Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in the following sections:
|
|
•
|
Best Buy 2020: Building the New Blue
|
|
|
•
|
Liquidity and Capital Resources
|
|
|
•
|
Critical Accounting Estimates
|
|
|
•
|
New Accounting Pronouncements
|
Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8,
Financial Statements and Supplementary Data,
of this Annual Report on Form 10-K.
Overview
We are a leading provider of technology products, services and solutions. We offer these products and services to customers who visit our stores, engage with Geek Squad agents or use our websites or mobile applications. We have operations in the U.S., Canada and Mexico. We operate two reportable segments: Domestic and International. The Domestic segment is comprised of all operations within the U.S. and its districts and territories. The International segment is comprised of all operations outside the U.S. and its territories.
Our fiscal year ends on the Saturday nearest the end of January. Fiscal 2017, 2016 and 2015 each included
52
weeks, noting that fiscal 2018 will include 53 weeks with the additional week included in the fourth quarter. Our business, like that of many
retailers, is seasonal. A higher proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico ("Holiday").
Throughout this MD&A, we refer to comparable sales. Our comparable sales calculation compares revenue from stores, websites and call centers operating for at least 14 full months, as well as revenue related to certain other comparable sales channels for a particular period to the corresponding period in the prior year. Relocated stores, as well as remodeled, expanded and downsized stores closed more than 14 days, are excluded from the comparable sales calculation until at least 14 full months after reopening. Acquisitions are included in the comparable sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The calculation of comparable sales excludes the impact of revenue from discontinued operations and the effect of fluctuations in foreign currency exchange rates (applicable to our International segment only). The Canadian brand consolidation, which included the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website, had a material impact on a year-over-year basis on the remaining Canadian retail stores and the website. As such, from the first quarter of fiscal 2016 through the third quarter of fiscal 2017, all Canadian store and website revenue was removed from the comparable sales base and the International segment no longer had a comparable metric. Therefore, Consolidated comparable sales equaled the Domestic segment comparable sales. Beginning in the fourth quarter of fiscal 2017, we resumed reporting International comparable sales as revenue in the International segment was once again deemed to be comparable and, as such, Consolidated comparable sales are once again equal to the aggregation of Domestic and International comparable sales. However, we have not provided International comparable sales for fiscal 2017 as the calculation would only include comparable revenue from the fourth quarter of fiscal 2017 and may be misleading in future periods when used for comparison purposes. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers' methods.
Non-GAAP Financial Measures
This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), as well as certain adjusted or non-GAAP financial measures such as constant currency, non-GAAP operating income, non-GAAP effective tax rate, non-GAAP net earnings from continuing operations, non-GAAP diluted earnings per share ("EPS") from continuing operations and non-GAAP debt to earnings before interest, income taxes, depreciation, amortization and rent ("EBITDAR") ratio. We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, our internal management reporting also includes non-GAAP measures. Generally, our non-GAAP measures include adjustments for items such as restructuring charges, goodwill impairments, non-restructuring asset impairments and gains or losses on investments. In addition, certain other items may be excluded from non-GAAP financial measures when we believe this provides greater clarity to management and our investors. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.
In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment’s operating results from local currencies into U.S. dollars for reporting purposes. We also use the term "constant currency", which represents results adjusted to exclude foreign currency impacts. We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates. We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates and our inability to report comparable store sales for the International segment in fiscal 2016 as a result of the Canadian brand consolidation.
Refer to the
Non-GAAP Financial Measures
section below for the detailed reconciliation of items that impacted the non-GAAP operating income, non-GAAP effective tax rate, non-GAAP net earnings from continuing operations and non-GAAP diluted EPS from continuing operations in the presented periods.
Refer to the
Other Financial Measures
section below for the detailed reconciliation of items that impacted the non-GAAP debt to EBITDAR ratio. Management believes this ratio is an important indicator of our creditworthiness. Furthermore, we believe that our non-GAAP debt to EBITDAR ratio is important for understanding our financial position and provides meaningful additional information about our ability to service our long-term debt and other fixed obligations and to fund our future growth. We also believe our non-GAAP debt to EBITDAR ratio is relevant because it enables investors to compare our indebtedness to
that of retailers who own, rather than lease, their stores. Our decision to own or lease real estate is based on an assessment of our financial liquidity, our capital structure, our desire to own or to lease the location, the owner’s desire to own or to lease the location and the alternative that results in the highest return to our shareholders.
Business Strategy
During fiscal 2017, we executed against the three priorities we shared at the beginning of the year:
|
|
1.
|
Build on our strong industry position and multi-channel capabilities to drive the existing business;
|
|
|
2.
|
Drive cost reduction and efficiencies; and
|
|
|
3.
|
Advance key initiatives to drive future growth and differentiation.
|
Below is summary of our progress against these priorities:
|
|
•
|
We believe we continued to gain market share in most of our product categories. We believe the total market for our product categories was down low-single digits in calendar 2016 and that our market share gains helped us offset the market decline;
|
|
|
•
|
We increased our Net Promoter Score by over 350 basis points;
|
|
|
•
|
We grew the Domestic segment online revenue with comparable sales of 20.8% in fiscal 2017;
|
|
|
•
|
The successful Canadian brand consolidation was the primary driver of operating income of $90 million in our International segment for fiscal 2017 compared to a loss of $210 million in fiscal 2016;
|
|
|
•
|
We continued to progress against our three-year target to reduce cost and optimize gross profit by $400 million and achieved $350 million cumulative savings by the end of fiscal 2017; these savings enable us to invest in customer experience improvements while maintaining near flat SG&A;
|
|
|
•
|
As for the third priority, fiscal 2017 was a year of exploration and experimentation, and we are continuing to test several concepts around the country that we believe have the potential to be compelling customer experiences; we expect to launch some of these concepts in fiscal 2018.
|
Best Buy 2020: Building the New Blue
In November 2012, we introduced our transformation strategy called
Renew Blue
. Since then we have stabilized comparable sales and increased our profitability. A little more than four years later, we have now completed Renew Blue and unveiled a new strategy: Best Buy 2020: Building the New Blue.
Our customers are at the core of Best Buy 2020. Technology continues to evolve, creating more excitement and opening up an increasing range of possibilities for our customers. It is also creating more complexity and we believe many of our customers need our help. Our purpose is to help customers pursue their passions and enrich their lives with the help of technology. We want to play two roles for them: be their trusted adviser and solution provider; and be their source for technology services for their home. Our customer value proposition is to be the leading technology expert who makes it easy for our customers to learn about and confidently enjoy the best technology.
From a financial standpoint, we seek to gradually grow our revenue, pursue ongoing cost savings necessary to both offset inflationary pressures and fund investments and build a more predictable set of revenue streams built on more recurring revenues and stickier customer relationships. There are three growth pillars we will be pursuing as part of Best Buy 2020:
|
|
1.
|
Maximize the multi-channel retail business by continuing to enhance the customer experience, investing in growth of certain key product categories and developing broader and stickier customer relationships;
|
|
|
2.
|
Provide services and solutions that solve real customer needs and help us build deeper customer relationships - for example, by meeting the significant technical support needs of our customers and providing more complete solutions such as security monitoring and home automation services as well as the associated products; and
|
|
|
3.
|
Accelerate growth in our International segment, which consists of Canada and Mexico.
|
With the launch of Best Buy 2020, fiscal 2018 will revolve around the following four priorities:
|
|
1.
|
Driving growth from the pillars described above; for example:
|
|
|
•
|
We will continue to innovate our digital capabilities to effectively help our customers in their shopping journey;
|
|
|
•
|
We will pursue growth around key product categories, including emerging product categories like connected home, appliances where we believe we can continue to grow revenue and mobile where we have the opportunity to return to growth by providing a more compelling experience to our customers;
|
|
|
•
|
We plan to expand our in-home advisor program ("IHA") to more markets. With our IHA program, customers receive a free in-home consultation with an experienced technology advisor who can identify their needs, design personalized solutions and become a personal resource over time;
|
|
|
•
|
We will continue to test new concepts around the country that have the potential to be compelling customer experiences. We have a pipeline of opportunities, some of which we will expect to expand later in fiscal 2018; and
|
|
|
•
|
We will pursue growth in our International segment by continuing to drive our online channel and by expanding the launch of the successful store remodels in Canada and opening nine new stores in Mexico over the next two years.
|
|
|
2.
|
The second priority is to improve our execution in key areas. We believe we continue to have significant opportunities from improving our sales effectiveness and proficiency, our supply chain for large product fulfillment and small package delivery and our services fulfillment capabilities.
|
|
|
3.
|
The third priority is to continue to reduce costs and drive efficiencies through the business. As stated previously, we have achieved $350 million of our current $400 million cost reduction target. We are working on the next phase of cost savings and will provide updates on the next goal once we complete our current program.
|
|
|
4.
|
The fourth priority is to build the capabilities necessary to deliver on the first three priorities, which will involve making investments in people and systems to drive growth, execution and efficiencies.
|
Results of Operations
In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to these operations is also presented on a lag. Our policy is to accelerate the recording of events occurring in the lag period that significantly affect our consolidated financial statements. No such events were identified for the periods presented.
The results of Jiangsu Five Star Appliance Co., Limited ("Five Star"), in our International segment, are presented as discontinued operations in our Consolidated Statements of Earnings. Unless otherwise stated, financial results discussed herein refer to continuing operations.
Consolidated Results
The following table presents selected consolidated financial data for each of the past three fiscal years ($ in millions, except per share amounts):
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|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Performance Summary
|
|
2017
|
|
2016
|
|
2015
|
Revenue
|
|
$
|
39,403
|
|
|
$
|
39,528
|
|
|
$
|
40,339
|
|
Revenue % decline
|
|
(0.3
|
)%
|
|
(2.0
|
)%
|
|
(0.7
|
)%
|
Comparable sales % gain
(1)
|
|
0.3
|
%
|
|
0.5
|
%
|
|
0.5
|
%
|
Comparable sales % gain (decline), excluding estimated impact of installment billing
(1)(2)
|
|
n/a
|
|
|
(0.1
|
)%
|
|
—
|
%
|
Restructuring charges - cost of goods sold
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
Gross profit
|
|
$
|
9,440
|
|
|
$
|
9,191
|
|
|
$
|
9,047
|
|
Gross profit as a % of revenue
(3)
|
|
24.0
|
%
|
|
23.3
|
%
|
|
22.4
|
%
|
SG&A
|
|
$
|
7,547
|
|
|
$
|
7,618
|
|
|
$
|
7,592
|
|
SG&A as a % of revenue
|
|
19.2
|
%
|
|
19.3
|
%
|
|
18.8
|
%
|
Restructuring charges
|
|
$
|
39
|
|
|
$
|
198
|
|
|
$
|
5
|
|
Operating income
|
|
$
|
1,854
|
|
|
$
|
1,375
|
|
|
$
|
1,450
|
|
Operating income as a % of revenue
|
|
4.7
|
%
|
|
3.5
|
%
|
|
3.6
|
%
|
Net earnings from continuing operations
|
|
$
|
1,207
|
|
|
$
|
807
|
|
|
$
|
1,246
|
|
Gain (loss) from discontinued operations
(4)
|
|
$
|
21
|
|
|
$
|
90
|
|
|
$
|
(13
|
)
|
Net earnings attributable to Best Buy Co., Inc. shareholders
|
|
$
|
1,228
|
|
|
$
|
897
|
|
|
$
|
1,233
|
|
Diluted earnings per share from continuing operations
|
|
$
|
3.74
|
|
|
$
|
2.30
|
|
|
$
|
3.53
|
|
Diluted earnings per share
|
|
$
|
3.81
|
|
|
$
|
2.56
|
|
|
$
|
3.49
|
|
|
|
(1)
|
The Canadian brand consolidation that was initiated in the first quarter of fiscal 2016 had a material impact on a year-over-year basis on the Canadian retail stores and website. As such, beginning in the first quarter of fiscal 2016 through the third quarter of fiscal 2017, all store and website revenue was removed from the comparable sales base, and an International segment (comprised of Canada and Mexico) comparable sales metric has not been provided. Therefore, Consolidated comparable sales for fiscal 2017 include revenue from continuing operations in the Domestic segment for the full year and the International segment for the fourth quarter only, and Consolidated comparable sales for fiscal 2016 equal the Domestic segment comparable sales.
|
|
|
(2)
|
Represents comparable sales, excluding the estimated revenue benefit from installment billing. In fiscal 2015, we began selling installment billing plans offered by mobile carriers to our customers to complement the more traditional two-year plans. While the two types of contracts have broadly similar overall economics, installment billing plans typically generate higher revenues due to higher proceeds for devices and higher cost of sales due to lower device subsidies. As we increased our mix of installment billing plans, we had an associated increase in revenue and cost of goods sold and a decrease in gross profit rate, with gross profit dollars relatively unaffected. This change in plan offer did not impact our International segment. Beginning in fiscal 2017, we no longer reported comparable sales, excluding the estimated revenue benefit from installment billing, as the mix of installment billing plans became comparable on a year-over-year basis.
|
|
|
(3)
|
Because retailers vary in how they record costs of operating their supply chain between cost of goods sold and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers' corresponding rates. For additional information regarding costs classified in cost of goods sold and SG&A, refer to Note 1,
Summary of Significant Accounting Policies
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K.
|
|
|
(4)
|
Includes both gain (loss) from discontinued operations and net earnings from discontinued operations attributable to noncontrolling interests.
|
In addition, we generated $2.5 billion in operating cash flow in fiscal
2017
, compared to $1.3 billion in fiscal
2016
, and we ended fiscal
2017
with $3.9 billion of cash, cash equivalents and short-term investments, compared to $3.3 billion at the end of fiscal
2016
. During fiscal
2017
, we made four regular dividend and one special dividend payments totaling $1.57 per share, or $505 million in the aggregate.
Fiscal
2017
Results Compared With Fiscal
2016
Consolidated revenue of
$39.4 billion
in fiscal
2017
decreased 0.3% compared to fiscal 2016. The components of the
0.3%
revenue decrease in fiscal
2017
were as follows:
|
|
|
|
Impact of foreign currency exchange rate fluctuations
|
(0.2
|
)%
|
Non-comparable sales
(1)
|
(0.3
|
)%
|
Comparable sales impact
|
0.2
|
%
|
Total revenue decrease
|
(0.3
|
)%
|
|
|
(1)
|
Non-comparable sales reflects the impact of revenue in our International segment for the first through third quarters of fiscal 2017, net store opening and closing activity, as well as, the impact of revenue streams not included within our comparable sales calculation, such as profit share revenue, certain credit card revenue, gift card breakage and sales of merchandise to wholesalers and dealers, as applicable.
|
Our gross profit rate increased
0.7%
of revenue in fiscal
2017
. Our Domestic segment contributed a rate increase of 0.5% of revenue, while our International segment contributed 0.2%. For further discussion of each segment's gross profit rate changes, see
Segment Performance Summary
, below.
The SG&A rate remained flat on a year-over-year basis with both our Domestic and International segments contributing flat year-over-year SG&A as a percentage of revenue. For further discussion of each segment's SG&A rate changes, see
Segment Performance Summary,
below.
SG&A restructuring charges decreased from
$198 million
in fiscal 2016 to
$39 million
in fiscal 2017. The fiscal 2017 activity primarily related to our Domestic segment, while our fiscal 2016 activity was driven by our International segment. For further discussion of each segment's SG&A restructuring charges, see
Segment Performance Summary,
below.
Our operating income increased
$479 million
, and our operating income as a percent of revenue increased to
4.7%
of revenue in fiscal
2017
, compared to operating income of
3.5%
of revenue in fiscal
2016
. The increase in our operating income was primarily due to an increase in our gross profit rate and a decrease in our restructuring activity.
Fiscal
2016
Results Compared With Fiscal
2015
The components of the
2.0%
revenue decrease in fiscal
2016
were as follows:
|
|
|
|
Impact of foreign currency exchange rate fluctuations
|
(1.3
|
)%
|
Non-comparable sales
(1)
|
(1.1
|
)%
|
Comparable sales impact
|
0.4
|
%
|
Total revenue decrease
|
(2.0
|
)%
|
|
|
(1)
|
Non-comparable sales reflects the impact of revenue in our International segment, net store opening and closing activity, as well as, the impact of revenue streams not included within our comparable sales calculation, such as profit share revenue, certain credit card revenue, gift card breakage and sales of merchandise to wholesalers and dealers, as applicable.
|
Our gross profit rate increased
0.9%
of revenue in fiscal
2016
. Our Domestic segment contributed a rate increase of 0.9% of revenue and there was no change in our International segment. For further discussion of each segment's gross profit rate changes, see
Segment Performance Summary
, below.
The SG&A rate increased
0.5%
of revenue in fiscal
2016
. Our Domestic segment contributed a rate increase of 0.5% of revenue and there was no change in our International segment. For further discussion of each segment's SG&A rate changes, see
Segment Performance Summary,
below.
SG&A restructuring charges increased from
$5 million
in fiscal 2015 to $198 million in fiscal 2016. Our International segment drove this increase. For further discussion of each segment’s SG&A restructuring charges, see
Segment Performance Summary
, below.
Our operating income decreased $75 million, and our operating income as a percent of revenue decreased to 3.5% of revenue in fiscal
2016
, compared to operating income of 3.6% of revenue in fiscal
2015
. The decrease in our operating income was primarily due to an increase in restructuring charges partially offset by net CRT/LCD legal settlement proceeds received in fiscal 2016.
Segment Performance Summary
Domestic Segment
The following table presents selected financial data for our Domestic segment for each of the past three fiscal years ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Segment Performance Summary
|
|
2017
|
|
2016
|
|
2015
|
Revenue
|
|
$
|
36,248
|
|
|
$
|
36,365
|
|
|
$
|
36,055
|
|
Revenue % gain (decline)
|
|
(0.3
|
)%
|
|
0.9
|
%
|
|
0.6
|
%
|
Comparable sales % gain
(1)
|
|
0.2
|
%
|
|
0.5
|
%
|
|
1.0
|
%
|
Comparable sales % gain (decline), excluding the estimated impact of installment billing
(1)(2)
|
|
n/a
|
|
|
(0.1
|
)%
|
|
0.5
|
%
|
Gross profit
|
|
$
|
8,650
|
|
|
$
|
8,484
|
|
|
$
|
8,080
|
|
Gross profit as % of revenue
|
|
23.9
|
%
|
|
23.3
|
%
|
|
22.4
|
%
|
SG&A
|
|
$
|
6,855
|
|
|
$
|
6,897
|
|
|
$
|
6,639
|
|
SG&A as % of revenue
|
|
18.9
|
%
|
|
19.0
|
%
|
|
18.4
|
%
|
Restructuring charges
|
|
$
|
31
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Operating income
|
|
$
|
1,764
|
|
|
$
|
1,585
|
|
|
$
|
1,437
|
|
Operating income as % of revenue
|
|
4.9
|
%
|
|
4.4
|
%
|
|
4.0
|
%
|
|
|
|
|
|
|
|
Selected Online Revenue Data:
|
|
|
|
|
|
|
Online revenue as a % of total segment revenue
|
|
13.4
|
%
|
|
11.0
|
%
|
|
9.8
|
%
|
Comparable online sales % gain
(1)
|
|
20.8
|
%
|
|
13.5
|
%
|
|
16.7
|
%
|
|
|
(1)
|
Comparable online sales gain is included in the total comparable sales gain (decline).
|
|
|
(2)
|
Represents comparable sales, excluding the estimated revenue benefit from installment billing. In fiscal 2015, we began selling installment billing plans offered by mobile carriers to our customers to complement the more traditional two-year plans. While the two types of contracts have broadly similar overall economics, installment billing plans typically generate higher revenues due to higher proceeds for devices and higher cost of sales due to lower device subsidies. As we increased our mix of installment billing plans, we had an associated increase in revenue and cost of goods sold and a decrease in gross profit rate, with gross profit dollars relatively unaffected. Beginning in fiscal 2017, we no longer reported comparable sales, excluding the estimated revenue benefit from installment billing, as the mix of installment billing plans became comparable on a year-over-year basis.
|
The following table reconciles our Domestic segment stores open at the end of each of the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015
|
|
Fiscal 2016
|
|
Fiscal 2017
|
|
Total Stores
at End of
Fiscal Year
|
|
Stores
Opened
|
|
Stores
Closed
|
|
Total Stores
at End of
Fiscal Year
|
|
Stores
Opened
|
|
Stores
Closed
|
|
Total Stores
at End of
Fiscal Year
|
Best Buy
|
1,050
|
|
|
—
|
|
|
(13
|
)
|
|
1,037
|
|
|
—
|
|
|
(11
|
)
|
|
1,026
|
|
Best Buy Mobile stand-alone
|
367
|
|
|
—
|
|
|
(17
|
)
|
|
350
|
|
|
—
|
|
|
(41
|
)
|
|
309
|
|
Pacific Sales
|
29
|
|
|
—
|
|
|
(1
|
)
|
|
28
|
|
|
—
|
|
|
—
|
|
|
28
|
|
Magnolia Audio Video
|
2
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Domestic segment stores
|
1,448
|
|
|
—
|
|
|
(33
|
)
|
|
1,415
|
|
|
—
|
|
|
(52
|
)
|
|
1,363
|
|
We continuously monitor store performance. As we approach the expiration date of our stores leases, we evaluate various options for each location, including whether a store should remain open.
Fiscal
2017
Results Compared With Fiscal
2016
Domestic segment revenue of
$36.2 billion
in fiscal 2017 decreased
0.3%
compared to the prior year. The components of the
0.3%
revenue decrease in the Domestic segment in fiscal
2017
were as follows:
|
|
|
|
Comparable sales impact
|
0.2
|
%
|
Non-comparable sales
(1)
|
(0.5
|
)%
|
Total revenue decrease
|
(0.3
|
)%
|
|
|
(1)
|
Non-comparable sales reflects the impact of net store opening and closing activity, as well as the impact of revenue streams not included within our comparable sales calculation, such as profit share revenue, credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers.
|
The net store changes did not have a material impact on our revenue in fiscal 2017, as the majority of closures related to our small-format Best Buy Mobile stand-alone stores. The closing of small-format Best Buy Mobile stores have a significantly smaller impact given their smaller size and limited category focus compared to our large-format stores.
The profit-share revenue included in our non-comparable sales relate to our extended warranty protection plans that are managed by a third party underwriter. We may be eligible to receive profit-sharing payments, depending on the performance of the portfolio. When performance of the portfolio is strong and the claims cost to the third party underwriter declines, we are entitled to share in the excess premiums. In fiscal 2017, we recognized $110 million of such profit-share revenue, with an equal impact to gross profit and operating income. In fiscal 2016, we recognized $148 million. The fiscal 2017 profit-share revenue decrease from fiscal 2016 reflects reductions to the premiums that we pay to the third party underwriter. In light of the continued impact of these lower premiums, we expect the profit share payments to continue to decrease in future periods.
In fiscal 2017, Domestic segment online revenue of $4.8 billion increased
20.8%
on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 240 basis points to
13.4%
versus
11.0%
last year.
