lease liabilities

643 

-

-

Current portion of long-term debt

14 

56 

47 

Total current liabilities

7,576 

7,513 

7,229 

Long-term liabilities

640 

750 

777 

Long-term operating lease liabilities

2,230 

-

-

Long-term debt

1,247 

1,332 

801 

Contingencies (Note 14)

 

 

 

Equity

Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - NaN

-

-

-

Common stock, $0.10 par value: Authorized - 1.0 billion shares; Issued and outstanding - 265 million, 266 million, and 276 million shares, respectively

26 

27 

27 

Retained earnings

2,965 

2,985 

2,863 

Accumulated other comprehensive income

294 

294 

296 

Total equity

3,285 

3,306 

3,186 

Total liabilities and equity

$

14,978 

$

12,901 

$

11,993 

 August 4, 2018 February 3, 2018 July 29, 2017
Assets 
  
  
Current assets     
Cash and cash equivalents$1,865
 $1,101
 $1,365
Short-term investments465
 2,032
 2,125
Receivables, net915
 1,049
 965
Merchandise inventories5,016
 5,209
 5,167
Other current assets510
 438
 456
Total current assets8,771
 9,829
 10,078
Property and equipment, net2,432
 2,421
 2,327
Goodwill425
 425
 425
Other assets365
 374
 614
Total assets$11,993
 $13,049
 $13,444
      
Liabilities and equity     
Current liabilities 
  
  
Accounts payable$5,338
 $4,873
 $5,072
Unredeemed gift card liabilities275
 385
 383
Deferred revenue438
 453
 427
Accrued compensation and related expenses318
 561
 309
Accrued liabilities801
 864
 787
Accrued income taxes12
 137
 83
Current portion of long-term debt47
 544
 44
Total current liabilities7,229
 7,817
 7,105
Long-term liabilities777
 809
 682
Long-term debt801
 811
 1,310
Equity 
  
  
Preferred stock, $1.00 par value: Authorized — 400,000 shares; Issued and outstanding — none
 
 
Common stock, $0.10 par value: Authorized — 1.0 billion shares; Issued and outstanding — 276,000,000, 283,000,000 and 300,000,000 shares, respectively27
 28
 30
Retained earnings2,863
 3,270
 3,996
Accumulated other comprehensive income296
 314
 321
Total equity3,186
 3,612
 4,347
Total liabilities and equity$11,993
 $13,049
 $13,444

NOTE: The Consolidated Balance Sheet as of February 3, 2018,2, 2019, has been condensed from the audited consolidated financial statements.


See Notes to Condensed Consolidated Financial Statements.



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Table of Contents

Condensed Consolidated Statements of Earnings

$ and shares in millions, except per share amounts (unaudited)

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Revenue

$

9,536 

$

9,379 

$

18,678 

$

18,488 

Cost of goods sold

7,253 

7,150 

14,226 

14,134 

Gross profit

2,283 

2,229 

4,452 

4,354 

Selling, general and administrative expenses

1,922 

1,877 

3,757 

3,707 

Restructuring charges

48 

17 

48 

47 

Operating income

313 

335 

647 

600 

Other income (expense):

Investment income and other

10 

13 

24 

24 

Interest expense

(16)

(19)

(34)

(38)

Earnings before income tax expense

307 

329 

637 

586 

Income tax expense

69 

85 

134 

134 

Net earnings

$

238 

$

244 

$

503 

$

452 

Basic earnings per share

$

0.89 

$

0.88 

$

1.88 

$

1.61 

Diluted earnings per share

$

0.89 

$

0.86 

$

1.86 

$

1.58 

Weighted-average common shares outstanding

Basic

267.1 

279.0 

267.4 

280.8 

Diluted

269.4 

283.7 

270.9 

286.0 

 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Revenue$9,379
 $8,940
 $18,488
 $17,468
Cost of goods sold7,150
 6,787
 14,134
 13,293
Gross profit2,229
 2,153
 4,354
 4,175
Selling, general and administrative expenses1,877
 1,830
 3,707
 3,552
Restructuring charges17
 2
 47
 2
Operating income335
 321
 600
 621
Other income (expense): 
  
 

 

Investment income and other13
 7
 24
 18
Interest expense(19) (18) (38) (37)
Earnings before income tax expense329
 310
 586
 602
Income tax expense85
 101
 134
 205
Net earnings$244
 $209
 $452
 $397
        
Basic earnings per share$0.88
 $0.69
 $1.61
 $1.29
Diluted earnings per share$0.86
 $0.67
 $1.58
 $1.27
        
Dividends declared per common share$0.45
 $0.34
 $0.90
 $0.68
        
Weighted-average common shares outstanding 
  
    
Basic279.0
 304.1
 280.8
 306.7
Diluted283.7
 310.8
 286.0
 313.0

See Notes to Condensed Consolidated Financial Statements.



4


Table of Contents

Condensed Consolidated Statements of Comprehensive Income

$ in millions (unaudited)

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Net earnings

$

238 

$

244 

$

503 

$

452 

Foreign currency translation adjustments

(14)

-

(18)

Comprehensive income

$

243 

$

230 

$

503 

$

434 

 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Net earnings$244
 $209
 $452
 $397
Foreign currency translation adjustments(14) 55
 (18) 42
Comprehensive income$230
 $264
 $434
 $439

See Notes to Condensed Consolidated Financial Statements.



5



Condensed

Condensed Consolidated Statements of Cash Flows

$ in millions (unaudited)

Six Months Ended

August 3, 2019

August 4, 2018

Operating activities

Net earnings

$

503 

$

452 

Adjustments to reconcile net earnings to total cash provided by operating activities:

Depreciation and amortization

401 

358 

Restructuring charges

48 

47 

Stock-based compensation

74 

63 

Deferred income taxes

10 

Other, net

-

Changes in operating assets and liabilities, net of acquired assets and liabilities:

Receivables

57 

120 

Merchandise inventories

199 

187 

Other assets

(29)

(53)

Accounts payable

(213)

485 

Other liabilities

(243)

(430)

Income taxes

(191)

(126)

Total cash provided by operating activities

625 

1,108 

Investing activities

Additions to property and equipment

(385)

(375)

Purchases of investments

(319)

-

Sales of investments

-

1,565 

Acquisition of business, net of cash acquired

(125)

-

Other, net

10 

Total cash provided by (used in) investing activities

(828)

1,200 

Financing activities

Repurchase of common stock

(328)

(774)

Issuance of common stock

27 

29 

Dividends paid

(267)

(253)

Repayments of debt

(8)

(523)

Other, net

-

(3)

Total cash used in financing activities

(576)

(1,524)

Effect of exchange rate changes on cash

(1)

(16)

Increase (decrease) in cash, cash equivalents and restricted cash

(780)

768 

Cash, cash equivalents and restricted cash at beginning of period

2,184 

1,300 

Cash, cash equivalents and restricted cash at end of period

$

1,404 

$

2,068 

 Six Months Ended
 August 4, 2018 July 29, 2017
Operating activities   
Net earnings$452
 $397
Adjustments to reconcile net earnings to total cash provided by operating activities:   
Depreciation358
 329
Restructuring charges47
 2
Stock-based compensation63
 67
Deferred income taxes5
 9
Other, net
 (2)
Changes in operating assets and liabilities:   
Receivables120
 401
Merchandise inventories187
 (285)
Other assets(53) (45)
Accounts payable485
 15
Other liabilities(430) (237)
Income taxes(126) 41
Total cash provided by operating activities1,108
 692
    
Investing activities 
  
Additions to property and equipment(375) (296)
Purchases of investments
 (2,221)
Sales of investments1,565
 1,806
Other, net10
 3
Total cash provided by (used in) investing activities1,200
 (708)
    
Financing activities 
  
Repurchase of common stock(774) (771)
Repayments of debt(523) (19)
Dividends paid(253) (208)
Issuance of common stock29
 125
Other, net(3) (1)
Total cash used in financing activities(1,524) (874)
Effect of exchange rate changes on cash(16) 18
Increase (decrease) in cash, cash equivalents and restricted cash768
 (872)
Cash, cash equivalents and restricted cash at beginning of period1,300
 2,433
Cash, cash equivalents and restricted cash at end of period$2,068
 $1,561

See Notes to Condensed Consolidated Financial Statements.


Condensed Consolidated Statements of Changes in Shareholders' Equity

$ and shares in millions, except per share amounts (unaudited)

Common
Shares

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated Other
Comprehensive
Income (Loss)

Total

Balances at May 4, 2019

267 

$

27 

$

-

$

3,038 

$

289 

$

3,354 

Adoption of ASU 2016-02

-

-

-

(3)

-

(3)

Net earnings, three months ended August 3, 2019

-

-

-

238 

-

238 

Other comprehensive income, net of tax:

Foreign currency translation adjustments

-

-

-

-

Stock-based compensation

-

-

38 

-

-

38 

Issuance of common stock

-

16 

-

-

16 

Common stock dividends, $0.50 per share

-

-

(135)

-

(133)

Repurchase of common stock

(4)

(1)

(56)

(173)

-

(230)

Balances at August 3, 2019

265 

$

26 

$

-

$

2,965 

$

294 

$

3,285 

Balances at February 2, 2019

266 

$

27 

$

-

$

2,985 

$

294 

$

3,306 

Adoption of ASU 2016-02

-

-

-

(22)

-

(22)

Net earnings, six months ended August 3, 2019

-

-

-

503 

-

503 

Stock-based compensation

-

-

74 

-

-

74 

Issuance of common stock

-

27 

-

-

27 

Common stock dividends, $1.00 per share

-

-

(271)

-

(267)

Repurchase of common stock

(5)

(1)

(105)

(230)

-

(336)

Balances at August 3, 2019

265 

$

26 

$

-

$

2,965 

$

294 

$

3,285 

Balances at May 5, 2018

281 

$

28 

$

-

$

3,082 

$

310 

$

3,420 

Net earnings, three months ended August 4, 2018

-

-

-

244 

-

244 

Other comprehensive loss, net of tax:

Foreign currency translation adjustments

-

-

-

-

(14)

(14)

Stock-based compensation

-

-

31 

-

-

31 

Issuance of common stock

-

-

-

Common stock dividends, $0.45 per share

-

-

(127)

-

(125)

Repurchase of common stock

(6)

(1)

(38)

(336)

-

(375)

Balances at August 4, 2018

276 

$

27 

$

-

$

2,863 

$

296 

$

3,186 

Balances at February 3, 2018

283 

$

28 

$

-

$

3,270 

$

314 

$

3,612 

Adoption of ASU 2014-09

-

-

-

73 

-

73 

Net earnings, six months ended August 4, 2018

-

-

-

452 

-

452 

Other comprehensive loss, net of tax:

Foreign currency translation adjustments

-

-

-

-

(18)

(18)

Stock-based compensation

-

-

63 

-

-

63 

Issuance of common stock

-

29 

-

-

29 

Common stock dividends, $0.90 per share

-

-

(255)

-

(251)

Repurchase of common stock

(11)

(1)

(96)

(677)

-

(774)

Balances at August 4, 2018

276 

$

27 

$

-

$

2,863 

$

296 

$

3,186 

 
Common
Shares
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 Total
Balances at February 3, 2018283
 $28
 $
 $3,270
 $314
 $3,612
Adoption of ASU 2014-09

 

 
 73
 

 73
Net earnings, six months ended August 4, 2018
 
 
 452
 
 452
Other comprehensive loss, net of tax:           
Foreign currency translation adjustments
 
 
 
 (18) (18)
Stock-based compensation

 
 63
 
 
 63
Restricted stock vested and stock options exercised4
 
 25
 
 
 25
Issuance of common stock under employee stock purchase plan
 
 4
 
 
 4
Common stock dividends, $0.90 per share
 
 4
 (255) 
 (251)
Repurchase of common stock(11) (1) (96) (677) 
 (774)
Balances at August 4, 2018276
 $27
 $
 $2,863
 $296
 $3,186
            
Balances at January 28, 2017311
 $31
 $
 $4,399
 $279
 $4,709
Adoption of ASU 2016-09
 
 10
 (12) 
 (2)
Net earnings, six months ended July 29, 2017
 
 
 397
 
 397
Other comprehensive income, net of tax:           
Foreign currency translation adjustments
 
 
 
 42
 42
Stock-based compensation
 
 67
 
 
 67
Restricted stock vested and stock options exercised5
 
 121
 
 
 121
Issuance of common stock under employee stock purchase plan
 
 3
 
 
 3
Common stock dividends, $0.68 per share
 
 
 (209) 
 (209)
Repurchase of common stock(16) (1) (201) (579) 
 (781)
Balances at July 29, 2017300
 $30
 $
 $3,996
 $321
 $4,347

See Notes to Condensed Consolidated Financial Statements.

Notes to Condensed Consolidated Financial Statements

(unaudited)


1.Basis of Presentation

1.Basis of Presentation

Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” in these Notes to Condensed Consolidated Financial Statements refers to Best Buy Co., Inc. and, as applicable, its consolidated subsidiaries.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.


Historically, we have generated a large proportion of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018.2, 2019. The first six months of fiscal 20192020 and fiscal 20182019 included 26 weeks.


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. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our condensed consolidated financial statements. No such events were identified for the reported periods.


In preparing the accompanying condensed consolidated financial statements, we evaluated the period from August 5, 2018,3, 2019, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. Other

than as disclosed in Note 13, 15, Subsequent Event, no such events were identified for the reported periods.


Unadopted Accounting Pronouncements


In February 2016,January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, LeasesNo. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will require lessees to recognize most leasesrecord an impairment charge based on their balance sheets related to the rights and obligations created by those leases, and will expand disclosure requirements. Theexcess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). We do not believe the new guidance, was issued to increase transparency and comparability among companies. which is effective for fiscal years beginning after December 15, 2019, will have a material impact on our consolidated financial statements.

In JulyAugust 2018, the FASB approved an amendmentissued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements for fair value measurements. We do not believe the updated guidance, which is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, will have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance requires companies to apply the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to implementation costs incurred in a hosting arrangement that is a service contract to determine whether to capitalize certain implementation costs or expense them as incurred. We do not believe the new guidance, that allows companieswhich is effective for fiscal years beginning after December 15, 2019, will have a material impact on our consolidated financial statements.

Adopted Accounting Pronouncements

In February 2016, the optionFASB issued ASU 2016-02, Leases, which requires the recognition of usingoperating lease assets and lease liabilities on the effective datebalance sheet. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new standard, asdisclosures are required to enable users of financial statements to assess the initial application (at the beginningamount, timing and uncertainty of the period in which is it adopted, rather than at the beginningcash flows arising from leases.

In the first quarter of fiscal 2020, we adopted ASU 2016-02 using the prospective“Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption will be as originally reported under the previous standard – ASC 840, Leases. The effects of adopting the new standard (ASC 842, Leases) in fiscal 2020 were recognized as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal first quarter. We elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows us to carry forward the historical lease classification as operating or capital leases. We also elected to combine lease and have begun implementing required upgradesnon-lease components and to our existing lease systems. While we expect adoption to lead to a material increase in the assets and liabilities recorded onexclude short-term leases from our consolidated balance sheetsheets. We did not elect the hindsight practical expedient in determining the lease term for existing leases as of February 3, 2019.

The most significant impact of adoption was the recognition of operating lease assets and an increase tooperating lease liabilities of $2.7 billion and $2.8 billion, respectively, while our footnote disclosures related to leases, we are still evaluating the impact on our consolidated statement of earnings. We also expect that adoption of the new standard will require changes to our internal controls over financial reporting.


Adopted Accounting Pronouncements

In the first quarter of fiscal 2019, we prospectively adopted the following ASUs, all of which had an immaterial impact on our results of operations, cash flows and financial position.

ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory
ASU 2017-12, Derivatives and Hedging
ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In the first quarter of fiscal 2019, we also adopted ASU 2014-09, Revenue from Contracts with Customers. The new guidance establishes a single comprehensive model for entities to use in accounting for revenue and supersedes most revenue recognition guidance. It introduces a five-step process for revenue recognition that focuses on transfer of control,existing capital leases (now referred to as opposed to transfer of risk and rewards under previous guidance. We elected the modified retrospective method of adoption, which we applied to contracts not completed at the date of adoption. Under this method, we recorded an increase to opening retained earnings of $73 million, net of tax, due to thefinance leases) remained substantially unchanged. The cumulative impact of these changes. The impact was primarilychanges decreased retained earnings by $22 million, which includes a $3 million net-of-tax adjustment made during the second quarter of fiscal 2020 related to the timing of revenue

recognition related to our gift cards, the sale of certain software licenses and our loyalty programs. We did not make any adjustment to prior period financial statements.on-adoption impairment charges. We expect the impact of adoption to be immaterial to our revenue, netconsolidated statements of earnings and consolidated statements of cash flows on an ongoing basis. As part of theour adoption, we also modified certainour control procedures and processes, none of which had a material effect onmaterially affected our internal controlscontrol over financial reporting.

See Note 4, Leases, for additional information regarding our accounting policy for leases and additional disclosures.

The cumulative effect of the changes made to our Condensed Consolidated Balance Sheet on February 4, 2018,Sheets for the adoption of this standard was as follows ($ in millions):

February 2, 2019
As Reported

ASU 2016-02

Adjustment on

February 3, 2019

February 3, 2019
Adjusted

Assets

Other current assets

$

466 

$

(65)

(a)

$

401 

Net property and equipment

2,510 

(173)

(b)

2,337 

Operating lease assets

-

2,732 

(c)

2,732 

Other assets

606 

(d)

611 

Liabilities

Accrued liabilities

982 

(28)

(e)

954 

Current portion of operating lease liabilities

-

712 

(f)

712 

Current portion of long-term debt

56 

(43)

(b)

13 

Long-term liabilities

750 

(115)

(e)

635 

Long-term operating lease liabilities

-

2,135 

(f)

2,135 

Long-term debt

1,332 

(140)

(b)

1,192

Equity

Retained earnings

2,985 

(22)

(g)

2,963

 
February 3, 2018
As Reported
 ASU 2014-09 Adjustment on February 4, 2018 February 4, 2018 Adjusted
Assets     
Other assets$374
 $(19) $355
Liabilities     
Unredeemed gift card liabilities385
 (69) 316
Deferred revenue453
 (26) 427
Accrued liabilities864
 (3) 861
Accrued income taxes137
 6
 143
Equity     
Retained earnings3,270
 73
 3,343

The following tables reflect

(a)Represents the reclassification of prepaid rent and leasehold acquisition costs to Operating lease assets.

