UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | ||
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the quarterly period ended
AugustOR
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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
BEST BUY CO., INC.
(Exact name of registrant as specified in its charter)
Minnesota | 41-0907483 | |
(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.
YesIndicate 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).
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).
Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer | |||
Smaller Reporting Company | |||||
Emerging | |||||
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).
The registrant had 274,557,555263,573,258 shares of common stock outstanding as of September 5, 2018.4, 2019.
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED
AUGUSTTABLE OF CONTENTS
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PART I — FINANCIAL INFORMATION
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) |
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|
| ||||||||
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 investments | 465 | 2,032 | 2,125 | ||||||||
| Receivables, net | 915 | 1,049 | 965 | ||||||||
| Merchandise inventories | 5,016 | 5,209 | 5,167 | ||||||||
| Other current assets | 510 | 438 | 456 | ||||||||
| Total current assets | 8,771 | 9,829 | 10,078 | ||||||||
| Property and equipment, net | 2,432 | 2,421 | 2,327 | ||||||||
| Goodwill | 425 | 425 | 425 | ||||||||
| Other assets | 365 | 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 liabilities | 275 | 385 | 383 | ||||||||
| Deferred revenue | 438 | 453 | 427 | ||||||||
| Accrued compensation and related expenses | 318 | 561 | 309 | ||||||||
| Accrued liabilities | 801 | 864 | 787 | ||||||||
| Accrued income taxes | 12 | 137 | 83 | ||||||||
| Current portion of long-term debt | 47 | 544 | 44 | ||||||||
| Total current liabilities | 7,229 | 7,817 | 7,105 | ||||||||
| Long-term liabilities | 777 | 809 | 682 | ||||||||
| Long-term debt | 801 | 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, respectively | 27 | 28 | 30 | ||||||||
| Retained earnings | 2,863 | 3,270 | 3,996 | ||||||||
| Accumulated other comprehensive income | 296 | 314 | 321 | ||||||||
| Total equity | 3,186 | 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.
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 sold | 7,150 | 6,787 | 14,134 | 13,293 | |||||||||||
| Gross profit | 2,229 | 2,153 | 4,354 | 4,175 | |||||||||||
| Selling, general and administrative expenses | 1,877 | 1,830 | 3,707 | 3,552 | |||||||||||
| Restructuring charges | 17 | 2 | 47 | 2 | |||||||||||
| Operating income | 335 | 321 | 600 | 621 | |||||||||||
| Other income (expense): | |||||||||||||||
| Investment income and other | 13 | 7 | 24 | 18 | |||||||||||
| Interest expense | (19 | ) | (18 | ) | (38 | ) | (37 | ) | |||||||
| Earnings before income tax expense | 329 | 310 | 586 | 602 | |||||||||||
| Income tax expense | 85 | 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 | |||||||||||||||
| Basic | 279.0 | 304.1 | 280.8 | 306.7 | |||||||||||
| Diluted | 283.7 | 310.8 | 286.0 | 313.0 | |||||||||||
See Notes to Condensed Consolidated Financial Statements.
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 | 5 | (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.