The following table presents the Domestic segment's revenue mix percentages and comparable sales percentage changes by revenue category in fiscal
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Mix Summary
|
|
Comparable Sales Summary
|
|
Year Ended
|
|
Year Ended
|
|
January 28, 2017
|
|
January 30, 2016
|
|
January 28, 2017
|
|
January 30, 2016
|
Consumer Electronics
|
34
|
%
|
|
32
|
%
|
|
5.0
|
%
|
|
4.7
|
%
|
Computing and Mobile Phones
|
45
|
%
|
|
46
|
%
|
|
(1.8
|
)%
|
|
(2.6
|
)%
|
Entertainment
|
7
|
%
|
|
8
|
%
|
|
(13.8
|
)%
|
|
(3.6
|
)%
|
Appliances
|
9
|
%
|
|
8
|
%
|
|
7.8
|
%
|
|
15.4
|
%
|
Services
|
5
|
%
|
|
5
|
%
|
|
(3.3
|
)%
|
|
(11.6
|
)%
|
Other
|
—
|
%
|
|
1
|
%
|
|
n/a
|
|
|
n/a
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
0.2
|
%
|
|
0.5
|
%
|
The following is a description of the notable comparable sales changes in our Domestic segment by revenue category:
|
|
•
|
Consumer Electronics:
The
5.0%
comparable sales increase was primarily due to an increase in the sales of connected home products, streaming devices and large screen televisions.
|
|
|
•
|
Computing and Mobile Phones:
The
1.8%
comparable sales decline was primarily due to continued industry declines in tablets and product constraints in, and to a lesser effect, lower sales of mobile phones. This decline was partially offset by an increase in the sale of computers.
|
|
|
•
|
Entertainment:
The
13.8%
comparable sales decrease was driven by declines in gaming, music and movies due to continued industry declines.
|
|
|
•
|
Appliances:
The
7.8%
comparable sales gain was a result of continued growth in both large and small appliance sales.
|
|
|
•
|
Services:
The
3.3%
comparable sales decline was primarily due to lower reimbursement revenue from our third party underwriter on extended protection plan claims. This trend, which primarily related to mobile phones, was a reflection of changes to the design of our extended protection plans in fiscal 2016, improvements to our repair and fulfillment operations and industry trends.
|
Our Domestic segment experienced an increase in gross profit rate to 23.9% in fiscal 2017 from 23.3% in fiscal 2016. This rate increase was primarily due to (1) rate improvements in computing hardware, and (2) an increase in CRT legal settlements, partially offset by (1) lower margins from mobile phones due to changes in device mix, and (2) a decrease in our periodic profit share revenue as described above.
Our Domestic segment SG&A rate slightly decreased to
18.9%
of revenue in fiscal 2017 compared to
19.0%
of revenue in the prior year. The decrease in rate was primarily driven by cost reductions and lower incentive compensation, partially offset by investments in growth initiatives.
Our Domestic segment recorded
$31 million
of restructuring charges in fiscal
2017
and incurred
$2 million
of restructuring charges in fiscal
2016
. The restructuring charges in fiscal 2017 related to the
Renew Blue Phase 2
plan that began in the first quarter of fiscal 2017. Refer to Note 4,
Restructuring Charges
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for further information about our restructuring activities.
Our Domestic segment’s operating income increased
$179 million
in fiscal
2017
compared to fiscal
2016
. In addition, the operating income rate increased to
4.9%
of revenue in fiscal 2017 compared to
4.4%
of revenue in the prior year. The increase was driven by the revenue, gross profit rate and SG&A rate improvements described above.
Fiscal
2016
Results Compared With Fiscal
2015
Domestic segment revenue of
$36.4 billion
in fiscal 2016 increased
0.9%
compared to the prior year. This increase was primarily driven by a comparable sales growth of
0.5%
, which included an estimated 0.6% of revenue benefit associated with installment billing, and a periodic profit sharing benefit based on performance of our externally managed extended service plan portfolio.
Similar to fiscal 2017, we recognized $148 million of profit-share revenue in fiscal 2016, with an equal impact to gross profit and operating income. The amount recognized in fiscal 2016 was substantially higher than for prior periods. The unusually strong performance of the portfolio for fiscal 2016, which particularly related to mobile phones, was due to changes to the design of our extended service plans, improvements to our repair and fulfillment operations and industry trends. These trends have also led to lower revenues from repairs we undertake on behalf of the insurers, as discussed further below.
Domestic segment online revenue of $4.0 billion increased 13.5% on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 120 basis points to 11.0% versus 9.8% in fiscal 2015.
The components of the
0.9%
revenue increase in the Domestic segment in fiscal
2016
were as follows:
|
|
|
|
Comparable sales impact
|
0.5
|
%
|
Non-comparable sales
(1)
|
0.4
|
%
|
Total revenue increase
|
0.9
|
%
|
|
|
(1)
|
Non-comparable sales reflects the impact of revenue streams not included within our comparable sales calculation, such as credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers.
|
The net store changes did not have a material impact on our revenue in fiscal 2016, as the majority of closures occurred in the fourth quarter and related to our small-format Best Buy Mobile stand-alone stores. The closing of small-format Best Buy Mobile stores have a significantly smaller impact given their smaller size and limited category focus compared to our large-format stores.
The following table presents the Domestic segment's revenue mix percentages and comparable sales percentage changes by revenue category in fiscal
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Mix Summary
|
|
Comparable Sales Summary
|
|
Year Ended
|
|
Year Ended
|
|
January 30, 2016
|
|
January 31, 2015
|
|
January 30, 2016
|
|
January 31, 2015
|
Consumer Electronics
|
32
|
%
|
|
31
|
%
|
|
4.7
|
%
|
|
3.7
|
%
|
Computing and Mobile Phones
|
46
|
%
|
|
47
|
%
|
|
(2.6
|
)%
|
|
(0.6
|
)%
|
Entertainment
|
8
|
%
|
|
9
|
%
|
|
(3.6
|
)%
|
|
4.5
|
%
|
Appliances
|
8
|
%
|
|
7
|
%
|
|
15.4
|
%
|
|
7.5
|
%
|
Services
|
5
|
%
|
|
5
|
%
|
|
(11.6
|
)%
|
|
(11.1
|
)%
|
Other
|
1
|
%
|
|
1
|
%
|
|
n/a
|
|
|
n/a
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
0.5
|
%
|
|
1.0
|
%
|
The following is a description of the notable comparable sales changes in our Domestic segment by revenue category:
|
|
•
|
Consumer Electronics:
The
4.7%
comparable sales increase was primarily due to an increase in the sales of large screen televisions, the expansion of Magnolia Design Center stores-within-a-store, and expanded assortment of streaming devices. This increase was partially offset by industry declines in point and shoot cameras and lower sales in small and mid-size televisions.
|
|
|
•
|
Computing and Mobile Phones:
The
2.6%
comparable sales decline was primarily due to continued industry declines in tablets and to a lesser extent lower demand for mobile phones.
|
|
|
•
|
Entertainment:
The
3.6%
comparable sales decrease was driven by declines in music and movies due to continued industry declines as well as declines in gaming hardware.
|
|
|
•
|
Appliances:
The
15.4%
comparable sales gain was a result of continued growth in major appliances sales as well as the expansion of Pacific Kitchen & Home stores-within-a-store.
|
|
|
•
|
Services:
The
11.6%
comparable sales decline was primarily due to lower repair revenue from extended protection plan claims. This trend, which primarily related to mobile phones, was a reflection of changes to the design of our extended protection plans, improvements to our repair and fulfillment operations and industry trends.
|
Our Domestic segment experienced an increase in gross profit of $
404 million
, or
5.0%
, in fiscal
2016
compared to fiscal
2015
. Excluding the $88 million of CRT/LCD litigation settlement proceeds received in fiscal 2016, we experienced an increase in gross profit of $316 million, or 3.9%. Refer to Note 12,
Contingencies and Commitments
, in the Notes to the Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for additional information. This rate increase was primarily due to (1) the periodic profit-share revenue described above; (2) rate improvements in computing hardware driven by our more disciplined promotional strategy; (3) an additional positive mix shift due to significantly decreased revenue in the lower-margin tablet category; (4) the positive impact of lower repair revenue (as discussed above), which typically earns a low gross profit rate; (5) an increased mix of higher-margin large screen televisions; and (6) positive revenue impact related to our credit card portfolio. These increases were partially offset by (1) lower rates related to large appliances; (2) a lower rate in the mobile category driven by increased sales of higher priced iconic mobile phones, which have higher gross profit dollars but carry a lower gross profit rate; (3) decrease in margin for portable audio products; (4) a decreased mix of higher-margin digital imaging products; (5) an increased mix of lower-margin wearable devices; and (6) an investment in services pricing.
Our Domestic segment's SG&A increased $
258 million
, or
3.9%
, in fiscal
2016
compared to fiscal
2015
. In addition, the SG&A rate increased to
19.0%
of revenue compared to
18.4%
of revenue in the prior year. The increases in SG&A and SG&A rate were primarily driven by investments in growth initiatives, a greater portion of our vendor funding being recorded as an offset to cost of goods sold rather than SG&A and higher incentive compensation. This increase was partially offset by the implementation of
Renew Blue
Phase 2 cost reductions.
Our Domestic segment recorded
$2 million
of restructuring charges in fiscal
2016
and incurred
$4 million
of restructuring charges in fiscal
2015
. The restructuring charges had an immaterial impact on our operating income rate in fiscal 2016 and fiscal 2015. Refer to Note 4,
Restructuring Charges
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for further information about our restructuring activities.
Our Domestic segment’s operating income increased $
148 million
in fiscal
2016
compared to fiscal
2015
. In addition, the operating income rate increased to
4.4%
of revenue in fiscal 2016 compared to
4.0%
of revenue in the prior year. The increase was driven by higher revenue and margin and $75 million in net CRT/LCD litigation settlement proceeds received in fiscal 2016, partially offset by the increase in SG&A as described above.
International Segment
During the first quarter of fiscal 2016, we consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of 66 Future Shop stores and the conversion of the remaining 65 Future Shop stores to the Best Buy brand. The costs of implementing these changes primarily consisted of lease exit costs, a tradename impairment, property and equipment impairments, employee termination benefits and inventory write-downs.
The following table presents selected financial data for our International segment for each of the past three fiscal years ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Segment Performance Summary
|
|
2017
|
|
2016
|
|
2015
|
Revenue
|
|
$
|
3,155
|
|
|
$
|
3,163
|
|
|
$
|
4,284
|
|
Revenue decline %
|
|
(0.3
|
)%
|
|
(26.2
|
)%
|
|
(10.4
|
)%
|
Comparable sales % decline
(1)
|
|
n/a
|
|
|
n/a
|
|
|
(3.5
|
)%
|
Restructuring charges - cost of goods sold
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
Gross profit
|
|
$
|
790
|
|
|
$
|
707
|
|
|
$
|
967
|
|
Gross profit as % of revenue
|
|
25.0
|
%
|
|
22.4
|
%
|
|
22.6
|
%
|
SG&A
|
|
$
|
692
|
|
|
$
|
721
|
|
|
$
|
953
|
|
SG&A as % of revenue
|
|
21.9
|
%
|
|
22.8
|
%
|
|
22.2
|
%
|
Restructuring charges
|
|
$
|
8
|
|
|
$
|
196
|
|
|
$
|
1
|
|
Operating income (loss)
|
|
$
|
90
|
|
|
$
|
(210
|
)
|
|
$
|
13
|
|
Operating income (loss) as % of revenue
|
|
2.9
|
%
|
|
(6.6
|
)%
|
|
0.3
|
%
|
|
|
(1)
|
The Canadian brand consolidation has a material impact on a year-over-year basis on the Canadian retail stores and the website. As such, beginning in the first quarter of fiscal 2016 through the third quarter of fiscal 2017, all store and website revenue was removed from the comparable sales base, and an International segment (comprised of Canada and Mexico) comparable sales metric for the full year has not been provided. International comparable sales for the fourth quarter of fiscal 2017 was 0.9%.
|
The following table reconciles our International segment stores open at the end of each of the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015
|
|
Fiscal 2016
|
|
Fiscal 2017
|
|
Total Stores
at End of
Fiscal Year
|
|
Stores
Opened
|
|
Stores
Closed
|
|
Stores Converted
|
|
Total Stores
at End of
Fiscal Year
|
|
Stores
Opened
|
|
Stores
Closed
|
|
Total Stores
at End of
Fiscal Year
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Shop
|
133
|
|
|
—
|
|
|
(68
|
)
|
|
(65
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Best Buy
|
71
|
|
|
3
|
|
|
(3
|
)
|
|
65
|
|
|
136
|
|
|
—
|
|
|
(2
|
)
|
|
134
|
|
Best Buy Mobile
|
56
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
1
|
|
|
(4
|
)
|
|
53
|
|
Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Best Buy
|
18
|
|
|
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
2
|
|
|
—
|
|
|
20
|
|
Express
|
5
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
(1
|
)
|
|
5
|
|
Total International segment stores
|
283
|
|
|
4
|
|
|
(71
|
)
|
|
—
|
|
|
216
|
|
|
3
|
|
|
(7
|
)
|
|
212
|
|
Fiscal
2017
Results Compared With Fiscal
2016
International segment revenue of
$3.2 billion
in fiscal 2017 decreased
0.3%
compared to the prior year. The components of the
0.3%
revenue decrease in the International segment in fiscal
2017
were as follows:
|
|
|
|
Non-comparable sales
(1)
|
1.8
|
%
|
Comparable sales impact
|
0.3
|
%
|
Impact of foreign currency exchange rate fluctuations
|
(2.4
|
)%
|
Total revenue decrease
|
(0.3
|
)%
|
|
|
(1)
|
Non-comparable sales reflects the impact of net store opening and closing activity, including the Canadian brand consolidation activity in the first three quarters of fiscal 2017, as well as the impact of revenue streams not included within our comparable sales calculation, such as certain credit card revenue, gift card breakage and sales of merchandise to wholesalers and dealers, as applicable.
|
The following table presents the International segment's revenue mix percentages by revenue category in fiscal
2017
and
2016
:
|
|
|
|
|
|
|
|
Revenue Mix Summary
|
|
Year Ended
|
|
January 28, 2017
|
|
January 30, 2016
|
Consumer Electronics
|
31
|
%
|
|
31
|
%
|
Computing and Mobile Phones
|
48
|
%
|
|
48
|
%
|
Entertainment
|
7
|
%
|
|
9
|
%
|
Appliances
|
6
|
%
|
|
5
|
%
|
Services
|
7
|
%
|
|
6
|
%
|
Other
|
1
|
%
|
|
1
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
As noted above, comparable sales information has not been provided for the International segment for fiscal 2017 or 2016 due to the Canadian brand consolidation. As such, it is also impractical to provide such information on a revenue category basis. However, as noted above, the revenue mix by category has not changed significantly from fiscal 2016.
Our International segment experienced a gross profit increase of
$83 million
, or
11.7%
, in fiscal
2017
compared to fiscal
2016
. Excluding the impact of foreign currency exchange rate fluctuations, the increase in gross profit was $98 million. The gross profit rate increased to
25.0%
in fiscal 2017 from
22.4%
of revenue in fiscal 2016. This increase was primarily due to the increased promotional activity in fiscal 2016 as a result of the Canada brand consolidation which did not reoccur and to a lesser extent rate growth in computing and home theater.
Our International segment's SG&A decreased
$29 million
, or
4.0%
, in fiscal
2017
compared to the prior year. Excluding the impact of foreign currency exchange rate fluctuations, the decrease in SG&A was $9 million. The SG&A rate decreased to
21.9%
in fiscal 2017 from
22.8%
of revenue in fiscal 2016. The decrease in SG&A rate was driven by year-over-year sales leverage.
Our International segment recorded
$8 million
of restructuring charges in fiscal
2017
and incurred $199 million of restructuring charges in fiscal
2016
. The fiscal 2017 restructuring charges related to adjustments to our vacant space liabilities outstanding as a result of the Canadian brand consolidation and the
Renew Blue
plan. The adjustments were due to changes in estimates related to sublease income. The fiscal 2016 restructuring charges primarily related to the Canadian brand consolidation and consisted of facility closure costs, tradename impairments, property and equipment impairments, and employee termination benefits. Refer to Note 4,
Restructuring Charges
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for further information about our restructuring activities.
Our International segment operating income was
$90 million
in fiscal
2017
compared to a loss of
$210 million
in the prior-year period. The improvement in operating income was primarily driven by lower restructuring costs and gross profit and SG&A rate improvements.
Fiscal
2016
Results Compared With Fiscal
2015
In our International segment, revenue declined 26.2% to $3.2 billion in fiscal 2016 due to (1) the loss of revenue associated with closed stores as part of the Canadian brand consolidation; (2) a negative foreign currency impact of 12.5%; and (3) ongoing softness in the Canadian economy and consumer electronics industry.
The components of the International segment's
26.2%
revenue decrease in fiscal
2016
were as follows:
|
|
|
|
Impact of foreign currency exchange rate fluctuations
|
(12.5
|
)%
|
Non-comparable sales
(1)
|
(13.7
|
)%
|
Total revenue decrease
|
(26.2
|
)%
|
|
|
(1)
|
Non-comparable sales reflects the impact of net store opening and closing activity, including the Canadian brand consolidation activity, as well as the impact of revenue streams not included within our comparable sales calculation, such as certain credit card revenue, gift card breakage and sales of merchandise to wholesalers and dealers, as applicable.
|
The following table presents the International segment's revenue mix percentages by revenue category in fiscal
2016
and
2015
:
|
|
|
|
|
|
|
|
Revenue Mix Summary
|
|
Year Ended
|
|
January 30, 2016
|
|
January 31, 2015
|
Consumer Electronics
|
31
|
%
|
|
30
|
%
|
Computing and Mobile Phones
|
48
|
%
|
|
49
|
%
|
Entertainment
|
9
|
%
|
|
9
|
%
|
Appliances
|
5
|
%
|
|
5
|
%
|
Services
|
6
|
%
|
|
6
|
%
|
Other
|
1
|
%
|
|
1
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
As noted above, comparable sales information has not been provided for the International segment for fiscal 2016 due to the Canadian brand consolidation. As such, it is also impractical to provide such information on a revenue category basis. However, as noted above, the revenue mix by category has not changed significantly from fiscal 2015.
Our International segment experienced a gross profit decline of $
260 million
, or
26.9%
, in fiscal
2016
compared to fiscal
2015
. Excluding the impact of foreign currency exchange rate fluctuations, the decrease in gross profit was $141 million. The gross profit rate declined to
22.4%
of revenue in fiscal 2016 from
22.6%
of revenue in fiscal 2015. This decline was primarily due to the disruptive impacts from the Canadian brand consolidation and increased promotional activity in Canada.
Our International segment's SG&A decreased $
232 million
, or
24.3%
, in fiscal
2016
compared to the prior year. Excluding the impact of foreign currency exchange rate fluctuations, the decrease in SG&A was $115 million. However, the SG&A expense rate increased to
22.8%
of revenue in fiscal 2016 from
22.2%
of revenue in fiscal 2015. The decrease in SG&A expense was driven by the elimination of expenses associated with closed stores as part of the Canadian brand consolidation. The increase in the SG&A rate was driven by year-over-year sales deleverage.
Our International segment recorded $199 million of restructuring charges in fiscal
2016
and incurred
$1 million
of restructuring charges in fiscal
2015
. The fiscal 2016 restructuring charges primarily related to the Canadian brand consolidation and consisted of facility closure costs, tradename impairments, property and equipment impairments, and employee termination benefits. The restructuring charges in fiscal 2015 had an immaterial impact on our operating income rate. Refer to Note 4,
Restructuring Charges
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for further information about our restructuring activities.
Our International segment operating loss was $210 million in fiscal
2016
compared to income of
$13 million
in the prior-year period. The decline in operating income was driven primarily by a decrease in revenue and gross profit rate and restructuring charges, partially offset by lower SG&A expenses as described above.
Additional Consolidated Results
Other Income (Expense)
In fiscal 2017, our gain on sale of investments was $3 million compared to $2 million and $13 million in fiscal 2016 and fiscal 2015, respectively. These gains were due to the sale of cost-based investments.
In fiscal 2017, our investment income and other was $31 million, compared to $13 million in fiscal 2016. The increase in fiscal 2017 was primarily due to higher interest rates in the U.S. In fiscal 2016, our investment income and other was $13 million, compared to $14 million in fiscal 2015. The decrease in fiscal 2016 was primarily due to lower interest rates in Canada and the unfavorable impact of foreign currency translation.
Interest expense was $72 million in fiscal 2017, compared to $80 million in fiscal 2016 due to a lower debt balance for a majority of the year caused by the March 2016 payment of our $350 million principal amount notes. Interest expense was $80 million in fiscal 2016, compared to $90 million in fiscal 2015. The decrease in interest expense was primarily due to swapping a portion of our fixed rate debt to floating rate, which was lower than our fixed rate. Refer to Note 6,
Derivative Instruments
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for additional information.
Income Tax Expense
Income tax expense increased to $609 million in fiscal 2017, compared to $503 million in fiscal 2016, primarily as a result of an increase in pre-tax earnings, partially offset by a higher mix of pre-tax income from foreign operations and the resolution of certain tax matters in the current year. Our effective income tax rate ("ETR") for fiscal 2017 was 33.5%, compared to a rate of 38.4% in fiscal 2016. The decrease in the ETR was primarily due to a higher mix of pre-tax income from foreign operations and the resolution of certain tax matters in the current year.
Income tax expense increased to $503 million in fiscal 2016, compared to a tax expense of $141 million in fiscal 2015, primarily due to a $353 million discrete benefit related to reorganizing certain European legal entities in fiscal 2015, as well as a lower mix of pre-tax earnings from foreign operations in fiscal 2016, partially offset by a decrease in pre-tax earnings in fiscal 2016. Our ETR for fiscal 2016 was 38.4%, compared to a rate of 10.1% in fiscal 2015. Excluding the impact of reorganizing certain European legal entities, the ETR would have been 35.6% in fiscal 2015. Refer to Note 10,
Income Taxes
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for additional information.
Our consolidated ETR is impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate. As our foreign earnings are generally taxed at lower statutory rates than the 35.0% U.S. federal statutory rate, changes in the proportion of our consolidated taxable earnings originating in foreign jurisdictions impact our consolidated effective rate. Our foreign earnings have been indefinitely reinvested outside the U.S. and are not subject to current U.S. income tax.
Discontinued Operations
Discontinued operations are primarily comprised of Five Star within our International segment. Gain from discontinued operations in fiscal 2017 was $21 million primarily related to the sale of the remaining Five Star property assets that were held for sale as of January 30, 2016. Gain from discontinued operations in fiscal 2016 of $90 million was primarily related to the gain recognized on the sale of Five Star. Loss from discontinued operations of $11 million in fiscal 2015 was driven by other charges related to Five Star.