(b)Represents the derecognition of financing obligations and reclassification to Operating lease assets.

(c)Represents the capitalization of operating lease assets and the reclassification of prepaid rent and leasehold acquisition costs, offset by the reclassification of straight-line rent accruals, tenant improvement allowances and vacant space reserves.

(d)Represents the deferred tax impact of adopting this standard on our Condensed Consolidated Balance Sheets asthe on-adoption adjustments.

(e)Represents the reclassification of August 4, 2018,straight-line rent accruals, tenant improvement allowances and our Condensed Consolidated Statementsvacant space reserves to Operating lease assets.

(f)Represents the recognition of Earnings foroperating lease liabilities.

(g)Represents the threenet-of-tax retained earnings impact of impairment charges and six months ended August 4, 2018 ($ in millions, except per share amounts):

 August 4, 2018
Impact of Changes to Condensed Consolidated Balance SheetsAs Reported 
Balances without Adoption of
ASU 2014-09
 
Effect of Change Higher/(Lower)(1)
Assets     
Other current assets$510
 $461
 $49
Other assets365
 384
 (19)
Liabilities     
Unredeemed gift card liabilities275
 344
 (69)
Deferred revenue438
 462
 (24)
Accrued liabilities801
 754
 47
Accrued income taxes12
 6
 6
Equity    
Retained earnings2,863
 2,793
 70
(1)Effect of change includes the opening retained earnings adjustment as detailed within the table above.
 Three Months Ended August 4, 2018
Impact of Changes to Condensed Consolidated Statements of EarningsAs Reported 
Balances without Adoption of
ASU 2014-09
 Effect of Change Higher/(Lower)
Revenue$9,379
 $9,368
 $11
Cost of goods sold7,150
 7,138
 12
Gross profit2,229
 2,230
 (1)
Operating income335
 336
 (1)
Income tax expense85
 85
 
Net earnings244
 245
 (1)
      
Basic earnings per share$0.88
 $0.88
 $
Diluted earnings per share$0.86
 $0.86
 $

 Six Months Ended August 4, 2018
Impact of Changes to Condensed Consolidated Statements of EarningsAs Reported Balances without Adoption of
ASU 2014-09
 Effect of Change Higher/(Lower)
Revenue$18,488
 $18,468
 $20
Cost of goods sold14,134
 14,111
 23
Gross profit4,354
 4,357
 (3)
Operating income600
 603
 (3)
Income tax expense134
 135
 (1)
Net earnings452
 454
 (2)
      
Basic earnings per share$1.61
 $1.62
 $(0.01)
Diluted earnings per share$1.58
 $1.59
 $(0.01)

the derecognition of financing obligations.

Total Cash, Cash Equivalents and Restricted Cash


The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the totaltotals shown within the Condensed Consolidated Statements of Cash Flows was as of August 4, 2018, February 3, 2018, and July 29, 2017follows ($ in millions):

August 3, 2019

August 4, 2018

Cash and cash equivalents

$

1,289 

$

1,865 

Restricted cash included in Other current assets

115 

203 

Total cash, cash equivalents and restricted cash

$

1,404 

$

2,068 

 August 4, 2018 February 3, 2018 July 29, 2017
Cash and cash equivalents$1,865
 $1,101
 $1,365
Restricted cash included in Other current assets203
 199
 196
Total cash, cash equivalents and restricted cash$2,068
 $1,300
 $1,561

Amounts included in restricted cash are pledged as collateral or restricted to use for workers’ compensation and general liability insurance claims.

2. Acquisition

Critical Signal Technologies, Inc.

On May 9, 2019, we acquired all of the outstanding shares of Critical Signal Technologies, Inc. (“CST”), a health services company, for net cash consideration of $125 million. The acquisition of CST is aligned with our strategy to address health and workers' compensation insurance.


Goodwillwellness with a focus on aging seniors and Intangible Assets

All goodwillhow technology can help them live longer in their homes.

The acquisition was accounted for using the acquisition method of accounting for business combinations. Accordingly, the cost was allocated to the underlying net assets based on their respective fair values, and intangible asset balances relatethe excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill. The purchase price allocation for the assets acquired and liabilities assumed is substantially complete, but may be subject to our Domestic segment. Asimmaterial changes. The acquired assets were primarily comprised of August 4, 2018, February 3, 2018, and July 29, 2017, respectively, the carrying amount of goodwill was $425 million, net of $675$83 million of cumulative impairment. The carrying amount of indefinite-lived tradenames includedcustomer relationships (amortized over 15 years) recorded within Other assets on our Condensed Consolidated Balance Sheets was $18 million as of August 4, 2018, February 3, 2018,2019. Goodwill of $50 million was recorded and July 29, 2017, respectively.


2.Revenue Recognition

We generate revenue primarily from the sale of products and services, both as a principal and as an agent. Revenue is recognized when control of the promised goods or services is transferredassigned to our customers, in an amount that reflects the transaction price consideration that we expect to receive in exchange for those goods or services. Control refers to the ability of the customer to direct the use of,GreatCall reporting unit and obtain substantially all of, the remaining benefits from the goods or services. Our transaction price consideration is fixed, unless otherwise disclosed below as variable consideration. We generate all of our operating revenue from contracts with customers. Our revenue excludes sales and usage-based taxes collected.

Revenue from product sales and services is reported net of sales refunds, which includes an estimate of future returns and contract cancellations based on historical refund rates, with a corresponding reduction to cost of sales. There is inherent judgment in estimating future refunds as they are susceptible to factors outside of our influence. However, we have significant experience in estimating the amount of refunds, based primarily on historical data. Our refund liability for sales returns was $71 million at August 4, 2018, which is included in Accrued liabilities on our Condensed Consolidated Balance Sheets and represents the expected value of the aggregate refunds that will be due to our customers. We also have a corresponding asset included in Other current assets on our Condensed Consolidated Balance Sheets that represents the inventory we expect to be returned, valued at the lower of cost or net realizable value. As of August 4, 2018, this amount was $49 million.

For revenue transactions that involve more than one performance obligation, we defer the revenue associated with any unsatisfied performance obligation until the obligation is satisfied, i.e., when control of a product is transferred to the

customer or a service is completed. For such contracts, we allocate revenue and any discounts to each performance obligation based on its relative standalone selling price. We determine standalone selling prices based on the prices charged to customers or, when directly observable selling prices are not available, we generally use an expected cost-plus margin approach.

Our contract liabilities primarily relate to product merchandise not yet delivered to customers; unredeemed gift cards; services not yet completed; services technical support contracts, where performance is satisfied over the duration of the contract; and options that provide a material right to customers, such as our customer loyalty programs. Most of our contract liabilities have a duration of one year or less, except our services technical support contracts, which may have a duration of up to three years. We do not have any material contract assets.

The following table provides information about receivables and contract liabilities from our contracts with customers, which reflects the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied as of August 4, 2018, and February 4, 2018 ($ in millions):
 August 4, 2018 February 4, 2018
Receivables, net of an allowance for doubtful accounts of $15 and $24, respectively$584
 $674
Short-term contract liabilities included in:   
Unredeemed gift cards275
 316
Deferred revenue438
 408
Accrued liabilities148
 151
Long-term contract liabilities included in:   
Long-term liabilities15
 22

We establish allowances for uncollectible receivables based on historical collection trends and write-off history.The following table summarizes our allowance for doubtful account activity related to contracts with customers during the six months ended August 4, 2018 ($ in millions):
 Allowance for Doubtful Accounts
Balance at February 4, 2018$24
Charged to expenses or other accounts19
Other(1)
(28)
Balance at August 4, 2018$15
(1)Includes bad debt write-offs, recoveries and the effect of foreign currency fluctuations.

The following table summarizes significant changes in our contract liability balances during the six months ended August 4, 2018 ($ in millions):
 Six Months Ended
 August 4, 2018
Revenue recognized that was included in the contract liability balance(s) as of February 4, 2018$605
Revenue recognized from performance obligations satisfied in previous periods
Adjustments(1)
1
(1)Includes changes in the measure of progress, changes in the estimate of the transaction price or contract modifications.

The following table includes estimated revenue from our contract liability balances expected to be recognized in future periods if performance of the contract is expected to have a duration of more than one year ($ in millions):

 
August 4, 2018(1)
Remainder of fiscal 2019$12
Fiscal 202014
Fiscal 20216
Fiscal 20222
Fiscal 2023 and thereafter1
(1)We have elected to exclude unsatisfied performance obligations from contract liability balances with a duration of one year or less. The estimated transaction price revenue disclosed above also does not include amounts of variable consideration attributable to contracts where the consideration is constrained at August 4, 2018. Further information about our forms of variable consideration is disclosed below.

We apply a practical expedient to expense direct costs of obtaining a contract when incurred because the amortization period would have been one year or less.

See Note 10, Segments, for a disaggregation of revenue by reportable segment and product category, which represents how our chief operating decision maker reviews information internally to evaluate our financial performance and to make resource allocation and other decisions for the enterprise.

Product revenue

Product revenue is recognized when control passes, which generally occurs at a point in time when the customer completes a transaction in the store and receives the merchandise. Our payment terms are typically at the point of sale. In the case of items paid for in the store, but subsequently delivered to the customer, control passes and revenue is recognized once delivery has been completed, as we have transferred possession to the customer.

For transactions initiated online, customers choose whether to have it delivered to them (using third-party parcel delivery companies) or to collect their merchandise from one of our stores (“in-store pick up”). For items delivered directly to the customer, control passes and revenue is recognized when delivery has been completed to the customer, as title has passed and we have transferred possession to the customer. For in-store pick up, control passes and revenue is recognized once the customer has taken possession of the merchandise. Any fees charged to customers for delivery are a component of the transaction price and are recognized when delivery has been completed. We use delivery information at an individual contract level to determine when to recognize revenue for products and any related delivery fee revenue.

Generally, we are the principal to the contract as we have control of the physical products prior to transfer to the customer. Accordingly, revenue is recognized on a gross basis. For certain sales, primarily activation-based software licenses and third-party stored-value cards, we are the sales agent providing access to the content and recognize fixed commission revenue net of amounts due to third parties who fulfill the performance obligation. For these sales, control passes upon providing access of the content to the customer.

Warranty obligations associated with the sale of our exclusive brands products are assurance-type warranties that are a guarantee of the product’s intended functionality and, therefore, do not represent a distinct performance obligation within the context of the contract.

Services - When we are the principal

We recognize service revenue for installation, set-up, software troubleshooting, product repair, consultation and educational classes once the service is completed, as this is when the customer has the ability to direct the use of and obtain the benefits of the service or serviced product. Payment terms are typically at the point of sale, but may also occur upon completion of the service. Our service contracts are primarily with retail customers, merchandise vendors (for factory warranty repairs) and third-party underwriters who sell extended warranty protection plans.

For technical support membership contracts, we are responsible for fulfilling the support services to customers. These contracts have terms ranging from one month to three years and typically contain multiple performance obligations. Payment for the membership contracts is due at the start of the contract period. We have determined that our contracts do not include a significant financing component. The primary purpose of our payment terms is to provide customers with a simplified method of purchasing our services, not to provide customers with financing. We recognize revenue over time on a service consumption basis, an input method of measuring progress over the related contract term. This method is based on historical utilization patterns as this depicts when customers use the services and discounts provided and, accordingly,

when delivery of the performance obligation occurs. There is judgment in (1) determining the level at which we apply a portfolio approach to these contracts, and (2) measuring the relative standalone selling price for performance obligations within these contracts to the extent that they are only bundled and sold to customers with other performance obligations. When direct observable evidence of the standalone selling price is not available, a cost-plus margin approach is generally used. Additionally, there is judgment in (3) assessing the pattern of delivery across multiple portfolios of customers, including measuring future progress based on historical consumption patterns. When sufficient history of consumption is unavailable, we generally recognize revenue ratably over the life of the contract.

Services - When we are the agent

We sell various hardware protection plans to customers that provide extended warranty coverage on their device purchases. Such plans have terms ranging from one month to five years. Payment is due at the point of sale. Third-party underwriters assume the risk associated with the coverage and are primarily responsible for fulfillment. We record the fixed net commissions (the amount charged to the customer less the premiums remitted to the underwriter) as revenue at a point in time when the corresponding product revenue is recognized. In addition, we are eligible to receive profit-sharing payments, a form of variable consideration, which are dependent upon the profitable performance of the portfolio. We do not share in any losses of the portfolio. We record any such profit share as revenue once the uncertainty associated with the portfolio period, which is calendar-year based, is no longer constrained using the expected value method. This typically occurs when claims experience for the annual period is known in our fiscal fourth quarter, with payment of the profit share occurring in the subsequent fiscal year.

We earn fixed commissions from mobile network carriers to sell service contracts on their platforms. Revenue is recognized when control passes at a point in time upon sale of the contract and activation of the customer on the provider’s platform. The term between when we bill the content provider and when we receive payment is generally within 30 to 60 days, which is after control has passed. Activation commissions are subject to repayment to the carrier primarily due to customer cancellation for specified time periods after the sale. Commission revenue from mobile network carriers is reported net of the expected cancellations, which we estimate based on historical cancellation rates.

Credit card revenue

We offer promotional financing and credit cards issued by third-party banks that manage and directly extend credit to our customers. We provide a license to our brand and marketing services, and we facilitate credit applications in our stores and online. The banks are the sole owners of the accounts receivable generated under the program and, accordingly, we do not hold any customer receivables related to these programs and act as an agent in the financing transactions with customers. We are eligible to receive a profit share from our banking partner based on the annual performance of the program, and we receive quarterly payments based on forecasts of full-year performance. This is a form of variable consideration. We record such profit share as revenue over time using the most likely amount method, which reflects the amount earned each quarter when it is determined that the likelihood of a significant revenue reversal is not probable, which is typically quarterly. Profit-share payments occur quarterly, shortly after the end of each program quarter.

Best Buy gift cards

We sell Best Buy gift cards to our customers in our retail stores, online and through select third parties. Our gift cards do not have an expiration date. We recognize revenue from gift cards when the card is redeemed by the customer. We also recognize revenue for the portion of gift card values that is not expected to be redeemed ("breakage").deductible for income tax purposes. We estimate breakage basedrecorded $3 million of transaction costs related to the acquisition within Selling, general and administrative (“SG&A”) expenses on historical patternsour Condensed Consolidated Statements of Earnings for the second quarter and other factors, such as laws and regulations applicable to each jurisdiction.

We recognize gift card breakage based on the expected patternfirst six months of gift card redemptions, based on analysisfiscal 2020. Results of historic trends. Typically, over 90% of gift card values are redeemed within one year of issuance. There is judgment in assessing (1) the level at which we group gift cards for analysis of breakage rates, (2) redemption patterns, and (3) the ultimate value of gift cards which we do not expect to be redeemed.

Sales incentives

We frequently offer sales incentives that entitle our customers to receive a gift card at the time of purchase or an instant savings coupon that can be redeemed towards a future purchase. For sales incentives issued to customers that are only earned in conjunction with the purchase of products or services, the sales incentives represent an option that is a material right and, accordingly, is a performance obligation in the contract. The relative standalone selling price of these sales incentives is deferred as a contract liability, based on the cards or coupons that are projected to be redeemed. We recognize

revenue for this performance obligation when it is redeemed by the customer or when it is not expected to be redeemed. There is judgment in determining (1) the level at which we group incentives based on similar redemption patterns, (2) redemption patterns, and (3) the ultimate number of incentives that we do not expect to be redeemed.

We also issue coupons that are not earned in conjunction with a purchase of a product or service, typically as part of targeted marketing activities. This is not a performance obligation, but is recognized as a reduction of the transaction price when redeemed by the customer.

Customer loyalty programs

We have customer loyalty programs which allow members to earn points for each qualifying purchase. Points earned enable members to receive a certificate that may be redeemed on future purchases at our Best Buy branded stores. Depending on the customer's membership level within our loyalty program, certificate expirations typically range from 2 to 12 monthsoperations from the date of issuance. Our loyalty programs represent customer options that provide aacquisition were included within our GreatCall operating segment, Domestic reportable segment and Services revenue category. The acquisition of CST was not material right and, accordingly, are performance obligations for each applicable contract. The relative standalone selling priceto the results of points earned by our loyalty program members is deferred and included in Accrued liabilities on our Condensed Consolidated Balance Sheets based on the percentage of points that are projected to be redeemed. We recognize revenue for this performance obligation over time when a certificate is estimated to be redeemed by the customer. There is judgment in measuring the standalone selling price of this performance obligation related to our estimate of the amount of and subsequent timing of redemptions of certificates (“certificate breakage”). We determine our certificate breakage rate based upon an analysis of historic trends. There is judgment in assessing (1) the level at which we group certificates for analysis of breakage rates, (2) redemption patterns, and (3) the ultimate value of certificates which we do not expect to be redeemed.

3.Fair Value Measurements
operations.

3. Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs:

Level 1 — Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.

Level 2 — Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:

Quoted prices for similar assets or liabilities in active markets;

Quoted prices for identical or similar assets or liabilities in non-active markets;

Inputs other than quoted prices that are observable for the asset or liability; and

Inputs that are derived principally from or corroborated by other observable market data.