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 | 5 | |||||
Other, net | 9 | - | |||||
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 | 1 | 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: | |||||||
| Depreciation | 358 | 329 | |||||
| Restructuring charges | 47 | 2 | |||||
| Stock-based compensation | 63 | 67 | |||||
| Deferred income taxes | 5 | 9 | |||||
| Other, net | — | (2 | ) | ||||
| Changes in operating assets and liabilities: | |||||||
| Receivables | 120 | 401 | |||||
| Merchandise inventories | 187 | (285 | ) | ||||
| Other assets | (53 | ) | (45 | ) | |||
| Accounts payable | 485 | 15 | |||||
| Other liabilities | (430 | ) | (237 | ) | |||
| Income taxes | (126 | ) | 41 | ||||
| Total cash provided by operating activities | 1,108 | 692 | |||||
| Investing activities | |||||||
| Additions to property and equipment | (375 | ) | (296 | ) | |||
| Purchases of investments | — | (2,221 | ) | ||||
| Sales of investments | 1,565 | 1,806 | |||||
| Other, net | 10 | 3 | |||||
| Total cash provided by (used in) investing activities | 1,200 | (708 | ) | ||||
| Financing activities | |||||||
| Repurchase of common stock | (774 | ) | (771 | ) | |||
| Repayments of debt | (523 | ) | (19 | ) | |||
| Dividends paid | (253 | ) | (208 | ) | |||
| Issuance of common stock | 29 | 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 cash | 768 | (872 | ) | ||||
| Cash, cash equivalents and restricted cash at beginning of period | 1,300 | 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 | Common | Additional | Retained | Accumulated Other | 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 | - | - | - | - | 5 | 5 | |||||||||||||||||
Stock-based compensation | - | - | 38 | - | - | 38 | |||||||||||||||||
Issuance of common stock | 2 | - | 16 | - | - | 16 | |||||||||||||||||
Common stock dividends, $0.50 per share | - | - | 2 | (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 | 4 | - | 27 | - | - | 27 | |||||||||||||||||
Common stock dividends, $1.00 per share | - | - | 4 | (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 | 1 | - | 5 | - | - | 5 | |||||||||||||||||
Common stock dividends, $0.45 per share | - | - | 2 | (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 | 4 | - | 29 | - | - | 29 | |||||||||||||||||
Common stock dividends, $0.90 per share | - | - | 4 | (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, 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 | |||||||||||||||||
| Restricted stock vested and stock options exercised | 4 | — | 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, 2018 | 276 | $ | 27 | $ | — | $ | 2,863 | $ | 296 | $ | 3,186 | |||||||||||
| Balances at January 28, 2017 | 311 | $ | 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 exercised | 5 | — | 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, 2017 | 300 | $ | 30 | $ | — | $ | 3,996 | $ | 321 | $ | 4,347 | |||||||||||
See Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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
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,
Unadopted Accounting Pronouncements
In February 2016,January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02,
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 $2.8 billion, respectively, while our footnote disclosures related to leases, we are still evaluating the impact on our consolidated statement of earnings. We also expect that adoption of the new standard will require changes to our internal controls over financial reporting.
The cumulative effect of the changes made to our Condensed Consolidated Balance Sheet on February 4, 2018,Sheets for the adoption of this standard was as follows ($ in millions):
February 2, 2019 | ASU 2016-02 Adjustment on February 3, 2019 | February 3, 2019 | |||||||||
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 | 5 | (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 liabilities | 385 | (69 | ) | 316 | |||||||
| Deferred revenue | 453 | (26 | ) | 427 | |||||||
| Accrued liabilities | 864 | (3 | ) | 861 | |||||||
| Accrued income taxes | 137 | 6 | 143 | ||||||||
| Equity | |||||||||||
| Retained earnings | 3,270 | 73 | 3,343 | ||||||||
(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 Sheets | As Reported | Balances without Adoption of ASU 2014-09 | Effect of Change Higher/(Lower)(1) | ||||||||
| Assets | |||||||||||
| Other current assets | $ | 510 | $ | 461 | $ | 49 | |||||
| Other assets | 365 | 384 | (19 | ) | |||||||
| Liabilities | |||||||||||
| Unredeemed gift card liabilities | 275 | 344 | (69 | ) | |||||||
| Deferred revenue | 438 | 462 | (24 | ) | |||||||
| Accrued liabilities | 801 | 754 | 47 | ||||||||
| Accrued income taxes | 12 | 6 | 6 | ||||||||
| Equity | |||||||||||
| Retained earnings | 2,863 | 2,793 | 70 | ||||||||
| Three Months Ended August 4, 2018 | |||||||||||
| Impact of Changes to Condensed Consolidated Statements of Earnings | As Reported | Balances without Adoption of ASU 2014-09 | Effect of Change Higher/(Lower) | ||||||||
| Revenue | $ | 9,379 | $ | 9,368 | $ | 11 | |||||
| Cost of goods sold | 7,150 | 7,138 | 12 | ||||||||
| Gross profit | 2,229 | 2,230 | (1 | ) | |||||||
| Operating income | 335 | 336 | (1 | ) | |||||||
| Income tax expense | 85 | 85 | — | ||||||||
| Net earnings | 244 | 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 Earnings | As Reported | Balances without Adoption of ASU 2014-09 | Effect of Change Higher/(Lower) | ||||||||
| Revenue | $ | 18,488 | $ | 18,468 | $ | 20 | |||||
| Cost of goods sold | 14,134 | 14,111 | 23 | ||||||||
| Gross profit | 4,354 | 4,357 | (3 | ) | |||||||
| Operating income | 600 | 603 | (3 | ) | |||||||
| Income tax expense | 134 | 135 | (1 | ) | |||||||
| Net earnings | 452 | 454 | (2 | ) | |||||||
| Basic earnings per share | $ | 1.61 | $ | 1.62 | $ | (0.01 | ) | ||||
| Diluted earnings per share | $ | 1.58 | $ | 1.59 | $ | (0.01 | ) | ||||
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 assets | 203 | 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.