Non-GAAP Financial Measures
The following table reconciles operating income, effective tax rate, net earnings from continuing operations and diluted earnings per share from continuing operations (GAAP financial measures) for the periods presented to non-GAAP operating income, non-GAAP effective tax rate, non-GAAP net earnings from continuing operations and non-GAAP diluted earnings per share from continuing operations (non-GAAP financial measures) for the periods presented ($ in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Operating income
|
$
|
1,854
|
|
|
$
|
1,375
|
|
|
$
|
1,450
|
|
Net CRT/LCD settlements
(1)
|
(161
|
)
|
|
(77
|
)
|
|
—
|
|
Restructuring charges - COGS
(2)
|
—
|
|
|
3
|
|
|
—
|
|
Other Canada brand consolidation charges - SG&A
(3)
|
1
|
|
|
6
|
|
|
—
|
|
Non-restructuring asset impairments - SG&A
(4)
|
26
|
|
|
61
|
|
|
42
|
|
Restructuring charges
(2)
|
39
|
|
|
198
|
|
|
5
|
|
Non-GAAP operating income
|
$
|
1,759
|
|
|
$
|
1,566
|
|
|
$
|
1,497
|
|
|
|
|
|
|
|
Income tax expense
|
$
|
609
|
|
|
$
|
503
|
|
|
$
|
141
|
|
Effective tax rate
|
33.5
|
%
|
|
38.4
|
%
|
|
10.1
|
%
|
Income tax impact of Europe legal entity reorganization
(5)
|
—
|
|
|
—
|
|
|
353
|
|
Income tax impact of Non-GAAP adjustments
(6)
|
(38
|
)
|
|
30
|
|
|
11
|
|
Non-GAAP income tax expense
|
$
|
571
|
|
|
$
|
533
|
|
|
$
|
505
|
|
Non-GAAP effective tax rate
|
33.2
|
%
|
|
35.4
|
%
|
|
35.5
|
%
|
|
|
|
|
|
|
Net earnings from continuing operations
|
$
|
1,207
|
|
|
$
|
807
|
|
|
$
|
1,246
|
|
Net CRT/LCD settlements
(1)
|
(161
|
)
|
|
(77
|
)
|
|
—
|
|
Restructuring charges - COGS
(2)
|
—
|
|
|
3
|
|
|
—
|
|
Other Canada brand consolidation charges - SG&A
(3)
|
1
|
|
|
6
|
|
|
—
|
|
Non-restructuring asset impairments - SG&A
(4)
|
26
|
|
|
61
|
|
|
42
|
|
Restructuring charges
(2)
|
39
|
|
|
198
|
|
|
5
|
|
(Gain) loss on sale of investments
|
(2
|
)
|
|
5
|
|
|
(11
|
)
|
Income tax impact of Europe legal entity reorganization
(5)
|
—
|
|
|
—
|
|
|
(353
|
)
|
Income tax impact of Non-GAAP adjustments
(6)
|
38
|
|
|
(30
|
)
|
|
(11
|
)
|
Non-GAAP net earnings from continuing operations
|
$
|
1,148
|
|
|
$
|
973
|
|
|
$
|
918
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations
|
$
|
3.74
|
|
|
$
|
2.30
|
|
|
$
|
3.53
|
|
Per share impact of net CRT/LCD settlements
(1)
|
(0.50
|
)
|
|
(0.22
|
)
|
|
—
|
|
Per share impact of restructuring charges - COGS
(2)
|
—
|
|
|
0.01
|
|
|
—
|
|
Per share impact of other Canada brand consolidation charges - SG&A
(3)
|
0.01
|
|
|
0.02
|
|
|
—
|
|
Per share impact of non-restructuring asset impairments - SG&A
(4)
|
0.08
|
|
|
0.17
|
|
|
0.12
|
|
Per share impact of restructuring charges
(2)
|
0.12
|
|
|
0.58
|
|
|
0.01
|
|
Per share impact of (gain) loss on sale of investments
|
(0.01
|
)
|
|
0.01
|
|
|
(0.03
|
)
|
Per share income tax effect of Europe legal entity reorganization
(5)
|
—
|
|
|
—
|
|
|
(1.00
|
)
|
Per share income tax impact of Non-GAAP adjustments
(6)
|
0.12
|
|
|
(0.09
|
)
|
|
(0.03
|
)
|
Non-GAAP diluted earnings per share from continuing operations
|
$
|
3.56
|
|
|
$
|
2.78
|
|
|
$
|
2.60
|
|
|
|
(1)
|
Represents cathode ray tube ("CRT") and LCD litigation settlements reached, net of related legal fees and costs. Settlements related to products purchased and sold in prior fiscal years. For the fiscal year ended January 28, 2017, the full balance related to the United States. For the fiscal year ended January 30, 2016, $75 million related to the United States and $2 million related to Canada. Refer to Note 12,
Contingencies and Commitments
, in the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for further information.
|
|
|
(2)
|
Refer to Note 4,
Restructuring Charges
, in the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for additional information regarding the nature of these charges. For the fiscal year ended January 28, 2017, $31 million related to the United States and $8 million related to Canada. For the fiscal year ended January 30, 2016, $2 million related to the United States and $199 million related to Canada. For the fiscal year ended January 31, 2015, $4 million related to the United States and $1 million related to Canada.
|
|
|
(3)
|
Represents charges related to the Canadian brand consolidation initiated in the first quarter of fiscal 2016, primarily due to retention bonuses and other store-related costs that were a direct result of the consolidation but did not qualify as restructuring charges.
|
|
|
(4)
|
Refer to Note 3,
Fair Value Measurements
, in the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for additional information regarding the nature of these charges. For the fiscal year ended January 28, 2017, $24 million related to the United States and $2 million related to Canada. For the fiscal year ended January 30, 2016, $58 related to the United States and $3 million related to Canada. For the fiscal year ended January 31, 2015, $31 million related to the United States and $11 million related to Canada.
|
|
|
(5)
|
Represents the acceleration of a non-cash tax benefit of $353 million as a result of reorganizing certain European legal entities to simplify our overall structure in the first quarter of fiscal 2015.
|
|
|
(6)
|
Income tax impact of non-GAAP adjustments is the summation of the calculated income tax charge related to each non-GAAP non-income tax adjustment. The non-GAAP adjustments relate primarily to adjustments in the United States and Canada. As such, the income tax charge is calculated using the statutory rates of 38.0% for the United States and 26.4% for Canada, applied to the Non-GAAP adjustments of each country.
|
Non-GAAP operating income for fiscal 2017 increased $193 million compared to fiscal 2016, and non-GAAP operating income as a percent of revenue increased to 4.5%. The increase was driven by increased Consolidated gross profit rate and continued SG&A cost reductions in both segments primarily due to the realization of our
Renew Blue
Phase 2 cost reduction initiatives and tighter expense management. The increase in non-GAAP operating income resulted in a year-over-year increase in non-GAAP net earnings from continuing operations and non-GAAP diluted earnings per share from continuing operations in fiscal 2016 compared to fiscal 2015.
Non-GAAP operating income for fiscal 2016 increased $69 million compared to fiscal 2015. The increase was driven by increased revenue in the Domestic segment, increased Consolidated gross profit rate and continued SG&A cost reductions in both segments primarily due to the realization of our
Renew Blue
Phase 2 cost reduction initiatives and tighter expense management. The increase in non-GAAP operating income resulted in a year-over-year increase in non-GAAP net earnings from continuing operations and non-GAAP diluted earnings per share from continuing operations in fiscal 2016 compared to fiscal 2015.
Liquidity and Capital Resources
Summary
We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment required to support our business strategies, the performance of our business, capital expenditures, credit facilities and short-term borrowing arrangements and working capital management. Capital expenditures and share repurchases are a component of our cash flow and capital management strategy which, to a large extent, we can adjust in response to economic and other changes in our business environment. We have a disciplined approach to capital allocation, which focuses on investing in key priorities that support our Renew Blue and Best Buy 2020: Building the New Blue strategies.
The following table summarizes our cash and cash equivalents and short-term investments at January 28, 2017, and January 30, 2016 ($ in millions):
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
|
January 30, 2016
|
|
Cash and cash equivalents
|
$
|
2,240
|
|
|
$
|
1,976
|
|
Short-term investments
|
1,681
|
|
|
1,305
|
|
Total cash and cash equivalents and short-term investments
|
$
|
3,921
|
|
|
$
|
3,281
|
|
Existing cash and cash equivalents and short-term investments as well as cash generated from operations were sufficient to fund share repurchases, capital expenditures, dividends and repayment of our 2016 Notes in fiscal 2017 without the need to utilize our credit facilities or other debt arrangements.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Total cash provided by (used in):
|
|
|
|
|
|
Operating activities
|
$
|
2,545
|
|
|
$
|
1,322
|
|
|
$
|
1,935
|
|
Investing activities
|
(887
|
)
|
|
(419
|
)
|
|
(1,712
|
)
|
Financing activities
|
(1,404
|
)
|
|
(1,515
|
)
|
|
(223
|
)
|
Effect of exchange rate changes on cash
|
10
|
|
|
(38
|
)
|
|
(52
|
)
|
Increase (decrease) in cash and cash equivalents
|
$
|
264
|
|
|
$
|
(650
|
)
|
|
$
|
(52
|
)
|
Operating Activities
The increase in cash provided by operating activities in fiscal
2017
compared to fiscal
2016
was primarily due to the timing of inventory purchasing and payments and increased earnings. During fiscal 2017 we purchased and paid for inventory later in the Holiday season than in the prior year, discussed below, positively impacting operating cash flows. This was partially offset by the timing of collection of receivables.
The decrease in cash provided by operating activities in fiscal
2016
compared to fiscal
2015
was primarily due to the timing of inventory receipts and income tax payments. During fiscal 2016, we decided to bring Holiday inventory in early and the Super Bowl shifted to the first quarter of fiscal 2016, which caused us to hold our inventory longer and settle our accounts payable related to that inventory prior to year-end. In addition, we paid more income taxes in fiscal 2016 primarily due to the timing of when payments were made.
Investing Activities
The increase in cash used in investing activities in fiscal
2017
compared to fiscal
2016
was primarily due to an increase in the net investment into short-term investments in fiscal 2017.
The decrease in cash used in investing activities in fiscal
2016
compared to fiscal
2015
was primarily due to increased sales of short-term investments partially offset by capital expenditures (see
Capital Expenditures
below).
Financing Activities
The decrease in cash used in financing activities in fiscal
2017
compared to fiscal
2016
was primarily due to a decline in the number of shares repurchased, which was substantially offset by the repayment of our $350 million principal amount of notes due March 15, 2016.
The increase in cash used by financing activities in fiscal
2016
compared to fiscal
2015
was primarily due to share repurchases and dividend payments. In fiscal 2016, we purchased $1.0 billion of common stock as part of our June 2011 share repurchase program. In addition, we increased our normal dividend from 2015 to 2016 and paid a special dividend in 2016.
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents, short-term investments, our credit facilities, and other debt arrangements are our most significant sources of liquidity. We believe our sources of liquidity will be sufficient to fund operations and anticipated capital expenditures, strategic initiatives, share repurchases and dividends. However, in the event our liquidity is insufficient, we may be required to limit our spending. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms.
On June 26, 2016, we entered into a $1.25 billion five-year senior unsecured revolving credit facility (the "Five-Year Facility Agreement") with a syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.25 billion unsecured revolving credit facility (the "Previous Facility"), which was originally scheduled to expire in June 2019, but was terminated on June 27, 2016. The Five-Year Facility Agreement permits borrowings up to $1.25 billion and expires in June 2021. At January
28, 2017, and January 30, 2016, we had no borrowings outstanding under the Five-Year Facility Agreement nor its predecessor the Previous Facility. Refer to Note 5,
Debt
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for further information about our credit facilities.
Our ability to access our revolving credit facility under the Five-Year Facility Agreement is subject to our compliance with the terms and conditions of the facility, including financial covenants. The financial covenants require us to maintain certain financial ratios. At
January 28, 2017
, we were in compliance with all such financial covenants. If an event of default were to occur with respect to any of our other debt, it would likely constitute an event of default under our facilities as well.
An interest coverage ratio represents the ratio of pre-tax earnings before fixed charges (interest expense and the interest portion of rent expense) to fixed charges. Our interest coverage ratio, calculated as reported in Exhibit No. 12.1 of this Annual Report on Form 10-K, was
6.97
and
5.16
in fiscal
2017
and fiscal
2016
, respectively.
Our credit ratings and outlooks at
March 20, 2017
, are summarized below. In fiscal 2017, Standard & Poor's Rating Services upgraded its long-term credit rating from BB+ to BBB- with a Stable outlook; Moody's Investors Service, Inc. affirmed its long-term credit rating of Baa1 with a Stable outlook; and Fitch Ratings Limited affirmed its long-term credit rating of BBB- with a Stable outlook.
|
|
|
|
|
|
Rating Agency
|
|
Rating
|
|
Outlook
|
Standard & Poor's
|
|
BBB-
|
|
Stable
|
Moody's
|
|
Baa1
|
|
Stable
|
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 new-store leasing costs.
Restricted Cash
Our liquidity is also affected by restricted cash balances that are pledged as collateral or restricted to use for general liability insurance and workers' compensation insurance. Restricted cash and cash equivalents related to our continuing operations, which are included in other current assets, remained relatively flat at
$193 million
and
$185 million
at
January 28, 2017
, and
January 30, 2016
, respectively.
Capital Expenditures
Our capital expenditures typically include investments in our stores, distribution capabilities and information technology enhancements (including e-commerce). During fiscal 2017, we invested $582 million in property and equipment, primarily related to upgrading our information technology systems and capabilities and store-related projects.
The following table presents our capital expenditures for each of the past three fiscal years ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
New stores
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
3
|
|
Store-related projects
(1)
|
208
|
|
|
241
|
|
|
177
|
|
E-commerce and information technology
|
371
|
|
|
390
|
|
|
355
|
|
Other
|
—
|
|
|
13
|
|
|
16
|
|
Total capital expenditures
(2)(3)
|
$
|
582
|
|
|
$
|
649
|
|
|
$
|
551
|
|
|
|
(1)
|
Includes store remodels and various merchandising projects.
|
|
|
(2)
|
Excludes
$10 million
for fiscal 2015 related to Five Star.
|
|
|
(3)
|
Total capital expenditures exclude non-cash capital expenditures of
$48 million
,
$92 million
and
$14 million
for fiscal
2017
, fiscal
2016
and
2015
, respectively. Non-cash capital expenditures are comprised of capitalized leases, as well as additions to property and equipment included in accounts payable.
|
In fiscal 2018, we estimate cash capital expenditures of approximately $650 million to $700 million, with the focus on retail store, e-commerce and information technology projects.
Debt and Capital
In March 2016, we repaid our $350 million principal amount of notes due March 15, 2016 (the "2016 Notes"), using existing cash resources. As of January 28, 2017, we have $500 million principal amount of notes due August 1, 2018 (the "2018 Notes") and $650 million principal amount of notes due March 15, 2021 (the "2021 Notes") outstanding. Refer to Note 5,
Debt
, in the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for further information about our 2016 Notes, 2018 Notes and 2021 Notes.
Share Repurchases and Dividends
We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors ("Board"). Our long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment grade credit metrics.
On March 1, 2017, we announced our intent to repurchase $3.0 billion shares over the next two years. In order to execute this plan, our Board approved a new $5.0 billion share repurchase authorization in February 2017. This share repurchase program supersedes the previous $5.0 billion authorization dated June 2011, which had $2.2 billion remaining as of January 28, 2017. There is no expiration date governing the period over which we can repurchase shares under the February 2017 share repurchase program. Repurchased shares are retired and constitute authorized but unissued shares.
The following table presents our share repurchase history for each of the past three fiscal years (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
(1)
|
|
2015
|
Total cost of shares repurchased
|
$
|
751
|
|
|
$
|
1,000
|
|
|
$
|
—
|
|
Average price per share
|
$
|
35.54
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Number of shares repurchased
|
21.1
|
|
|
32.8
|
|
—
|
|
|
|
(1)
|
Share repurchases included the use of an accelerated share repurchase contract. Refer to Note 7,
Shareholders' Equity
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for further information.
|
In fiscal 2004, our Board initiated the payment of a regular quarterly cash dividend on common stock. A quarterly cash dividend has been paid in each subsequent quarter. The payment of cash dividends is subject to customary legal and contractual restrictions. The following table presents our dividend activity for each of the past three fiscal years (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Regular quarterly cash dividends per share
|
$
|
1.12
|
|
|
$
|
0.92
|
|
|
$
|
0.72
|
|
Special cash dividends per share
(1)
|
0.45
|
|
|
0.51
|
|
|
—
|
|
Total cash dividends per share
|
$
|
1.57
|
|
|
$
|
1.43
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
Cash dividends declared and paid
|
$
|
505
|
|
|
$
|
499
|
|
|
$
|
251
|
|
|
|
(1)
|
Special cash dividends are authorized by our Board of Directors and issued upon their discretion. Dividend paid in fiscal 2017 related to the net after-tax proceeds from certain legal settlements and asset disposals, while the dividends paid in fiscal 2016 related to the net after-tax proceeds from LCD-related legal settlements.
|
Dividends declared and paid in fiscal 2017 were relatively unchanged from fiscal 2016, noting that the quarterly dividend per share increased from $0.23 in fiscal 2016 to $0.28 in fiscal 2017. The increase in the regular dividend rate was substantially offset by fewer common shares, due to a return of capital to shareholders through share repurchases, and a smaller special dividend. Dividends declared and paid in fiscal 2016 increased compared to the prior year due to an increase in the quarterly dividend per share increase from $0.18 in fiscal 2015 to $0.23 in fiscal 2016 and the payment of a special dividend in fiscal 2016.
On March 1, 2017, we announced a 21.0% increase in the regular quarterly dividend to $0.34 per share.
Other Financial Measures
Our current ratio, calculated as current assets divided by current liabilities, was 1.5 as of January 28, 2017, compared to 1.4 at the end of fiscal 2016. The higher current ratio in fiscal 2017 was driven by an increase in cash and short-term investments, related to our higher earnings, and a decrease in current portion of long-term debt related to the payment of our 2016 Notes, partially offset by an increase in accounts payable related to the timing of our inventory purchases.
Our debt to earnings ratio was
1.1
as of
January 28, 2017
, compared to
2.1
as of
January 30, 2016
, due to higher earnings in the current year and a reduction in debt related to the payment of our 2016 Notes. Our non-GAAP debt to EBITDAR ratio, which includes capitalized operating lease obligations in its calculation, was
1.6
and
1.8
as of
January 28, 2017
, and
January 30, 2016
, respectively. The decrease in the ratio was due to a decrease in debt and capitalized operating lease obligations and an increase in earnings.
Commencing in fiscal 2017, we modified the multiple used to calculate our estimated capitalized operating lease obligation included in our non-GAAP debt calculation. Due to changes in the average remaining lease life of our operating lease portfolio, we have lowered the multiple used from eight times annual rent expense to five times annual rent expense. The multiple of five aligns with the multiple used by one of the nationally recognized credit rating agencies when evaluating the creditworthiness of companies within the retail sector. Prior periods presented have been adjusted to use this new multiple.
Our non-GAAP debt to EBITDAR ratio is calculated as follows:
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|
|
|
Non-GAAP debt to EBITDAR =
|
Non-GAAP debt
|
|
Non-GAAP EBITDAR
|
|
The most directly comparable GAAP financial measure to our non-GAAP debt to EBITDAR ratio is our debt to net earnings ratio, which excludes capitalized operating lease obligations from debt in the numerator of the calculation and does not adjust net earnings in the denominator of the calculation.
The following table presents a reconciliation of our debt to net earnings ratio to our non-GAAP debt to EBITDAR ratio for continuing operations ($ in millions):
|
|
|
|
|
|
|
|
|
|
2017
(1)
|
|
2016
(1)
|
Debt (including current portion)
|
$
|
1,365
|
|
|
$
|
1,734
|
|
Capitalized operating lease obligations (5 times rental expense)
(2)
|
3,872
|
|
|
3,916
|
|
Non-GAAP debt
|
$
|
5,237
|
|
|
$
|
5,650
|
|
|
|
|
|
Net earnings from continuing operations
|
$
|
1,207
|
|
|
$
|
807
|
|
Other income (expense) (including interest expense, net)
|
38
|
|
|
65
|
|
Income tax expense
|
609
|
|
|
503
|
|
Depreciation and amortization expense
|
654
|
|
|
656
|
|
Rental expense
|
774
|
|
|
783
|
|
Restructuring charges and other
(3)
|
65
|
|
|
263
|
|
Non-GAAP EBITDAR
|
$
|
3,347
|
|
|
$
|
3,077
|
|
|
|
|
|
Debt to net earnings ratio
|
1.1
|
|
|
2.1
|
|
Non-GAAP debt to EBITDAR ratio
|
1.6
|
|
|
1.8
|
|
|
|
(1)
|
Debt is reflected as of the balance sheet dates for each of the respective fiscal periods, while rental expense and the other components of non-GAAP EBITDAR represent activity for the 12 months ended
January 28, 2017
and
January 30, 2016
.
|
|
|
(2)
|
The multiple of five times annual rental expense in the calculation of our capitalized operating lease obligations is the multiple used for the retail sector by one of the nationally recognized credit rating agencies that rate our creditworthiness, and we consider it to be an appropriate multiple for our lease portfolio. Historically, we used a capitalized lease multiple of eight times annual rent expense; however, due to changes in the average remaining lease life of our operating leases, we have lowered the multiple to five. The prior period calculation has been updated to reflect the use of the changes.
|
|
|
(3)
|
Includes the impact of restructuring charges and non-restructuring asset impairments. Refer to Note 3,
Fair Value Measurements
, and Note 4,
Restructuring Charges
, in the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K for additional information regarding the nature of these charges.
|
Off-Balance-Sheet Arrangements and Contractual Obligations
Other than operating leases, we do not have any off-balance-sheet financing. A summary of our operating lease obligations by fiscal year is included in the "Contractual Obligations" table below. Additional information regarding our operating leases is available in Item 2,
Properties
, and Note 8,
Leases
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K.
The following table presents information regarding our contractual obligations as of January 28, 2017, with payments due by period ($ in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
Contractual Obligations
|
|
Total
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More Than
5 Years
|
Long-term debt obligations
(1)
|
|
$
|
1,150
|
|
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
650
|
|
|
$
|
—
|
|
Capital lease obligations
|
|
36
|
|
|
9
|
|
|
11
|
|
|
5
|
|
|
11
|
|
Financing lease obligations
|
|
226
|
|
|
46
|
|
|
76
|
|
|
48
|
|
|
56
|
|
Interest payments
(2)
|
|
192
|
|
|
60
|
|
|
87
|
|
|
45
|
|
|
—
|
|
Operating lease obligations
(3)
|
|
3,125
|
|
|
803
|
|
|
1,222
|
|
|
696
|
|
|
404
|
|
Purchase obligations
(4)
|
|
1,797
|
|
|
1,752
|
|
|
43
|
|
|
2
|
|
|
—
|
|
Unrecognized tax benefits
(5)
|
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
(6)
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,931
|
|
|
$
|
2,670
|
|
|
$
|
1,939
|
|
|
$
|
1,446
|
|
|
$
|
471
|
|
Note: For additional information refer to Note 5,
Debt
; Note 8,
Leases
; Note 10,
Income Taxes
; and Note 12,
Contingencies and Commitments
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K.
|
|
(1)
|
Represents principal amounts only and excludes interest rate swap valuation adjustments.
|
|
|
(2)
|
Interest payments related to our 2018 Notes and 2021 Notes include the fixed interest rate payments for the balances not impacted by our interest rate swap and the variable interest rate payments for the balances included in our interest rate swap. For additional information refer to Note 6,
Derivative Instruments
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K.
|
|
|
(3)
|
Operating lease obligations do not include payments to landlords covering real estate taxes and common area maintenance. These charges, if included, would increase total operating lease obligations by $1.0 billion at
January 28, 2017
.
|
|
|
(4)
|
Purchase obligations include agreements to purchase goods or services that are enforceable, are legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include agreements that are cancelable without penalty. Additionally, although they are not legally binding agreements, we included open purchase orders in the table above. Substantially all open purchase orders are fulfilled within 30 days.
|
|
|
(5)
|
Unrecognized tax benefits relate to uncertain tax positions. As we are not able to reasonably estimate the timing of the payments or the amount by which the liability will increase or decrease over time, the related balances have not been reflected in the "Payments Due by Period" section of the table.
|
|
|
(6)
|
Included in long-term liabilities on our Consolidated Balance Sheet at
January 28, 2017
, was a $
31 million
obligation for deferred compensation. As the specific payment dates for the deferred compensation are unknown, the related balances have not been reflected in the "Payments Due by Period" section of the table.
|
Additionally, we have
$1.25 billion
in undrawn capacity on our credit facilities at
January 28, 2017
, which if drawn upon, would be included as short-term debt in our Consolidated Balance Sheets.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements requires us to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 1,
Summary of Significant Accounting Policies
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results. These estimates require our most difficult, subjective or complex judgments, because they relate to matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board.