Level 3 — Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The following table sets forth our financial

Financial assets and liabilities that were accounted for at fair value on a recurring basis at August 4, 2018, February 3, 2018, and July 29, 2017, by level within the fair value hierarchywere as determined by the valuation techniques we used to determine the fair valuefollows ($ in millions):

Fair Value

Fair Value at

Hierarchy

August 3, 2019

February 2, 2019

August 4, 2018

Assets

Cash and cash equivalents:

Money market funds

Level 1

$

375 

$

98 

$

334 

Time deposits

Level 2

-

300 

-

Short-term investments:

Commercial paper

Level 2

99 

-

-

Time deposits

Level 2

221 

-

465 

Other current assets:

Money market funds

Level 1

10 

82 

74 

Time deposits

Level 2

102 

101 

101 

Foreign currency derivative instruments

Level 2

-

-

Other assets:

Marketable securities that fund deferred compensation

Level 1

47 

44 

100 

Interest rate swap derivative instruments

Level 2

78 

26 

-

Liabilities

Long-term liabilities:

Interest rate swap derivative instruments

Level 2

-


 
 Fair Value Hierarchy
 Fair Value at
  August 4, 2018 February 3, 2018 July 29, 2017
Assets   
  
  
Cash and cash equivalents:   
  
  
Money market fundsLevel 1 $334
 $21
 $175
Commercial paperLevel 2 
 90
 60
Time depositsLevel 2 
 65
 16
Short-term investments:       
Commercial paperLevel 2 
 474
 299
Time depositsLevel 2 465
 1,558
 1,826
Other current assets:   
    
Money market fundsLevel 1 74
 3
 2
Commercial paperLevel 2 
 60
 60
Time depositsLevel 2 101
 101
 101
Foreign currency derivative instrumentsLevel 2 5
 2
 
Other assets:       
Marketable securities that fund deferred compensationLevel 1 100
 99
 97
Interest rate swap derivative instrumentsLevel 2 
 
 16
        
Liabilities   
  
  
Accrued liabilities:   
  
  
Foreign currency derivative instrumentsLevel 2 
 8
 15
Interest rate swap derivative instrumentsLevel 2 
 1
 
Long-term liabilities:       
Interest rate swap derivative instrumentsLevel 2 7
 4
 

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Money market funds. Our money market fund investments were measured at fair value as they trade in an active market using quoted market prices and, therefore, were classified as Level 1.

Commercial paper. Our investments in commercial paper were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2.

Time deposits. Our time deposits are balances held with banking institutions that cannot be withdrawn for specified terms without a penalty. Time deposits are held at face value plus accrued interest, which approximates fair value, and arewere classified as Level 2.

Commercial paper. Our investments in commercial paper were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2.

Foreign currency derivative instruments. Comprised primarily of foreign currency forward contracts and foreign currency swap contracts, our foreign currency derivative instruments were measured at fair value using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. Our foreign currency derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.


Marketable securities that fund deferred compensation. The assets that fund our deferred compensation consist of investments in corporate-owned life insurance, the value of which is based on select mutual fund performance. These investments were classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.


Interest rate swap derivative instruments. Our interest rate swap contracts were measured at fair value using readily observable inputs, such as the LIBOR interest rate. Our interest rate swap derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.



Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis


Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, operating lease assets, goodwill and other intangible assets, which are remeasured when the derived fair value is below the carrying value on our Condensed Consolidated Balance Sheets. For these assets, we do not periodically adjust the carrying value to fair value, except in the event of impairment. When we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded within Selling, general and administrative (“SG&A”) expenses or Restructuring charges inon our Condensed Consolidated Statements of Earnings for non-restructuring and restructuring charges, respectively.charges.

The following table summarizes the fair

Fair value remeasurements of property and equipment impairments recorded during the three and six months ended August 4, 2018, and July 29, 2017operating lease assets were as follows ($ in millions):

Impairments

Remaining

Three Months Ended

Six Months Ended

Net Carrying Value(1)

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Property and equipment (non-restructuring)

$

$

$

10 

$

$

$

Operating lease assets(2)

-

-

-

Total

$

$

$

11 

$

$

$

 Impairments 
Remaining Net Carrying Value(1)
 Three Months Ended Six Months Ended 
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Property and equipment (non-restructuring)$2
 $1
 $4
 $6
 $2
 $
(1)Remaining net carrying value approximates fair value. Because assets subject to long-lived asset impairment are not measured at fair value on a recurring basis, certain fair value measurements presented in the table may reflect values at earlier measurement dates and may no longer represent the fair values at August 4, 2018, and July 29, 2017.

(1)Remaining net carrying value approximates fair value. Because assets subject to long-lived asset impairment are not measured at fair value on a recurring basis, certain fair value measurements presented in the table may reflect values at earlier measurement dates and may no longer represent the fair values at August 3, 2019, and August 4, 2018.

(2)Represents activity related to operating lease assets post-adoption of ASC 842, Leases.

All of the fair value remeasurements included in the table above were based on significant unobservable inputs (Level 3). Fixed asset fair values were primarily derived using a discounted cash flow ("DCF") model to estimate the present value of net cash flows that the asset or asset group was expected to generate. The key inputs to the DCF model generally included our forecasts of net cash generated from revenue, expenses and other significant cash outflows, such as capital expenditures, as well as an appropriate discount rate.


Fair Value of Financial Instruments


Our financial instruments, other than those presented in the disclosures above, include cash, receivables, other investments, accounts payable, other payables and long-term debt. The fair values of cash, receivables, accounts payable and other payables approximated carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. Fair values for other investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate fair value. See Note 5, 7, Debt, for information about the fair value of our long-term debt.


4.Restructuring Charges

Restructuring charges incurred in the three and six months ended August 4, 2018, and July 29, 2017, were as follows ($ in millions):
 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Best Buy Mobile$17
 $
 $47
 $
Canadian brand consolidation
 (1) 
 (1)
Renew Blue
 3
 
 3
Total$17
 $2
 $47
 $2

Best Buy Mobile

On March 1, 2018, we announced our intent to close all

4. Leases

The majority of our 257 remaining Best Buy Mobile stand-alone stores inlease obligations are real estate operating leases from which we conduct the U.S., of which all remaining stores were closed during the second quarter of fiscal 2019. This decision was a result of changing economics in the mobile industry since we began opening these stores in 2006, along with the integrationmajority of our mobile model into our core storesretail and on-line channel, whichdistribution operations. Our finance leases are today more economically compelling. All restructuring chargesprimarily equipment-related. For any lease with an initial term in excess of 12 months, the related to this planlease assets and liabilities are from continuing operations and are presented in Restructuring charges on our Condensed Consolidated Statements of Earnings.


The composition of the restructuring charges we incurred for Best Buy Mobile during the three and six months ended August 4,

2018, as well as the cumulative amount incurred through August 4, 2018, were as follows ($ in millions):
 Three Months Ended Six Months Ended Cumulative Amount
 August 4, 2018 August 4, 2018 August 4, 2018
Property and equipment impairments$
 $
 $1
Termination benefits(3) (2) 6
Facility closure and other costs20
 49
 49
Total restructuring charges$17

$47
 $56

The following table summarizes our restructuring accrual activity during the six months ended August 4, 2018, related to termination benefits and facility closure and other costs associated with Best Buy Mobile ($ in millions):
 
Termination
Benefits
 
Facility
Closure and
Other Costs
 Total
Balances at February 3, 2018$8
 $
 $8
Charges1
 49
 50
Cash payments(5) (46) (51)
Adjustments(1)
(3) (1) (4)
Balances at August 4, 2018$1
 $2
 $3
(1)Adjustments to termination benefits represent changes in retention assumptions. Adjustments to facility closure and other costs represent changes in sublease assumptions.

Other
We have remaining vacant space liabilities at August 4, 2018, of $11 million related to our Canadian brand consolidation restructuring program, $9 million related to our Renew Blue restructuring program and $3 million related to our U.S. large-format store closures in fiscal 2013. We may continue to incur immaterial adjustments to these liabilities for changes in sublease assumptions or potential lease buyouts. In addition, lease payments for vacated stores will continue until leases expire or are terminated.

5.    Debt

Short-Term Debt

U.S. Revolving Credit Facility

On April 17, 2018, we entered into a $1.25 billion five-year senior unsecured revolving credit facility agreement (the "Five-Year Facility Agreement") with a syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.25 billion senior unsecured revolving credit facility (the "Previous Facility") with a syndicate of banks, which was originally scheduled to expire in June 2021, but was terminated on April 17, 2018. The Five-Year Facility Agreement permits borrowings of up to $1.25 billion and expires in April 2023, with no borrowings outstanding as of August 4, 2018. There were no borrowings outstanding under the Previous Facility as of February 3, 2018, or July 29, 2017.

The interest rate under the Five-Year Facility Agreement is variable and is determined at our option as: (i) the sum of (a) the greatest of (1) JPMorgan Chase Bank, N.A.'s prime rate, (2) the greater of the federal funds rate and the overnight bank funding rate plus, in each case, 0.5%, and (3) the one-month London Interbank Offered Rate (“LIBOR”), subject to certain adjustments plus 1%, and (b) a variable margin rate (the “ABR Margin”); or (ii) the LIBOR plus a variable margin rate (the “LIBOR Margin”). In addition, a facility fee is assessed on the commitment amount. The ABR Margin, LIBOR Margin and the facility fee are based upon our current senior unsecured debt rating. Under the Five-Year Facility Agreement, the ABR Margin ranges from 0.00% to 0.30%, the LIBOR Margin ranges from 0.80% to 1.30%, and the facility fee ranges from 0.08% to 0.20%. 

The Five-Year Facility Agreement is guaranteed by certain of our subsidiaries and contains customary affirmative and negative covenants. Among other things, these covenants restrict our and certain of our subsidiaries' abilities to incur liens on certain assets; make material changes in corporate structure or the nature of our business; dispose of material assets; engage in certain mergers, consolidations and other fundamental changes; or engage in certain transactions with affiliates. The Five-Year Facility

Agreement also contains covenants that require us to maintain a maximum cash flow leverage ratio and a minimum interest coverage ratio. The Five-Year Facility Agreement contains default provisions including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants. At August 4, 2018, we were in compliance with all such financial covenants.

Long-Term Debt

Long-term debt consisted of the following at August 4, 2018, February 3, 2018, and July 29, 2017 ($ in millions):
 August 4, 2018 February 3, 2018 July 29, 2017
2018 Notes$
 $500
 $500
2021 Notes650
 650
 650
Interest rate swap valuation adjustments(7) (5) 16
Subtotal643
 1,145
 1,166
Debt discounts and issuance costs(2) (3) (4)
Financing lease obligations188
 191
 166
Capital lease obligations19
 22
 26
Total long-term debt848
 1,355
 1,354
Less: current portion47
 544
 44
Total long-term debt, less current portion$801
 $811
 $1,310

Our $500 million principal amount of notes due August 1, 2018 (the "2018 Notes"), were repaid on August 1, 2018, using existing cash resources and were classified within the Current portion of long-term debtrecognized on our Condensed Consolidated Balance Sheets as either operating or finance leases at the inception of February 3, 2018. The fairan agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components. For lease agreements entered into or reassessed after the adoption of ASC 842, Leases, we have elected to combine lease and non-lease components for all classes of assets. Leases with an initial term of 12 months or less are not recorded on our Condensed Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

Operating lease assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of total long-term debt, excluding debt discountsfuture payments over the lease term at the commencement date. We use a collateralized incremental borrowing rate based on the information available at the commencement date, including the lease term, in determining the present value of future payments. Our operating leases also typically require payment of real estate taxes, common area maintenance and issuanceinsurance. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Operating lease assets also include prepaid lease payments and initial direct costs, and are reduced by lease incentives. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term. 

Supplemental balance sheet information related to our leases was as follows ($ in millions):

Balance Sheet Location

August 3, 2019

Assets

Operating leases

Operating lease assets

$

2,774 

Finance leases

Property and equipment, net(1)

36 

Total lease assets

$

2,810 

Liabilities

Current:

Operating leases

Current portion of operating lease liabilities

$

643 

Finance leases

Current portion of long-term debt

14 

Non-current:

Operating leases

Long-term operating lease liabilities

2,230 

Finance leases

Long-term debt

25 

Total lease liabilities

$

2,912 

(1)Finance leases are recorded net of accumulated depreciation of $48 million.

Components of our total lease cost were as follows ($ in millions):

Three Months Ended

Six Months Ended

Statement of Earnings Location

August 3, 2019

August 3, 2019

Operating lease cost(1)

Cost of goods sold and SG&A(2)

$

194 

$

389 

Finance lease cost:

Depreciation of lease assets

Cost of goods sold and SG&A(2)

Interest on lease liabilities

Interest expense

-

Variable lease cost

Cost of goods sold and SG&A(2)

68 

135 

Sublease income

SG&A

(5)

(9)

Total lease cost

$

261 

$

523 

(1)Includes short-term leases, which are immaterial.

(2)Supply chain-related amounts are included in Cost of goods sold.

Other information related to our leases was as follows ($ in millions):

Three Months Ended

Six Months Ended

August 3, 2019

August 3, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$

203 

$

404 

Operating cash flows from finance leases

-

Financing cash flows from finance leases

Lease assets obtained in exchange for new lease liabilities:

Operating leases

247 

394 

Finance leases

August 3, 2019

Weighted average remaining lease term:

Operating leases

5.4 years

Finance leases

5.2 years

Weighted average discount rate:

Operating leases

3.4 

%

Finance leases

4.4 

%

Future lease payments under our non-cancellable leases as of August 3, 2019, were as follows ($ in millions):

Operating Leases(1)

Finance Leases(1)

Remainder of fiscal 2020

$

341 

$

Fiscal 2021

756 

13 

Fiscal 2022

619 

Fiscal 2023

466 

Fiscal 2024

340 

Fiscal 2025

234 

Thereafter

407 

Total future undiscounted lease payments

3,163 

45 

Less imputed interest

(290)

(6)

Total reported lease liability

$

2,873 

$

39 

(1)Lease payments exclude $30 million of legally binding fixed costs for leases signed but not yet commenced, primarily related to operating leases.

In accordance with the prior guidance, ASC 840, Leases, our leases were previously designated as either capital, financing or operating. Previously designated capital leases are now considered finance leases under the new guidance, ASC 842, Leases, while our previously existing financing leases have been derecognized and reclassified as operating leases. The designation of operating leases remains substantially unchanged under the new guidance. The future minimum lease payments by fiscal year as determined prior to the adoption of ASC 842, Leases, under our previously designated capital, financing and capital lease obligations, approximated $673 million, $1,199 million and $1,242 million at August 4, 2018, February 3, 2018, and July 29, 2017, respectively, based primarily on the market prices quoted from external sources, compared with carrying values of $643 million, $1,145 million and $1,166 million, respectively. If long-term debt was measured at fair value in the financial statements, it would be classified primarilyoperating leases (not including contingent rent) as Level 2 in the fair value hierarchy.


See Note 5, Debt, in the Notes to Consolidated Financial Statements includeddisclosed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, were as follows ($ in millions):

Capital Leases

Financing Leases

Operating Leases(1)

Fiscal 2020

$

14 

$

48 

$

700 

Fiscal 2021

11 

42 

648 

Fiscal 2022

35 

513 

Fiscal 2023

24 

371 

Fiscal 2024

16 

253 

Thereafter

40 

476 

Total minimum lease payments

45 

205 

$

2,961 

Less amount representing interest

(6)

(24)

Present value of minimum lease payments

39 

181 

Less current maturities

(12)

(43)

Present value of minimum lease maturities, less current maturities

$

27 

$

138 

(1)Operating lease obligations do not include payments to landlords covering real estate taxes and common area maintenance. These charges, if included, would have increased total operating lease obligations by $0.8 billion at February 2, 2019.

5. Goodwill and Intangible Assets

All goodwill and intangible asset balances relate to our Domestic segment.

Goodwill

The gross carrying amounts and cumulative impairments of goodwill were as follows ($ in millions):

August 3, 2019

February 2, 2019

August 4, 2018

Gross Carrying
Amount

Cumulative
Impairment

Gross Carrying
Amount

Cumulative
Impairment

Gross Carrying
Amount

Cumulative
Impairment

Goodwill

$

1,640 

$

(675)

$

1,590 

$

(675)

$

1,100 

$

(675)

Indefinite-Lived Intangible Assets

We have indefinite-lived intangible assets primarily related to our Pacific Sales tradename which are recorded within Other assets on our Condensed Consolidated Balance Sheets. The carrying value of indefinite-lived intangible assets was $18 million as of August 3, 2018, for additional information regarding the terms2019, February 2, 2019, and August 4, 2018.

Definite-Lived Intangible Assets

We have definite-lived intangible assets related to GreatCall and CST which are recorded within Other assets on our Condensed Consolidated Balance Sheets. Balances of our debt facilities, debt instrumentsdefinite-lived intangible assets were as follows ($ in millions). We had 0 definite-lived intangible assets as of August 4, 2018.

August 3, 2019

February 2, 2019

Weighted-Average Useful

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

Life Remaining as of
August 3, 2019 (in years)

Customer relationships

$

341 

$

42 

$

258 

$

16 

7.4

Tradename

63 

63 

7.2

Developed technology

52 

52 

4.2

Total

$

456 

$

58 

$

373 

$

23 

7.0

We recorded $18 million and other obligations.

$35 million of aggregate amortization expense related to definite-lived intangible assets during the three and six months ended August 3, 2019, respectively, and $0 million for both the three and six months ended August 4, 2018. Amortization expense expected to be recognized in future periods is as follows ($ in millions):


6.

Derivative Instruments

Amortization
Expense

Remainder of fiscal 2020

$

37 

Fiscal 2021

73 

Fiscal 2022

73 

Fiscal 2023

73 

Fiscal 2024

54 

Fiscal 2025

16 

Thereafter

72 


6. Derivative Instruments

We manage our economic and transaction exposure to certain risks through the use ofby using foreign currency derivative instruments and interest rate swaps. Our objective in holding derivatives is to reduce the volatility of net earnings, cash flows and net asset value associated with changes in foreign currency exchange rates and interest rates. We do not hold derivative instruments for trading or speculative purposes. We have no derivatives that have credit risk-related contingent features and we mitigate our credit risk by engaging with financial institutions with investment-grade credit ratings as our counterparties.