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.
| 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 cards | 275 | 316 | |||||
| Deferred revenue | 438 | 408 | |||||
| Accrued liabilities | 148 | 151 | |||||
| Long-term contract liabilities included in: | |||||||
| Long-term liabilities | 15 | 22 | |||||
| Allowance for Doubtful Accounts | |||
| Balance at February 4, 2018 | $ | 24 | |
| Charged to expenses or other accounts | 19 | ||
Other(1) | (28 | ) | |
| Balance at August 4, 2018 | $ | 15 | |
| 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 | ||
August 4, 2018(1) | |||
| Remainder of fiscal 2019 | $ | 12 | |
| Fiscal 2020 | 14 | ||
| Fiscal 2021 | 6 | ||
| Fiscal 2022 | 2 | ||
| Fiscal 2023 and thereafter | 1 | ||
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 forLevel 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.
Financial assets and liabilities that were accounted for at fair value on a recurring basis at
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 | - | - | 5 | |||||||||||
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 | - | 1 | 7 | |||||||||||
Fair Value Hierarchy | Fair Value at | ||||||||||||
| August 4, 2018 | February 3, 2018 | July 29, 2017 | |||||||||||
| Assets | |||||||||||||
| Cash and cash equivalents: | |||||||||||||
| Money market funds | Level 1 | $ | 334 | $ | 21 | $ | 175 | ||||||
| Commercial paper | Level 2 | — | 90 | 60 | |||||||||
| Time deposits | Level 2 | — | 65 | 16 | |||||||||
| Short-term investments: | |||||||||||||
| Commercial paper | Level 2 | — | 474 | 299 | |||||||||
| Time deposits | Level 2 | 465 | 1,558 | 1,826 | |||||||||
| Other current assets: | |||||||||||||
| Money market funds | Level 1 | 74 | 3 | 2 | |||||||||
| Commercial paper | Level 2 | — | 60 | 60 | |||||||||
| Time deposits | Level 2 | 101 | 101 | 101 | |||||||||
| Foreign currency derivative instruments | Level 2 | 5 | 2 | — | |||||||||
| Other assets: | |||||||||||||
| Marketable securities that fund deferred compensation | Level 1 | 100 | 99 | 97 | |||||||||
| Interest rate swap derivative instruments | Level 2 | — | — | 16 | |||||||||
| Liabilities | |||||||||||||
| Accrued liabilities: | |||||||||||||
| Foreign currency derivative instruments | Level 2 | — | 8 | 15 | |||||||||
| Interest rate swap derivative instruments | Level 2 | — | 1 | — | |||||||||
| Long-term liabilities: | |||||||||||||
| Interest rate swap derivative instruments | Level 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.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, andCommercial 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 forwardMarketable 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.
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) | $ | 8 | $ | 2 | $ | 10 | $ | 4 | $ | 3 | $ | 2 | |||||||||||
Operating lease assets(2) | 1 | - | 1 | - | 1 | - | |||||||||||||||||
Total | $ | 9 | $ | 2 | $ | 11 | $ | 4 | $ | 4 | $ | 2 | |||||||||||
| 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 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,
| 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 | |||||||
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.