Except where noted, we have not made any material changes to the accounting methodologies for the areas described below.
Inventory
We value our inventory at the lower of cost or market through the establishment of markdown and inventory loss adjustments. Markdown adjustments reflect the excess of cost over the net proceeds we expect to realize from the ultimate sale or other disposal of inventory and establish a new cost basis. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis. Markdown adjustments involve uncertainty because the calculations require management to make assumptions and to apply judgment regarding factors such as forecast consumer demand, the promotional environment and technological obsolescence.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our markdown adjustments. However, if actual outcomes are different than we anticipated, we may be exposed to losses or gains that could be material. A 10% change in our markdown adjustment at
January 28, 2017
, would have affected net earnings by approximately $8 million in fiscal
2017
.
Vendor Allowances
We receive allowances from certain vendors through a variety of programs and arrangements. We treat a substantial majority of these allowances as an offset to the cost of the product or services provided. Sell-through allowances are collected when inventory is sold to customers and recognized as a reduction in cost of sales at that time. Certain other types of funding, most notably receipt-based allowances, are collected when we take receipt of inventory and deferred as a reduction of inventory until inventory is sold. The estimation of the deferral for these types of funding is complex and requires detailed analysis of factors such as product and vendor mix, inventory turn and a range of allowance programs.
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our vendor funding deferral. A 10% difference in our vendor funding deferral at
January 28, 2017
, would have affected net earnings by approximately $23 million in fiscal
2017
.
We also receive vendor allowances for achieving certain volume targets. These vendor allowances are accrued as earned over the incentive period, based on estimates of purchases or sales. Amounts accrued throughout the program year could require adjustment if actual purchase or sales volumes differ from projected volumes, especially in the case of programs that provide for increased funding when graduated volume tiers are met. We believe that our estimate of vendor allowances earned based on expected volume of purchases or sales over the incentive period is an accurate reflection of the ultimate allowances to be received from our vendors. Since most volume-based programs apply to a calendar year or our fiscal year, the amount of judgment required as of any fiscal year end is minimal.
Property and Equipment Impairments
Property and equipment assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
When evaluating property and equipment assets with impairment indicators for potential impairment, we first compare the carrying value of the asset to its estimated undiscounted future cash flows. If the sum of the estimated undiscounted future cash flows is less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to its estimated fair value, which is typically based on estimated discounted future cash flows. We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable asset, the new cost basis is depreciated over the remaining useful life of that asset.
When reviewing property and equipment assets for impairment, we group assets with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For assets deployed at store
locations, we review for impairment at the individual store level. These reviews involve comparing the carrying value of all property and equipment located at each store to the net cash flow projections for each store. In addition, we conduct separate impairment reviews at other levels as appropriate. For example, a shared asset such as a distribution center or an IT asset would be evaluated by reference to the aggregate assets and projected cash flows of all areas of the businesses utilizing those shared assets.
Our impairment loss calculations require management to make assumptions and to apply judgment in order to estimate fair values, including estimating cash flows and useful lives and selecting a discount rate that reflects the risk inherent in future cash flows. If actual results are not consistent with our estimates and assumptions we may be exposed to impairments that could be material. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate property and equipment asset impairment losses.
Goodwill
Goodwill is not amortized but is evaluated for impairment annually in the fiscal fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be recoverable.
We test for goodwill impairment at the reporting unit level and our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management. Our detailed impairment testing involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on discounted cash flows or relative market-based approaches. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value.
The carrying value of goodwill at
January 28, 2017
, was $425 million, which related entirely to our Domestic segment. In fiscal
2017
, we determined that the excess of fair value over carrying value was substantial. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.
Tax Contingencies
Our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of income and deductions and the allocation of income among various tax jurisdictions. At any time, many tax years are subject to audit by various tax authorities. In evaluating the exposures associated with our various tax filing positions, we may record a liability for such exposures. A number of years may elapse before a particular matter, for which we have established a liability, is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provisions in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.
Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and apply judgment to estimate the exposures associated with our various filing positions.
Our effective income tax rate is also affected by changes in tax law, the tax jurisdiction of new stores or business ventures, the level of earnings and the results of tax audits.
Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.
To the extent we prevail in matters for which a liability has been established, or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax
rate in the period of resolution. A favorable tax settlement may reduce our effective income tax rate and would be recognized in the period of resolution.
Revenue Recognition
The following accounting estimates relating to revenue recognition contain uncertainty because they require management to make assumptions and to apply judgment regarding the effects of future events.
Returns –
We recognize revenue, net of estimated returns and sales incentives or allowances, at the time the customer takes possession of merchandise or receives services. We estimate the liability for sales returns with a corresponding reduction to revenue and cost of sales based on historical return data. We believe that our estimate for sales returns, which represents the estimated gross margin impact of returns, is a reasonable reflection of future returns and financial impacts. However, if our estimates are significantly below or above the actual return amounts, our reported revenue and cost of sales could be impacted. A 10% difference in our returns reserve at
January 28, 2017
, would have affected net earnings by approximately $2 million in fiscal
2017
.
Gift Card Breakage –
We sell gift cards to customers in our retail stores, through our websites and through select third parties. A liability is initially established for the value of the gift card when sold. We recognize revenue from gift cards when the card is redeemed by the customer. For unredeemed gift cards, we recognize breakage when the likelihood of the gift card being redeemed by the customer is deemed remote, and we determine that we do not have a legal obligation to remit the value of the unredeemed gift cards to a relevant jurisdiction. We determine the breakage rate based on historical redemption patterns and record projected breakage 24 months after card issuance. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to record breakage. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to a charge that could be material.
Customer Loyalty Programs
–
We have customer loyalty programs which allow members to earn points for each purchase completed with us or when using our co-branded credit cards. Points earned enable members to receive a certificate that may be redeemed on future purchases. The value of points earned by our loyalty program members is included in accrued liabilities and recorded as a reduction in revenue at the time the points are earned, based on the value of points that are projected to be redeemed. Our estimate of the amount and timing of redemptions of certificates is based primarily on historical data. A 10% difference in our customer redemption rates at
January 28, 2017
, would have affected net earnings by approximately $13 million in fiscal
2017
.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions of our revenue recognition critical accounting estimates. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.
New Accounting Pronouncements
For a description of new applicable accounting pronouncements, see Note 1,
Summary of Significant Accounting Policies
, of the Notes to Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data
, of this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data.
Management's Report on the Consolidated Financial Statements
Our management is responsible for the preparation, integrity and objectivity of the accompanying consolidated financial statements and the related financial information. The consolidated financial statements have been prepared in conformity with GAAP and necessarily include certain amounts that are based on estimates and informed judgments. Our management also prepared the related financial information included in this Annual Report on Form 10-K and is responsible for its accuracy and consistency with the consolidated financial statements.
The accompanying consolidated financial statements have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, which conducted its audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). The independent registered public accounting firm's responsibility is to express an opinion as to whether such consolidated financial statements present fairly, in all material respects our financial position, results of operations and cash flows in accordance with GAAP.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is designed under the supervision of our principal executive officer and principal financial officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that:
|
|
(1)
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets;
|
|
|
(2)
|
Provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and Board; and
|
|
|
(3)
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of
January 28, 2017
, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control — Integrated Framework (2013).
Based on our assessment, we have concluded that our internal control over financial reporting was effective as of
January 28, 2017
. During our assessment, we did not identify any material weaknesses in our internal control over financial reporting. Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements for the year ended
January 28, 2017
, included in Item 8,
Financial Statements and Supplementary Data,
of this Annual Report on Form 10-K, has issued an unqualified attestation report on our internal control over financial reporting as of
January 28, 2017
.
|
|
|
|
|
|
|
Hubert Joly
Chairman and Chief Executive Officer
(duly authorized and principal executive officer)
|
|
Corie Barry
Chief Financial Officer
(duly authorized and principal financial officer)
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Best Buy Co., Inc.
Richfield, Minnesota
We have audited the accompanying consolidated balance sheets of Best Buy Co., Inc. and subsidiaries (the “Company”) as of January 28, 2017 and January 30, 2016, and the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended January 28, 2017. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Best Buy Co., Inc. and subsidiaries as of January 28, 2017 and January 30, 2016, and the results of their operations and their cash flows for each of the three years in the period ended January 28, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 28, 2017, based on the criteria established in
Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated March 24, 2017, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Minneapolis, Minnesota
March 24, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Best Buy Co., Inc.
Richfield, Minnesota
We have audited the internal control over financial reporting of Best Buy Co., Inc. and subsidiaries (the “Company”), as of January 28, 2017, based on criteria established in
Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2017, based on the criteria established in
Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended January 28, 2017, of the Company and our report dated March 24, 2017 expressed an unqualified opinion on those financial statements and financial statement schedule.
Minneapolis, Minnesota
March 24, 2017
Consolidated Balance Sheets
$ in millions, except per share and share amounts
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
January 30, 2016
|
Assets
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,240
|
|
|
$
|
1,976
|
|
Short-term investments
|
|
1,681
|
|
|
1,305
|
|
Receivables, net
|
|
1,347
|
|
|
1,162
|
|
Merchandise inventories
|
|
4,864
|
|
|
5,051
|
|
Other current assets
|
|
384
|
|
|
392
|
|
Total current assets
|
|
10,516
|
|
|
9,886
|
|
Property and Equipment
|
|
|
|
|
Land and buildings
|
|
618
|
|
|
613
|
|
Leasehold improvements
|
|
2,227
|
|
|
2,220
|
|
Fixtures and equipment
|
|
4,998
|
|
|
5,002
|
|
Property under capital and financing leases
|
|
300
|
|
|
272
|
|
|
|
8,143
|
|
|
8,107
|
|
Less accumulated depreciation
|
|
5,850
|
|
|
5,761
|
|
Net property and equipment
|
|
2,293
|
|
|
2,346
|
|
Goodwill
|
|
425
|
|
|
425
|
|
Other Assets
|
|
622
|
|
|
831
|
|
Non-current assets held for sale
|
|
—
|
|
|
31
|
|
Total Assets
|
|
$
|
13,856
|
|
|
$
|
13,519
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Accounts payable
|
|
$
|
4,984
|
|
|
$
|
4,450
|
|
Unredeemed gift card liabilities
|
|
427
|
|
|
409
|
|
Deferred revenue
|
|
418
|
|
|
357
|
|
Accrued compensation and related expenses
|
|
358
|
|
|
384
|
|
Accrued liabilities
|
|
865
|
|
|
802
|
|
Accrued income taxes
|
|
26
|
|
|
128
|
|
Current portion of long-term debt
|
|
44
|
|
|
395
|
|
Total current liabilities
|
|
7,122
|
|
|
6,925
|
|
Long-Term Liabilities
|
|
704
|
|
|
877
|
|
Long-Term Debt
|
|
1,321
|
|
|
1,339
|
|
Contingencies and Commitments (Note 12)
|
|
|
|
|
Equity
|
|
|
|
|
Best Buy Co., Inc. Shareholders' 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 — 311,108,000 and 323,779,000 shares, respectively
|
|
31
|
|
|
32
|
|
Prepaid share repurchase
|
|
—
|
|
|
(55
|
)
|
Additional paid-in capital
|
|
—
|
|
|
—
|
|
Retained earnings
|
|
4,399
|
|
|
4,130
|
|
Accumulated other comprehensive income
|
|
279
|
|
|
271
|
|
Total equity
|
|
4,709
|
|
|
4,378
|
|
Total Liabilities and Equity
|
|
$
|
13,856
|
|
|
$
|
13,519
|
|
See Notes to Consolidated Financial Statements.
Consolidated Statements of Earnings
$ and shares in millions, except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 28, 2017
|
|
January 30, 2016
|
|
January 31, 2015
|
Revenue
|
|
$
|
39,403
|
|
|
$
|
39,528
|
|
|
$
|
40,339
|
|
Cost of goods sold
|
|
29,963
|
|
|
30,334
|
|
|
31,292
|
|
Restructuring charges — cost of goods sold
|
|
—
|
|
|
3
|
|
|
—
|
|
Gross profit
|
|
9,440
|
|
|
9,191
|
|
|
9,047
|
|
Selling, general and administrative expenses
|
|
7,547
|
|
|
7,618
|
|
|
7,592
|
|
Restructuring charges
|
|
39
|
|
|
198
|
|
|
5
|
|
Operating income
|
|
1,854
|
|
|
1,375
|
|
|
1,450
|
|
Other income (expense)
|
|
|
|
|
|
|
Gain on sale of investments
|
|
3
|
|
|
2
|
|
|
13
|
|
Investment income and other
|
|
31
|
|
|
13
|
|
|
14
|
|
Interest expense
|
|
(72
|
)
|
|
(80
|
)
|
|
(90
|
)
|
Earnings from continuing operations before income tax expense
|
|
1,816
|
|
|
1,310
|
|
|
1,387
|
|
Income tax expense
|
|
609
|
|
|
503
|
|
|
141
|
|
Net earnings from continuing operations
|
|
1,207
|
|
|
807
|
|
|
1,246
|
|
Gain (loss) from discontinued operations (Note 2), net of tax expense of $7, $1 and $0
|
|
21
|
|
|
90
|
|
|
(11
|
)
|
Net earnings including noncontrolling interests
|
|
1,228
|
|
|
897
|
|
|
1,235
|
|
Net earnings from discontinued operations attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Net earnings attributable to Best Buy Co., Inc. shareholders
|
|
$
|
1,228
|
|
|
$
|
897
|
|
|
$
|
1,233
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Best Buy Co., Inc. shareholders
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
3.79
|
|
|
$
|
2.33
|
|
|
$
|
3.57
|
|
Discontinued operations
|
|
0.07
|
|
|
0.26
|
|
|
(0.04
|
)
|
Basic earnings per share
|
|
$
|
3.86
|
|
|
$
|
2.59
|
|
|
$
|
3.53
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Best Buy Co., Inc. shareholders
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
3.74
|
|
|
$
|
2.30
|
|
|
$
|
3.53
|
|
Discontinued operations
|
|
0.07
|
|
|
0.26
|
|
|
(0.04
|
)
|
Diluted earnings per share
|
|
$
|
3.81
|
|
|
$
|
2.56
|
|
|
$
|
3.49
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
|
|
|
|
Basic
|
|
318.5
|
|
|
346.5
|
|
|
349.5
|
|
Diluted
|
|
322.6
|
|
|
350.7
|
|
|
353.6
|
|
See Notes to Consolidated Financial Statements.
Consolidated Statements of Comprehensive Income
$ in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 28, 2017
|
|
January 30, 2016
|
|
January 31, 2015
|
Net earnings including noncontrolling interests
|
|
$
|
1,228
|
|
|
$
|
897
|
|
|
$
|
1,235
|
|
Foreign currency translation adjustments
|
|
10
|
|
|
(44
|
)
|
|
(103
|
)
|
Unrealized loss on available-for-sale investments
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Reclassification of foreign currency translations adjustments into earnings due to sale of business
|
|
(2
|
)
|
|
(67
|
)
|
|
—
|
|
Reclassification of gains on available-for-sale investments into earnings
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Comprehensive income including noncontrolling interests
|
|
1,236
|
|
|
786
|
|
|
1,125
|
|
Comprehensive income attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Comprehensive income attributable to Best Buy Co., Inc. shareholders
|
|
$
|
1,236
|
|
|
$
|
786
|
|
|
$
|
1,123
|
|
See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
$ in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 28, 2017
|
|
January 30, 2016
|
|
January 31, 2015
|
Operating Activities
|
|
|
|
|
|
|
|
Net earnings including noncontrolling interests
|
|
$
|
1,228
|
|
|
$
|
897
|
|
|
$
|
1,235
|
|
Adjustments to reconcile net earnings to total cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
654
|
|
|
657
|
|
|
656
|
|
Restructuring charges
|
|
39
|
|
|
201
|
|
|
23
|
|
Gain on sale of business
|
|
—
|
|
|
(99
|
)
|
|
(1
|
)
|
Stock-based compensation
|
|
108
|
|
|
104
|
|
|
87
|
|
Deferred income taxes
|
|
201
|
|
|
49
|
|
|
(297
|
)
|
Other, net
|
|
(31
|
)
|
|
38
|
|
|
8
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Receivables
|
|
(185
|
)
|
|
123
|
|
|
(19
|
)
|
Merchandise inventories
|
|
193
|
|
|
86
|
|
|
(141
|
)
|
Other assets
|
|
10
|
|
|
36
|
|
|
29
|
|
Accounts payable
|
|
518
|
|
|
(536
|
)
|
|
434
|
|
Other liabilities
|
|
23
|
|
|
(140
|
)
|
|
(164
|
)
|
Income taxes
|
|
(213
|
)
|
|
(94
|
)
|
|
85
|
|
Total cash provided by operating activities
|
|
2,545
|
|
|
1,322
|
|
|
1,935
|
|
Investing Activities
|
|
|
|
|
|
|
Additions to property and equipment, net of $48, $92 and $14 of non-cash capital expenditures
|
|
(582
|
)
|
|
(649
|
)
|
|
(561
|
)
|
Purchases of investments
|
|
(3,045
|
)
|
|
(2,281
|
)
|
|
(2,804
|
)
|
Sales of investments
|
|
2,689
|
|
|
2,427
|
|
|
1,580
|
|
Proceeds from sale of business, net of cash transferred
|
|
—
|
|
|
103
|
|
|
39
|
|
Proceeds from property disposition
|
|
56
|
|
|
—
|
|
|
—
|
|
Change in restricted assets
|
|
(8
|
)
|
|
(47
|
)
|
|
29
|
|
Other, net
|
|
3
|
|
|
28
|
|
|
5
|
|
Total cash used in investing activities
|
|
(887
|
)
|
|
(419
|
)
|
|
(1,712
|
)
|
Financing Activities
|
|
|
|
|
|
|
Repurchase of common stock
|
|
(698
|
)
|
|
(1,000
|
)
|
|
—
|
|
Prepayment of accelerated share repurchase
|
|
—
|
|
|
(55
|
)
|
|
—
|
|
Issuance of common stock
|
|
171
|
|
|
47
|
|
|
50
|
|
Dividends paid
|
|
(505
|
)
|
|
(499
|
)
|
|
(251
|
)
|
Repayments of debt
|
|
(394
|
)
|
|
(28
|
)
|
|
(24
|
)
|
Other, net
|
|
22
|
|
|
20
|
|
|
2
|
|
Total cash used in financing activities
|
|
(1,404
|
)
|
|
(1,515
|
)
|
|
(223
|
)
|
Effect of Exchange Rate Changes on Cash
|
|
10
|
|
|
(38
|
)
|
|
(52
|
)
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
264
|
|
|
(650
|
)
|
|
(52
|
)
|
Cash and Cash Equivalents at Beginning of Period, excluding held for sale
|
|
1,976
|
|
|
2,432
|
|
|
2,678
|
|
Cash and Cash Equivalents at Beginning of Period - held for sale
|
|
—
|
|
|
194
|
|
|
—
|
|
Cash and Cash Equivalents at End of Period
|
|
2,240
|
|
|
1,976
|
|
|
2,626
|
|
Cash and Cash Equivalents at End of Period - held for sale
|
|
—
|
|
|
—
|
|
|
(194
|
)
|
Cash and Cash Equivalents at End of Period, excluding held for sale
|
|
$
|
2,240
|
|
|
$
|
1,976
|
|
|
$
|
2,432
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
628
|
|
|
$
|
550
|
|
|
$
|
355
|
|
Interest paid
|
|
76
|
|
|
77
|
|
|
81
|
|
See Notes to Consolidated Financial Statements.
Consolidated Statements of Changes in Shareholders' Equity
$ and shares in millions, except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
Common
Stock
|
|
|
Prepaid Share Repurchase
|
|
|
Additional
Paid-In
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated Other
Comprehensive
Income (Loss)
|
|
|
Total Best
Buy Co., Inc.
