Document
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 3, 2018 
OR 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to             

Commission File Number: 1-9595
 
 bestbuylogoprimaryrgb.jpg
BEST BUY CO., INC.
(Exact name of registrant as specified in its charter)
Minnesota
 
41-0907483
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
7601 Penn Avenue South
 
 
Richfield, Minnesota
 
55423
(Address of principal executive offices)
 
(Zip Code)
(612) 291-1000
(Registrant’s telephone number, including area code) 
N/A
(Former name, former address and former fiscal year, if changed since last report) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
 
 
 
 
Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ¨ No x
The registrant had 269,101,569 shares of common stock outstanding as of December 5, 2018.


Table of Contents

BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 3, 2018 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2
Table of Contents

PART I — FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
Condensed Consolidated Balance Sheets 
$ in millions, except per share and share amounts (unaudited)
 
November 3, 2018
 
February 3, 2018
 
October 28, 2017
ASSETS
 

 
 

 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
$
1,228

 
$
1,101

 
$
1,103

Short-term investments
76

 
2,032

 
2,237

Receivables, net
921

 
1,049

 
971

Merchandise inventories
8,168

 
5,209

 
6,663

Other current assets
508

 
438

 
431

Total current assets
10,901

 
9,829

 
11,405

Property and equipment, net
2,525

 
2,421

 
2,352

Goodwill
921

 
425

 
425

Other assets
653

 
374

 
603

TOTAL ASSETS
$
15,000

 
$
13,049

 
$
14,785

 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
Current liabilities
 

 
 

 
 

Accounts payable
$
7,964

 
$
4,873

 
$
6,587

Unredeemed gift card liabilities
281

 
385

 
375

Deferred revenue
449

 
453

 
426

Accrued compensation and related expenses
349

 
561

 
331

Accrued liabilities
844

 
1,001

 
888

Current portion of long-term debt
46

 
544

 
545

Total current liabilities
9,933

 
7,817

 
9,152

Long-term liabilities
775

 
809

 
697

Long-term debt
1,280

 
811

 
784

Contingencies and Commitments (Note 14)
 
 
 
 
 
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 — 272,000,000, 283,000,000 and 296,000,000 shares, respectively
27

 
28

 
30

Retained earnings
2,685

 
3,270

 
3,818

Accumulated other comprehensive income
300

 
314

 
304

Total equity
3,012

 
3,612

 
4,152

TOTAL LIABILITIES AND EQUITY
$
15,000

 
$
13,049

 
$
14,785

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

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

Condensed Consolidated Statements of Earnings
$ and shares in millions, except per share amounts (unaudited)
 
Three Months Ended
 
Nine Months Ended
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Revenue
$
9,590

 
$
9,320

 
$
28,078

 
$
26,788

Cost of goods sold
7,266

 
7,040

 
21,400

 
20,333

Gross profit
2,324

 
2,280

 
6,678

 
6,455

Selling, general and administrative expenses
2,002

 
1,932

 
5,709

 
5,484

Restructuring charges
—

 
(2
)
 
47

 
—

Operating income
322

 
350

 
922

 
971

Other income (expense):
 

 
 

 


 


Gain on sale of investments
12

 
—

 
12

 
—

Investment income and other
11

 
12

 
35

 
30

Interest expense
(15
)
 
(20
)
 
(53
)
 
(57
)
Earnings from continuing operations before income tax expense
330

 
342

 
916

 
944

Income tax expense
53

 
104

 
187

 
309

Net earnings from continuing operations
277

 
238

 
729

 
635

Gain from discontinued operations (Note 1), net of tax
—

 
1

 
—

 
1

Net earnings
$
277

 
$
239

 
$
729

 
$
636

 
 
 
 
 
 
 
 
Basic earnings per share
$
1.01

 
$
0.80

 
$
2.62

 
$
2.09

Diluted earnings per share
$
0.99

 
$
0.78

 
$
2.57

 
$
2.05

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding
 

 
 

 
 
 
 
Basic
274.3

 
299.1

 
278.6

 
304.1

Diluted
279.3

 
305.4

 
283.8

 
310.6

 
See Notes to Condensed Consolidated Financial Statements. 

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Condensed Consolidated Statements of Comprehensive Income 
$ in millions (unaudited)
 
Three Months Ended
 
Nine Months Ended
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Net earnings
$
277

 
$
239

 
$
729

 
$
636

Foreign currency translation adjustments
4

 
(17
)
 
(14
)
 
25

Comprehensive income
$
281

 
$
222

 
$
715

 
$
661


See Notes to Condensed Consolidated Financial Statements. 