| 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 costs | 20 | 49 | 49 | ||||||||
| Total restructuring charges | $ | 17 | $ | 47 | $ | 56 | |||||
Termination Benefits | Facility Closure and Other Costs | Total | |||||||||
| Balances at February 3, 2018 | $ | 8 | $ | — | $ | 8 | |||||
| Charges | 1 | 49 | 50 | ||||||||
| Cash payments | (5 | ) | (46 | ) | (51 | ) | |||||
Adjustments(1) | (3 | ) | (1 | ) | (4 | ) | |||||
| Balances at August 4, 2018 | $ | 1 | $ | 2 | $ | 3 | |||||
| August 4, 2018 | February 3, 2018 | July 29, 2017 | |||||||||
| 2018 Notes | $ | — | $ | 500 | $ | 500 | |||||
| 2021 Notes | 650 | 650 | 650 | ||||||||
| Interest rate swap valuation adjustments | (7 | ) | (5 | ) | 16 | ||||||
| Subtotal | 643 | 1,145 | 1,166 | ||||||||
| Debt discounts and issuance costs | (2 | ) | (3 | ) | (4 | ) | |||||
| Financing lease obligations | 188 | 191 | 166 | ||||||||
| Capital lease obligations | 19 | 22 | 26 | ||||||||
| Total long-term debt | 848 | 1,355 | 1,354 | ||||||||
| Less: current portion | 47 | 544 | 44 | ||||||||
| Total long-term debt, less current portion | $ | 801 | $ | 811 | $ | 1,310 | |||||
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) | 4 | 7 | ||||||
Interest on lease liabilities | Interest expense | - | 1 | ||||||
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 | - | 1 | |||||||
Financing cash flows from finance leases | 4 | 8 | |||||||
Lease assets obtained in exchange for new lease liabilities: | |||||||||
Operating leases | 247 | 394 | |||||||
Finance leases | 2 | 4 | |||||||
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 | $ | 8 | |||||||
Fiscal 2021 | 756 | 13 | |||||||||
Fiscal 2022 | 619 | 9 | |||||||||
Fiscal 2023 | 466 | 5 | |||||||||
Fiscal 2024 | 340 | 3 | |||||||||
Fiscal 2025 | 234 | 2 | |||||||||
Thereafter | 407 | 5 | |||||||||
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.
Capital Leases | Financing Leases | Operating Leases(1) | |||||||||
Fiscal 2020 | $ | 14 | $ | 48 | $ | 700 | |||||
Fiscal 2021 | 11 | 42 | 648 | ||||||||
Fiscal 2022 | 7 | 35 | 513 | ||||||||
Fiscal 2023 | 4 | 24 | 371 | ||||||||
Fiscal 2024 | 2 | 16 | 253 | ||||||||
Thereafter | 7 | 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 | Cumulative | Gross Carrying | Cumulative | Gross Carrying | Cumulative | ||||||||||||||||||
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 | Accumulated | Gross Carrying | Accumulated | Life Remaining as of | |||||||||||||||
Customer relationships | $ | 341 | $ | 42 | $ | 258 | $ | 16 | 7.4 | ||||||||||
Tradename | 63 | 7 | 63 | 3 | 7.2 | ||||||||||||||
Developed technology | 52 | 9 | 52 | 4 | 4.2 | ||||||||||||||
Total | $ | 456 | $ | 58 | $ | 373 | $ | 23 | 7.0 | ||||||||||
We recorded $18 million and other obligations.
Amortization | |||||||||||||||||||||||
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 $500 million principal amount of notes due October 1, 2028. Our interest rate swap contracts are considered perfect hedges because the critical terms and notional amounts match those of our fixed-rate debt being hedged and are, therefore, accounted for as fair value hedges using the shortcut method. Under the shortcut method, we recognize the change in the fair value of the derivatives with an offsetting change to the carrying value of the debt. Accordingly, there is no impact on our Condensed Consolidated Statements of Earnings from the fair value of the derivatives.
Derivatives Not Designated as Hedging Instruments
We use foreign currency forward contracts to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies. The contracts generally have terms of up to 12 months. These derivative instruments are not designated in hedging relationships and, therefore, we record gains and losses on these contracts directly to net earnings.