Shareholders'
Equity
|
|
|
Non
controlling
Interests
|
|
|
Total
Equity
|
|
Balances at February 1, 2014
|
347
|
|
|
35
|
|
|
—
|
|
|
300
|
|
|
3,159
|
|
|
492
|
|
|
3,986
|
|
|
3
|
|
|
3,989
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,233
|
|
|
—
|
|
|
1,233
|
|
|
2
|
|
|
1,235
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(103
|
)
|
|
(103
|
)
|
|
—
|
|
|
(103
|
)
|
Unrealized losses on available-for-sale investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
Reclassification of gains on available-for-sale investments into earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Issuance of common stock under employee stock purchase plan
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|
—
|
|
|
87
|
|
Restricted stock vested and stock options exercised
|
5
|
|
|
—
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
42
|
|
Common stock dividends, $0.72 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(251
|
)
|
|
—
|
|
|
(251
|
)
|
|
—
|
|
|
(251
|
)
|
Balances at January 31, 2015
|
352
|
|
|
35
|
|
|
—
|
|
|
437
|
|
|
4,141
|
|
|
382
|
|
|
4,995
|
|
|
5
|
|
|
5,000
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
897
|
|
|
—
|
|
|
897
|
|
|
—
|
|
|
897
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44
|
)
|
|
(44
|
)
|
|
—
|
|
|
(44
|
)
|
Reclassification of foreign currency translation adjustments into earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(67
|
)
|
|
(67
|
)
|
|
—
|
|
|
(67
|
)
|
Sale of noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
Prepaid repurchase of common stock
|
—
|
|
|
—
|
|
|
(55
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
|
—
|
|
|
(55
|
)
|
Issuance of common stock under employee stock purchase plan
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
104
|
|
|
—
|
|
|
—
|
|
|
104
|
|
|
—
|
|
|
104
|
|
Restricted stock vested and stock options exercised
|
5
|
|
|
—
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
40
|
|
Tax benefits from stock options exercised, restricted stock vesting and employee stock purchase plan
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Common stock dividends, $1.43 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
(504
|
)
|
|
—
|
|
|
(501
|
)
|
|
—
|
|
|
(501
|
)
|
Repurchase of common stock
|
(33
|
)
|
|
(3
|
)
|
|
—
|
|
|
(593
|
)
|
|
(404
|
)
|
|
—
|
|
|
(1,000
|
)
|
|
—
|
|
|
(1,000
|
)
|
Balances at January 30, 2016
|
324
|
|
|
32
|
|
|
(55
|
)
|
|
—
|
|
|
4,130
|
|
|
271
|
|
|
4,378
|
|
|
—
|
|
|
4,378
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,228
|
|
|
—
|
|
|
1,228
|
|
|
—
|
|
|
1,228
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Reclassification of foreign currency translation adjustments into earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Settlement of accelerated share repurchase
|
—
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
55
|
|
Issuance of common stock under employee stock purchase plan
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
108
|
|
|
—
|
|
|
—
|
|
|
108
|
|
|
—
|
|
|
108
|
|
Restricted stock vested and stock options exercised
|
8
|
|
|
1
|
|
|
—
|
|
|
163
|
|
|
—
|
|
|
—
|
|
|
164
|
|
|
—
|
|
|
164
|
|
Tax benefits from stock options exercised, restricted stock vesting and employee stock purchase plan
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
Common stock dividends, $1.57 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(505
|
)
|
|
—
|
|
|
(505
|
)
|
|
—
|
|
|
(505
|
)
|
Repurchase of common stock
|
(21
|
)
|
|
(2
|
)
|
|
—
|
|
|
(295
|
)
|
|
(454
|
)
|
|
—
|
|
|
(751
|
)
|
|
—
|
|
|
(751
|
)
|
Balances at January 28, 2017
|
311
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,399
|
|
|
$
|
279
|
|
|
$
|
4,709
|
|
|
$
|
—
|
|
|
$
|
4,709
|
|
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Unless the context otherwise requires, the use of the terms "Best Buy," "we," "us" and "our" in these Notes to Consolidated Financial Statements refers to Best Buy Co., Inc. and, as applicable, its consolidated subsidiaries.
Description of Business
We are a leading provider of technology products, services and solutions. We offer these products and services to the customers who visit our stores, engage with Geek Squad agents or use our websites or mobile applications. We have operations in the U.S., Canada and Mexico. We have
two
reportable segments: Domestic and International. The Domestic segment is comprised of the operations in all states, districts and territories of the U.S., under various brand names including Best Buy, bestbuy.com, Best Buy Mobile, Best Buy Direct, Best Buy Express, Geek Squad, Magnolia Home Theater and Pacific Kitchen and Home. The International segment is comprised of all operations in Canada and Mexico under the brand names Best Buy, bestbuy.com.ca, bestbuy.com.mx, Best Buy Express, Best Buy Mobile and Geek Squad.
Basis of Presentation
The consolidated financial statements include the accounts of Best Buy Co., Inc. and its consolidated subsidiaries. All intercompany balances and transactions are eliminated upon consolidation.
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 consolidated financial statements. No significant intervening event occurred in these operations that would have materially affected our financial condition, results of operations, liquidity or other factors had it been recorded during fiscal 2017, 2016 or 2015.
In preparing the accompanying consolidated financial statements, we evaluated the period from January 28, 2017, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. Other than as described in Note 7,
Shareholders' Equity
, no such events were identified for this period.
Discontinued Operations
On February 13, 2015, we sold Jiangsu Five Star Appliance Co., Limited ("Five Star"). The results of Five Star are presented as discontinued operations for all periods. See Note 2,
Discontinued Operations
, for further information.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts in the consolidated financial statements, as well as the disclosure of contingent liabilities. Future results could be materially affected if actual results were to differ from these estimates and assumptions.
Fiscal Year
Our fiscal year ends on the Saturday nearest the end of January. Fiscal 2017, 2016 and 2015 each included
52
weeks.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09,
Revenue from Contracts with Customers
. The new guidance establishes a single comprehensive model for entities to use in accounting for revenue and supersedes most current revenue recognition guidance. It introduces a five-step process for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards under current guidance. It also requires significantly expanded disclosures regarding revenues.
Based on our preliminary assessment, we believe the impact of adopting the new guidance will be immaterial to our annual and interim financial statements. We believe that the impact will be limited to minor changes to the timing of recognition of revenues related to gift cards and loyalty programs.
We plan to adopt this standard in the first quarter of our fiscal 2019, using the modified retrospective method. Under this method, we will recognize the cumulative effect of the changes in retained earnings at the date of adoption, but will not restate prior periods.
In July 2015, the FASB issued ASU 2015-11,
Inventory: Simplifying the Measurement of Inventory.
The new guidance replaces the current inventory measurement requirement of lower of cost or market with the lower of cost or net realizable value. Based on the effective dates, we will prospectively adopt this standard in the first quarter of our fiscal 2018. We do not expect a material impact to our financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases.
The new guidance was issued to increase transparency and comparability among companies by requiring most leases to be included on the balance sheet and by expanding disclosure requirements. Based on the effective dates, we expect to adopt the new guidance in the first quarter of fiscal 2020 using the modified retrospective method. While we expect adoption to lead to a material increase in the assets and liabilities recorded on our balance sheet, we are still evaluating the overall impact on our financial statements.
In March 2016, the FASB issued ASU 2016-09,
Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting.
The new guidance changes certain aspects of accounting for share-based payments including accounting for income taxes, forfeitures and classifications in the statement of cash flows. We plan to adopt this standard in the first quarter of fiscal 2018, which aligns with the required adoption date. As allowed by ASU 2016-09, we plan to change our accounting for forfeitures from our current method of estimating the number of awards that are expected to vest to recording forfeitures as they occur. This will require a cumulative-effect adjustment to equity as of the beginning of fiscal 2018. We do not expect this adjustment to be material to our financial statements. In addition, we do not expect the remaining changes caused by ASU 2016-09 to have a material impact to our financial statements.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments
, and in November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows: Restricted Cash
. ASU 2016-15 provides classification requirements for specific transactions within the statement of cash flows, while ASU 2016-18 requires restricted cash balances be included in the beginning and ending cash balance within the statement of cash flows. We plan to retrospectively adopt these standards in the first quarter of our fiscal 2018, which is one year earlier than required. The adoption will increase our beginning and ending cash balance within our statement of cash flows by our restricted cash balances (see
Restricted Assets
section below) and will require a new disclosure to reconcile the cash balances within our statement of cash flows to the balance sheets. We do not expect any other material impacts to our financial statements.
Cash and Cash Equivalents
Cash primarily consists of cash on hand and bank deposits. Cash equivalents consist of money market funds, commercial paper, corporate bonds and time deposits with an original maturity of
3
months or less when purchased. The amounts of cash equivalents at
January 28, 2017
, and
January 30, 2016
, were
$1,531 million
and
$1,208 million
, respectively, and the weighted-average interest rates were
0.5%
and
0.5%
, respectively.
Receivables
Receivables consist principally of amounts due from mobile phone network operators for device sales and commissions; banks for customer credit card and debit card transactions; and vendors for various vendor funding programs.
We establish allowances for uncollectible receivables based on historical collection trends and write-off history. Our allowances for uncollectible receivables were
$52 million
and
$49 million
at
January 28, 2017
, and
January 30, 2016
, respectively.
Merchandise Inventories
Merchandise inventories are recorded at the lower of cost, using the average cost, or market. In-bound freight-related costs from our vendors are included as part of the net cost of merchandise inventories. Also included in the cost of inventory are certain vendor allowances that are not a reimbursement of specific, incremental and identifiable costs to promote a vendor's products. Other costs associated with acquiring, storing and transporting merchandise inventories to our retail stores are expensed as incurred and included in cost of goods sold.
Our inventory valuation reflects adjustments for anticipated physical inventory losses (e.g., theft) that have occurred since the last physical inventory. Physical inventory counts are taken on a regular basis to ensure that the inventory reported in our consolidated financial statements is properly stated.
Our inventory valuation also reflects markdowns for the excess of the cost over the amount we expect to realize from the ultimate sale or other disposal of the inventory. Markdowns establish a new cost basis for our inventory. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in the newly established cost basis.
Restricted Assets
Restricted cash totaled
$193 million
and
$185 million
at
January 28, 2017
, and
January 30, 2016
, respectively, and is included in other current assets in our Consolidated Balance Sheet. Such balances are pledged as collateral or restricted to use for general liability insurance and workers' compensation insurance.
Property and Equipment
Property and equipment are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the period from the date the assets are placed in service to the end of the lease term, which includes optional renewal periods if they are reasonably assured. Accelerated depreciation methods are generally used for income tax purposes.
When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from our Consolidated Balance Sheets and any resulting gain or loss is reflected in our Consolidated Statements of Earnings.
Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated.
Costs associated with the acquisition or development of software for internal use are capitalized and amortized over the expected useful life of the software, generally from two to seven years. A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software's functionality or extends its useful life. Capitalized software is included in fixtures and equipment. Software maintenance and training costs are expensed in the period incurred.
Property under capital and financing leases is comprised of buildings and equipment used in our operations. These assets are typically depreciated over the shorter of the useful life of the asset or the term of the lease. The carrying value of property under capital and financing leases was
$166 million
and
$165 million
at
January 28, 2017
, and
January 30, 2016
, respectively, net of accumulated depreciation of
$134 million
and
$107 million
, respectively.
Estimated useful lives by major asset category are as follows:
|
|
|
|
Asset
|
|
Life
(in years)
|
Buildings
|
|
5-35
|
Leasehold improvements
|
|
3-15
|
Fixtures and equipment
|
|
2-15
|
Property under capital and financing leases
|
|
4-5
|
In fiscal 2017, we removed from our fixed asset balance
$345 million
of fully depreciated assets that were no longer in service. This asset adjustment was based primarily on an analysis of our fixed asset records and certain other validation procedures and had no material net impact to our fiscal 2017 Consolidated Financial Statements. The impact of this adjustment on amounts previously reported was determined to be immaterial to the Consolidated Financial Statements.
Impairment of Long-Lived Assets and Costs Associated With Exit Activities
Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not
limited to, significant under-performance relative to historical or planned operating results, significant changes in the manner of use or expected life of the assets or significant changes in our business strategies. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from the disposition of the asset, if any, are less than the carrying value of the asset net of other liabilities. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value using valuation techniques such as discounted cash flow analysis.
When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For example, long-lived assets deployed at store locations are reviewed for impairment at the individual store level, which involves comparing the carrying value of all land, buildings, leasehold improvements, fixtures and equipment located at each store to the net cash flow projections for each store. In addition, we conduct separate impairment reviews at other levels as appropriate, for example, to evaluate potential impairment of assets shared by several areas of operations, such as information technology systems. Refer to Note 3,
Fair Value Measurements
, for further information associated with the long-lived assets impairments, including valuation techniques used, impairment charges incurred and remaining carrying values.
The present value of costs associated with vacated properties, primarily future lease costs net of expected sublease income, are charged to earnings when we cease using the property. We accelerate depreciation on property and equipment we expect to retire when a decision is made to abandon a property.
At
January 28, 2017
, and
January 30, 2016
, the obligation associated with vacant properties included in accrued liabilities in our Consolidated Balance Sheets was
$29 million
and
$44 million
, respectively, and the obligation associated with vacant properties included in long-term liabilities in our Consolidated Balance Sheets was
$37 million
and
$54 million
, respectively. The obligation associated with vacant properties at
January 28, 2017
, and
January 30, 2016
, included amounts associated with our restructuring activities as further described in Note 4,
Restructuring Charges
.
Leases
We conduct the majority of our retail and distribution operations from leased locations. The leases generally require payment of real estate taxes, insurance and common area maintenance, in addition to rent. The terms of our new lease agreements for large-format stores are generally less than
10
years, although we have existing leases with terms up to
20
years. Small-format stores generally have lease terms that are half the length of large-format stores. Most of the leases contain renewal options and escalation clauses, and certain store leases require contingent rents based on factors such as specified percentages of revenue or the consumer price index.
For leases that contain predetermined fixed escalations of the minimum rent, we recognize the related rent expense on a straight-line basis from the date we take possession of the property to the end of the initial lease term. We record any difference between the straight-line rent amounts and amounts payable under the leases as part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.
Cash or lease incentives received upon entering into certain store leases ("tenant allowances") are recognized on a straight-line basis as a reduction to rent from the date we take possession of the property through the end of the initial lease term. We record the unamortized portion of tenant allowances as a part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.
At
January 28, 2017
, and
January 30, 2016
, deferred rent included in accrued liabilities in our Consolidated Balance Sheets was
$33 million
and
$36 million
, respectively, and deferred rent included in long-term liabilities in our Consolidated Balance Sheets was
$121 million
and
$139 million
, respectively.
In addition, we have financing leases for agreements when we are deemed the owner of the leased buildings, typically due to significant involvement during the construction period, and do not qualify for sales recognition under the sale-leaseback accounting guidance. We record the cost of the building in property and equipment, with the related short-term liability recorded in accrued liabilities and the longer-term liability recorded in long-term debt. At
January 28, 2017
, and
January 30, 2016
, we had
$177 million
and
$178 million
, respectively, outstanding under financing lease obligations. Refer to Note 8,
Leases
, for maturity details.
Assets acquired under capital and financing leases are depreciated over the shorter of the useful life of the asset or the lease term, including renewal periods, if reasonably assured.
Goodwill and Intangible Assets
Goodwill
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. We test goodwill for impairment annually, as of the first day of the fiscal fourth quarter, or when indications of potential impairment exist. We monitor the existence of potential impairment indicators throughout the fiscal year. We test for goodwill impairment at the reporting unit level and our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management. No components were aggregated in arriving at our reporting units. Our only reporting unit with a goodwill balance at the beginning of fiscal 2017 was our Domestic segment.
Our detailed impairment testing involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on discounted cash flows or relative market-based approaches. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. In fiscal 2017, we determined that the fair value of the Best Buy Domestic reporting unit exceeded its carrying value, and as a result, no goodwill impairment was recorded in fiscal 2017. No goodwill impairment was recorded in fiscal 2016.
Tradenames
We have an indefinite-lived tradename related to Pacific Sales included within our Domestic segment, which is recorded within other assets in our Consolidated Balance Sheets. As of the end of fiscal 2017, we have no indefinite-lived tradenames within our International segment.
Our valuation of identifiable intangible assets acquired is based on information and assumptions available to us at the time of acquisition, using income and market approaches to determine fair value. We do not amortize our indefinite-lived tradenames, but test for impairment annually, or when indications of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our indefinite-lived tradenames. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess. In fiscal 2017, we determined that the fair value of the tradename exceeded its carrying value, and as a result, no impairment was recorded in fiscal 2017. In fiscal 2016, as a part of the Canada brand restructuring, we fully impaired the indefinite-lived Future Shop tradename. Refer to Note 4,
Restructuring Charges
, for additional information. No other impairments were identified during fiscal 2016.
The changes in the carrying amount of goodwill and indefinite-lived tradenames by segment were as follows in fiscal
2017
,
2016
and
2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Indefinite-Lived Tradenames
|
|
Domestic
|
|
Domestic
|
|
International
|
|
Total
|
Balances at February 1, 2014
|
$
|
425
|
|
|
$
|
19
|
|
|
$
|
82
|
|
|
$
|
101
|
|
Sale of business
(1)
|
—
|
|
|
—
|
|
|
(37
|
)
|
|
(37
|
)
|
Impairments
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Changes in foreign currency exchange rates
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
Balances at January 31, 2015
|
425
|
|
|
18
|
|
|
39
|
|
|
57
|
|
Canada brand restructuring
(2)
|
—
|
|
|
—
|
|
|
(40
|
)
|
|
(40
|
)
|
Changes in foreign currency exchange rates
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Balances at January 30, 2016
|
425
|
|
|
18
|
|
|
—
|
|
|
18
|
|
Balances at January 28, 2017
|
$
|
425
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
|
(1)
|
Primarily represents the Five Star indefinite-lived tradenames classified as held for sale at January 31, 2015.
|
|
|
(2)
|
Represents the Future Shop tradename impaired as a result of the Canada brand restructuring in the first quarter of fiscal 2016. See Note 4,
Restructuring Charges
, for further discussion.
|
The following table provides the gross carrying amount of goodwill and cumulative goodwill impairment losses ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
January 30, 2016
|
|
Gross Carrying
Amount
|
|
Cumulative
Impairment
|
|
Gross Carrying
Amount
|
|
Cumulative
Impairment
|
Goodwill
|
$
|
1,100
|
|
|
$
|
(675
|
)
|
|
$
|
1,100
|
|
|
$
|
(675
|
)
|
Insurance
We are self-insured for certain losses related to health, workers' compensation and general liability claims; however, we obtain third-party insurance coverage to limit our exposure to certain claims. Some of these self-insured losses are managed through a wholly-owned insurance captive. We estimate our self-insured liabilities using a number of factors, including historical claims experience, an estimate of incurred but not reported claims, demographic and severity factors and valuations provided by independent third-party actuaries. Our self-insured liabilities included in the Consolidated Balance Sheets were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
January 30, 2016
|
Accrued liabilities
|
$
|
65
|
|
|
$
|
62
|
|
Long-term liabilities
|
63
|
|
|
54
|
|
Total
|
$
|
128
|
|
|
$
|
116
|
|
Income Taxes
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. We record a valuation allowance to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
In determining our provision for income taxes, we use an annual effective income tax rate based on annual income, permanent differences between book and tax income and statutory income tax rates. The effective income tax rate also reflects our assessment of the ultimate outcome of tax audits. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available. Discrete events, such as audit settlements or changes in tax laws, are recognized in the period in which they occur.
Our income tax returns are periodically audited by U.S. federal, state and local and foreign tax authorities. At any one time, multiple tax years are subject to audit by the various tax authorities. In evaluating the tax benefits associated with our various tax filing positions, we record a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. A number of years may elapse before a particular matter, for which we have established a liability, is audited and effectively settled. We adjust our liability for unrecognized tax benefits in the period in which we determine the issue is effectively settled with the tax authorities, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. We include our liability for unrecognized tax benefits, including accrued penalties and interest, in accrued income taxes and long-term liabilities on our Consolidated Balance Sheets and in income tax expense in our Consolidated Statements of Earnings.
Accrued Liabilities
The major components of accrued liabilities at
January 28, 2017
, and
January 30, 2016
, were state and local tax liabilities, advertising accruals, rent-related liabilities, including accrued real estate taxes, loyalty program liabilities and self-insurance reserves.
Long-Term Liabilities
The major components of long-term liabilities at
January 28, 2017
, and
January 30, 2016
, were unrecognized tax benefits, rent-related liabilities, self-insurance reserves, deferred revenue and deferred compensation plan liabilities.
Foreign Currency
Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our Consolidated Balance Sheet date. For operations reported on a
one
-month lag, we use the exchange rates in effect
one
month prior to our Consolidated Balance Sheet date. Results of operations and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on the translation of assets and liabilities is included as a component of shareholders' equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in SG&A, have not been significant in any of the periods presented.
Revenue Recognition
We recognize revenue when the sales price is fixed or determinable, collection is reasonably assured and the customer takes possession of the merchandise, or in the case of services, the service has been provided. Revenue excludes sales taxes collected. Revenue from merchandise sales and services is reported net of sales returns, which includes an estimate of future returns based on historical return rates, with a corresponding reduction to cost of sales. Our sales returns reserve, which represents the estimated gross margin impact of returns, was
$28 million
and
$25 million
at
January 28, 2017
, and
January 30, 2016
, respectively.
For revenue transactions that involve multiple deliverables, we defer the revenue associated with any undelivered elements. The amount of revenue deferred in connection with the undelivered elements is determined using the relative fair value of each element, which is generally based on each element's relative retail price.
Our deferred revenues primarily relate to merchandise not yet delivered to customers, services not yet completed and technical support contracts not yet completed. Short-term deferred revenue was
$418 million
and
$357 million
as of
January 28, 2017
, and
January 30, 2016
, respectively. At
January 28, 2017
, and
January 30, 2016
, deferred revenue included within long-term liabilities in our Consolidated Balance Sheets was
$34 million
and
$45 million
, respectively.
Merchandise revenue
Revenue is recognized for store sales when the customer receives and pays for merchandise. In the case of items paid for in store but subsequently delivered to the customer, revenue is recognized once delivery has been completed.
For transactions initiated online, customers choose whether to collect merchandise from one of our stores (“in-store pick up”) or have it delivered to them (typically using third party parcel delivery companies). For in-store pick up, we recognize revenue once the customer has taken possession of merchandise. For items delivered directly to the customer, we recognize revenue when delivery has been completed. Any fees charged to customers for delivery are also recognized when delivery has been completed.
Services
Revenue related to consultation, design, installation, set-up, repair and educational classes are recognized once the service is complete. We sell various protection plans with extended warranty coverage for merchandise and technical support to assist customers in using their devices. Such plans have terms typically ranging from one month to five years. For extended warranty protection, third party underwriters assume the risk associated with the coverage and are deemed to be the legal obligor. We record the net commissions we receive (the amount charged to the customer less the premiums remitted to the underwriter) as revenue when the corresponding merchandise revenue is recognized. In addition, we are eligible to receive profit sharing payments, which are dependent upon the performance of the portfolio. We record such profit share as revenue once the portfolio period to which it relates is complete, and we have sufficient evidence to estimate the amount. Service and commission revenues earned from the sale of extended warranties represented
2.2%
,
2.3%
and
2.1%
of revenue in fiscal
2017
,
2016
and
2015
, respectively. These percentages include
$133 million
,
$158 million
and
$19 million
, in fiscal
2017
,
2016
and
2015
, respectively, of profit share revenue.
For technical support contracts, we assume responsibility for fulfilling the support to customers and we recognize the associated revenue either on a straight-line basis over the life of the contracts, or, if sufficient history is available, on a consumption basis.
Credit card revenue
We offer promotional financing and credit cards issued by third-party banks that manage and directly extend credit to our customers. The banks are the sole owners of the accounts receivable generated under the program and accordingly, we do not hold any consumer receivables related to these programs. We are eligible to receive a profit share from our banking partners based on the performance of the programs. We record such profit share as revenue once the portfolio period to which it relates is complete, and we have sufficient evidence to estimate the amount.
Gift cards
We sell gift cards to our customers in our retail stores, online and through select third parties. We do not charge administrative fees on unused gift cards and our gift cards do not have an expiration date. We recognize revenue from gift cards when: (i) the gift card is redeemed by the customer; or (ii) the likelihood of the gift card being redeemed by the customer is remote, and we determine that we do not have a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions ("gift card breakage"). We determine our gift card breakage rate based upon historical redemption patterns and recognize the projected breakage
24
months after the gift card is issued. Gift card breakage income is included in revenue in our Consolidated Statements of Earnings. Gift card breakage income was
$37 million
,
$46 million
and
$19 million
in fiscal
2017
,
2016
and
2015
, respectively.
Sales Incentives
We frequently offer sales incentives that entitle our customers to receive a gift card at time of purchase or a reduction in the price of a product or service either at the point of sale or by submitting a claim for a refund (for example coupons, rebates, etc.). For sales incentives issued to the customer in conjunction with a sale of merchandise or services, the reduction in revenue is recognized at the time of sale, based on the expected retail value of the incentive expected to be redeemed.