We record all derivative instruments on our Condensed Consolidated Balance Sheets at fair value and evaluate hedge effectiveness prospectively or retrospectively when electing to apply hedge accounting. We formally document all hedging relations at inception for derivative hedges and the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transaction. In addition, we have derivatives which are not designated as hedging instruments.


Net Investment Hedges


We use foreign exchange forward contracts to hedge against the effect of Canadian dollar exchange rate fluctuations on a portion of our net investment in our Canadian operations. The contracts have terms of up to 12 months. For a net investment hedge, we recognize changes in the fair value of the derivative as a component of foreign currency translation within other comprehensive income to offset a portion of the change in translated value of the net investment being hedged, until the investment is sold or liquidated. We limit recognition in net earnings of amounts previously recorded in other comprehensive income to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. We report the gains and losses, if any, related to the amount excluded from the assessment of hedge effectiveness in net earnings.


Interest Rate Swaps


We have usedutilized "receive fixed-rate, pay variable-rate" interest rate swaps to mitigate the effect of interest rate fluctuations on our $500 million principal amount of notes due August 1, 2018, Notes, prior to their maturity, and currently have swaps outstanding on our $650 million principal amount of notes due March 15, 2021, Notes.and $500 million principal amount of notes due October 1, 2028. Our interest rate swap contracts are considered perfect hedges because the critical terms and notional amounts match those of our fixed-rate debt being hedged and are, therefore, accounted for as fair value hedges using the shortcut method. Under the shortcut method, we recognize the change in the fair value of the derivatives with an offsetting change to the carrying value of the debt. Accordingly, there is no impact on our Condensed Consolidated Statements of Earnings from the fair value of the derivatives.

Derivatives Not Designated as Hedging Instruments


We use foreign currency forward contracts to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies. The contracts generally have terms of up to 12 months. These derivative instruments are not designated in hedging relationships and, therefore, we record gains and losses on these contracts directly to net earnings.

Summary of Derivative Balances


The following tables present the gross

Gross fair values of our outstanding derivative instruments and the corresponding classification at August 4, 2018, February 3, 2018, and July 29, 2017classifications were as follows ($ in millions):

Assets

Contract Type

Balance Sheet Location

August 3, 2019

February 2, 2019

August 4, 2018

Derivatives designated as net investment hedges

Other current assets

$

-

$

-

$

Derivatives designated as interest rate swaps

Other current assets and Other assets

78 

26 

-

Total

$

78 

$

26 

$

Liabilities

Contract Type

Balance Sheet Location

August 3, 2019

February 2, 2019

August 4, 2018

Derivatives designated as interest rate swaps

Long-term liabilities

$

-

$

$

  Assets
Contract TypeBalance Sheet LocationAugust 4, 2018 February 3, 2018 July 29, 2017
Derivatives designated as net investment hedgesOther current assets$5
 $2
 $
Derivatives designated as interest rate swapsOther current assets and Other assets
 
 16
Total $5
 $2
 $16
  Liabilities
Contract TypeBalance Sheet LocationAugust 4, 2018 February 3, 2018 July 29, 2017
Derivatives designated as net investment hedgesAccrued liabilities$
 $7
 $13
Derivatives designated as interest rate swapsAccrued liabilities and Long-term liabilities7
 5
 
No hedge designation (foreign exchange forward contracts)Accrued liabilities
 1
 2
Total $7
 $13
 $15

The following table presents the effects

Effects of derivative instruments on other comprehensive income ("OCI") for the three and six months ended August 4, 2018, and July 29, 2017were as follows ($ in millions):

Three Months Ended

Six Months Ended

Derivatives designated as net investment hedges

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Pre-tax gain recognized in OCI

$

-

$

$

-

$

19 

 Three Months Ended Six Months Ended
Derivatives designated as net investment hedgesAugust 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Pre-tax gain(loss) recognized in OCI$3
 $(19) $19
 $(11)

The following table presents the effects

Effects of derivatives not designated as hedging instruments on our Condensed Consolidated Statements of Earnings for the three and six months ended August 4, 2018, and July 29, 2017were as follows ($ in millions):

Gain (Loss) Recognized

Gain (Loss) Recognized

Three Months Ended

Six Months Ended

Contract Type

Statement of Earnings Location

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

No hedge designation (foreign exchange contracts)

SG&A

$

(1)

$

$

-

$

  Gain (Loss) Recognized
  Three Months Ended Six Months Ended
Contract TypeLocation of Gain (Loss) RecognizedAugust 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
No hedge designation (foreign exchange contracts)SG&A$1
 $(4) $1
 $(3)

The following table presents the effects

Effects of interest rate derivatives and adjustments to the carrying value of long-term debt on our Condensed Consolidated Statements of Earnings for the three and six months ended August 4, 2018, and July 29, 2017were as follows ($ in millions):

Gain (Loss) Recognized

Gain (Loss) Recognized

Three Months Ended

Six Months Ended

Contract Type

Statement of Earnings Location

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Interest rate swap contracts

Interest expense

$

55 

$

$

53 

$

(1)

Adjustments to carrying value of long-term debt

Interest expense

(55)

(3)

(53)

Total

$

-

$

-

$

-

$

-


  Gain (Loss) Recognized
  Three Months Ended Six Months Ended
Contract TypeLocation of Gain (Loss) RecognizedAugust 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Interest rate swap contractsInterest expense$3
 $14
 $(1) $3
Adjustments to carrying value of long-term debtInterest expense(3) (14) 1
 (3)
Total $

$

$

$

The following table presents the notional

Notional amounts of our derivative instruments atwere as follows ($ in millions):

Notional Amount

Contract Type

August 3, 2019

February 2, 2019

August 4, 2018

Derivatives designated as net investment hedges

$

23 

$

15 

$

59 

Derivatives designated as interest rate swaps

1,150 

1,150 

650 

No hedge designation (foreign exchange contracts)

33 

41 

Total

$

1,206 

$

1,174 

$

750 

7. Debt

Short-Term Debt

We have a $1.25 billion five year senior unsecured revolving credit facility agreement with a syndicate of banks. The agreement permits borrowings of up to $1.25 billion and expires in April 2023. There were 0 borrowings outstanding as of August 3, 2019, February 2, 2019, or August 4, 2018.

Long-Term Debt

Long-term debt consisted of the following ($ in millions):

August 3, 2019

February 2, 2019

August 4, 2018

Notes, 5.50%, due March 15, 2021

$

650 

$

650 

$

650 

Notes, 4.45%, due October 1, 2028

500 

500 

-

Interest rate swap valuation adjustments

78 

25 

(7)

Subtotal

1,228 

1,175 

643 

Debt discounts and issuance costs

(6)

(7)

(2)

Financing lease obligations (1)

-

181 

188 

Capital lease obligations (1)

-

39 

19 

Finance lease obligations (1)

39 

-

-

Total long-term debt

1,261 

1,388 

848 

Less current portion

14 

56 

47 

Total long-term debt, less current portion

$

1,247 

$

1,332 

$

801 

(1)See Note 4, Leases, for additional information regarding our lease obligations.

The fair value of total long-term debt, excluding debt discounts and issuance costs and lease obligations, approximated $1,295 million, $1,178 million, and $673 million as of August 3, 2019, February 2, 2019, and August 4, 2018, respectively, based primarily on market prices quoted from external sources, compared with carrying values of $1,228 million, $1,175 million, and $643 million, respectively. If long-term debt were measured at fair value in the financial statements, it would be classified primarily as Level 2 in the fair value hierarchy.

See Note 6, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018,2, 2019, for additional information regarding the terms of our other debt facilities, debt instruments and July 29, 2017other obligations.

8. Revenue Recognition

We generate revenue primarily from the sale of products and services, both as a principal and as an agent. We generate all of our operating revenue from contracts with customers. Our revenue excludes sales and usage-based taxes collected.

Revenue from product sales and services is reported net of sales refunds, which includes an estimate of future returns and contract cancellations based on historical refund rates, with a corresponding reduction to cost of sales. For revenue transactions that involve more than one performance obligation, we defer the revenue associated with any unsatisfied performance obligation until the obligation is satisfied.

Our contract liabilities primarily relate to product merchandise not yet delivered to customers; unredeemed gift cards; services not yet completed; services technical support contracts, where performance is satisfied over the duration of the contract; and options that provide a material right to customers, such as our customer loyalty programs. We do not have any material contract assets.

Information about our contracts with customers, which reflects the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied, was as follows ($ in millions):

August 3, 2019

February 2, 2019

August 4, 2018

Receivables, net(1)

$

561 

$

565 

$

584 

Short-term contract liabilities included in:

Unredeemed gift cards

264 

290 

275 

Deferred revenue

468 

446 

438 

Accrued liabilities

149 

146 

148 

Long-term contract liabilities included in:

Long-term liabilities

11 

15 

(1)Receivables are recorded net of allowances for doubtful accounts of $13 million, $13 million, and $15 million as of August 3, 2019, February 2, 2019, and August 4, 2018, respectively.

During the first six months of fiscal 2020 and 2019, $638 million and $605 million of revenue was recognized, respectively, that was included in the contract liability balance at the beginning of the respective periods. NaN revenue was recognized from performance obligations satisfied in previous periods.

 Notional Amount
Contract TypeAugust 4, 2018 February 3, 2018 July 29, 2017
Derivatives designated as net investment hedges$59
 $462
 $205
Derivatives designated as interest rate swap contracts650
 1,150
 1,000
No hedge designation (foreign exchange forward contracts)41
 33
 48
Total$750
 $1,645
 $1,253

Revenue from our contract liability balances expected to be recognized in future periods if performance of the contract is expected to have a duration of more than one year is as follows ($ in millions):


7.

Earnings per Share

August 3, 2019(1)

Remainder of fiscal 2020

$

Fiscal 2021

Fiscal 2022

Fiscal 2023

Thereafter

-

(1)Amounts exclude unsatisfied performance obligations from contract liability balances with a duration of one year or less. The estimated transaction price revenue disclosed above also does not include amounts of variable consideration attributable to contracts where the consideration is constrained at August 3, 2019.

See Note 13, Segments, for a disaggregation of revenue by reportable segment and product category, which represents how our chief operating decision maker reviews information internally to evaluate our financial performance and to make resource allocation and other decisions for the enterprise.

9. Restructuring Charges

Restructuring charges incurred in the second quarter and first six months of fiscal 2020 were $48 million, related to U.S. retail operating model changes. Restructuring charges incurred in the second quarter and first six months of fiscal 2019 were $17 million and $47 million, respectively, related to Best Buy Mobile.

U.S. Retail Operating Model

In the second quarter of fiscal 2020, we made changes primarily related to our U.S. retail operating model to increase organization effectiveness and create a more seamless customer experience across all channels. As a result, we incurred $48 million of charges related to termination benefits, including $10 million related to a voluntary early retirement offer. All charges incurred are from continuing operations and are presented in Restructuring charges on our Condensed Consolidated Statements of Earnings.

The following table summarizes our restructuring accrual activity during the first six months of fiscal 2020 related to U.S. retail operating model changes ($ in millions):

Termination Benefits

Balance at February 2, 2019

$

-

Charges

48 

Cash payments

(8)

Balance at August 3, 2019

$

40 

Best Buy Mobile

On March 1, 2018, we announced our intent to close all of our 257 remaining Best Buy Mobile stand-alone stores in the U.S. This decision was a result of changing economics in the mobile industry since we began opening these stores in 2006, along with the integration of our mobile model into our core stores and online channel, which are more economically compelling today. All restructuring charges related to this plan are from continuing operations and are presented in Restructuring charges on our Condensed Consolidated Statements of Earnings.

Restructuring charges incurred for Best Buy Mobile were as follows ($ in millions):

Three Months Ended
August 4, 2018

Six Months Ended
August 4, 2018

Cumulative Amount
as of August 3, 2019

Property and equipment impairments

$

-

$

-

$

Termination benefits

(3)

(2)

Facility closure and other costs

20 

49 

49 

Total restructuring charges

$

17 

$

47 

$

56 

The following table summarizes our restructuring accrual activity during the first six months of fiscal 2019 related to Best Buy Mobile ($ in millions):

Termination Benefits

Facility Closures
and Other Costs

Total

Balances at February 3, 2018

$

$

-

$

Charges

49 

50 

Cash payments

(5)

(46)

(51)

Adjustments(1)

(3)

(1)

(4)

Balances at August 4, 2018

$

$

$

(1)Adjustments to termination benefits represent changes in retention assumptions. Adjustments to facility closure and other costs represent changes in sublease assumptions.

10. Earnings per Share

We compute our basic earnings per share based on the weighted-average number of common shares outstanding and our diluted earnings per share based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had potentially dilutive common shares been issued. Potentially dilutive securities include stock options, nonvested share awards, dividend equivalents attached to nonvested share awards that are settled in shares of Best Buy common stock and shares issuable under our employee stock purchase plan. Nonvested market-based share awards and nonvested performance-based share awards are included in the average diluted shares outstanding for each period, if established market or performance criteria have been met at the end of the respective periods.


The following table presents a reconciliation

Reconciliations of the numerators and denominators of basic and diluted earnings per share for the three and six months ended August 4, 2018, and July 29, 2017were as follows ($ and shares in millions, except per share amounts):

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Numerator

Net earnings

$

238 

$

244 

$

503 

$

452 

Denominator

Weighted-average common shares outstanding

267.1 

279.0 

267.4 

280.8 

Dilutive effect of stock compensation plan awards

2.3 

4.7 

3.5 

5.2 

Weighted-average common shares outstanding, assuming dilution

269.4 

283.7 

270.9 

286.0 

Potential shares which were anti-dilutive and excluded from weighted-average share computations

0.9 

0.1 

0.9 

0.1 

Basic earnings per share

$

0.89 

$

0.88 

$

1.88 

$

1.61 

Diluted earnings per share

$

0.89 

$

0.86 

$

1.86 

$

1.58 

 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Numerator 
  
    
Net earnings$244
 $209
 $452
 $397
        
Denominator       
Weighted-average common shares outstanding279.0
 304.1
 280.8
 306.7
Dilutive effect of stock compensation plan awards4.7
 6.7
 5.2
 6.3
Weighted-average common shares outstanding, assuming dilution283.7
 310.8
 286.0
 313.0
        
Anti-dilutive securities excluded from Weighted-average common shares outstanding, assuming dilution0.1
 0.0
 0.1
 0.0
        
Basic earnings per share$0.88
 $0.69
 $1.61
 $1.29
Diluted earnings per share$0.86
 $0.67
 $1.58
 $1.27

Beginning with

11. Repurchase of Common Stock

On February 23, 2019, our annual broad grantBoard of restricted stockDirectors ("Board") authorized a $3.0 billion share repurchase program. There is no expiration date governing the period over which we can repurchase shares under the February 2019 authorization.

Information regarding the shares we repurchased was as follows ($ and restricted stock unitsshares in March 2018,millions, except per share amounts):

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Total cost of shares repurchased

$

230

$

375

$

336

$

774

Average price per share

$

69.71

$

74.80

$

70.04

$

73.21

Number of shares repurchased

3.3

5.0

4.8

10.6

As of August 3, 2019, $2.7 billion of the $3.0 billion share repurchase authorization was available. Between the end of the second quarter of fiscal 2020 on August 3, 2019, and September 4, 2019, we attach dividend equivalents to our restricted stock and restricted stock units equal to dividends payable on the same number ofrepurchased an incremental 2.2 million shares of Best Buyour common stock during the applicable period. Dividend equivalents, settled in additional sharesat a cost of Best Buy common stock, accrue on restricted stock and restricted stock unit awards during the vesting period. No dividend equivalents are paid on any restricted stock or restricted stock units that are forfeited prior to the vesting date.$146 million.


8.Comprehensive Income
Accumulated other comprehensive is primarily comprised of foreign currency translation adjustments for all periods presented. 

12. Comprehensive Income

Changes in accumulated other comprehensive income, net of tax were as follows for the three and six months ended August 4, 2018, and July 29, 2017 ($ in millions):

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Foreign currency translation adjustments

$

5

$

(14)

$

-

$

(18)

 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Foreign currency translation adjustments$(14) $55
 $(18) $42

The gains and losses on our net investment hedges, which are included in foreign currency translation adjustments, were not material for the periods presented. Foreign currency translation adjustments do not include a provision for income tax expense when earnings from foreign operations are considered to be indefinitely reinvested outside the U.S. At this time, we are still evaluating the earnings that are indefinitely reinvested outside the U.S. Refer to Note 10, 11, Income Taxes, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018,2, 2019, for additional information.


9.Repurchase of Common Stock

In February 2017, our Board of Directors ("Board") authorized a $5.0 billion share repurchase program that superseded the previous $5.0 billion authorization from 2011. There is no expiration date governing the period over which we can repurchase shares under the February 2017 authorization. On March 1, 2018, we announced our intent to repurchase $1.5 billion of shares in fiscal 2019, which reflects an updated two-year plan of $3.5 billion compared to the original $3.0 billion two-year plan announced on March 1, 2017.

The following table presents information regarding the shares we repurchased during the three and six months ended August 4, 2018, and July 29, 2017 ($ and shares in millions, except per share amounts):
 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Total cost of shares repurchased(1)
$375
 $397
 $774
 $781
Average price per share$74.80
 $55.07
 $73.21
 $50.38
Number of shares repurchased(1)
5.0
 7.2
 10.6
 15.5
(1)As of August 4, 2018, $13 million, or 0.2 million shares, in trades remained unsettled. As of July 29, 2017, $18 million, or 0.3 million shares, in trades remained unsettled. The liability for unsettled trades is included in Accrued liabilities on our Condensed Consolidated Balance Sheets.

At August 4, 2018, $2.3 billion of the $5.0 billion of share repurchases authorized by our Board in February 2017 was available for future share repurchases. Between the end of the second quarter of fiscal 2019 on August 4, 2018, and September 5, 2018, we repurchased an incremental 1.7 million shares of our common stock at a cost of $135 million.