Summary of Derivative Balances
Gross fair values of our outstanding derivative instruments and the corresponding classification at August 4, 2018, February 3, 2018, and July 29, 2017classifications were as follows ($ 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 | $ | - | $ | - | $ | 5 | |||||||
Derivatives designated as interest rate swaps | Other current assets and Other assets | 78 | 26 | - | ||||||||||
Total | $ | 78 | $ | 26 | $ | 5 | ||||||||
Liabilities | ||||||||||||||
Contract Type | Balance Sheet Location | August 3, 2019 | February 2, 2019 | August 4, 2018 | ||||||||||
Derivatives designated as interest rate swaps | Long-term liabilities | $ | - | $ | 1 | $ | 7 | |||||||
| Assets | ||||||||||||
| Contract Type | Balance Sheet Location | August 4, 2018 | February 3, 2018 | July 29, 2017 | ||||||||
| Derivatives designated as net investment hedges | Other current assets | $ | 5 | $ | 2 | $ | — | |||||
| Derivatives designated as interest rate swaps | Other current assets and Other assets | — | — | 16 | ||||||||
| Total | $ | 5 | $ | 2 | $ | 16 | ||||||
| Liabilities | ||||||||||||
| Contract Type | Balance Sheet Location | August 4, 2018 | February 3, 2018 | July 29, 2017 | ||||||||
| Derivatives designated as net investment hedges | Accrued liabilities | $ | — | $ | 7 | $ | 13 | |||||
| Derivatives designated as interest rate swaps | Accrued liabilities and Long-term liabilities | 7 | 5 | — | ||||||||
| No hedge designation (foreign exchange forward contracts) | Accrued liabilities | — | 1 | 2 | ||||||||
| Total | $ | 7 | $ | 13 | $ | 15 | ||||||
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 | $ | - | $ | 3 | $ | - | $ | 19 | ||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||
| Derivatives designated as net investment hedges | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
| Pre-tax gain(loss) recognized in OCI | $ | 3 | $ | (19 | ) | $ | 19 | $ | (11 | ) | |||||
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) | $ | 1 | $ | - | $ | 1 | |||||||||||
| Gain (Loss) Recognized | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| Contract Type | Location of Gain (Loss) Recognized | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
| No hedge designation (foreign exchange contracts) | SG&A | $ | 1 | $ | (4 | ) | $ | 1 | $ | (3 | ) | |||||
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 | $ | 3 | $ | 53 | $ | (1) | |||||||||||
Adjustments to carrying value of long-term debt | Interest expense | (55) | (3) | (53) | 1 | |||||||||||||||
Total | $ | - | $ | - | $ | - | $ | - | ||||||||||||
| Gain (Loss) Recognized | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| Contract Type | Location of Gain (Loss) Recognized | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
| Interest rate swap contracts | Interest expense | $ | 3 | $ | 14 | $ | (1 | ) | $ | 3 | ||||||
| Adjustments to carrying value of long-term debt | Interest expense | (3 | ) | (14 | ) | 1 | (3 | ) | ||||||||
| Total | $ | — | $ | — | $ | — | $ | — | ||||||||
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 | 9 | 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 | 9 | 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 Type | August 4, 2018 | February 3, 2018 | July 29, 2017 | ||||||||
| Derivatives designated as net investment hedges | $ | 59 | $ | 462 | $ | 205 | |||||
| Derivatives designated as interest rate swap contracts | 650 | 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):
August 3, 2019(1) | |||||||||||
Remainder of fiscal 2020 | $ | 6 | |||||||||
Fiscal 2021 | 8 | ||||||||||
Fiscal 2022 | 4 | ||||||||||
Fiscal 2023 | 1 | ||||||||||
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 | Six Months Ended | Cumulative Amount | |||||||||||||
Property and equipment impairments | $ | - | $ | - | $ | 1 | |||||||||
Termination benefits | (3) | (2) | 6 | ||||||||||||
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 | Total | |||||||||||||
Balances at February 3, 2018 | $ | 8 | $ | - | $ | 8 | |||||||||
Charges | 1 | 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.
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.
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 outstanding | 279.0 | 304.1 | 280.8 | 306.7 | |||||||||||
| Dilutive effect of stock compensation plan awards | 4.7 | 6.7 | 5.2 | 6.3 | |||||||||||
| Weighted-average common shares outstanding, assuming dilution | 283.7 | 310.8 | 286.0 | 313.0 | |||||||||||
| Anti-dilutive securities excluded from Weighted-average common shares outstanding, assuming dilution | 0.1 | 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 | |||||||
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.$146 million.