Customer Loyalty Programs
We have customer loyalty programs which allow members to earn points for each qualifying purchase. Points earned enable members to receive a certificate that may be redeemed on future purchases at our Best Buy branded stores. Depending on the customer's membership level within our loyalty program, certificates expirations typically range from
2
to
12
months from the date of issuance. The retail value of points earned by our loyalty program members is included in accrued liabilities and recorded as a reduction of revenue at the time the points are earned, based on the percentage of points that are projected to be redeemed.
We recognize revenue when: (i) a certificate is redeemed by the customer; (ii) a certificate expires; or (iii) the likelihood of a certificate being redeemed by a customer is low ("certificate breakage"). We determine our certificate breakage rate based upon historical redemption patterns.
Cost of Goods Sold and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in each major expense category:
|
|
|
|
|
|
Cost of Goods Sold
|
•
|
|
Total cost of products sold including:
|
|
|
—
|
|
Freight expenses associated with moving merchandise inventories from our vendors to our distribution centers;
|
|
|
—
|
|
Vendor allowances that are not a reimbursement of specific, incremental and identifiable costs; and
|
|
|
—
|
|
Cash discounts on payments to merchandise vendors;
|
•
|
|
Cost of services provided including:
|
|
|
—
|
|
Payroll and benefits costs for services employees; and
|
|
|
—
|
|
Cost of replacement parts and related freight expenses;
|
•
|
|
Physical inventory losses;
|
•
|
|
Markdowns;
|
•
|
|
Customer shipping and handling expenses;
|
•
|
|
Costs associated with operating our distribution network, including payroll and benefit costs, occupancy costs and depreciation; and
|
•
|
|
Freight expenses associated with moving merchandise inventories from our distribution centers to our retail stores.
|
|
|
|
|
|
|
SG&A
|
•
|
|
Payroll and benefit costs for retail and corporate employees;
|
•
|
|
Occupancy and maintenance costs of retail, services and corporate facilities;
|
•
|
|
Depreciation and amortization related to retail, services and corporate assets;
|
•
|
|
Advertising costs;
|
•
|
|
Vendor allowances that are a reimbursement of specific, incremental and identifiable costs to promote a vendor's products;
|
•
|
|
Tender costs, including bank charges and costs associated with credit and debit card interchange fees;
|
•
|
|
Charitable contributions;
|
•
|
|
Outside and outsourced service fees;
|
•
|
|
Long-lived asset impairment charges; and
|
•
|
|
Other administrative costs, such as supplies, travel and lodging.
|
Vendor Allowances
We receive allowances from certain vendors through a variety of programs and arrangements intended to offset our costs of promoting and selling merchandise inventories. Vendor allowances are primarily in the form of receipt-based funds or sell-through credits. Receipt-based funds are generally determined at an agreed percentage of purchase price and are initially deferred and recorded as a reduction of merchandise inventories. The deferred amounts are then included as a reduction of cost of goods sold when the related product is sold. Sell-through credits are generally calculated using an agreed upon amount for each unit sold and are recognized when the related product is sold. Vendor allowances provided as a reimbursement of specific, incremental and identifiable costs, such as specialized store labor or training costs, are included in SG&A as an expense reduction when the cost is incurred.
Advertising Costs
Advertising costs, which are included in SG&A, are expensed when the advertisement runs. Advertising costs consist primarily of digital, print and television advertisements, as well as promotional events. Advertising expenses were
$743 million
,
$742 million
and
$711 million
in fiscal
2017
,
2016
and
2015
, respectively.
Stock-Based Compensation
We apply the fair value recognition provisions of accounting guidance as they relate to our stock-based compensation, which requires us to recognize expense for the fair value of our stock-based compensation awards. Compensation expense is recognized over the period in which services are required. It is recognized on a straight-line basis, except where there are performance awards that vest on a graded basis in which case the expense for these awards is front-loaded, or recognized on a graded attribution basis.
2. Discontinued Operations
Discontinued operations are primarily comprised of Jiangsu Five Star Appliance Co., Limited ("Five Star") within our International segment. During the fourth quarter of fiscal 2015, we entered into a definitive agreement to sell our Five Star business to Yingtan City Xiangyuan Investment Limited Partnership and Zhejiang Jiayuan Real Estate Group Co. On February 13, 2015, we completed the sale of Five Star and recognized a gain on sale of
$99 million
. Following the sale of Five Star, we continued to hold as available for sale one retail property in Shanghai, China. The assets of this property were classified as held for sale in the Consolidated Balance Sheets and were
$31 million
as of January 30, 2016. In May 2016, we completed the sale of the property and recognized a gain, net of income tax, of
$16 million
. The gain on sale of the property is included in other, net within operating activities in the Consolidated Statements of Cash Flows.
The aggregate financial results of all discontinued operations for fiscal
2017
,
2016
and
2015
were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Revenue
|
$
|
—
|
|
|
$
|
217
|
|
|
$
|
1,564
|
|
Restructuring charges
(1)
|
—
|
|
|
1
|
|
|
18
|
|
Gain (loss) from discontinued operations before income tax expense
|
28
|
|
|
(8
|
)
|
|
(12
|
)
|
Income tax expense
|
(7
|
)
|
|
(1
|
)
|
|
—
|
|
Gain on sale of discontinued operations
|
—
|
|
|
99
|
|
|
1
|
|
Net earnings (loss) from discontinued operations including noncontrolling interests
|
21
|
|
|
90
|
|
|
(11
|
)
|
Net earnings from discontinued operations attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(2
|
)
|
Net earnings (loss) from discontinued operations attributable to Best Buy Co., Inc. shareholders
|
$
|
21
|
|
|
$
|
90
|
|
|
$
|
(13
|
)
|
|
|
(1)
|
See Note 4,
Restructuring Charges
, for further discussion of the restructuring charges associated with discontinued operations.
|
3. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs:
Level 1
— Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date.
Level 2
— Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:
|
|
•
|
Quoted prices for similar assets or liabilities in active markets;
|
|
|
•
|
Quoted prices for identical or similar assets 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 that are Measured at Fair Value on a Recurring Basis
The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
The following table sets forth by level within the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis at
January 28, 2017
, and
January 30, 2016
, according to the valuation techniques we used to determine their fair values ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Fair Value Hierarchy
|
|
January 28, 2017
|
|
January 30, 2016
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
Money market funds
|
Level 1
|
|
$
|
290
|
|
|
$
|
51
|
|
Commercial paper
|
Level 2
|
|
—
|
|
|
265
|
|
Time deposits
|
Level 2
|
|
15
|
|
|
306
|
|
Short-term investments
|
|
|
|
|
|
Corporate bonds
|
Level 2
|
|
—
|
|
|
193
|
|
Commercial paper
|
Level 2
|
|
349
|
|
|
122
|
|
Time deposits
|
Level 2
|
|
1,332
|
|
|
990
|
|
Other current assets
|
|
|
|
|
|
Money market funds
|
Level 1
|
|
7
|
|
|
—
|
|
Commercial paper
|
Level 2
|
|
60
|
|
|
—
|
|
Foreign currency derivative instruments
|
Level 2
|
|
2
|
|
|
18
|
|
Time deposits
|
Level 2
|
|
100
|
|
|
79
|
|
Other assets
|
|
|
|
|
|
Interest rate swap derivative instruments
|
Level 2
|
|
13
|
|
|
25
|
|
Auction rate securities
|
Level 3
|
|
—
|
|
|
2
|
|
Marketable securities that fund deferred compensation
|
Level 1
|
|
96
|
|
|
96
|
|
Liabilities
|
|
|
|
|
|
Accrued Liabilities
|
|
|
|
|
|
Foreign currency derivative instruments
|
Level 2
|
|
3
|
|
|
1
|
|
There were no transfers between levels during fiscal 2017 and 2016. During fiscal 2017, our remaining investments in auction rate securities ("ARS") were called at par, which resulted in proceeds of $2 million and no realized gain or loss. As of January 28, 2017, we had no items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3). For the periods ended January 30, 2016 there were no changes in the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3).
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, are classified as Level 1.
Commercial Paper.
Our investments in commercial paper were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2.
Time Deposits.
Our time deposits are balances held with banking institutions that cannot be withdrawn for specified terms without a penalty. Time deposits are held at face value plus accrued interest, which approximates fair value, and are classified as Level 2.
Corporate Bonds.
Our corporate bond investments were measured at fair value using quoted market prices. They were classified as Level 2 as they trade in a non-active market for which bond prices are readily available.
Foreign Currency Derivative Instruments.
Comprised primarily of foreign currency forward contracts and foreign currency swap contracts, our foreign currency derivative instruments were measured at fair value using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. Our foreign currency derivative
instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
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.
Auction Rate Securities.
Our investments in auction rate securities ("ARS") were classified as Level 3 as quoted prices were unavailable. Due to limited market information, we utilized a discounted future cash flows ("DCF") model to derive an estimate of fair value. The assumptions we used in preparing the DCF model include estimates with respect to the amount and timing of future interest and principal payments, forward projections of the interest rate benchmarks, the probability of full repayment of the principal considering the credit quality and guarantees in place, and the rate of return required by investors to own such securities given the current liquidity risk associated with ARS.
Marketable Securities that Fund Deferred Compensation.
The assets that fund our deferred compensation consist of investments in mutual funds. 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.
Assets and Liabilities that are 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, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on our Consolidated Balance Sheets. For these assets, we do not periodically adjust 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 operating income in our Consolidated Statements of Earnings.
There were no fair value remeasurements for non-restructuring property and equipment impairments and restructuring activities related to discontinued operations recorded in fiscal
2017
and
2016
. The following table summarizes the fair value remeasurements for non-restructuring property and equipment impairments and restructuring activities related to continuing operations recorded in fiscal
2017
and
2016
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Impairments
|
|
Remaining Net
Carrying Value
(1)
|
|
Impairments
|
|
Remaining Net
Carrying Value
(1)
|
Property and equipment (non-restructuring)
|
$
|
28
|
|
|
$
|
—
|
|
|
$
|
61
|
|
|
$
|
15
|
|
Restructuring activities
(2)
|
|
|
|
|
|
|
|
Property and equipment
|
8
|
|
|
—
|
|
|
30
|
|
|
—
|
|
Tradename
|
—
|
|
|
—
|
|
|
40
|
|
|
—
|
|
Total
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
131
|
|
|
$
|
15
|
|
|
|
(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 January 28, 2017, and January 30, 2016.
|
|
|
(2)
|
See Note 4,
Restructuring Charges
, for additional information.
|
All of the fair value remeasurements included in the table above were based on significant unobservable inputs (Level 3). Fixed asset fair values were derived using a DCF model to estimate the present value of net cash flows that the asset or asset group is 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. In the case of assets for which the impairment was the result of restructuring activities, no future cash flows have been assumed as the assets will cease to be used and expected sale values are nominal.
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,
Debt
, for information about the fair value of our long-term debt.
4. Restructuring Charges
Summary
Restructuring charges incurred in fiscal
2017
,
2016
and
2015
were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Continuing operations
|
|
|
|
|
|
Renew Blue Phase 2
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Canadian brand consolidation
|
3
|
|
|
200
|
|
|
—
|
|
Renew Blue
(1)
|
5
|
|
|
(2
|
)
|
|
11
|
|
Other restructuring activities
(2)
|
5
|
|
|
3
|
|
|
(6
|
)
|
Total continuing operations
|
39
|
|
|
201
|
|
|
5
|
|
Discontinued operations
|
|
|
|
|
|
Renew Blue
(1)
|
—
|
|
|
—
|
|
|
18
|
|
Total
|
$
|
39
|
|
|
$
|
201
|
|
|
$
|
23
|
|
(1) Represents activity related to our remaining termination benefits and vacant space liabilities, primarily in our International segment, for our Renew Blue restructuring program, which began in the fourth quarter of fiscal 2013. Continuing operations charges related to the Domestic segment were
$0 million
, benefit of
$1 million
and
$10 million
for fiscal 2017, 2016 and 2015, respectively; and to the International segment were
$5 million
, benefit of
$1 million
and
$1 million
for fiscal 2017, 2016 and 2015, respectively. All discontinued operations charges related to the International segment. As of January 28, 2017, the termination benefits liability was
$0 million
and the remaining vacant space liability was $
9 million
. We may continue to incur immaterial adjustments to the vacant space liability for charges in sublease assumptions or potential lease buyouts. In addition, lease payments for vacated stores will continue until leases expire or are terminated.
(2) Represents activity related to our remaining vacant space liability for U.S. large-format store closures in fiscal 2013. We may continue to incur immaterial adjustments to the liability for changes in sublease assumptions or potential lease buyouts. In addition, lease payments for vacated stores will continue until leases expire or are terminated. The remaining vacant space liability was
$14 million
at January 28, 2017.
Renew Blue Phase 2
In the first quarter of fiscal 2017, we took several strategic actions to eliminate and simplify certain components of our operations and restructure certain field and corporate teams as part of our Renew Blue Phase 2 plan. In fiscal 2017, we incurred $
26 million
of restructuring charges related to implementing these changes, which primarily consisted of employee termination benefits and property and equipment impairments. All restructuring charges related to this plan are from continuing operations and are presented in restructuring charges in our Consolidated Statement of Earnings.
The composition of the restructuring charges we incurred during fiscal 2017 for Renew Blue Phase 2 was as follows ($ in millions):
|
|
|
|
|
|
Domestic
|
|
2017
|
Property and equipment impairments
|
$
|
8
|
|
Termination benefits
|
18
|
|
Total Renew Blue Phase 2 restructuring charges
|
$
|
26
|
|
The following table summarizes our restructuring accrual activity during fiscal 2017 related to termination benefits as a result of Renew Blue Phase 2 ($ in millions):
|
|
|
|
|
|
Termination
Benefits
|
Balances at January 30, 2016
|
$
|
—
|
|
Charges
|
19
|
|
Cash payments
|
(17
|
)
|
Adjustments
|
(2
|
)
|
Balances at January 28, 2017
|
$
|
—
|
|
Canadian Brand Consolidation
In the first quarter of fiscal 2016, we consolidated the Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. This resulted in the permanent closure of
66
Future Shop stores and the conversion of the remaining
65
Future Shop stores to the Best Buy brand. In fiscal 2017, we incurred $
3 million
of restructuring charges related to lease exit costs. During fiscal 2016, we incurred $
200 million
of restructuring charges, which primarily consisted of lease exit costs, a tradename impairment, property and equipment impairments, employee termination benefits and inventory write-downs. The inventory write-downs related to our Canadian brand consolidation are presented in restructuring charges – cost of goods sold in our Consolidated Statements of Earnings, and the remainder of the restructuring charges are presented in restructuring charges in our Consolidated Statements of Earnings.
The composition of the restructuring charges we incurred for this program in fiscal
2017
and
2016
, as well as the cumulative amount incurred through the end of fiscal
2017
, was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
2017
|
|
2016
|
|
Cumulative Amount
|
Continuing operations
|
|
|
|
|
|
Inventory write-downs
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Property and equipment impairments
|
—
|
|
|
30
|
|
|
30
|
|
Tradename impairment
|
—
|
|
|
40
|
|
|
40
|
|
Termination benefits
|
—
|
|
|
25
|
|
|
25
|
|
Facility closure and other costs
|
3
|
|
|
102
|
|
|
105
|
|
Total continuing operations
|
$
|
3
|
|
|
$
|
200
|
|
|
$
|
203
|
|
The following tables summarize our restructuring accrual activity during the fiscal
2017
and 2016, related to termination benefits and facility closure and other costs associated with Canadian brand consolidation ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
Benefits
|
|
Facility
Closure and
Other Costs
|
|
Total
|
Balances at January 31, 2015
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Charges
|
28
|
|
|
113
|
|
|
141
|
|
Cash payments
|
(24
|
)
|
|
(47
|
)
|
|
(71
|
)
|
Adjustments
(1)
|
(2
|
)
|
|
5
|
|
|
3
|
|
Changes in foreign currency exchange rates
|
—
|
|
|
(7
|
)
|
|
(7
|
)
|
Balances at January 30, 2016
|
$
|
2
|
|
|
$
|
64
|
|
|
$
|
66
|
|
Charges
|
—
|
|
|
1
|
|
|
1
|
|
Cash payments
|
(2
|
)
|
|
(37
|
)
|
|
(39
|
)
|
Adjustments
(1)
|
—
|
|
|
2
|
|
|
2
|
|
Changes in foreign currency exchange rates
|
—
|
|
|
4
|
|
|
4
|
|
Balances at January 28, 2017
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
34
|
|
(1) The adjustments related to termination benefits relate to higher-than-expected employee retention. Adjustments to facility closure and other costs represent changes in sublease assumptions.
5. Debt
Short-Term Debt
U.S. Revolving Credit Facilities
On June 27, 2016, we entered into a
$1.25 billion
five-year senior unsecured revolving credit facility agreement (the "Five-Year Facility Agreement") with a syndicate of banks. The Five-Year Facility Agreement replaced the previous
$1.25 billion
senior unsecured revolving credit facility (the "Previous Facility") with a syndicate of banks, which was originally scheduled to expire in June 2019, but was terminated on June 27, 2016.
The interest rate under the Five-Year Facility Agreement is variable and is determined at our option as: (i) the sum of (a) the greatest of (1) JPMorgan Chase Bank, N.A.'s prime rate, (2) the greater of the federal funds rate and the overnight bank funding rate plus, in each case,
0.5%
, and (3) the one-month London Interbank Offered Rate (“LIBOR”), subject to certain adjustments plus
1%
, and (b) a variable margin rate (the “ABR Margin”); or (ii) the LIBOR plus a variable margin rate (the “LIBOR Margin”). In addition, a facility fee is assessed on the commitment amount. The ABR Margin, LIBOR Margin and the facility fee are based upon our current senior unsecured debt rating. Under the Five-Year Facility Agreement, the ABR Margin ranges from
0.00%
to
0.50%
, the LIBOR Margin ranges from
0.90%
to
1.50%
and the facility fee ranges from
0.10%
to
0.25%
. At
January 28, 2017
, and
January 30, 2016
, there were
no
borrowings outstanding. As of
January 28, 2017
,
$1.25 billion
was available under the Five-Year Facility Agreement.
The Five-Year Facility Agreement is guaranteed by certain of our subsidiaries and contains customary affirmative and negative covenants materially consistent with the Previous Facility. Among other things, these covenants restrict our and certain of our subsidiaries' ability to incur certain types or amounts of indebtedness, incur liens on certain assets, make material changes in corporate structure or the nature of our business, dispose of material assets, engage in a change in control transaction, make certain foreign investments, enter into certain restrictive agreements, or engage in certain transactions with affiliates. The Five-Year Facility Agreement also contains covenants that require us to maintain a maximum quarterly cash flow leverage ratio and a minimum quarterly interest coverage ratio (both ratios measured quarterly for the previous 12 months). The Five-Year Facility Agreement contains default provisions including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants.
Long-Term Debt
Long-term debt consisted of the following ($ in millions):
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
January 30, 2016
|
2016 Notes
|
$
|
—
|
|
|
$
|
350
|
|
2018 Notes
|
500
|
|
|
500
|
|
2021 Notes
|
650
|
|
|
650
|
|
Interest rate swap valuation adjustments
|
13
|
|
|
25
|
|
Subtotal
|
1,163
|
|
|
1,525
|
|
Debt discounts and issuance costs
|
(5
|
)
|
|
(7
|
)
|
Financing lease obligations
|
177
|
|
|
178
|
|
Capital lease obligations
|
30
|
|
|
38
|
|
Total long-term debt
|
1,365
|
|
|
1,734
|
|
Less: current portion
|
(44
|
)
|
|
(395
|
)
|
Total long-term debt, less current portion
|
$
|
1,321
|
|
|
$
|
1,339
|
|
2018 Notes
On July 16, 2013, we completed the sale of
$500 million
principal amount of notes due August 1, 2018 (the “2018 Notes”). The 2018 Notes bear interest at a fixed rate of
5.00%
per year, payable semi-annually on February 1 and August 1 of each year, beginning on February 1, 2014. Net proceeds from the sale of the 2018 Notes were
$495 million
, after underwriting and issue discounts totaling
$5 million
.
We may redeem some or all of the 2018 Notes at any time, at a redemption price equal to the greater of (1)
100%
of the principal amount of the 2018 Notes to be redeemed and (2) the sum of the present values of each remaining scheduled payment of principal and interest on the 2018 Notes to be redeemed discounted to the redemption date on a semi-annual basis at the Treasury Rate plus
50
basis points. Furthermore, if a change of control triggering event occurs, we will be required to offer to purchase the remaining unredeemed 2018 Notes at a price equal to
101%
of their principal amount, plus accrued and unpaid interest to the purchase date.
The 2018 Notes are unsecured and unsubordinated obligations and rank equally with all of our other unsecured and unsubordinated debt. The 2018 Notes contain covenants that, among other things, limit our ability and the ability of our subsidiaries to incur debt secured by liens and enter into sale and lease-back transactions.
2016 and 2021 Notes
In March 2011, we issued
$350 million
principal amount of notes due March 15, 2016 (the “2016 Notes”) and
$650 million
principal amount of notes due March 15, 2021 (the “2021 Notes” and, together with the 2016 Notes, the “Notes”). In March 2016, we repaid the 2016 Notes using existing cash resources. The 2016 Notes bore interest at a fixed rate of
3.75%
per year, while the 2021 Notes bear interest at a fixed rate of
5.50%
per year. Interest on the 2021 Notes is payable semi-annually on March 15 and September 15 of each year, beginning on September 15, 2011. The 2021 Notes were issued at a slight discount to par, which when coupled with underwriting discounts of
$6 million
, resulted in net proceeds from the sale of the Notes of
$990 million
.
We may redeem some or all of the 2021 Notes at any time at a redemption price equal to the greater of (i)
100%
of the principal amount and (ii) the sum of the present values of each remaining scheduled payment of principal and interest discounted to the redemption date on a semiannual basis, plus accrued and unpaid interest on the principal amount to the redemption date as described in the indenture (including the supplemental indenture) relating to the 2021 Notes. Furthermore, if a change of control triggering event occurs, we will be required to offer to purchase the remaining unredeemed 2021 Notes at a price equal to
101%
of their principal amount, plus accrued and unpaid interest to the purchase date.
The 2021 Notes are unsecured and unsubordinated obligations and rank equally with all of our other unsecured and unsubordinated debt. The 2021 Notes contain covenants that, among other things, limit our ability to incur debt secured by liens or to enter into sale and lease-back transactions.
Fair Value and Future Maturities
The fair value of long-term debt, excluding debt discounts and issuance costs and financing and capital lease obligations, approximated
$1,240 million
and
$1,543 million
at
January 28, 2017
, and
January 30, 2016
, respectively, based primarily on the quoted market prices, compared to carrying values of
$1,163 million
and
$1,525 million
, respectively. If our long-term debt was recorded at fair value, it would be classified as Level 2 in the fair value hierarchy.