10.Segments

13. Segments

Our chief operating decision maker ("CODM") is our Chief Executive Officer. Our business is organized into two2 reportable segments: Domestic (which is comprised of all states, districts and territories of the U.S.), including GreatCall) and International (which is comprised of all operations in Canada and Mexico). Our CODM has ultimate responsibility for enterprise decisions. Our CODM determines, in particular, resource allocation for, and monitors the performance of, the consolidated enterprise, the Domestic segment and the International segment. The Domestic segment managers and International segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. Our CODM relies on internal management reporting that analyzes enterprise results to the net earnings level and segment results to the operating income level.


We aggregate our Domestic and GreatCall operating segments into one Domestic reportable segment. We also aggregate our Canada and Mexico businesses into one International operating segment. Our Domestic andsegment, which represents the International operating segments also represent our reportable segments.segment. The accounting policies of the segments are the same.


Revenue by reportable segment and product category werewas as follows for the three and six months ended August 4, 2018, and July 29, 2017 ($ in millions):

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Revenue by reportable segment

Domestic

$

8,821 

$

8,639 

$

17,302 

$

17,051 

International

715 

740 

1,376 

1,437 

Total revenue

$

9,536 

$

9,379 

$

18,678 

$

18,488 

Revenue by product category (1)

Domestic

Computing and Mobile Phones

$

3,917 

$

3,923 

$

7,768 

$

7,822 

Consumer Electronics

2,780 

2,770 

5,442 

5,426 

Appliances

1,138 

1,013 

2,099 

1,895 

Entertainment

439 

512 

912 

1,059 

Services

510 

384 

1,008 

777 

Other

37 

37 

73 

72 

Total Domestic revenue

$

8,821 

$

8,639 

$

17,302 

$

17,051 

International

Computing and Mobile Phones

$

308 

$

335 

$

613 

$

666 

Consumer Electronics

231 

217 

434 

423 

Appliances

83 

86 

142 

147 

Entertainment

36 

43 

72 

85 

Services

45 

41 

88 

81 

Other

12 

18 

27 

35 

Total International revenue

$

715 

$

740 

$

1,376 

$

1,437 


(1)Refer to our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for additional information regarding the key components of each revenue category.

 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Revenue by reportable segment       
Domestic$8,639
 $8,272
 $17,051
 $16,184
International740
 668
 1,437
 1,284
Total revenue$9,379
 $8,940

$18,488

$17,468
Revenue by product category(1)
       
Domestic:       
Consumer Electronics$2,770
 $2,610
 $5,426
 $5,192
Computing and Mobile Phones3,923
 3,859
 7,822
 7,436
Entertainment512
 492
 1,059
 1,063
Appliances1,013
 914
 1,895
 1,691
Services384
 367
 777
 738
Other37
 30
 72
 64
Total Domestic revenue$8,639
 $8,272
 $17,051
 $16,184
International:       
Consumer Electronics$217
 $210
 $423
 $389
Computing and Mobile Phones335
 311
 666
 608
Entertainment43
 36
 85
 80
Appliances86
 61
 147
 102
Services41
 36
 81
 76
Other18
 14
 35
 29
Total International revenue$740
 $668
 $1,437
 $1,284
(1)Refer to our Annual Report on Form 10-K for the fiscal year ended February 3, 2018, for additional information regarding the key components of each revenue category.

Operating income by reportable segment and the reconciliation to earnings before income tax expense werewas as follows for the three and six months ended August 4, 2018, and July 29, 2017 ($ in millions):

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Domestic

$

309 

$

329 

$

641 

$

596 

International

Total operating income

313 

335 

647 

600 

Other income (expense):

Investment income and other

10 

13 

24 

24 

Interest expense

(16)

(19)

(34)

(38)

Earnings before income tax expense

$

307 

$

329 

$

637 

$

586 

 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Domestic$329
 $316
 $596
 $614
International6
 5
 4
 7
Total operating income335
 321
 600
 621
Other income (expense):       
Investment income and other13
 7
 24
 18
Interest expense(19) (18) (38) (37)
Earnings before income tax expense$329
 $310
 $586
 $602

Assets by reportable segment were as follows as of August 4, 2018, February 3, 2018, and July 29, 2017 ($ in millions):

August 3, 2019

February 2, 2019

August 4, 2018

Domestic

$

13,714 

$

11,908 

$

10,912 

International

1,264 

993 

1,081 

Total assets

$

14,978 

$

12,901 

$

11,993 

 August 4, 2018 February 3, 2018 July 29, 2017
Domestic$10,912
 $11,553
 $11,972
International1,081
 1,496
 1,472
Total assets$11,993
 $13,049
 $13,444

11.Income Taxes

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“Tax Act”), which significantly changed U.S. tax law. Among other things, the Tax Act lowered the U.S. statutory tax rate from 35% to 21% effective January 1, 2018, broadened the

base to which U.S. income tax applies, imposed a one-time deemed repatriation tax on net unremitted earnings of foreign subsidiaries not previously subject to U.S. income tax and changed how foreign earnings are subject to U.S. income tax.

In response to the Tax Act, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) that provides guidance on accounting for the impact of the Tax Act. SAB 118 allows companies to record provisional amounts to the extent they are reasonably estimable and adjust them over time as more information becomes available, not to extend beyond the measurement period of one year from the enactment of the Tax Act.

As a result of the Tax Act and in accordance with SAB 118, we recorded provisional tax expense in the fourth quarter of fiscal 2018 related to the deemed repatriation tax and the revaluation of deferred tax assets and liabilities to reflect the new tax rate. We have not made any measurement period adjustments related to these items during the first six months of fiscal 2019. We continue to gather and analyze additional information needed to complete our accounting for these items and expect to complete our accounting within the one-year measurement period provided by SAB 118. Any adjustment to these amounts during the measurement period will be recorded in income tax expense in the period in which the analysis is complete.

Beginning in fiscal 2019, the Tax Act created a provision known as the global intangible low-tax income (“GILTI”) that imposes a tax on certain earnings of foreign subsidiaries. Due to the complexity of the new GILTI tax rules, we are not yet able to reasonably determine the complete effects of this provision. Therefore, we have not yet elected a policy as to whether we will recognize deferred taxes for basis differences expected to reverse or record GILTI as a current period cost when incurred. We have, however, included an estimate of the current GILTI impact in our effective tax rate for fiscal 2019.

Refer to Note 10, Income Taxes, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018, for additional information.

12.Contingencies

14. Contingencies

We are involved in a number of legal proceedings. Where appropriate, we have made accruals with respect to these matters, which are reflected inon our Condensed Consolidated Financial Statements. However, there are cases where liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made. We provide disclosure of matters where we believe it is reasonably possible the impact may be material to our Condensed Consolidated Financial Statements.


Securities Actions


In February 2011, a purported class action lawsuit captioned, IBEW Local 98 Pension Fund, individually and on behalf of all others similarly situated v. Best Buy Co., Inc., et al., was filed against us and certain of our executive officers in the U.S. District Court for the District of Minnesota. This federal court action alleges, among other things, that we and the officers named in the complaint violated Sections 10(b) and 20A of the Exchange Act and Rule 10b-5 under the Exchange Act in connection with press releases and other statements relating to our fiscal 2011 earnings guidance that had been made available to the public. Additionally, in March 2011, a similar purported class action was filed by a single shareholder, Rene LeBlanc, against us and certain of our executive officers in the same court. In July 2011, after consolidation of the IBEW Local 98 Pension Fund and Rene LeBlanc actions, a consolidated complaint captioned, IBEW Local 98 Pension Fund v. Best Buy Co., Inc., et al., was filed and served. Following discovery and motion practice Plaintiffs moved to certify the purported class. By Order filed August 6, 2014, the court certified a class of persons or entities who acquired Best Buy common stock between 10:00 a.m. EDT on September 14, 2010, and December 13, 2010, and who were damaged by the alleged violations of law. The 8th Circuit Court of Appeals granted our request for interlocutory appeal. On April 12, 2016, the 8th Circuit held the trial court misapplied the law and reversed the class certification order. IBEW petitioned the 8th Circuit for a rehearing en banc, which was denied on June 1, 2016. On June 23, 2017, the trial court denied plaintiff's request to file a new Motion for Class Certification. On October 30, 2017, plaintiffs filed a motion for leave to file a second amended class action complaint which the Magistrate Judge denied on July 11, 2018. On August 24, 2018, the District Court Judge overruled plaintiff’s objections to that ruling, affirming the Magistrate Judge’s denial of leave to amend. We continue to believe thatOn March 8, 2019, the District Court Judge granted Best Buy’s motion for summary judgment dismissing the remaining individual plaintiff's allegations are without meritclaims with prejudice. All appeal periods in IBEW have been exhausted and intend to vigorously defend our company in this matter.


the matter is closed.

In June 2011, a purported shareholder derivative action captioned, Salvatore M. Talluto, Derivatively and on Behalf of Best Buy Co., Inc. v. Richard M. Schulze, et al., as Defendants and Best Buy Co., Inc. as Nominal Defendant, was filed against both present and former members of our Board serving during the relevant periods in fiscal 2011 and us as a nominal defendant in the U.S. District Court for the State of Minnesota. The lawsuit alleges that the director defendants breached their fiduciary duty, among other claims, including violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in failing to correct public misrepresentations and material misstatements and/or omissions regarding our fiscal 2011 earnings projections and, for


certain directors, selling stock while in possession of material adverse non-public information. Additionally, in July 2011, a similar purported class action was filed by a single shareholder, Daniel Himmel, against us and certain of our executive officers in the same court. In November 2011, the respective lawsuits of Salvatore M. Talluto and Daniel Himmel were consolidated into a new action captioned, In Re: Best Buy Co., Inc. Shareholder Derivative Litigation, and a stay ordered pending the close of discovery in the consolidated IBEW Local 98 Pension Fund v. Best Buy Co., Inc., et al. case. Additionally, in June 2015, a similar purported class action was filed by a single shareholder, Khuong Tran, derivatively on behalf of Best Buy Co., Inc. against us and certain of our executive officers and directors in the same court. The Khuong Tran lawsuit has also been stayed

pending the close of discovery in IBEW.


In Tran, the court entered an Order for Dismissal Without Prejudice on March 27, 2019. In Re: Best Buy Co., Inc. Shareholder Derivative Litigation was dismissed without prejudice on August 6, 2019. The plaintiffs in the above securities actions seek damages, including interest, equitable relief and reimbursement of the costs and expenses they incurred in the lawsuits. As stated above, we believe the allegations in the above securities actionsderivative matters are without merit, and we intend to defend these actions vigorously. Based on our assessment of the facts underlying the claims in the above securities actions, their respective procedural litigation history and the degree to which we intend to defend our company in these matters, the amount or range of reasonably possible losses, if any, cannot be estimated.

all closed.

Other Legal Proceedings


We are involved in various other legal proceedings arising in the normal course of conducting business. For such legal proceedings, we have accrued an amount that reflects the aggregate liability deemed probable and estimable, but this amount is not material to our consolidated financial position, results of operations or cash flows. Because of the preliminary nature of many of these proceedings, the difficulty in ascertaining the applicable facts relating to many of these proceedings, the variable treatment of claims made in many of these proceedings and the difficulty of predicting the settlement value of many of these proceedings, we are not able to estimate an amount or range of any reasonably possible additional losses. However, based upon our historical experience, the resolution of these proceedings is not expected to have a material effect on our consolidated financial position, results of operations or cash flows.


13.Subsequent Event

15. Subsequent Event

On August 15, 2018,July 23, 2019, we signed a definitive agreement to acquire GreatCall, Inc.the predictive healthcare technology business of BioSensics, LLC (“BioSensics”), for $800approximately $21 million, in cash. GreatCall, Inc. is a leading providerand the acquisition was completed on August 7, 2019.

Item 2.Management's Discussion and Analysis of connected healthFinancial Condition and personal emergency response services to the aging population. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close by the endResults of our fiscal 2019 third quarter.



Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Operations

Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” refers to Best Buy Co., Inc. and its consolidated subsidiaries. Any references to our website addresses do not constitute incorporation by reference of the information contained on the websites.

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 Update

Results of Operations

Liquidity and Capital Resources

Off-Balance-Sheet Arrangements and Contractual Obligations

Significant Accounting Policies and Estimates

New Accounting Pronouncements

Safe Harbor Statement Under the Private Securities Litigation Reform Act


Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 3, 2018,2, 2019, (including the information presented therein under Risk Factors), as well as our reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited.


Overview


We strive to enrich the lives of consumers through technology, whether they come toconnect with us online, visit our stores or invite us into their homes. We do this by solving technology problems and addressing key human needs across a range of areas, including entertainment, productivity, communication, food preparation, security and health and wellness. We have operations in the U.S., Canada and Mexico. We operatehave two reportable segments: Domestic and International. The Domestic segment is comprised of the operations in all states, districts and territories of the U.S., including GreatCall. The International segment is comprised of all operations in Canada and Mexico.


Our fiscal year ends on the Saturday nearest the end of January. Fiscal 2019 will include 52 weeks and fiscal 2018 included 53 weeks, with the additional week included in the fourth quarter. Our business, like that of many retailers, is seasonal. A large 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.

Comparable Sales


Throughout this MD&A, we refer to comparable sales. In the first quarter of fiscal 2020, we refined our methodology for calculating comparable sales. It now reflects certain revenue streams previously excluded from the comparable sales calculation, such as credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers, as applicable. The impact of adopting these changes is immaterial to all periods presented, and therefore prior-period comparable sales disclosures have not been restated. 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). On MarchOctober 1, 2018, we announcedacquired all outstanding shares of GreatCall, and on May 9, 2019, we acquired all outstanding shares of Critical Signal Technologies, Inc. (“CST”). Consistent with our intent to close allcomparable sales policy, the results of our remaining 257 Best Buy Mobile stand-alone stores in the U.S. As a result, all revenue related to these stores has beenGreatCall and CST are excluded from theour comparable sales calculation beginning in March 2018.for the periods presented. 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 and non-GAAP diluted earnings per share ("EPS") and non-GAAP debt to earnings before interest, income taxes, depreciation, amortization and rent ("EBITDAR") ratio.from continuing operations. 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 financial measures. Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill impairments, and gains orand losses on investments.investments, intangible asset amortization, certain acquisition-related costs and the tax effect of all such items. In addition, certain other items may be excluded from non-GAAP financial measures when we believe doing so 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 financial 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 Consolidatedconsolidated 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 may use the term "constant currency",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.


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


Business Strategy Update

In the second quarter of fiscal 2020, we generated $9.5 billion in revenue and grew our Enterprise comparable sales by 1.6%. Our GAAP operating income rate decreased by 30 basis points and our non-GAAP operating income rate expanded by 20 basis points, both compared to the second quarter of fiscal 2019. We delivered GAAP diluted EPS of $0.89 and non-GAAP diluted EPS of $1.08, increases of 3% and 19% compared to the second quarter of fiscal 2019, respectively. Refer to the Other Consolidated Non-GAAP Financial Measures section below for thea 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 debtoperating income and non-GAAP diluted EPS. We also returned $363 million to EBITDAR ratio is important for understanding our financial positionshareholders through dividends and provides meaningful additional information aboutshare repurchases.

During the quarter, we continued to make progress on our abilityBuilding the New Blue strategy and our purpose to serviceenrich lives through technology. We expanded our long-term debtcommitment to health and other fixed obligationswellness through expanded assortment and a second acquisition, grew our Total Tech Support membership, added In-Home Advisors and continued to transform our supply chain to

improve our speed of delivery to customers. We also made strategic changes to our field operations to accelerate growth and to create a more seamless customer experience across all channels including stores, home and online.

In parallel to the customer experience developments, we continued to drive efficiencies and reduce costs in order 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 locationinvestments and the alternative that results in the highest return to our shareholders.


Business Strategy Update

Our strong performance inoffset pressures. During the second quarter of fiscal 2019 was broad-based, with positive comparable sales across all channels, geographies2020, we achieved $155 million in annualized cost reductions and mostefficiencies, bringing the cumulative total to $730 million, and exceeded our goal of our product categories. Our revenue growth was helpedreaching $600 million by the favorable environmentend of fiscal 2021. We have now successfully delivered on three considerable cost reduction targets in which we operate and driven by how customers are responding to the experience we are building. last seven years, totaling more than $2 billion.

Tariffs

We are particularly encouraged withactively addressing the continued progressrisks related to increases to current tariff rates and proposed new tariffs on Chinese imports. In May 2019, the U.S. Trade Representative (“USTR”) increased the tariff on List 3 products imported from China from 10% to 25%, effective June 15, 2019, and has since proposed a further increase of our Net Promoter Scoresthis rate to 30%, effective October 1, 2019. Recently, the USTR implemented the List 4 tariff of 15% on additional products imported from China. The List 4 tariffs have two effective dates. The first effective date (List 4A) was September 1, 2019, and our continued market share gains.


Our purpose as a companythe most notable affected categories relative to Best Buy on this list are televisions, smart watches and headphones. The second effective date (List 4B) is clear - it isDecember 15, 2019, and the most notable affected categories relative to enrich lives through technology by addressing key human needs. DuringBest Buy on this list are computing, mobile phones and gaming consoles.

Through the second quarter there were several highlightsof fiscal 2020, we have been able to minimize the impact of the tariffs on our business by accelerating purchases and working with our vendors, some of which are in the process of migrating their manufacturing out of China. Further, we are taking additional actions to mitigate the impacts of tariffs, including factoring tariffs into our product assortment decisions, promotional and pricing strategies, sourcing changes and other strategies in partnership with our vendors. While we estimate that purchases from China currently represent approximately 60% of our progresstotal cost of goods sold, in light of these mitigating factors, we expect the executionimpact of these tariffs on our Best Buy 2020: Building the New Blue strategy, beginning with the announcement of our intent to acquire GreatCall, Inc. ("GreatCall").


On August 15, 2018, we announced our intent to acquire GreatCall, a leading connected health services provider for aging consumers. GreatCall offers easy-to-use mobile products and connected devices, tailored for seniors. These products are combined with a range of services, including a simple, one-touch connection to U.S.-based, specially-trained agents who can connect the user to family caregivers, provide concierge services and dispatch emergency personnel. The acquisition of GreatCall is aligned with our strategy to address health and wellness with a focus on aging consumers and how technology can help them live a more independent life. Refer to Note 13, Subsequent Event, in the Notes to Condensed Consolidated Financial Statements for additional information.