12. Comprehensive Income
Changes in accumulated other comprehensive income, net of tax were as follows for the three and six months ended August 4, 2018, and July 29, 2017 ($ 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,
| 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 | |||||||||||
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 | |||||||
| International | 740 | 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 Phones | 3,923 | 3,859 | 7,822 | 7,436 | |||||||||||
| Entertainment | 512 | 492 | 1,059 | 1,063 | |||||||||||
| Appliances | 1,013 | 914 | 1,895 | 1,691 | |||||||||||
| Services | 384 | 367 | 777 | 738 | |||||||||||
| Other | 37 | 30 | 72 | 64 | |||||||||||
| Total Domestic revenue | $ | 8,639 | $ | 8,272 | $ | 17,051 | $ | 16,184 | |||||||
| International: | |||||||||||||||
| Consumer Electronics | $ | 217 | $ | 210 | $ | 423 | $ | 389 | |||||||
| Computing and Mobile Phones | 335 | 311 | 666 | 608 | |||||||||||
| Entertainment | 43 | 36 | 85 | 80 | |||||||||||
| Appliances | 86 | 61 | 147 | 102 | |||||||||||
| Services | 41 | 36 | 81 | 76 | |||||||||||
| Other | 18 | 14 | 35 | 29 | |||||||||||
| Total International revenue | $ | 740 | $ | 668 | $ | 1,437 | $ | 1,284 | |||||||
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 | 4 | 6 | 6 | 4 | ||||||||||||
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 | |||||||
| International | 6 | 5 | 4 | 7 | |||||||||||
| Total operating income | 335 | 321 | 600 | 621 | |||||||||||
| Other income (expense): | |||||||||||||||
| Investment income and other | 13 | 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 | |||||
| International | 1,081 | 1,496 | 1,472 | ||||||||
| Total assets | $ | 11,993 | $ | 13,049 | $ | 13,444 | |||||
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.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, forpending the close of discovery in IBEW.
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.
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.
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
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,
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 forBusiness 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
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.
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.
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").
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
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 % growth | 4.9 | % | 4.8 | % | 5.8 | % | 2.9 | % | |||||||
| Comparable sales % gain | 6.2 | % | 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 revenue | 3.6 | % | 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)Because retailers vary in how they record costs of operating their supply chain between cost of goods sold and SG&A, our |
| Three Months Ended | Six Months Ended | ||||
| August 4, 2018 | August 4, 2018 | ||||
| Comparable sales impact | 5.8 | % | 6.2 | % | |
| Foreign currency exchange rate fluctuation impact | — | % | 0.2 | % | |
Non-comparable sales impact(1) | (0.9 | )% | (0.6 | )% | |
| Total revenue increase | 4.9 | % | 5.8 | % | |
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
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 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
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 % growth | 4.4 | % | 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 revenue | 23.8 | % | 24.0 | % | 23.6 | % | 23.8 | % | |||||||
| SG&A | $ | 1,712 | $ | 1,669 | $ | 3,377 | $ | 3,242 | |||||||
| SG&A as a % of revenue | 19.8 | % | 20.2 | % | 19.8 | % | 20.0 | % | |||||||
| Restructuring charges | $ | 17 | $ | — | $ | 47 | $ | — | |||||||
| Operating income | $ | 329 | $ | 316 | $ | 596 | $ | 614 | |||||||
| Operating income as a % of revenue | 3.8 | % | 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 revenue | 14.0 | % | 13.2 | % | 13.8 | % | 13.1 | % | |||||||
Comparable online sales % gain(1) | 10.1 | % | 31.2 | % | 11.0 | % | �� | 26.8 | % | ||||||
(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 Months Ended | Six Months Ended | ||||
| August 4, 2018 | August 4, 2018 | ||||
| Comparable sales impact | 5.7 | % | 6.2 | % | |
Non-comparable sales impact(1) | (1.3 | )% | (0.8 | )% | |
| Total revenue increase | 4.4 | % | 5.4 | % | |
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 | 1 | - | 11 | 5 | 2 | - | 7 | |||||||||||||||||||||||
Pacific Sales | 21 | - | - | 21 | 28 | - | - | 28 | |||||||||||||||||||||||
Total Domestic segment stores | 1,026 | 1 | - | 1,027 | 1,145 | 2 | (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 Buy | 1,007 | — | — | 1,007 | 1,024 | — | — | 1,024 | |||||||||||||||
| Best Buy Mobile stand-alone | 105 | — | (105 | ) | — | 298 | — | (6 | ) | 292 | |||||||||||||
| Pacific Sales | 28 | — | — | 28 | 28 | — | — | 28 | |||||||||||||||
| Total Domestic segment stores | 1,140 | — | (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,
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 | 5 | % | 7 | % | (13.7) | % | 8.5 | % | |||||||
Services | 6 | % | 4 | % | 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 Electronics | 32 | % | 32 | % | 6.8 | % | 2.5 | % | |||
| Computing and Mobile Phones | 45 | % | 47 | % | 4.2 | % | 6.7 | % | |||
| Entertainment | 7 | % | 6 | % | 8.5 | % | 15.4 | % | |||
| Appliances | 12 | % | 11 | % | 10.3 | % | 5.8 | % | |||
| Services | 4 | % | 4 | % | 6.6 | % | 1.5 | % | |||
| Total | 100 | % | 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:
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:
TheAppliances: The 4.2% comparable sales gain was driven primarily by computing and mobile phones, partially offset by declines in tablets.