At
January 28, 2017
, the future maturities of long-term debt, excluding debt discounts and issuance costs and financing and capital lease obligations (see Note 8,
Leases
, for the future lease obligation maturities), consisted of the following ($ in millions):
|
|
|
|
|
Fiscal Year
|
|
2018
|
$
|
—
|
|
2019
|
511
|
|
2020
|
—
|
|
2021
|
—
|
|
2022
|
652
|
|
Thereafter
|
—
|
|
Total long-term debt
|
$
|
1,163
|
|
6. Derivative Instruments
We manage our economic and transaction exposure to certain risks through the use of 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 Consolidated Balance Sheet at fair value and evaluate hedge effectiveness prospectively and 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 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 ineffective portion of the gain or loss, if any, in net earnings.
Interest Rate Swaps
We use "receive fixed-rate, pay variable-rate" interest rate swaps to mitigate the effect of interest rate fluctuations on a portion of our 2018 Notes and 2021 Notes. 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 as a fair value hedge 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 Consolidated Statements of Earnings from the fair value of the derivatives.
Derivatives Not Designated as Hedging Instruments
We use foreign currency forward contracts to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies. The contracts generally have terms of up to
12
months. These derivative instruments are not designated in hedging relationships and, therefore, we record gains and losses on these contracts directly to net earnings.
Summary of Derivative Balances
The following table presents the gross fair values for outstanding derivative instruments and the corresponding classification at
January 28, 2017
, and
January 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
January 30, 2016
|
Contract Type
|
Assets
|
Liabilities
|
|
Assets
|
Liabilities
|
Derivatives designated as net investment hedges
(1)
|
$
|
2
|
|
$
|
2
|
|
|
$
|
15
|
|
$
|
1
|
|
Derivatives designated as interest rate swaps
(2)
|
13
|
|
—
|
|
|
25
|
|
—
|
|
No hedge designation (foreign exchange forward contracts)
(1)
|
—
|
|
1
|
|
|
3
|
|
—
|
|
Total
|
$
|
15
|
|
$
|
3
|
|
|
$
|
43
|
|
$
|
1
|
|
|
|
(1)
|
The fair value is recorded in other current assets or accrued liabilities.
|
|
|
(2)
|
The fair value is recorded in other assets or long-term liabilities.
|
The following table presents the effects of derivative instruments on other comprehensive income ("OCI") and on our Consolidated Statements of Earnings for fiscal
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Contract Type
|
Pre-tax Gain (Loss) Recognized in OCI
|
|
Gain(Loss) Reclassified from Accumulated OCI to Earnings
(Effective Portion)
|
|
Pre-tax Gain (Loss) Recognized in OCI
|
|
Gain(Loss) Reclassified from Accumulated OCI to Earnings
(Effective Portion)
|
Derivatives designated as net investment hedges
|
$
|
(14
|
)
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
—
|
|
The following table presents the effects of derivatives on our Consolidated Statements of Earnings for fiscal
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized within SG&A
|
Contract Type
|
2017
|
|
2016
|
No hedge designation (foreign exchange forward contracts)
|
$
|
(3
|
)
|
|
$
|
4
|
|
The following table presents the effects of interest rate derivatives on our Consolidated Statements of Earnings for fiscal 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized within Interest Expense
|
Contract Type
|
2017
|
|
2016
|
Interest rate swap gain (loss)
|
$
|
(12
|
)
|
|
$
|
23
|
|
Adjustments to carrying value of long-term debt
|
12
|
|
|
(23
|
)
|
Net impact on consolidated statement of earnings
|
$
|
—
|
|
|
$
|
—
|
|
The following table presents the notional amounts of our derivative instruments at
January 28, 2017
, and
January 30, 2016
:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
Contract Type
|
January 28, 2017
|
|
January 30, 2016
|
Derivatives designated as net investment hedges
|
$
|
205
|
|
|
$
|
208
|
|
Derivatives designated as interest rate swaps
|
750
|
|
|
750
|
|
No hedge designation (foreign exchange forward contracts)
|
43
|
|
|
94
|
|
Total
|
$
|
998
|
|
|
$
|
1,052
|
|
7. Shareholders' Equity
Stock Compensation Plans
Our 2014 Omnibus Incentive Plan (the "Omnibus Plan") authorizes us to grant or issue non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards up to a total of
22.5 million
shares. We have not granted incentive stock options under the Omnibus Plan. Under the terms of the Omnibus Plan, awards may be granted to our employees, officers, advisers, consultants and directors. Awards issued under the Omnibus Plan vest as determined by the Compensation and Human Resources Committee of our Board of Directors at the time of grant. Awards granted, forfeited or canceled under the previous plan, the 2004 Omnibus Stock and Incentive Plan, after February 1, 2014, adjust the amount available under the Omnibus Plan. At
January 28, 2017
, a total of
14.6 million
shares were available for future grants under the Omnibus Plan.
Upon adoption and approval of the Omnibus Plan, all of our previous equity incentive compensation plans were terminated. However, existing awards under those plans continued to vest in accordance with the original vesting schedule and will expire at the end of their original term.
Our outstanding stock options have a
10
-year term. Outstanding stock options issued to employees generally vest over a
three
-year period. Share awards vest based either upon attainment of specified goals or solely upon continued employment ("time-based"). Outstanding share awards that are not time-based vest at the end of a three-year incentive period based upon our total shareholder return ("TSR") compared to the TSR of companies that comprise Standard & Poor's 500 Index
("market-based") or upon the achievement of company performance goals ("performance-based"). We have time-based share awards that vest in their entirety at the end of
three
-year periods, time-based share awards where
25%
of the award vests on the date of grant and
25%
vests on each of the
three
anniversary dates thereafter and time-based share awards to directors that vest one year from the grant date.
Our Employee Stock Purchase Plan, as amended, permits employees to purchase our common stock at a
5%
discount from the market price at the end of semi-annual purchase periods and is non-compensatory. Employees are required to hold the common stock purchased for 12 months. In fiscal
2017
,
2016
and
2015
,
0.2 million
,
0.2 million
and
0.3 million
shares, respectively, were purchased through our employee stock purchase plans. At
January 28, 2017
, and
January 30, 2016
, plan participants had accumulated
$2 million
and
$2 million
, respectively, to purchase our common stock pursuant to these plans.
Stock-based compensation expense was as follows in fiscal
2017
,
2016
and
2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Stock options
|
$
|
9
|
|
|
$
|
15
|
|
|
$
|
17
|
|
Share awards
|
|
|
|
|
|
Market-based
|
15
|
|
|
16
|
|
|
10
|
|
Performance-based
|
6
|
|
|
—
|
|
|
—
|
|
Time-based
|
78
|
|
|
73
|
|
|
60
|
|
Total
|
$
|
108
|
|
|
$
|
104
|
|
|
$
|
87
|
|
Stock Options
Stock option activity was as follows in fiscal
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
Weighted-Average Exercise Price per Share
|
|
Weighted-Average Remaining Contractual Term
(in years)
|
|
Aggregate
Intrinsic Value
(in millions)
|
Outstanding at January 30, 2016
|
14,242,000
|
|
|
$
|
36.51
|
|
|
|
|
|
|
Granted
|
224,000
|
|
|
$
|
31.79
|
|
|
|
|
|
|
Exercised
|
(5,273,000
|
)
|
|
$
|
31.29
|
|
|
|
|
|
|
Forfeited/Canceled
|
(2,206,000
|
)
|
|
$
|
48.13
|
|
|
|
|
|
|
Outstanding at January 28, 2017
|
6,987,000
|
|
|
$
|
36.61
|
|
|
4.3
|
|
$
|
54
|
|
Vested or expected to vest at January 28, 2017
|
6,987,000
|
|
|
$
|
36.61
|
|
|
4.3
|
|
$
|
54
|
|
Exercisable at January 28, 2017
|
5,858,000
|
|
|
$
|
36.63
|
|
|
3.5
|
|
$
|
46
|
|
The weighted-average grant-date fair value of stock options granted during fiscal
2017
,
2016
and
2015
was
$8.04
,
$11.59
and
$9.09
, respectively, per share. The aggregate intrinsic value of our stock options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised during fiscal
2017
,
2016
and
2015
, was
$55 million
,
$14 million
and
$13 million
, respectively. At
January 28, 2017
, there was
$8 million
of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of
1.0
years.
Net cash proceeds from the exercise of stock options were
$164 million
,
$40 million
and
$42 million
in fiscal
2017
,
2016
and
2015
, respectively.
There was
$19 million
,
$5 million
and
$5 million
of income tax benefits realized from stock option exercises in fiscal
2017
,
2016
and
2015
, respectively.
In fiscal
2017
,
2016
and
2015
, we estimated the fair value of each stock option on the date of grant using a lattice or Black Scholes valuation model (for certain individuals) with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Valuation Assumptions
(1)
|
|
2017
|
|
2016
|
|
2015
|
Risk-free interest rate
(2)
|
|
0.5% – 2.0%
|
|
|
0.1% – 2.1%
|
|
|
0.1% – 2.4%
|
|
Expected dividend yield
|
|
3.5
|
%
|
|
2.3
|
%
|
|
2.5
|
%
|
Expected stock price volatility
(3)
|
|
37
|
%
|
|
37
|
%
|
|
40
|
%
|
Expected life of stock options (in years)
(4)
|
|
6.0
|
|
|
6.0
|
|
|
6.0
|
|
|
|
(1)
|
Forfeitures are estimated using historical experience and projected employee turnover.
|
|
|
(2)
|
Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of our stock options.
|
|
|
(3)
|
In projecting expected stock price volatility, we consider both the historical volatility of our stock price as well as implied volatilities from exchange-traded options on our stock.
|
|
|
(4)
|
We estimate the expected life of stock options based upon historical experience.
|
Market-Based Share Awards
The fair value of market-based share awards is determined using Monte-Carlo simulation. A summary of the status of our nonvested market-based share awards at
January 28, 2017
, and changes during fiscal
2017
, is as follows:
|
|
|
|
|
|
|
|
|
Market-Based Share Awards
|
|
Shares
|
|
Weighted-Average Fair Value per Share
|
Outstanding at January 30, 2016
|
|
1,462,000
|
|
|
$
|
32.33
|
|
Granted
|
|
1,088,000
|
|
|
$
|
29.52
|
|
Vested
|
|
(781,000
|
)
|
|
$
|
26.84
|
|
Forfeited/Canceled
|
|
(217,000
|
)
|
|
$
|
33.27
|
|
Outstanding at January 28, 2017
|
|
1,552,000
|
|
|
$
|
32.99
|
|
At
January 28, 2017
, there was
$23 million
of unrecognized compensation expense related to nonvested market-based share awards that we expect to recognize over a weighted-average period of
1.7
years.
Time-Based Share Awards
The fair value of time-based share awards is determined based on the closing market price of our stock on the date of grant. This value is reduced by the present value of expected dividends during vesting when the employee is not entitled to dividends.
A summary of the status of our nonvested time-based share awards at
January 28, 2017
, and changes during fiscal
2017
, is as follows:
|
|
|
|
|
|
|
|
|
Time-Based Share Awards
|
|
Shares
|
|
Weighted-Average Fair Value per Share
|
Outstanding at January 30, 2016
|
|
5,103,000
|
|
|
$
|
31.89
|
|
Granted
|
|
2,979,000
|
|
|
$
|
30.68
|
|
Vested
|
|
(2,202,000
|
)
|
|
$
|
30.83
|
|
Forfeited/Canceled
|
|
(515,000
|
)
|
|
$
|
32.76
|
|
Outstanding at January 28, 2017
|
|
5,365,000
|
|
|
$
|
31.57
|
|
At
January 28, 2017
, there was
$98 million
of unrecognized compensation expense related to nonvested time-based share awards that we expect to recognize over a weighted-average period of
1.7
years.
Performance-Based Share Awards
The fair value of performance-based share awards is determined based on the closing market price of our stock on the date of grant. This value is reduced by the present value of expected dividends during vesting when the employee is not entitled to dividends.
A summary of the status of our nonvested performance-based share awards at
January 28, 2017
, and changes during fiscal
2017
, is as follows:
|
|
|
|
|
|
|
|
|
Performance-Based Share Awards
|
|
Shares
|
|
Weighted-Average Fair Value per Share
|
Outstanding at January 30, 2016
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
513,000
|
|
|
$
|
29.08
|
|
Forfeited/Canceled
|
|
(75,000
|
)
|
|
$
|
29.66
|
|
Outstanding at January 28, 2017
|
|
438,000
|
|
|
$
|
28.98
|
|
At
January 28, 2017
, there was
$5 million
of unrecognized compensation expense related to nonvested performance-based share awards that we expect to recognize over a weighted-average period of
1.8
years.
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 the potentially dilutive common shares been issued. Potentially dilutive securities include stock options, nonvested share awards 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 each period if established market or performance criteria have been met at the end of the respective periods.
At
January 28, 2017
, options to purchase
7.0 million
shares of common stock were outstanding as follows (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
Unexercisable
|
|
Total
|
|
Shares
|
|
%
|
|
Weighted-
Average Price
per Share
|
|
Shares
|
|
%
|
|
Weighted-
Average Price
per Share
|
|
Shares
|
|
%
|
|
Weighted-
Average Price
per Share
|
In-the-money
|
2.3
|
|
|
39
|
%
|
|
$
|
26.38
|
|
|
0.5
|
|
|
45
|
%
|
|
$
|
30.84
|
|
|
2.8
|
|
|
40
|
%
|
|
$
|
27.13
|
|
Out-of-the-money
|
3.6
|
|
|
61
|
%
|
|
$
|
43.45
|
|
|
0.6
|
|
|
55
|
%
|
|
$
|
40.66
|
|
|
4.2
|
|
|
60
|
%
|
|
$
|
43.01
|
|
Total
|
5.9
|
|
|
100
|
%
|
|
$
|
36.64
|
|
|
1.1
|
|
|
100
|
%
|
|
$
|
36.54
|
|
|
7.0
|
|
|
100
|
%
|
|
$
|
36.61
|
|
The computation of dilutive shares outstanding excludes the out-of-the-money stock options because such outstanding options' exercise prices were greater than the average market price of our common shares and, therefore, the effect would be anti-dilutive (i.e., including such options would result in higher earnings per share).
The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share from continuing operations attributable to Best Buy Co., Inc. in fiscal
2017
,
2016
and
2015
($ and shares in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Numerator (in millions):
|
|
|
|
|
|
Net earnings from continuing operations attributable to Best Buy Co., Inc., shareholders
|
$
|
1,207
|
|
|
$
|
807
|
|
|
$
|
1,246
|
|
Denominator (in millions):
|
|
|
|
|
|
Weighted-average common shares outstanding
|
318.5
|
|
|
346.5
|
|
|
349.5
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
Stock options and other
|
4.1
|
|
|
4.2
|
|
|
4.1
|
|
Weighted-average common shares outstanding, assuming dilution
|
322.6
|
|
|
350.7
|
|
|
353.6
|
|
Net earnings per share from continuing operations attributable to Best Buy Co., Inc. shareholders
|
|
|
|
|
|
Basic
|
$
|
3.79
|
|
|
$
|
2.33
|
|
|
$
|
3.57
|
|
Diluted
|
$
|
3.74
|
|
|
$
|
2.30
|
|
|
$
|
3.53
|
|
Repurchase of Common Stock
In June 2011, our Board of Directors authorized a
$5.0 billion
share repurchase program. There is no expiration date governing the period over which we can repurchase shares under the June 2011 share repurchase program.
On January 22, 2016, we entered into a variable notional accelerated share repurchase agreement ("January 2016 ASR") with a third party financial institution to repurchase
$150 million
to
$175 million
of our common stock. Under the agreement, we paid
$175 million
at the beginning of the contract and received an initial delivery of
4.4 million
shares on January 25, 2016. We retired these shares and recorded a
$120 million
reduction to stockholders' equity. As of January 30, 2016, the remaining
$55 million
was included as a reduction of stockholders' equity as prepaid share repurchase on our Consolidated Balance Sheets. The January 2016 ASR was settled on February 17, 2016, for a final notional amount of
$165 million
. Accordingly we received
1.6 million
shares, which were retired, and a
$10 million
cash payment from our counter-party equal to the difference between the
$175 million
up-front payment and the final notional amount. The cash received was included as other, net within financing activities on our Consolidated Statements of Cash Flow. The final notional amount was determined based upon the volume-weighted average share price of our common stock during the term of the January 2016 ASR agreement. The number of shares delivered was based upon the final notional amount and the volume-weighted average share price of our common stock during the term of the agreement, less an agreed-upon discount.
The following table presents information regarding the shares we repurchased and retired in fiscal
2017
and
2016
, noting that we had no repurchases and retirements in fiscal
2015
($ and shares in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Total cost of shares repurchased
|
|
|
|
Open market
(1)
|
$
|
706
|
|
|
$
|
880
|
|
January 2016 ASR
|
45
|
|
|
120
|
|
Total
|
$
|
751
|
|
|
$
|
1,000
|
|
|
|
|
|
Average price per share
|
|
|
|
Open market
|
$
|
36.11
|
|
|
$
|
31.03
|
|
January 2016 ASR
|
$
|
28.55
|
|
|
$
|
27.28
|
|
Average
|
$
|
35.54
|
|
|
$
|
30.53
|
|
|
|
|
|
Number of shares repurchased and retired
|
|
|
|
Open market
(1)
|
19.5
|
|
|
28.4
|
January 2016 ASR
|
1.6
|
|
|
4.4
|
Total
|
21.1
|
|
|
32.8
|
|
|
(1)
|
As of
January 28, 2017
,
$8 million
, or
0.1 million
shares, in trades remained unsettled. The liability for unsettled trades is included in accrued liabilities in the Consolidated Balance Sheets.
|
At
January 28, 2017
,
$2.2 billion
remained available for additional purchases under the June 2011 share repurchase program. In February 2017, our Board of Directors authorized a new $5.0 billion share repurchase plan, which supersedes the June 2011 share repurchase program. There is no expiration date governing the period over which we can repurchase shares under the February 2017 share repurchase program. Repurchased shares have been retired and constitute authorized but unissued shares.
Comprehensive Income (Loss)
Comprehensive income (loss) is computed as net earnings plus certain other items that are recorded directly to shareholders' equity. In addition to net earnings, the significant components of comprehensive income (loss) include foreign currency translation adjustments and unrealized gains and losses, net of tax, on available-for-sale marketable equity securities. Foreign currency translation adjustments do not include a provision for income tax expense when earnings from foreign operations are considered to be indefinitely reinvested outside the U.S.
The following table provides a reconciliation of the components of accumulated other comprehensive income, net of tax, attributable to Best Buy Co., Inc. shareholders for fiscal
2017
,
2016
, and
2015
, respectively ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
|
Available-For-Sale Investments
(1)
|
|
Total
|
Balances at February 1, 2014
|
$
|
485
|
|
|
$
|
7
|
|
|
$
|
492
|
|
Foreign currency translation adjustments
|
(103
|
)
|
|
—
|
|
|
(103
|
)
|
Unrealized gains on available-for-sale investments
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
Reclassification of losses on available-for-sale investments into earnings
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
Balances at January 31, 2015
|
382
|
|
|
—
|
|
|
382
|
|
Foreign currency translation adjustments
|
(44
|
)
|
|
—
|
|
|
(44
|
)
|
Reclassification of foreign currency translation adjustments into earnings due to sale of business
|
(67
|
)
|
|
—
|
|
|
(67
|
)
|
Balances at January 30, 2016
|
271
|
|
|
—
|
|
|
271
|
|
Foreign currency translation adjustments
|
10
|
|
|
—
|
|
|
10
|
|
Reclassification of foreign currency translation adjustments into earnings
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Balances at January 28, 2017
|
$
|
279
|
|
|
$
|
—
|
|
|
$
|
279
|
|
|
|
(1)
|
There were no material tax impacts to gains or losses on available-for-sale investments in the periods presented.
|
8. Leases
The composition of net rent expense for all operating leases, including leases of property and equipment, was as follows in fiscal
2017
,
2016
and
2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Minimum rentals
|
$
|
789
|
|
|
$
|
797
|
|
|
$
|
848
|
|
Contingent rentals
|
1
|
|
|
1
|
|
|
2
|
|
Total rent expense
|
790
|
|
|
798
|
|
|
850
|
|
Less: sublease income
|
(16
|
)
|
|
(15
|
)
|
|
(18
|
)
|
Net rent expense
|
$
|
774
|
|
|
$
|
783
|
|
|
$
|
832
|
|
The future minimum lease payments under our capital, financing and operating leases by fiscal year (not including contingent rentals) at
January 28, 2017
, were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Capital
Leases
|
|
Financing
Leases
|
|
Operating
Leases
(1)
|
2018
|
|
$
|
9
|
|
|
$
|
46
|
|
|
$
|
803
|
|
2019
|
|
7
|
|
|
41
|
|
|
676
|
|
2020
|
|
4
|
|
|
35
|
|
|
546
|
|
2021
|
|
3
|
|
|
28
|
|
|
411
|
|
2022
|
|
2
|
|
|
20
|
|
|
285
|
|
Thereafter
|
|
11
|
|
|
56
|
|
|
404
|
|
Total minimum lease payments
|
|
36
|
|
|
226
|
|
|
$
|
3,125
|
|
Less amount representing interest
|
|
(6
|
)
|
|
(49
|
)
|
|
|
Present value of minimum lease payments
|
|
30
|
|
|
177
|
|
|
|
Less current maturities
|
|
(8
|
)
|
|
(36
|
)
|
|
|
|
Present value of minimum lease payments, less current maturities
|
|
$
|
22
|
|
|
$
|
141
|
|
|
|
|
|
|
(1)
|
Operating lease obligations do not include payments to landlords covering real estate taxes and common area maintenance. These charges, if included, would increase total operating lease obligations by
$1.0 billion
at
January 28, 2017
.
|
Total minimum lease payments have not been reduced by minimum sublease rent income of approximately
$79 million
due under future noncancelable subleases.
9. Benefit Plans
We sponsor retirement savings plans for employees meeting certain eligibility requirements. Participants may choose from various investment options, including a fund comprised of our company stock. Participants can contribute up to
50%
of their eligible compensation annually as defined by the plan document, subject to Internal Revenue Service limitations. We match
100%
of the first
3%
of participating employees' contributions and
50%
of the next
2%
. Employer contributions vest immediately. The total employer contributions were
$56 million
,
$53 million
and
$60 million
in fiscal
2017
,
2016
and
2015
, respectively.
We have a non-qualified, unfunded deferred compensation plan for highly compensated employees and members of our Board of Directors. Amounts contributed and deferred under our deferred compensation plan are credited or charged with the performance of investment options offered under the plan and elected by the participants. In the event of bankruptcy, the assets of the plan are available to satisfy the claims of general creditors. The liability for compensation deferred under the plan was
$31 million
and
$34 million
at
January 28, 2017
, and
January 30, 2016
, respectively, and is included in long-term liabilities. We manage the risk of changes in the fair value of the liability for deferred compensation by electing to match our liability under the plan with investment vehicles that offset a substantial portion of our exposure. The fair value of the investment vehicles, which includes funding for future deferrals, was
$96 million
and
$96 million
at
January 28, 2017
, and
January 30, 2016
, respectively, and is included in other assets.