A second highlight of the quarter is the rollout of our new Total Tech Support program. We launched the program nationally at the end of May and are pleased with the initial results. Our retail teams continuebusiness to be very engaged and excited aboutsmaller than this number would otherwise imply. However, due to the program.

A third highlight ofuncertainty surrounding these factors, the quarter is the launch of the first Fire TV Edition, smart TVs as part of our product development partnership with Amazon. This partnership is a great example of how we are leveraging our expertise and merchandising, marketing and sales assets to help leading technology companies commercialize their new products.


A fourth highlight of the quarter has been the roll out of our new brand rallying cry - Let’s Talk About What’s Possible. The rollout included training sessions or brand rallies across the company, including our stores. Each store dedicated significant time on a Saturday in June to immerse all store associates in the new Rallying Cry. The Rallying Cryongoing U.S.-China trade negotiations and the related guiding behaviors - be human, makepotential for further changes to the scope, magnitude and timing of tariffs, it real and think about tomorrow - are resonating strongly with our associates and are a sourceis difficult to predict the impact of inspiration for all of us.

In line with this, a fifth highlight oftariffs on consumers, the quarter is the continuing progress of the proficiency of our associates and of the quality of our execution across channels that is driving enhanced Net Promoter Scores and revenue growth.

To implement our Best Buy 2020 strategy, we are investing in a range of enablers across technology, people and supply chain. Specifically, we are continuing to invest in areas such as specialty labor, enterprise customer relationship management, knowledge management capabilitiesfinancial markets and our new services platform. To help offset our investmentsbusiness and pressures in the business, we continue our long-standing diligence on increasing productivity and decreasing costs.

In conclusion, we are excited about the opportunities in frontresults of us from enriching lives through technology and providing services and solutions that solve real customer needs and build deeper customer relationships, and the related value creation opportunities that this entails.

operations.

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 recording the effectrecording of events occurring in the lag period that significantly affect our condensed consolidated financial statements. No such events were identified for the periods presented.


Consolidated Performance Summary


The following table presents selected

Selected consolidated financial data for the three and six months ended August 4, 2018, and July 29, 2017was as follows ($ in millions, except per share amounts):

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Revenue

$

9,536 

$

9,379 

$

18,678 

$

18,488 

Revenue % increase

1.7 

%

4.9 

%

1.0 

%

5.8 

%

Comparable sales growth

1.6 

%

6.2 

%

1.4 

%

6.6 

%

Gross profit

$

2,283 

$

2,229 

$

4,452 

$

4,354 

Gross profit as a % of revenue(1)

23.9 

%

23.8 

%

23.8 

%

23.6 

%

SG&A

$

1,922 

$

1,877 

$

3,757 

$

3,707 

SG&A as a % of revenue(1)

20.2 

%

20.0 

%

20.1 

%

20.1 

%

Restructuring charges

$

48 

$

17 

$

48 

$

47 

Operating income

$

313 

$

335 

$

647 

$

600 

Operating income as a % of revenue

3.3 

%

3.6 

%

3.5 

%

3.2 

%

Net earnings

$

238 

$

244 

$

503 

$

452 

Diluted earnings per share

$

0.89 

$

0.86 

$

1.86 

$

1.58 

 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Revenue$9,379
 $8,940
 $18,488
 $17,468
Revenue % growth4.9% 4.8% 5.8% 2.9%
Comparable sales % gain6.2% 5.4% 6.6% 3.5%
Gross profit$2,229
 $2,153
 $4,354
 $4,175
Gross profit as a % of revenue(1)
23.8% 24.1% 23.6% 23.9%
SG&A$1,877
 $1,830
 $3,707
 $3,552
SG&A as a % of revenue(1)
20.0% 20.5% 20.1% 20.3%
Restructuring charges$17
 $2
 $47
 $2
Operating income$335
 $321
 $600
 $621
Operating income as a % of revenue3.6% 3.6% 3.2% 3.6%
Net earnings$244
 $209
 $452
 $397
Diluted earnings per share$0.86
 $0.67
 $1.58
 $1.27
(1)

(1)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, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018.


The components of the 4.9% and 5.8% revenue increases for the three and six months ended August 4, 2018, were as follows:

 Three Months Ended Six Months Ended
 August 4, 2018 August 4, 2018
Comparable sales impact5.8 % 6.2 %
Foreign currency exchange rate fluctuation impact % 0.2 %
Non-comparable sales impact(1)
(0.9)% (0.6)%
Total revenue increase4.9 % 5.8 %
(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 and sales of merchandise to wholesalers and dealers, as applicable.

The gross profit rate decreasedand 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, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019.

Gross profit rate, SG&A rate and operating income rate changes in the second quarter and first six months of fiscal 2019,2020 were primarily driven by decreases in both the Domestic and International segments. For further discussion of each segment’s gross profit rate changes, see Segment Performance Summary below.


The SG&A rate decreased in the second quarter of fiscal 2019, driven primarily by a decrease in our Domestic segment. The SG&A rate decreased in the first six months of fiscal 2019, driven by decreases in both the Domestic and International segments. For further discussion of each segment’s SG&A rate changes, see Segment Performance Summary below.

Our operating income rate remained flat in the second quarter of fiscal 2019, while the operating income rate decreased in the first six months of fiscal 2019, driven primarily by our Domestic segment. For further discussion of each segment's operating income rate changes, see the Segment Performance Summary below.

Income Tax Expense


Income tax expense decreased to $69 million in the second quarter of fiscal 2020, compared to $85 million in the second quarter of fiscal 2019 compared2019. The lower tax expense is primarily due to $101 millionincreased tax benefits related to stock-based compensation and the resolution of discrete matters in the current year period, as well as a decrease in pre-tax earnings. Our effective income tax rate (“ETR”) in the second quarter of fiscal 2018. The lower tax expense is primarily2020 was 22.3% compared to a resultrate of the impact of the Tax Cuts and Jobs Act (“Tax Act”) enacted on December 22, 2017, partially offset by the resolution of certain tax matters in the prior-year period. Our effective income tax rate25.7% in the second quarter of fiscal 2019 was 25.7% compared to a rate of 32.6% in the second quarter of fiscal 2018.2019. The decrease in the effective income tax rateETR was primarily due to the impact of the Tax Act, partially offset byincreased tax benefits related to stock-based compensation and the resolution of certain taxdiscrete matters in the prior-yearcurrent year period. Refer to Note 11, Income Taxes, in the Notes to Condensed Consolidated Financial Statements for additional information.


Income tax expense decreased toremained flat at $134 million in the first six months of fiscal 20192020 compared to $205 million in the prior-yearprior year period, primarily due to the impact of the Tax Act, as well asincreased tax expense resulting from an increase in excesspre-tax earnings was offset by increased tax benefits related to stock-based compensation and the resolution of discrete matters in the current year period, partially offset by the resolution of certain tax matters in the prior-year period. Our effective income tax rate for the first six months of fiscal 2019 was 22.8%, compared to a rate of 34.1%ETR in the first six months of fiscal 2018.2020 was 21.0% compared to a rate of 22.8% in the first six months of fiscal 2019. The decrease in the effective income tax rateETR was primarily due to the impact of the Tax Act, as well as an increase in excessincreased tax benefits related to stock-based compensation and the resolution of discrete matters in the current year period, partially offset by the resolution of certain tax matters in the prior-year period.


Our tax provision for interim periods is determined using an estimate of our annual effective tax rate,ETR, adjusted for discrete items, if any, that are taken into account in the relevant period. We update our estimate of the annual effective tax rateETR each quarter and we make a cumulative adjustment if our estimated tax rate changes. Our quarterly tax provision and our quarterly estimate of our annual effective tax rateETR are subject to variation due to several factors, including our ability to accurately forecast our pre-tax and taxable income and loss by jurisdiction, tax audit developments, recognition of excess tax benefits or deficiencies related to stock-based compensation, foreign currency gains or losses,(losses), changes in laws or regulations, and expenses or losses for which tax benefits are not recognized. Our effective tax rateETR can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items and non-deductible losses on our effective tax rateETR is greater when our pre-tax income is lower.


Segment Performance Summary


Domestic


The following table presents selected

Selected financial data for the Domestic segment for the three and six months ended August 4, 2018, and July 29, 2017was as follows ($ in millions):

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Revenue

$

8,821

$

8,639

$

17,302

$

17,051

Revenue % increase

2.1

%

4.4

%

1.5

%

5.4

%

Comparable sales growth(1)

1.9

%

6.0

%

1.6

%

6.6

%

Gross profit

$

2,113

$

2,058

$

4,122

$

4,020

Gross profit as a % of revenue

24.0

%

23.8

%

23.8

%

23.6

%

SG&A

$

1,756

$

1,712

$

3,433

$

3,377

SG&A as a % of revenue

19.9

%

19.8

%

19.8

%

19.8

%

Restructuring charges

$

48

$

17

$

48

$

47

Operating income

$

309

$

329

$

641

$

596

Operating income as a % of revenue

3.5

%

3.8

%

3.7

%

3.5

%

Selected Online Revenue Data

Total online revenue

$

1,417

$

1,208

$

2,725

$

2,350

Online revenue as a % of total segment revenue

16.1

%

14.0

%

15.7

%

13.8

%

Comparable online sales growth(1)

17.3

%

10.1

%

16.0

%

11.0

%


 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Revenue$8,639
 $8,272
 $17,051
 $16,184
Revenue % growth4.4% 4.9% 5.4% 3.0%
Comparable sales % gain(1)
6.0% 5.4% 6.6% 3.4%
Gross profit$2,058
 $1,985
 $4,020
 $3,856
Gross profit as a % of revenue23.8% 24.0% 23.6% 23.8%
SG&A$1,712
 $1,669
 $3,377
 $3,242
SG&A as a % of revenue19.8% 20.2% 19.8% 20.0%
Restructuring charges$17
 $
 $47
 $
Operating income$329
 $316
 $596
 $614
Operating income as a % of revenue3.8% 3.8% 3.5% 3.8%
        
Selected Online Revenue Data       
Total online revenue$1,208
 $1,096
 $2,350
 $2,114
Online revenue as a % of total segment revenue14.0% 13.2% 13.8% 13.1%
Comparable online sales % gain(1)
10.1% 31.2% 11.0%��26.8%
(1)Comparable online sales is included in the comparable sales calculation.

(1)Comparable online sales are included in the comparable sales calculation.

The components of the 4.4% and 5.4% revenue increases for the three and six months ended August 4, 2018, were as follows:

 Three Months Ended Six Months Ended
 August 4, 2018 August 4, 2018
Comparable sales impact5.7 % 6.2 %
Non-comparable sales impact(1)
(1.3)% (0.8)%
Total revenue increase4.4 % 5.4 %
(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 and sales of merchandise to wholesalers and dealers, as applicable.

The increase in revenue in the second quarter and first six months of fiscal 2019 was2020 were primarily driven by the comparable sales impactgrowth of 5.7%1.9% and 1.6%, respectively, and revenue from GreatCall, which was acquired in the third quarter of fiscal 2019. These increases were partially offset by the losslosses of revenue from Best Buy and Best Buy Mobile stand-alone store closures. Online revenue of $1.2$1.4 billion and $2.7 billion in the second quarter and first six months of fiscal 2020, respectively, increased 10.1%17.3% and 16.0%, respectively, on a comparable basis, primarily due to higher conversion ratesaverage order values and increased traffic.

The increase in revenue in the first six months of fiscal 2019 was primarily driven by the comparable sales impact of 6.2%, partially offset by the loss of revenue from Best Buy and Best Buy Mobile stand-alone store closures. Online revenue of $2.4 billion increased 11.0% on a comparable basis, primarily due to higher conversion rates and higher average order values.

The following table reconciles the number of Domestic stores open at the beginning and end of the second quarters of fiscal 20192020 and 2018:fiscal 2019:

Fiscal 2020

Fiscal 2019

Total Stores at Beginning of Second Quarter

Stores Opened

Stores Closed

Total Stores at End of Second Quarter

Total Stores at Beginning of Second Quarter

Stores Opened

Stores Closed

Total Stores at End of Second Quarter

Best Buy

995 

-

-

995 

1,007 

-

-

1,007 

Best Buy Mobile stand-alone

-

-

-

-

105 

-

(105)

-

Outlet Centers

10 

-

11 

-

Pacific Sales

21 

-

-

21 

28 

-

-

28 

Total Domestic segment stores

1,026 

-

1,027 

1,145 

(105)

1,042 

 Fiscal 2019 Fiscal 2018
 Total Stores at Beginning of Second Quarter Stores Opened Stores Closed Total Stores at End of Second Quarter Total Stores at Beginning of Second Quarter Stores Opened Stores Closed Total Stores at End of Second Quarter
Best Buy1,007
 
 
 1,007
 1,024
 
 
 1,024
Best Buy Mobile stand-alone105
 
 (105) 
 298
 
 (6) 292
Pacific Sales28
 
 
 28
 28
 
 
 28
Total Domestic segment stores1,140
 
 (105) 1,035
 1,350
 
 (6) 1,344

We continuously monitor store performance. As we approach the expiration date of our store leases, we evaluate various options for each location, including whether a store should remain open. On March 1, 2018, we announced our intent to close


all of our 257 remaining Best Buy Mobile stand-alone stores in the U.S., of which all remaining stores105 were closed during the second quarter of fiscal 2019. Refer to Note 4, 9, Restructuring Charges, in the Notes to Condensed Consolidated Financial Statements for additional information.


The following table presents the

Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category for the three months ended August 4, 2018, and July 29, 2017:were as follows:

Revenue Mix

Comparable Sales

Three Months Ended

Three Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Computing and Mobile Phones

44 

%

45 

%

0.6 

%

4.2 

%

Consumer Electronics

32 

%

32 

%

1.0 

%

6.8 

%

Appliances

13 

%

12 

%

14.0 

%

10.3 

%

Entertainment

%

%

(13.7)

%

8.5 

%

Services

%

%

10.7 

%

6.6 

%

Total

100 

%

100 

%

1.9 

%

6.0 

%

 Revenue Mix Comparable Sales
 Three Months Ended Three Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Consumer Electronics32% 32% 6.8% 2.5%
Computing and Mobile Phones45% 47% 4.2% 6.7%
Entertainment7% 6% 8.5% 15.4%
Appliances12% 11% 10.3% 5.8%
Services4% 4% 6.6% 1.5%
Total100% 100% 6.0% 5.4%

The following is a description of the notable comparable sales changes in our Domestic segment by revenue category for the three months ended August 4, 2018:


category:

Computing and Mobile Phones: The 0.6% comparable sales gain was primarily driven by tablets and wearables, partially offset by slight declines in computing and mobile phones.

Consumer Electronics: The 6.8%1.0% comparable sales gain was driven primarily by home theater,headphones and smart home, and portable audio, partially offset by declines in home theater and digital imaging.

Computing and Mobile Phones:

Appliances: The 4.2% comparable sales gain was driven primarily by computing and mobile phones, partially offset by declines in tablets.

Entertainment: The 8.5% comparable sales gain was driven primarily by gaming, partially offset by declines in movies, virtual reality, drones and music.
Appliances: The 10.3%14.0% comparable sales gain was driven by both large and small appliances.
Services:

Entertainment: The 6.6%13.7% comparable sales decline was driven primarily by gaming and drones, partially offset by gains in virtual reality.

Services: The 10.7% comparable sales gain was driven primarily by growth in our warrantysupport business.


Our gross profit rate decreasedincreased in the second quarter and first six months of fiscal 2020, primarily driven by the higher gross profit rate of GreatCall, partially offset by higher supply chain costs.

Our SG&A rate increased in the second quarter of fiscal 2019,2020, primarily driven by higher supply chain costs, including investmentsdue to GreatCall expenses and higher transportation costs, and the national rollout of the Total Tech Support offer, where costs for services and discounts are typically higher at the onset of the membership, while the recurring membership revenue is recognized ratably over the life of the contract until sufficient history of consumption is available, at which time revenue will be recognized on a consumption basis. These increases wereadvertising expenses, partially offset by improved product margin rates, which include the benefit of gross profit optimization initiatives. Duringlower incentive compensation. Our SG&A rate remained flat in the first six months of fiscal 2019, our gross profit rate decreased, primarily driven by higher supply chain costs, including investments and higher transportation costs, and decreased gross profit rates within mobile phones.


Our SG&A rate decreased in the second quarter of fiscal 2019,2020, primarily due to sales leverage, noting that expensesas SG&A increased $56 million, primarily due to increases in growth investments and higher variable costs associated with increased revenue. These increases wereGreatCall expenses, partially offset by cost reductions and lower incentive compensation. During

Restructuring charges for the second quarter and first six months of fiscal 2019,2020 related to our SG&A rate decreased primarily due to sales leverage, noting that expenses increased due to increases in growth investments and higher variable costs associated with increased revenue, partially offset by cost reductions.


Our restructuringU.S. retail operating model changes. Restructuring charges infor the second quarter and first six months of fiscal 2019 related to our Best Buy Mobile stand-alone store closures, which had no activity in the second quarter and first six months of fiscal 2018.closures. Refer to Note 4, 9, Restructuring Charges, in the Notes to Condensed Consolidated Financial Statements for additional information.

Our operating income rate remained flatdecreased in the second quarter of fiscal 20192020, primarily driven by the increase in restructuring charges described above. During the first six months of fiscal 2020, our operating income rate increased primarily driven by the increase in gross profit rate.