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.
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 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 | $ | 4 | $ | 6 | $ | 6 | $ | 4 | |||||||
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.
| 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 % growth | 10.8 | % | 3.7 | % | 11.9 | % | 2.1 | % | |||||||
| Comparable sales % gain | 7.6 | % | 4.7 | % | 7.0 | % | 4.4 | % | |||||||
| Gross profit | $ | 171 | $ | 168 | $ | 334 | $ | 319 | |||||||
| Gross profit as a % of revenue | 23.1 | % | 25.1 | % | 23.2 | % | 24.8 | % | |||||||
| SG&A | $ | 165 | $ | 161 | $ | 330 | $ | 310 | |||||||
| SG&A as a % of revenue | 22.3 | % | 24.1 | % | 23.0 | % | 24.1 | % | |||||||
| Restructuring charges | $ | — | $ | 2 | $ | — | $ | 2 | |||||||
| Operating income | $ | 6 | $ | 5 | $ | 4 | $ | 7 | |||||||
| Operating income as a % of revenue | 0.8 | % | 0.7 | % | 0.3 | % | 0.5 | % | |||||||
| Three Months Ended | Six Months Ended | ||||
| August 4, 2018 | August 4, 2018 | ||||
| Comparable sales impact | 7.6 | % | 6.9 | % | |
Non-comparable sales impact(1) | 2.6 | % | 2.3 | % | |
| Foreign currency exchange rate fluctuation impact | 0.6 | % | 2.7 | % | |
| Total revenue increase | 10.8 | % | 11.9 | % | |
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 | 1 | - | 30 | 26 | 2 | - | 28 | |||||||||||||||||||||||
Best Buy Express | 9 | - | - | 9 | 6 | - | - | 6 | |||||||||||||||||||||||
Total International segment stores | 214 | 1 | (1) | 214 | 215 | 2 | - | 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 Buy | 134 | — | — | 134 | 134 | — | — | 134 | |||||||||||||||
| Best Buy Mobile | 49 | — | — | 49 | 53 | — | — | 53 | |||||||||||||||
| Mexico: | |||||||||||||||||||||||
| Best Buy | 26 | 2 | — | 28 | 20 | 2 | — | 22 | |||||||||||||||
| Best Buy Express | 6 | — | — | 6 | 5 | — | — | 5 | |||||||||||||||
| Total International segment stores | 215 | 2 | — | 217 | 212 | 2 | — | 214 | |||||||||||||||
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 | 5 | % | 6 | % | (20.1) | % | 14.3 | % | |||||||
Services | 6 | % | 6 | % | 4.6 | % | 11.3 | % | |||||||
Other | 2 | % | 2 | % | (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 Electronics | 29 | % | 31 | % | 0.3 | % | 7.3 | % | |||
| Computing and Mobile Phones | 45 | % | 47 | % | 4.5 | % | 0.3 | % | |||
| Entertainment | 6 | % | 5 | % | 14.3 | % | 0.5 | % | |||
| Appliances | 12 | % | 9 | % | 35.7 | % | 30.8 | % | |||
| Services | 6 | % | 6 | % | 11.3 | % | (1.3 | )% | |||
| Other | 2 | % | 2 | % | 51.4 | % | n/a | ||||
| Total | 100 | % | 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:
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:
TheAppliances: The 4.5% comparable sales gain was driven primarily by mobile phones, wearables and computing, partially offset by declines in tablets.