10. Income Taxes
The following is a reconciliation of the federal statutory income tax rate to income tax expense in fiscal
2017
,
2016
and
2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Federal income tax at the statutory rate
|
$
|
635
|
|
|
$
|
458
|
|
|
$
|
485
|
|
State income taxes, net of federal benefit
|
38
|
|
|
38
|
|
|
43
|
|
(Benefit) expense from foreign operations
|
(46
|
)
|
|
5
|
|
|
(23
|
)
|
Other
|
(18
|
)
|
|
2
|
|
|
(11
|
)
|
Legal entity reorganization
|
—
|
|
|
—
|
|
|
(353
|
)
|
Income tax expense
|
$
|
609
|
|
|
$
|
503
|
|
|
$
|
141
|
|
Effective income tax rate
|
33.5
|
%
|
|
38.4
|
%
|
|
10.1
|
%
|
Legal Entity Reorganization
In the fourth quarter of fiscal 2012, we purchased Carphone Warehouse Group plc's interest in the Best Buy Mobile profit share agreement for
$1.3 billion
(the “Mobile buy-out”). The Mobile buy-out completed by our U.K. subsidiary resulted in the
$1.3 billion
purchase price being assigned, for U.S. tax purposes only, to an intangible asset. The Mobile buy-out did not, however, result in a similar intangible asset in the U.K., as the Mobile buy-out was considered part of a tax-free equity transaction for U.K. tax purposes.
Because the U.S. tax basis in the intangible asset was considered under U.S. tax law to be held by our U.K. subsidiary, which was regarded as a foreign corporation for U.S. tax purposes, Accounting Standards Codification ("ASC") 740,
Income Taxes
, requires that no deferred tax asset may be recorded in respect of the intangible asset. ASC 740-30-25-9 also precludes the recording of a deferred tax asset on the outside basis difference of the U.K. subsidiary. As a result, the amortization of the U.S. tax basis in the intangible asset only resulted in a periodic income tax benefit by reducing the amount of the U.K. subsidiary’s income, if any, that would otherwise have been subject to U.S. income taxes.
In the first quarter of fiscal 2015, we filed an election with the Internal Revenue Service to treat the U.K. subsidiary as a disregarded entity such that its assets are now deemed to be assets held directly by a U.S. entity for U.S. tax purposes. This tax-only election, which resulted in the liquidation of the U.K. subsidiary for U.S. tax purposes, resulted in the elimination of our outside basis difference in the U.K. subsidiary. Additionally, the election resulted in the recognition of a deferred tax asset (and
corresponding income tax benefit) for the remaining unrecognized inside tax basis in the intangible, in a manner similar to a change in tax status as provided in ASC 740-10-25-32.
Earnings from continuing operations before income tax expense by jurisdiction was as follows in fiscal
2017
,
2016
and
2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
United States
|
$
|
1,507
|
|
|
$
|
1,310
|
|
|
$
|
1,201
|
|
Outside the United States
|
309
|
|
|
—
|
|
|
186
|
|
Earnings from continuing operations before income tax expense
|
$
|
1,816
|
|
|
$
|
1,310
|
|
|
$
|
1,387
|
|
Income tax expense was comprised of the following in fiscal
2017
,
2016
and
2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
Federal
|
$
|
317
|
|
|
$
|
347
|
|
|
$
|
354
|
|
State
|
37
|
|
|
48
|
|
|
51
|
|
Foreign
|
54
|
|
|
60
|
|
|
33
|
|
|
408
|
|
|
455
|
|
|
438
|
|
Deferred:
|
|
|
|
|
|
Federal
|
163
|
|
|
65
|
|
|
(275
|
)
|
State
|
21
|
|
|
10
|
|
|
(26
|
)
|
Foreign
|
17
|
|
|
(27
|
)
|
|
4
|
|
|
201
|
|
|
48
|
|
|
(297
|
)
|
Income tax expense
|
$
|
609
|
|
|
$
|
503
|
|
|
$
|
141
|
|
Deferred taxes are the result of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities were comprised of the following ($ in millions):
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
January 30, 2016
|
Accrued property expenses
|
$
|
91
|
|
|
$
|
175
|
|
Other accrued expenses
|
76
|
|
|
78
|
|
Deferred revenue
|
104
|
|
|
99
|
|
Compensation and benefits
|
43
|
|
|
99
|
|
Stock-based compensation
|
64
|
|
|
86
|
|
Goodwill and intangibles
|
210
|
|
|
253
|
|
Loss and credit carryforwards
|
123
|
|
|
133
|
|
Other
|
59
|
|
|
86
|
|
Total deferred tax assets
|
770
|
|
|
1,009
|
|
Valuation allowance
|
(94
|
)
|
|
(108
|
)
|
Total deferred tax assets after valuation allowance
|
676
|
|
|
901
|
|
Property and equipment
|
(240
|
)
|
|
(296
|
)
|
Inventory
|
(97
|
)
|
|
(69
|
)
|
Other
|
(22
|
)
|
|
(26
|
)
|
Total deferred tax liabilities
|
(359
|
)
|
|
(391
|
)
|
Net deferred tax assets
|
$
|
317
|
|
|
$
|
510
|
|
Net deferred tax assets are included in our Consolidated Balance Sheets as other assets as of January 28, 2017, and January 30, 2016.
At
January 28, 2017
, we had total net operating loss carryforwards from international operations of
$77 million
, of which
$70 million
will expire in various years through
2036
and the remaining amounts have no expiration. Additionally, we had acquired U.S. federal net operating loss carryforwards of
$17 million
, which expire between
2023
and
2030
; U.S. federal foreign tax credit carryforwards of
$1 million
, which expire between 2023 and 2026; U.S. federal capital loss carryforwards of
$3 million
, which expire in
2022
; state credit carryforwards of
$10 million
, which expire in
2024
; state capital loss carryforwards of
$5 million
, which expire in
2019
; international credit carryforwards of
$2 million
, which have no expiration; and international capital loss carryforwards of
$8 million
, which have no expiration.
At
January 28, 2017
, a valuation allowance of
$94 million
had been established, of which
$1 million
is against U.S. federal foreign tax credit carryforwards;
$16 million
is against international, U.S. federal and state capital loss carryforwards;
$7 million
is against state credit carryforwards and other state deferred tax assets; and
$70 million
is against certain international net operating loss carryforwards and other international deferred tax assets. The
$14 million
decrease from
January 30, 2016
, is primarily due to the exchange rate impact on the valuation allowance against certain international net operating loss carryforwards.
We have not provided deferred taxes on unremitted earnings attributable to foreign operations that have been considered to be reinvested indefinitely. These earnings relate to ongoing operations and were
$1.1 billion
at
January 28, 2017
. It is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested.
The following table provides a reconciliation of changes in unrecognized tax benefits for fiscal
2017
,
2016
and
2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
469
|
|
|
$
|
410
|
|
|
$
|
370
|
|
Gross increases related to prior period tax positions
|
11
|
|
|
30
|
|
|
33
|
|
Gross decreases related to prior period tax positions
|
(144
|
)
|
|
(13
|
)
|
|
(88
|
)
|
Gross increases related to current period tax positions
|
55
|
|
|
59
|
|
|
114
|
|
Settlements with taxing authorities
|
(12
|
)
|
|
(9
|
)
|
|
(9
|
)
|
Lapse of statute of limitations
|
(5
|
)
|
|
(8
|
)
|
|
(10
|
)
|
Balance at end of period
|
$
|
374
|
|
|
$
|
469
|
|
|
$
|
410
|
|
Unrecognized tax benefits of
$346 million
,
$337 million
and
$297 million
at
January 28, 2017
,
January 30, 2016
, and
January 31, 2015
, respectively, would favorably impact our effective income tax rate if recognized.
We recognize interest and penalties (not included in the "unrecognized tax benefits" above), as well as interest received from favorable tax settlements, as components of income tax expense. Interest income of
$9 million
was recognized in fiscal
2017
. At
January 28, 2017
,
January 30, 2016
, and
January 31, 2015
, we had accrued interest of
$61 million
,
$89 million
and
$78 million
, respectively, along with accrued penalties of
$1 million
,
$1 million
and
$2 million
at
January 28, 2017
,
January 30, 2016
, and
January 31, 2015
, respectively.
We file a consolidated U.S. federal income tax return, as well as income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before fiscal
2007
.
Because existing tax positions will continue to generate increased liabilities for us for unrecognized tax benefits over the next
12
months, and since we are routinely under audit by various taxing authorities, it is reasonably possible that the amount of unrecognized tax benefits will change during the next
12
months. An estimate of the amount or range of such change cannot be made at this time. However, we do not expect the change, if any, to have a material effect on our consolidated financial condition, results of operations or cash flows within the next
12
months.
11. Segment and Geographic Information
Segment Information
Our chief operating decision maker ("CODM") is our Chief Executive Officer. Our business is organized into
two
reportable segments: Domestic (which is comprised of all operations within the U.S. and its territories) and International (which is
comprised of all operations outside the U.S. and its districts and territories). Our CODM has ultimate responsibility for enterprise decisions. Our CODM determines, in particular, resource allocation for, and monitors 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 Canada and Mexico businesses into one International operating segment. Our Domestic and International operating segments also represent our reportable segments. The accounting policies of the segments are the same as those described in Note 1,
Summary of Significant Accounting Policies
.
The following tables present our business segment information in fiscal
2017
,
2016
and
2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Revenue
|
|
|
|
|
|
Domestic
|
$
|
36,248
|
|
|
$
|
36,365
|
|
|
$
|
36,055
|
|
International
|
3,155
|
|
|
3,163
|
|
|
4,284
|
|
Total revenue
|
$
|
39,403
|
|
|
$
|
39,528
|
|
|
$
|
40,339
|
|
Percentage of revenue, by revenue category
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
Consumer Electronics
|
34
|
%
|
|
32
|
%
|
|
31
|
%
|
Computing and Mobile Phones
|
45
|
%
|
|
46
|
%
|
|
47
|
%
|
Entertainment
|
7
|
%
|
|
8
|
%
|
|
9
|
%
|
Appliances
|
9
|
%
|
|
8
|
%
|
|
7
|
%
|
Services
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
Other
|
—
|
%
|
|
1
|
%
|
|
1
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
International
|
|
|
|
|
|
Consumer Electronics
|
31
|
%
|
|
31
|
%
|
|
30
|
%
|
Computing and Mobile Phones
|
48
|
%
|
|
48
|
%
|
|
49
|
%
|
Entertainment
|
7
|
%
|
|
9
|
%
|
|
9
|
%
|
Appliances
|
6
|
%
|
|
5
|
%
|
|
5
|
%
|
Services
|
7
|
%
|
|
6
|
%
|
|
6
|
%
|
Other
|
1
|
%
|
|
1
|
%
|
|
1
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Operating income (loss)
|
|
|
|
|
|
Domestic
(1)
|
$
|
1,764
|
|
|
$
|
1,585
|
|
|
$
|
1,437
|
|
International
|
90
|
|
|
(210
|
)
|
|
13
|
|
Total operating income
|
1,854
|
|
|
1,375
|
|
|
1,450
|
|
Other income (expense)
|
|
|
|
|
|
Gain on sale of investments
|
3
|
|
|
2
|
|
|
13
|
|
Investment income and other
|
31
|
|
|
13
|
|
|
14
|
|
Interest expense
|
(72
|
)
|
|
(80
|
)
|
|
(90
|
)
|
Earnings from continuing operations before income tax expense
|
$
|
1,816
|
|
|
$
|
1,310
|
|
|
$
|
1,387
|
|
Assets
(2)
|
|
|
|
|
|
Domestic
|
$
|
12,496
|
|
|
$
|
12,318
|
|
|
$
|
12,987
|
|
International
|
1,360
|
|
|
1,201
|
|
|
2,258
|
|
Total assets
|
$
|
13,856
|
|
|
$
|
13,519
|
|
|
$
|
15,245
|
|
Capital expenditures
(2)
|
|
|
|
|
|
Domestic
|
$
|
526
|
|
|
$
|
602
|
|
|
$
|
519
|
|
International
|
56
|
|
|
47
|
|
|
42
|
|
Total capital expenditures
|
$
|
582
|
|
|
$
|
649
|
|
|
$
|
561
|
|
Depreciation
(2)
|
|
|
|
|
|
Domestic
|
$
|
613
|
|
|
$
|
613
|
|
|
$
|
575
|
|
International
|
41
|
|
|
44
|
|
|
81
|
|
Total depreciation
|
$
|
654
|
|
|
$
|
657
|
|
|
$
|
656
|
|
(1) The Domestic segment operating income includes certain operations, which are based in foreign tax jurisdictions and primarily relate to sourcing products into the U.S.
(2) For fiscal 2015, the International segment amounts for assets, capital expenditures and depreciation include amounts from Five Star.
Geographic Information
The following table presents our geographic information in fiscal
2017
,
2016
and
2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Net sales to customers
|
|
|
|
|
|
United States
|
$
|
36,248
|
|
|
$
|
36,365
|
|
|
$
|
36,055
|
|
Canada
|
2,899
|
|
|
2,917
|
|
|
4,047
|
|
Other
|
256
|
|
|
246
|
|
|
237
|
|
Total revenue
|
$
|
39,403
|
|
|
$
|
39,528
|
|
|
$
|
40,339
|
|
Long-lived assets
|
|
|
|
|
|
United States
|
$
|
2,120
|
|
|
$
|
2,189
|
|
|
$
|
2,100
|
|
Canada
|
156
|
|
|
140
|
|
|
174
|
|
Other
|
17
|
|
|
17
|
|
|
21
|
|
Total long-lived assets
|
$
|
2,293
|
|
|
$
|
2,346
|
|
|
$
|
2,295
|
|
12. Contingencies and Commitments
Contingencies
We are involved in a number of legal proceedings. Where appropriate, we have made accruals with respect to these matters, which are reflected in our 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 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. We filed a motion to dismiss the consolidated complaint in September 2011, and in March 2012, subsequent to the end of fiscal 2012, the court issued a decision dismissing the action with prejudice. In April 2012, the plaintiffs filed a motion to alter or amend the court's decision on our motion to dismiss. In October 2012, the court granted plaintiff's motion to alter or amend the court's decision on our motion to dismiss in part by vacating such decision and giving plaintiff leave to file an amended complaint, which plaintiff did in October 2012. We filed a motion to dismiss the amended complaint in November 2012 and all responsive pleadings were filed in December 2012. A hearing was held on April 26, 2013. On August 5, 2013, the court issued an order granting our motion to dismiss in part and, contrary to its March 2012 order, denying the motion to dismiss in part, holding that certain of the statements alleged to have been made were not forward-looking statements and therefore were not subject to the “safe-harbor” provisions of the Private Securities Litigation Reform Act. 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. In October 2016, IBEW advised the trial court it will not seek review by the Supreme Court. The trial court held a January 2017 conference during which the parties were asked to submit briefs on their respective interpretations of the 8th Circuit Decision. Briefing is complete and we await a ruling as to the next phase of proceedings before the trial court. We continue to believe that these allegations are without merit and intend to vigorously defend our company in this matter.
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 of Directors serving during the relevant periods in fiscal 2011 and us as a nominal defendant in the U.S. District Court for the State of Minnesota. The lawsuit alleges that the director defendants breached their fiduciary duty, among other claims, including violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in failing to correct public misrepresentations and material misstatements and/or omissions regarding our fiscal 2011 earnings projections and, for certain directors, selling stock while in possession of material adverse non-public information. Additionally, in July 2011, a similar purported class action was filed by a single shareholder, Daniel Himmel, against us and certain of our executive officers in the same court. In November 2011, the respective lawsuits of Salvatore M. Talluto and Daniel Himmel were consolidated into a new action captioned, In
Re: Best Buy Co., Inc. Shareholder Derivative Litigation
, and a stay ordered pending the close of discovery in the consolidated
IBEW Local 98 Pension Fund v. Best Buy Co., Inc., et al.
case. Additionally, in June 2015, a similar purported class action was filed by a single shareholder, Khuong Tran, derivatively on behalf of Best Buy Co., Inc. against us and certain of our executive officers and directors in the same court. The Khuong Tran lawsuit has also been stayed pending the close of discovery in IBEW.
The plaintiffs in the above securities actions seek damages, including interest, equitable relief and reimbursement of the costs and expenses they incurred in the lawsuits. As stated above, we believe the allegations in the above securities actions are without merit, and we intend to defend these actions vigorously. Based on our assessment of the facts underlying the claims in the above securities actions, their respective procedural litigation history and the degree to which we intend to defend our company in these matters, the amount or range of reasonably possible losses, if any, cannot be estimated.
Cathode Ray Tube Action
On November 14, 2011, we filed a lawsuit captioned
In re Cathode Ray Tube Antitrust Litigation
in the United States District Court for the Northern District of California. We alleged that the defendants engaged in price fixing in violation of antitrust regulations relating to cathode ray tubes for the time period between March 1, 1995, through November 25, 2007. In connection with this action, we received settlement proceeds, net of legal expenses and costs, in the amount of
$77 million
during fiscal 2016. In the first quarter of fiscal 2017, we settled with the remaining defendants for
$161 million
, net of legal expenses and costs, which have been fully paid as of January 28, 2017. Settlement proceeds were recognized in cost of goods sold with the associated legal expenses recorded in SG&A. This matter is now resolved.
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.
Commitments
We had outstanding letters of credit with an aggregate fair value of
$89 million
at
January 28, 2017
.
13. Quarterly Financial Information (Unaudited)
The following tables show selected operating results for each 3-month quarter and full year of fiscal
2017
and
2016
(unaudited) ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
12-Month
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
2017
|
Revenue
|
$
|
8,443
|
|
|
$
|
8,533
|
|
|
$
|
8,945
|
|
|
$
|
13,482
|
|
|
$
|
39,403
|
|
Comparable sales % change
(1)
|
(0.1
|
)%
|
|
0.8
|
%
|
|
1.8
|
%
|
|
(0.7
|
)%
|
|
0.3
|
%
|
Gross profit
(2)
|
$
|
2,145
|
|
|
$
|
2,062
|
|
|
$
|
2,203
|
|
|
$
|
3,030
|
|
|
$
|
9,440
|
|
Operating income
(3)
|
372
|
|
|
289
|
|
|
312
|
|
|
881
|
|
|
1,854
|
|
Net earnings from continuing operations
|
226
|
|
|
182
|
|
|
192
|
|
|
607
|
|
|
1,207
|
|
Gain from discontinued operations, net of tax
|
3
|
|
|
16
|
|
|
2
|
|
|
—
|
|
|
21
|
|
Net earnings attributable to Best Buy Co., Inc. shareholders
|
229
|
|
|
198
|
|
|
194
|
|
|
607
|
|
|
1,228
|
|
Diluted earnings per share
(4)
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.69
|
|
|
$
|
0.56
|
|
|
$
|
0.60
|
|
|
$
|
1.91
|
|
|
$
|
3.74
|
|
Discontinued operations
|
0.01
|
|
|
0.05
|
|
|
0.01
|
|
|
—
|
|
|
0.07
|
|
Diluted earnings per share
|
$
|
0.70
|
|
|
$
|
0.61
|
|
|
$
|
0.61
|
|
|
$
|
1.91
|
|
|
$
|
3.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
12-Month
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
2016
|
Revenue
|
$
|
8,558
|
|
|
$
|
8,528
|
|
|
$
|
8,819
|
|
|
$
|
13,623
|
|
|
$
|
39,528
|
|
Comparable sales % change
(1)
|
0.6
|
%
|
|
3.8
|
%
|
|
0.8
|
%
|
|
(1.7
|
)%
|
|
0.5
|
%
|
Gross profit
(5)
|
$
|
2,030
|
|
|
$
|
2,098
|
|
|
$
|
2,112
|
|
|
$
|
2,951
|
|
|
$
|
9,191
|
|
Operating income
(6)
|
86
|
|
|
288
|
|
|
230
|
|
|
771
|
|
|
1,375
|
|
Net earnings from continuing operations
|
37
|
|
|
164
|
|
|
129
|
|
|
477
|
|
|
807
|
|
Gain (loss) from discontinued operations, net of tax
|
92
|
|
|
—
|
|
|
(4
|
)
|
|
2
|
|
|
90
|
|
Net earnings attributable to Best Buy Co., Inc. shareholders
|
129
|
|
|
164
|
|
|
125
|
|
|
479
|
|
|
897
|
|
Diluted earnings (loss) per share
(4)
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.10
|
|
|
$
|
0.46
|
|
|
$
|
0.37
|
|
|
$
|
1.39
|
|
|
$
|
2.30
|
|
Discontinued operations
|
0.26
|
|
|
—
|
|
|
(0.01
|
)
|
|
0.01
|
|
|
0.26
|
|
Diluted earnings per share
|
$
|
0.36
|
|
|
$
|
0.46
|
|
|
$
|
0.36
|
|
|
$
|
1.40
|
|
|
$
|
2.56
|
|
|
|
(1)
|
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 our 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 Canadian brand consolidation, which included the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website, had a material impact on a year-over-year basis on the remaining Canadian retail stores and the website. As such, from the first quarter of fiscal 2016 through the third quarter of fiscal 2017, all Canadian store and website revenue was removed from the comparable sales base and the International segment no longer had a comparable metric. Therefore, Consolidated comparable sales equaled the Domestic segment comparable sales. Beginning in the fourth quarter of fiscal 2017, we resumed reporting International comparable sales as revenue in the International segment was once again deemed to be comparable and, as such, Consolidated comparable sales are once again equal to the aggregation of Domestic and International comparable sales.
|
|
|
(2)
|
Includes
$183 million
of cathode ray tube ("CRT") litigation settlements reached and recorded in the fiscal first quarter and
$183 million
for the 12 months ended January 28, 2017, related to products purchased and sold in prior fiscal years.
|
|
|
(3)
|
Includes
$29 million
,
$0 million
,
$1 million
and
$9 million
of restructuring charges recorded in the fiscal first, second, third and fourth quarters, respectively, and
$39 million
for the 12 months ended January 28, 2017, related to measures we took to restructure our businesses. Also, includes
$161 million
of cathode ray tube litigation settlements, net of related legal fees and costs, recorded in the fiscal first quarter and in the 12 months ended January 28, 2017, related to products purchased and sold in prior fiscal years.
|
|
|
(4)
|
The sum of our quarterly diluted earnings per share does not equal our annual diluted earnings per share due to differences in quarterly and annual weighted-average shares outstanding.
|
|
|
(5)
|
Includes
$78 million
,
$10 million
,
$0 million
and
$2 million
of CRT and LCD litigation settlements reached and recorded in the fiscal first, second, third and fourth quarters respectively, and
$90 million
for the 12 months ended January 30, 2016, related to products purchased and sold in prior fiscal years.
|
|
|
(6)
|
Includes
$186 million
,
$(4) million
,
$7 million
and
$12 million
of restructuring charges recorded in the fiscal first, second, third and fourth quarters, respectively, and
$201 million
for the 12 months ended January 30, 2016, related to measures we took to restructure our businesses. Also, includes
$67 million
,
$8 million
,
$0 million
and
$2 million
of CRT and LCD litigation settlements, net of related legal fees and costs, recorded in the fiscal first, second, third and fourth quarters respectively, and
$77 million
for the 12 months ended January 30, 2016, related to products purchased and sold in prior fiscal years.
|