International

Selected financial data for the International segment was as follows ($ in millions):

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Revenue

$

715 

$

740 

$

1,376 

$

1,437 

Revenue % change

(3.4)

%

10.8 

%

(4.2)

%

11.9 

%

Comparable sales % change

(1.9)

%

7.6 

%

(1.6)

%

7.0 

%

Gross profit

$

170 

$

171 

$

330 

$

334 

Gross profit as a % of revenue

23.8 

%

23.1 

%

24.0 

%

23.2 

%

SG&A

$

166 

$

165 

$

324 

$

330 

SG&A as a % of revenue

23.2 

%

22.3 

%

23.5 

%

23.0 

%

Operating income

$

$

$

$

Operating income as a % of revenue

0.6 

%

0.8 

%

0.4 

%

0.3 

%

The decrease in revenue in the second quarter of fiscal 2020 was primarily driven by the comparable sales decline of 1.9% and decreasedthe negative impact of foreign currency exchange rate fluctuations, both primarily related to our Canadian operations. The decrease in revenue in the first six months of fiscal 2019 due to lower gross profit rates and increases in restructuring charges, partially offset by a lower SG&A rate as described above.


International

The following table presents selected financial data for the International segment for the three and six months ended August 4, 2018, and July 29, 2017 ($ in millions):

 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Revenue$740
 $668
 $1,437
 $1,284
Revenue % growth10.8% 3.7% 11.9% 2.1%
Comparable sales % gain7.6% 4.7% 7.0% 4.4%
Gross profit$171
 $168
 $334
 $319
Gross profit as a % of revenue23.1% 25.1% 23.2% 24.8%
SG&A$165
 $161
 $330
 $310
SG&A as a % of revenue22.3% 24.1% 23.0% 24.1%
Restructuring charges$
 $2
 $
 $2
Operating income$6
 $5
 $4
 $7
Operating income as a % of revenue0.8% 0.7% 0.3% 0.5%

The components of the 10.8% and 11.9% revenue increases for the three and six months ended August 4, 2018, were as follows:
 Three Months Ended Six Months Ended
 August 4, 2018 August 4, 2018
Comparable sales impact7.6% 6.9%
Non-comparable sales impact(1)
2.6% 2.3%
Foreign currency exchange rate fluctuation impact0.6% 2.7%
Total revenue increase10.8% 11.9%
(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 and sales of merchandise to wholesalers and dealers, as applicable.

The increase in revenue in the second quarter and first six months of fiscal 20192020 was primarily driven by the comparable sales impact of 7.6% and 6.9%, respectively, due to growth in both Canada and Mexico, increased revenue from Best Buy Mexico store openings, and the positivenegative impact of foreign currency exchange rate fluctuations and the comparable sales decline of 1.6%, both primarily related to Canada.

our Canadian operations.

The following table reconciles the number of International stores open at the beginning and end of the second quarters of fiscal 20192020 and 2018:fiscal 2019:

Fiscal 2020

Fiscal 2019

Total Stores at Beginning of Second Quarter

Stores Opened

Stores Closed

Total Stores at End of Second Quarter

Total Stores at Beginning of Second Quarter

Stores Opened

Stores Closed

Total Stores at End of Second Quarter

Canada

Best Buy

132 

-

-

132 

134 

-

-

134 

Best Buy Mobile

44 

-

(1)

43 

49 

-

-

49 

Mexico

Best Buy

29 

-

30 

26 

-

28 

Best Buy Express

-

-

-

-

Total International segment stores

214 

(1)

214 

215 

-

217 

 Fiscal 2019 Fiscal 2018
 Total Stores at Beginning of Second Quarter Stores Opened Stores Closed Total Stores at End of Second Quarter Total Stores at Beginning of Second Quarter Stores Opened Stores Closed Total Stores at End of Second Quarter
Canada:               
Best Buy134
 
 
 134
 134
 
 
 134
Best Buy Mobile49
 
 
 49
 53
 
 
 53
Mexico:               
Best Buy26
 2
 
 28
 20
 2
 
 22
Best Buy Express6
 
 
 6
 5
 
 
 5
Total International segment stores215
 2
 
 217
 212
 2
 
 214

The following table presents the

International segment'ssegment revenue mix percentages and comparable sales percentage changes by revenue category for the three months ended August 4, 2018, and July 29, 2017:were as follows:

Revenue Mix

Comparable Sales

Three Months Ended

Three Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Computing and Mobile Phones

43 

%

45 

%

(4.4)

%

4.5 

%

Consumer Electronics

32 

%

29 

%

1.0 

%

0.3 

%

Appliances

12 

%

12 

%

11.5 

%

35.7 

%

Entertainment

%

%

(20.1)

%

14.3 

%

Services

%

%

4.6 

%

11.3 

%

Other

%

%

(24.0)

%

51.4 

%

Total

100 

%

100 

%

(1.9)

%

7.6 

%


 Revenue Mix Comparable Sales
 Three Months Ended Three Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Consumer Electronics29% 31% 0.3% 7.3 %
Computing and Mobile Phones45% 47% 4.5% 0.3 %
Entertainment6% 5% 14.3% 0.5 %
Appliances12% 9% 35.7% 30.8 %
Services6% 6% 11.3% (1.3)%
Other2% 2% 51.4% n/a
Total100% 100% 7.6% 4.7 %

The following is a description of the notable comparable sales changes in our International segment by revenue category for the three months ended August 4, 2018:


category:

Computing and Mobile Phones: The 4.4% comparable sales decline was driven primarily by mobile phones and computing, partially offset by gains in tablets.

Consumer Electronics: The 0.3%1.0% comparable sales gain was driven primarily by smart home, home theaterheadphones and portable audio,health and fitness, partially offset by declines in digital imaging and health and fitness.

Computing and Mobile Phones:home theater.

Appliances: The 4.5% comparable sales gain was driven primarily by mobile phones, wearables and computing, partially offset by declines in tablets.

Entertainment: The 14.3% comparable sales gain was driven primarily by gaming, partially offset by declines in movies and drones.
Appliances: The 35.7%11.5% comparable sales gain was driven by both large and small appliances.
Services:

Entertainment: The 11.3%20.1% comparable sales decline was driven primarily by gaming and drones, partially offset by gains in virtual reality.

Services: The 4.6% comparable sales gain was driven primarily by repair and installation.

warranty revenue.

Other: The 51.4%24.0% comparable sales gaindecline was driven primarily by other product offerings, including baby products and luggage.


products.

Our gross profit rate decreased in the second quarter of fiscal 2019, primarily due to lower gross profit rates in home theater and mobile phones in Canada. During the first six months of fiscal 2019, our gross profit rate decreased due to lower sales in the higher-margin services category in Canada, primarily driven by the launch of Canada's Total Tech Support offer, as well as rate pressure in home theater, computing and mobile phones.


Our SG&A rate decreasedincreased in the second quarter and first six months of fiscal 2019,2020, primarily due to sales leverage, noting that expenses increased due to higher variable costs associated withCanada from increased revenue and the negative impact of foreign exchange rates.

Our restructuring charges in the second quarter and first six monthshigher margin services category.


Our operating incomeSG&A rate remained relatively unchangedincreased in the second quarter of fiscal 2019 and decreased in2020, primarily due to sales leverage as SG&A remained relatively flat. During the first six months of fiscal 20192020, our SG&A rate increased primarily due to sales leverage, as SG&A decreased $6 million due to the favorable impact of foreign currency exchange rates related to Canada.

Our operating income rate decreased in the second quarter of fiscal 2020, primarily driven by a lowerhigher SG&A rate, partially offset by a higher gross profit rate, described above. During the first six months of fiscal 2020, our operating income rate increased, primarily driven by a higher gross profit rate, partially offset by a lowerhigher SG&A rate as described above.


Consolidated Non-GAAP Financial Measures


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

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Operating income

$

313 

$

335 

$

647 

$

600 

Restructuring charges(1)

48 

17 

48 

47 

Intangible asset amortization(2)

18 

-

35 

-

Acquisition-related transaction costs(2)

-

-

Tax reform related item - employee bonus(3)

-

-

-

Non-GAAP operating income

$

382 

$

352 

$

733 

$

654 

Effective tax rate

22.3 

%

25.7 

%

21.0 

%

22.8 

%

Restructuring charges(1)

0.4 

%

(0.3)

%

0.3 

%

0.1 

%

Intangible asset amortization(2)

0.1 

%

-

%

0.2 

%

-

%

Non-GAAP effective tax rate

22.8 

%

25.4 

%

21.5 

%

22.9 

%

Diluted EPS

$

0.89 

$

0.86 

$

1.86 

$

1.58 

Restructuring charges(1)

0.18 

0.06 

0.18 

0.17 

Intangible asset amortization(2)

0.06 

-

0.13 

-

Acquisition-related transaction costs(2)

0.01 

-

0.01 

-

Tax reform related item - employee bonus(3)

-

-

-

0.02 

Tax impact of non-GAAP adjustments(4)

(0.06)

(0.01)

(0.08)

(0.05)

Non-GAAP diluted EPS

$

1.08 

$

0.91 

$

2.10 

$

1.72 


 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Operating income$335
 $321
 $600
 $621
Restructuring charges(1)
17
 2
 47
 2
Tax reform related item - employee bonus(2)

 
 7
 
Non-GAAP operating income$352
 $323
 $654
 $623
        
Effective tax rate25.7 % 32.6% 22.8% 34.1%
Restructuring charges(1)
(0.3)% % 0.1% %
Non-GAAP effective tax rate25.4 % 32.6% 22.9% 34.1%
        
Diluted EPS$0.86
 $0.67
 $1.58
 $1.27
Restructuring charges(1)
0.06
 0.01
 0.17
 0.01
Tax reform related item - employee bonus(2)

 
 0.02
 
Loss on investments
 0.02
 
 0.01
Tax impact of non-GAAP adjustments(3)
(0.01) (0.01) (0.05) (0.01)
Non-GAAP diluted EPS$0.91
 $0.69
 $1.72
 $1.28
(1)
Refer to Note 4, Restructuring Charges, in the Notes to Condensed Consolidated Financial Statements for additional information regarding the nature of these charges. For the three and six months ended August 4, 2018, the entire balance related to the United States. For the three and six months ended July 29, 2017, the entire balance related to Canada.
(2)Represents final adjustments for amounts paid and associated taxes related to a one-time bonus for certain employees announced in response to future tax savings created by the Tax Act enacted into law in the fourth quarter of fiscal 2018.     
(3)The non-GAAP adjustments relate primarily to the United States and Canada. As such, the income tax impact of non-GAAP adjustments is calculated using the tax rate for the United States (24.5% for the periods ended August 4, 2018, and 38.0% for the periods ended July 29, 2017) and Canada (26.9% for the periods ended August 4, 2018, and 26.6% for the periods ended July 29, 2017), applied to the non-GAAP adjustments of each country.

(1)Represents charges associated with U.S. retail operating model changes and the closure of Best Buy Mobile stand-alone stores in the U.S. Refer to Note 9, Restructuring Charges, in the Notes to Condensed Consolidated Financial Statements for additional information.

(2)Represents charges associated with the acquisitions of GreatCall and CST, including (1) the non-cash amortization of definite-lived intangible assets, including customer relationships, tradenames and developed technology, and (2) acquisition-related transaction costs primarily comprised of professional fees. Refer to Note 2, Acquisition, and Note 5, Goodwill and Intangible Assets, in the Notes to Condensed Consolidated Financial Statements for additional information.

(3)Represents final adjustments for amounts paid and associated taxes related to a one-time bonus for certain employees announced in response to future tax savings created by the Tax Cuts and Jobs Act of 2017 enacted into law in the fourth quarter of fiscal 2018.

(4)The non-GAAP adjustments relate primarily to adjustments in the U.S. As such, the income tax charge is calculated using the statutory tax rate for the U.S. of 24.5% for all periods presented.

Non-GAAP operating income forincreased in the second quarter and first six months of fiscal 2019 increased $29 million and $31 million, respectively, compared to the corresponding prior year periods. The increases were2020, primarily driven by strong revenue performance in both our Domestic and International segments in nearly all product categories, partially offset by increasesa decrease in SG&A primarily due to higher variable costs associated with growth investments and increased revenue.


from lower incentive compensation.

Our non-GAAP effective tax rate decreased in the second quarter of fiscal 2019 primarily due to the impact of the Tax Act, partially offset by the resolution of certain tax matters in the prior-year period. During theand first six months of fiscal 2019, our non-GAAP effective tax rate decreased2020, primarily due to the impact of the Tax Act, as well as an increase in excessincreased tax benefits related to stock-based compensation in the current year period, partially offset byand the resolution of certain tax matters in the prior-year period.


The increases in non-GAAP operating income and the decreases in our non-GAAP effective tax rates drove the increases in non-GAAPdiscrete matters.

Non-GAAP diluted EPS increased in the second quarter and first six months of 2019. Non-GAAP diluted EPS also increased due tofiscal 2020, primarily driven by the increase in non-GAAP operating income and lower diluted weighted-average common shares outstanding driven by ourfrom share repurchases. Refer to the Share Repurchases and Dividends section below for additional information.

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 neededrequired to support our business strategies, the performance of our business, capital expenditures, credit facilities, short-term borrowing arrangements and working capital management. Capital expenditures and share repurchases

are componentsa 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 Best Buy 2020: Building the New Blue strategy.

The following table summarizes our cash and

Cash, cash equivalents and short-term investments at August 4, 2018, February 3, 2018, and July 29, 2017were as follows ($ in millions):

August 3, 2019

February 2, 2019

August 4, 2018

Cash and cash equivalents

$

1,289 

$

1,980 

$

1,865 

Short-term investments

320 

-

465 

Total cash, cash equivalents and short-term investments

$

1,609 

$

1,980 

$

2,330 


 August 4, 2018 February 3, 2018 July 29, 2017
Cash and cash equivalents$1,865
 $1,101
 $1,365
Short-term investments465
 2,032
 2,125
Total cash, cash equivalents and short-term investments$2,330
 $3,133
 $3,490

Existing

The decrease in total cash, cash equivalents and short-term investments as well as cash generated from operations, were sufficientFebruary 2, 2019, was primarily due to fund share repurchases and the repaymentacquisition of our $500 million principal amountCST. The decrease from August 4, 2018, was primarily due to share repurchases and the acquisitions of notes due August 1, 2018 (the "2018 Notes"), capital expendituresGreatCall and dividends during the first half of fiscal 2019 without the need to utilize our credit facilities or other debt arrangements.


CST.

Cash Flows

The following table summarizes our cash

Cash flows from total operations for the six months ended August 4, 2018, and July 29, 2017were as follows ($ in millions):

Six Months Ended

August 3, 2019

August 4, 2018

Total cash provided by (used in):

Operating activities

$

625 

$

1,108 

Investing activities

(828)

1,200 

Financing activities

(576)

(1,524)

Effect of exchange rate changes on cash

(1)

(16)

Increase (decrease) in cash, cash equivalents and restricted cash

$

(780)

$

768 

 Six Months Ended
 August 4, 2018 July 29, 2017
Total cash provided by (used in):   
Operating activities$1,108
 $692
Investing activities1,200
 (708)
Financing activities(1,524) (874)
Effect of exchange rate changes on cash(16) 18
Increase (decrease) in cash, cash equivalents and restricted cash$768
 $(872)

Operating Activities


The increasedecrease in cash provided by operating activities in fiscal 2020 was primarily due to changes in working capital from thewhich were primarily due to timing of receipts and payments on inventory, income taxes and collections of inventory,receivables. This was partially offset by the timing of collections of receivables, higherlower incentive compensation payments due to a special one-time incentive payment in fiscal 2019 and the timing of incomeindirect tax payments.

Investing Activities


The increasedecrease in cash provided by investing activities in fiscal 2020 was primarily due to a decrease in purchases of investments, partially offset by a decreasedecreases in sales of investments.

investments and the acquisition of CST.

Financing Activities


The increasedecrease in cash used in financing activities was primarily due to the repayment in fiscal 2019 of our $500 million principal amount of notes due August 1, 2018, Notes, and a decrease in the volume of option exercises and an increase in our regular quarterly dividend rate from $0.34 per share inshares repurchased during fiscal 2018 to $0.45 per share in fiscal 2019.

2020.

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, share repurchases, dividends and strategic initiatives, including business combinations, such as the definitive agreement we signed on August 15, 2018, to acquire GreatCall, Inc. for $800 million in cash. Refer to Note 13, Subsequent Event, in the Notes to Condensed Consolidated Financial Statements for additional information.combinations. 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 April 17, 2018, we entered into

We have a new $1.25 billion five-year senior unsecured revolving credit facility (the "Five-Year Facility Agreement"“facility”) with a syndicate of banks that expires in April 2023. The Five-Year Facility Agreement replaced the previous $1.25 billion unsecured revolving credit facility, which was originally scheduled to expire in June 2021, but was


terminated on April 17, 2018. Refer to Note 5, 6, Debt, in the Notes to Condensed Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for additional information. At August 4, 2018, we hadThere have been no borrowings outstanding under the Five-Year Facility Agreement.

facility.

Our ability to access our revolving creditthe facility under the Five-Year Facility Agreement is subject to our compliance with theits terms and conditions, of the facility, including financial covenants. The financial covenants require us to maintain certain financial ratios. At August 4, 2018,3, 2019, 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 facilitiesfacility as well.


Our credit ratings and outlook atas of September 5, 2018,4, 2019, are summarized below. On August 21, 2018, Fitch upgraded its rating from BBB- to BBB and changed its outlook from positive to stable. Standard & Poor's and Moody's ratings remain unchanged from those reported in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018.

Rating Agency

Rating

Rating

Outlook

Standard & Poor's

BBB

BBB

Stable

Moody's

Baa1

Stable

Baa1

Positive

Fitch

BBB

BBB

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 storenew-store leasing costs.


Restricted Cash

Our liquidity is also affected by restricted cash balances that are pledged as collateral or restricted to use for workers’ compensation and general liability insurance and workers’ compensation insurance.claims. Restricted cash, and cash equivalents, which areis included in Other current assets on our Condensed Consolidated Balance Sheets, remained relatively unchanged at $203was $115 million, $199$204 million, and $196$203 million at August 3, 2019, February 2, 2019, and August 4, 2018, February 3, 2018, and July 29, 2017, respectively.


The decrease from prior periods was due to a dividend of excess cash from our wholly-owned insurance captive that manages a portion of our self-insured claims.