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.
Other:
TheOur 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 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) | 3 | - | 3 | - | |||||||||||
Tax reform related item - employee bonus(3) | - | - | - | 7 | |||||||||||
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 rate | 25.7 | % | 32.6 | % | 22.8 | % | 34.1 | % | |||||||
Restructuring charges(1) | (0.3 | )% | — | % | 0.1 | % | — | % | |||||||
| Non-GAAP effective tax rate | 25.4 | % | 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)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 $31 million, respectively, compared to the corresponding prior year periods. The increases were2020, primarily driven by strong revenue performance in both our Domestic and International segments in nearly all product categories, partially offset by increasesa decrease in SG&A primarily due to higher variable costs associated with growth investments and increased revenue.
Our non-GAAP effective tax rate decreased in the second quarter of fiscal 2019 primarily due to the impact of the Tax Act, partially offset by the resolution of certain tax matters in the prior-year period. During theand first six months of fiscal 2019, our non-GAAP effective tax rate decreased2020, primarily due to the impact of the Tax Act, as well as an increase in excessincreased tax benefits related to stock-based compensation in the current year period, partially offset byand the resolution of certain tax matters in the prior-year period.
Non-GAAP diluted EPS increased in the second quarter and first six months of 2019. Non-GAAP diluted EPS also increased due tofiscal 2020, primarily driven by the increase in non-GAAP operating income and lower diluted weighted-average common shares outstanding driven by ourfrom share repurchases. Refer to the
Liquidity and Capital Resources
Summary
We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment neededrequired to support our business strategies, the performance of our business, capital expenditures, credit facilities, short-term borrowing arrangements and working capital management. Capital expenditures and share repurchases
Cash, cash equivalents and short-term investments at August 4, 2018, February 3, 2018, and July 29, 2017were as follows ($ 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 investments | 465 | 2,032 | 2,125 | ||||||||
| Total cash, cash equivalents and short-term investments | $ | 2,330 | $ | 3,133 | $ | 3,490 | |||||
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 $500 million principal amountCST. The decrease from August 4, 2018, was primarily due to share repurchases and the acquisitions of notes due August 1, 2018 (the "2018 Notes"), capital expendituresGreatCall and dividends during the first half of fiscal 2019 without the need to utilize our credit facilities or other debt arrangements.
Cash Flows
Cash flows from total operations for the six months ended August 4, 2018, and July 29, 2017were as follows ($ 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 activities | 1,200 | (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.
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.
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,
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
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 | Outlook | |||||||||||||
Standard & Poor's | BBB | Stable | |||||||||||||
Moody's | Baa1 | Positive | |||||||||||||
Fitch | 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.
Debt and Capital
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,
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.
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.
Share repurchase activity for the
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 | |||||||||||
Dividend activity for the
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.
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.
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 expense | 747 | 818 | 583 | ||||||||
| Depreciation and amortization expense | 712 | 683 | 656 | ||||||||
| Rental expense | 781 | 782 | 776 | ||||||||
Restructuring charges(3) | 55 | 10 | 12 | ||||||||
| Non-GAAP EBITDAR | $ | 3,329 | $ | 3,318 | $ | 3,258 | |||||
| Debt to net earnings ratio | 0.8 | 1.4 | 1.1 | ||||||||
| Non-GAAP debt to EBITDAR ratio | 1.4 | 1.6 | 1.6 | ||||||||
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.
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 FebruaryNew 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 Februarycommerce 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
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,
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.
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
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
AugustThere waswere no changechanges in internal control over financial reporting during the fiscal quarter ended
PART II — OTHER INFORMATION
Item 1.Legal Proceedings
For a description of our legal proceedings, see Note 12,
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 | Average Price Paid | 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
101 | ||
The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal | ||
104 | The |
____________________________
(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
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 | By: | ||
/s/ CORIE BARRY | |||
Corie Barry | |||
Chief Executive Officer | |||
Date: September 6, 2019 | By: | /s/ MATTHEW BILUNAS | |
Matthew Bilunas | |||
Chief Financial Officer | |||
Date: September | By: | /s/ MATHEW R. WATSON | |
Mathew R. Watson | |||
Senior Vice President, Finance – Controller and Chief Accounting Officer | |||
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