Debt and Capital


On August 1, 2018, we repaid our 2018 Notes using existing cash resources.

As of August 4, 2018,3, 2019, we havehad $650 million principal amount of notes due March 15, 2021, (the "2021 Notes").and $500 million principal amount of notes due October 1, 2028, outstanding. Refer to Note 5, 6, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018,2, 2019, for further information about our 2018 Notes and 2021 Notes.


outstanding notes.

Share Repurchases and Dividends

We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors ("Board"). The payment of cash dividends is also subject to customary legal and contractual restrictions. 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.


In

On February 2017,23, 2019, our Board authorized a new $5.0$3.0 billion share repurchase program that superseded the previous $5.0 billion authorization from June 2011, which had $2.2 billion remaining asprogram. As of January 28, 2017. There is no expiration date governing the period over which we can repurchase shares under the February 2017 authorization. On March 1, 2018, we announced our intent to repurchase $1.5August 3, 2019, $2.7 billion of shares in fiscal 2019, which reflects an updated two-year plan of $3.5 billion compared to the original $3.0 billion two-year plan announced on March 1, 2017.share repurchase authorization was available. Between the end of the second quarter of fiscal 20192020 on August 4, 2018,3, 2019, and September 5, 2018,4, 2019, we repurchased an incremental 1.72.2 million shares of our common stock at a cost of $135$146 million.


The following table presents our share

Share repurchase activity for the three and six months ended August 4, 2018, and July 29, 2017was as follows ($ and shares in millions, except per share amounts):

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Total cost of shares repurchased

$

230 

$

375 

$

336 

$

774 

Average price per share

$

69.71 

$

74.80 

$

70.04 

$

73.21 

Number of shares repurchased

3.3 

5.0 

4.8 

10.6 


 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Total cost of shares repurchased(1)
$375
 $397
 $774
 $781
Average price per share$74.80
 $55.07
 $73.21
 $50.38
Number of shares repurchased(1)
5.0
 7.2
 10.6
 15.5
(1)As of August 4, 2018, $13 million, or 0.2 million shares, in trades remained unsettled. As of July 29, 2017, $18 million, or 0.3 million shares, in trades remained unsettled. The liability for unsettled trades is included in Accrued liabilities on our Condensed Consolidated Balance Sheets.

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

Dividend activity for the three and six months ended August 4, 2018, and July 29, 2017was as follows ($ in millions, except per share amounts):

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Regular quarterly cash dividends per share

$

0.50 

$

0.45 

$

1.00 

$

0.90 

Cash dividends declared and paid

$

133 

$

125 

$

267 

$

253 

 Three Months Ended Six Months Ended
 August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017
Regular quarterly cash dividends per share$0.45
 $0.34
 $0.90
 $0.68
Cash dividends declared and paid$125
 $103
 $253
 $208

The increaseincreases in cash dividends declared and paid for the threesecond quarter and first six months ended August 4, 2018,of fiscal 2020 compared to the same periods in the prior year waswere the result of an increaseincreases in the regular quarterly dividend rate, partially offset by fewer shares due to the return of capital to shareholders through share repurchases.


Other Financial Measures

Our current ratio, calculated as current assets divided by current liabilities, wasremained relatively unchanged at 1.1 as of August 3, 2019, 1.2 atas of February 2, 2019, and 1.2 as of August 4, 2018, compared to 1.3 at February 3, 2018, and 1.4 at July 29, 2017. The decrease from February 3, 2018, and July 29, 2017, was primarily due to the repayment of our 2018 Notes.

2018.

Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings ratio wasfrom continuing operations over the trailing twelve months, also remained relatively unchanged at 0.8 atas of August 3, 2019, 0.9 as of February 2, 2019, and 0.8 as of August 4, 2018, compared to 1.4 at February 3, 2018, and 1.1 at July 29, 2017. The decrease from February 3, 2018, was primarily due to the repayment of our 2018 Notes, while the decrease from July 29, 2017, was primarily due to the use of existing cash to fund returns to shareholders through share repurchases and dividends.


Our non-GAAP debt to EBITDAR ratio, which includes capitalized operating lease obligations in its calculation, was 1.4 at August 4, 2018, compared to 1.6 at February 3, 2018, and 1.6 at July 29, 2017. The decrease from February 3, 2018, and July 29, 2017, was primarily due to the repayment of our 2018 Notes.

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 and our non-GAAP debt to EBITDAR ratio for continuing operations ($ in millions):

 
August 4, 2018(1)
 
February 3, 2018(1)
 
July 29, 2017(1)
Debt (including current portion)$848
 $1,355
 $1,354
Capitalized operating lease obligations (5 times rental expense)(2)
3,907
 3,914
 3,880
Non-GAAP debt$4,755
 $5,269
 $5,234
      
Net earnings from continuing operations$1,055
 $999
 $1,196
Other income (expense) (including interest expense, net)(21) 26
 35
Income tax expense747
 818
 583
Depreciation and amortization expense712
 683
 656
Rental expense781
 782
 776
Restructuring charges(3)
55
 10
 12
Non-GAAP EBITDAR$3,329
 $3,318
 $3,258
      
Debt to net earnings ratio0.8
 1.4
 1.1
Non-GAAP debt to EBITDAR ratio1.4
 1.6
 1.6
(1)Debt is reflected as of the balance sheet date for each of the respective fiscal periods, while net earnings from continuing operations and the other components of non-GAAP EBITDAR represent activity for the 12 months ended as of each of the respective dates.
(2)The multiple of five times annual rent 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.
(3)
Refer to Note 4, Restructuring Charges, in the Notes to Condensed Consolidated Financial Statements for additional information regarding the nature of these charges.
2018.

Off-Balance-Sheet Arrangements and Contractual Obligations

Our liquidity is not dependent on the use of off-balance-sheet financing arrangements other than in connection with our operating leases and our $1.25 billion in undrawn capacity on our credit facility atas of August 4, 2018,3, 2019, which, if drawn upon, would be included as short-term debt on our Condensed Consolidated Balance Sheets.

There

Other than the changes related to the adoption of the new lease accounting standard as described in Note 4, Leases, in the Notes to Condensed Consolidated Financial Statements, there has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2018.2019. See our Annual Report on Form 10-K for the fiscal year ended February 3, 2018,2, 2019, for additional information regarding our off-balance-sheet arrangements and contractual obligations.


Significant Accounting Policies and Estimates

We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018.2, 2019. We discuss our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018.2, 2019. In the first quarter of fiscal 2019,2020, we adopted new revenue recognitionlease accounting guidance, as described in Note 1, Basis of Presentation, and Note 4, Leases, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q. There have been no other significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2018.


2019.

New Accounting Pronouncements

For a description of new applicable accounting pronouncements, see Note 1, Basis of Presentation, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.



Safe Harbor Statement Under the Private Securities Litigation Reform Act


Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies. With the exception of historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as "anticipate," "assume," "believe," "estimate," "expect," "guidance," "intend," "outlook," "plan," "project" and other words and terms of similar meaning. Such statements reflect our current views and estimates with respect to future market conditions, company performance and financial results, operational investments, business prospects, new strategies, the competitive environment and other events. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in such forward-looking statements. Readers should review Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended February 3, 2018,2, 2019, for a description of important factors that could cause our actual results to differ materially from those contemplated by the forward-looking statements made in this Quarterly Report on Form 10-Q. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: macro-economic conditionscompetition (including from multi-channel retailers, e-

commerce business, technology service providers, traditional store-based retailers, vendors and mobile network carriers), our mix of products and services, our expansion strategies, our focus on services as a strategic priority, our reliance on key vendors and mobile network carriers (including product availability), pricing investments and promotional activity, our ability to attract and retain qualified employees, changes in market compensation rates, risks arising from statutory, regulatory and legal developments (including tax statutes and regulations), macroeconomic pressures in the markets in which we operate (including fluctuations in housing prices, oilenergy markets and jobless rates), conditions in the industries and categories in which weoperate, failure to effectively manage our costs, our reliance on our information technology systems, our ability to prevent or effectively respond to a privacy or security breach, our ability to effectively manage strategic ventures, alliances or acquisitions, our dependence on cash flows and net earnings generated during the fourth fiscal quarter, susceptibility of our products to technological advancements, product life cycles and launches, changes in consumer preferences, or confidence, changes in consumer spending and debt, levels,our ability to provide attractive promotional financing, interruptions and other supply chain issues, catastrophic events, our ability to maintain positive brand perception and recognition, product safety and quality concerns, changes to labor or employment laws or regulations, our ability to effectively manage our real estate portfolio, constraints in the mixcapital markets, changes to our vendor credit terms, changes in our credit ratings, any material disruption in our relationship with or the services of third-party vendors, risks related to our exclusive brand products and services offered for sale in our physical stores and online, credit market changes and constraints, product availability,risks associated with vendors that source products outside of the U.S., trade restrictions or changes in the costs of imports competitive initiatives of competitors (including pricing actionsexisting or new tariffs or duties and promotional activities), strategic and business decisions of our vendors (including actions that could impact promotional support, product margin and/or supply), the success of new product launches, the impact of pricing investments and promotional activity, weather, natural or man-made disasters, attacks on our data systems, our ability to prevent or react to a disaster recovery situation, changes in lawsthe amount of any such tariffs or regulations, changes in tax rates, changes in taxable income in each jurisdiction, tax audit developmentsduties) and resolution of other discrete tax matters, the effects of the recently enacted Tax Act, foreign currency fluctuation,risks arising from our ability to manage our property portfolio, the impact of labor markets, our ability to retain qualified employees and management, failure to achieve anticipated expense and cost reductions, disruptions in our supply chain, the costs of procuring goods we sell, failure to achieve anticipated revenue and profitability increases from operational and restructuring changes (including investments in our multi-channel capabilities), inability to secure or maintain favorable vendor terms, failure to accurately predict the duration over which we will incur costs, development of new businesses, failure to complete or achieve anticipated benefits of announced transactions (including with respect to the GreatCall transaction, the risks that conditions to the completion of the transaction may not be satisfied, closing of the transaction may not occur or may be delayed, revenues following the transaction may be lower than expected, operating costs, customer loss, and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, and suppliers) may be greater than expected and that we may assume unexpected risks and liabilities from the transaction), the success of our strategic initiatives and our ability to protect information relating to our employees and customers.international activities. We caution that the foregoing list of important factors is not complete. Any forward-looking statements speak only as of the date they are made, and we assume no obligation to update any forward-looking statement that we may make.


Item 3.Quantitative and Qualitative Disclosures About Market Risk

Item 3.Quantitative and Qualitative Disclosures About Market Risk

As disclosed in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018,2, 2019, in addition to the risks inherent in our operations, we are exposed to certain market risks.


Interest Rate Risk


We are exposed to changes in short-term market interest rates and these changes in rates will impact our net interest expense. Our cash, cash equivalents and short-term investments generate interest income that will vary based on changes in short-term interest rates. In addition, we have swapped our fixed-rate debt to a floating-rate such that the interest rate expense on this debt will vary with short-term interest rates. Refer to Note 5, 6, Debt, and Note 6, 5, Derivative Instruments, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018,2, 2019, for further information regarding our interest rate swaps.


As of August 4, 2018,3, 2019, we had $2.3$1.6 billion of cash, cash equivalents and short-term investments and $0.7$1.2 billion of debt that has been swapped to floating rate. Therefore, we hadrate, and this net cash and short-term investments of $1.6$0.4 billion generating income that is exposed to interest rate changes. As of August 4, 2018,3, 2019, a 50 basis pointbasis-point increase in short-term interest rates would leadhave led to an estimated $8$2 million reduction in net interest expense, and conversely a 50 basis pointbasis-point decrease in short-term interest rates would leadhave led to an estimated $8$2 million increase in net interest expense.



Foreign Currency Exchange Rate Risk


We have market risk arising from changes in foreign currency exchange rates related to our International segment operations. On a limited basis, we utilize foreign exchange forward contracts to manage foreign currency exposure to certain forecast inventory purchases, recognized receivable and payable balances and our investment in our Canadian operations. Our primary objective in holding derivatives is to reduce the volatility of net earnings and cash flows, as well as net asset value associated with changes in foreign currency exchange rates. Our foreign currency risk management strategy includes both hedging instruments and derivatives that are not designated as hedging instruments, which generally have terms of up to 12 months. The aggregate notional amount relatedRefer to our foreign exchange forward contracts outstanding at August 4, 2018, was $100 million. The net fair value recorded on ourNote 6, Derivative Instruments, in the Notes to Condensed Consolidated Balance Sheets at August 4, 2018, related to our foreign exchange forward contracts was $5 million. The amount recorded on our Condensed ConsolidatedFinancial Statements of Earnings related to all contracts settled and outstanding was a gain of $1 million for the three months ended August 4, 2018, and a gain of $1 million for the six months ended August 4, 2018.


additional information regarding these instruments.

Foreign currency exchange rate fluctuations were primarily driven by the weaknessstrength of the U.S. dollar compared to the Canadian dollar compared to the prior-year period, which had a positivenegative overall impact on our revenue as these foreign currencies translated into moreless U.S. dollars. We estimate that foreign currency exchange rate fluctuations had a net favorableunfavorable impact of $4$10 million on our revenue and a $0 million impact on our net earnings for the three months ended August 4, 2018,second quarter of fiscal 2020, and a net favorableunfavorable impact of $35$37 million on our revenue and a $0 million impact on our net earnings for the first six months ended August 4, 2018.of fiscal 2020.

Item 4.Controls and Procedures

Item 4.Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a regular quarterly basis and otherwise as needed.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at August 4, 2018.3, 2019. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at August 4, 2018,3, 2019, our disclosure controls and procedures were effective.

There waswere no changechanges in internal control over financial reporting during the fiscal quarter ended August 4, 2018,3, 2019, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.


PART II — OTHER INFORMATION


Item 1.Legal Proceedings

Item 1.Legal Proceedings

For a description of our legal proceedings, see Note 12, 14, Contingencies, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.


Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(c) Stock Repurchases


The following table presents information regarding our repurchases of common stock during the second quarter of fiscal 2019:2020:

Fiscal Period

Total Number of
Shares Purchased

Average Price Paid
per Share

Total Number of Shares Purchased as Part of Publicly Announced Program(1)

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(1)

May 5, 2019 through June 1, 2019

1,014,719

$

68.44

1,014,719

$

2,825,000

June 2, 2019 through July 6, 2019

1,307,061

$

66.99

1,307,061

$

2,737,000

July 7, 2019 through August 3, 2019

975,942

$

74.67

975,942

$

2,664,000

Total

3,297,722

$

69.71

3,297,722

$

2,664,000

(1)Pursuant to a $3.0 billion share repurchase program that was authorized by our Board in February 2019. There is no expiration date governing the period over which we can repurchase shares under the February 2019 share repurchase program. For additional information, see Note 11, Repurchase of Common Stock, in the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.


Fiscal Period Total Number of Shares Purchased Average Price Paid per Share 
Total Number of Shares Purchased as Part of Publicly Announced Program(1)
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(1)
May 6, 2018 through June 2, 2018 1,445,478
 $74.86
 1,445,478
 $2,521,000,000
June 3, 2018 through July 7, 2018 1,962,344
 $74.07
 1,962,344
 $2,376,000,000
July 8, 2018 through August 4, 2018 1,601,994
 $75.64
 1,601,994
 $2,254,000,000
Total 5,009,816
 $74.80
 5,009,816
  

Item 6.Exhibits

(1)

Pursuant to a $5.0 billion share repurchase program that was authorized by our Board in February 2017. There is no expiration date governing the period over which we can repurchase shares under the February 2017 share repurchase program. For additional information, see Note 9, Repurchase of Common Stock, in the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.

Item 6.

3.1

Exhibits

3.2


10.1


10.2

Best Buy Co., Inc. Long-Term Incentive Program Award Agreement dated June 11, 2019 between R. Mike Mohan and Best Buy Co., Inc.

31.2

32.1

32.2

101

101

The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal 2019,2020, filed with the SEC on September 10, 2018,6, 2019, formatted in Inline Extensible Business Reporting Language (XBRL)(iXBRL): (i) the Condensed Consolidated Balance Sheets at August 3, 2019, February 2, 2019, and August 4, 2018, February 3, 2018, and July 29, 2017, (ii) the Condensed Consolidated Statements of Earnings for the three and six months ended August 3, 2019, and August 4, 2018, and July 29, 2017, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended August 3, 2019, and August 4, 2018, and July 29, 2017, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended August 3, 2019, and August 4, 2018, and July 29, 2017, (v) the Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended August 3, 2019, and August 4, 2018, and July 29, 2017, and (vi) the Notes to Condensed Consolidated Financial Statements.

____________________________

(1)

104

The certifications in Exhibit 32.1 and Exhibit 32.2 to thiscover page from our Quarterly Report on Form 10-Q shall not be deemed “filed” for purposesthe second quarter of Section 18 offiscal 2020, filed with the Securities Exchange Act of 1934,SEC on September 6, 2019, formatted in iXBRL (included as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.Exhibit 101).


____________________________

(1)The certifications in Exhibit 32.1 and Exhibit 32.2 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

Pursuant to Item 601(b)(4)(iii) of Regulation S-K under the Securities Act of 1933, as amended, the registrant has not filed as exhibits to this Quarterly Report on Form 10-Q certain instruments with respect to long-term debt under which the amount of securities authorized does not exceed 10% of the total assets of the registrant. The registrant hereby agrees to furnish copies of all such instruments to the SEC upon request.


SIGNATURES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BEST BUY CO., INC.

(Registrant)

Date: September 10, 20186, 2019

By:

/s/ HUBERT JOLY
Hubert Joly
Chairman and Chief Executive Officer
Date: September 10, 2018By:

/s/ CORIE BARRY

Corie Barry

Chief Executive Officer

Date: September 6, 2019

By:

/s/ MATTHEW BILUNAS

Matthew Bilunas

Chief Financial Officer

Date: September 10, 20186, 2019

By:

/s/ MATHEW R. WATSON

Mathew R. Watson

Senior Vice President, Finance – Controller and Chief Accounting Officer



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