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Condensed Consolidated Statements of Cash Flows
$ in millions (unaudited)
 
Nine Months Ended
 
November 3, 2018
 
October 28, 2017
Operating activities
 
 
 
Net earnings
$
729

 
$
636

Adjustments to reconcile net earnings to total cash provided by operating activities:
 
 
 
Depreciation and amortization
550

 
500

Restructuring charges
47

 
—

Stock-based compensation
92

 
97

Deferred income taxes
15

 
4

Other, net
(10
)
 
(5
)
Changes in operating assets and liabilities, net of acquired assets and liabilities:
 
 
 
Receivables
121

 
413

Merchandise inventories
(2,950
)
 
(1,811
)
Other assets
(45
)
 
(36
)
Accounts payable
3,085

 
1,530

Other liabilities
(400
)
 
(187
)
Income taxes
(127
)
 
62

Total cash provided by operating activities
1,107

 
1,203

 
 
 
 
Investing activities
 

 
 

Additions to property and equipment
(619
)
 
(489
)
Purchases of investments
—

 
(4,047
)
Sales of investments
1,970

 
3,518

Acquisition of business, net of cash acquired
(792
)
 
—

Other, net
15

 
2

Total cash provided by (used in) investing activities
574

 
(1,016
)
 
 
 
 
Financing activities
 

 
 

Repurchase of common stock
(1,144
)
 
(1,138
)
Issuance of common stock
37

 
145

Dividends paid
(376
)
 
(310
)
Borrowings of debt
498

 
—

Repayments of debt
(535
)
 
(31
)
Other, net
(6
)
 
(1
)
Total cash used in financing activities
(1,526
)
 
(1,335
)
Effect of exchange rate changes on cash
(16
)
 
15

Increase (decrease) in cash, cash equivalents and restricted cash
139

 
(1,133
)
Cash, cash equivalents and restricted cash at beginning of period
1,300

 
2,433

Cash, cash equivalents and restricted cash at end of period
$
1,439

 
$
1,300


See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

Condensed Consolidated Statements of Changes in Shareholders' Equity 
$ and shares in millions, except per share amounts (unaudited)
 
Three Months Ended November 3, 2018
 
Common
Shares
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Balances at August 4, 2018
276

 
$
27

 
$
—

 
$
2,863

 
$
296

 
$
3,186

Net earnings
—

 
—

 
—

 
277

 
—

 
277

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 


Foreign currency translation adjustments
—

 
—

 
—

 
—

 
4

 
4

Stock-based compensation
—

 
—

 
29

 
—

 
—

 
29

Issuance of common stock
—

 
—

 
8

 
—

 
—

 
8

Common stock dividends, $0.45 per share
—

 
—

 
1

 
(124
)
 
—

 
(123
)
Repurchase of common stock
(4
)
 
—

 
(38
)
 
(331
)
 
—

 
(369
)
Balances at November 3, 2018
272

 
$
27

 
$
—

 
$
2,685

 
$
300

 
$
3,012

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended November 3, 2018
 
Common
Shares
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Balances at February 3, 2018
283

 
$
28

 
$
—

 
$
3,270

 
$
314

 
$
3,612

Adoption of ASU 2014-09
—

 
—

 
—

 
73

 
—

 
73

Net earnings
—

 
—

 
—

 
729

 
—

 
729

Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
—

 
—

 
(14
)
 
(14
)
Stock-based compensation
—

 
—

 
92

 
—

 
—

 
92

Issuance of common stock
4

 
—

 
37

 
—

 
—

 
37

Common stock dividends, $1.35 per share
—

 
—

 
5

 
(379
)
 
—

 
(374
)
Repurchase of common stock
(15
)
 
(1
)
 
(134
)
 
(1,008
)
 
—

 
(1,143
)
Balances at November 3, 2018
272

 
$
27

 
$
—

 
$
2,685

 
$
300

 
$
3,012

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended October 28, 2017
 
Common
Shares
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Balances at July 29, 2017
300

 
$
30

 
$
—

 
$
3,996

 
$
321

 
$
4,347

Net earnings
—

 
—

 
—

 
239

 
—

 
239

Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
—

 
—

 
(17
)
 
(17
)
Stock-based compensation
—

 
—

 
30

 
—

 
—

 
30

Issuance of common stock
2

 
1

 
20

 
—

 
—

 
21

Common stock dividends, $0.34 per share
—

 
—

 
—

 
(102
)
 
—

 
(102
)
Repurchase of common stock
(6
)
 
(1
)
 
(50
)
 
(315
)
 
—

 
(366
)
Balances at October 28, 2017
296

 
$
30

 
$
—

 
$
3,818

 
$
304

 
$
4,152

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended October 28, 2017
 
Common
Shares
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Balances at January 28, 2017
311

 
$
31

 
$
—

 
$
4,399

 
$
279

 
$
4,709

Adoption of ASU 2016-09
—

 
—

 
10

 
(12
)
 
—

 
(2
)
Net earnings
—

 
—

 
—

 
636

 
—

 
636

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
—

 
—

 
25

 
25

Stock-based compensation
—

 
—

 
97

 
—

 
—

 
97

Issuance of common stock
7

 
1

 
144

 
—

 
—

 
145

Common stock dividends, $1.02 per share
—

 
—

 
—

 
(311
)
 
—

 
(311
)
Repurchase of common stock
(22
)
 
(2
)
 
(251
)
 
(894
)
 
—

 
(1,147
)
Balances at October 28, 2017
296

 
$
30

 
$
—

 
$
3,818

 
$
304

 
$
4,152

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

Notes to Condensed Consolidated Financial Statements
(unaudited)

1.
Basis of Presentation
 
Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” in these Notes to Condensed Consolidated Financial Statements refers to Best Buy Co., Inc. and its consolidated subsidiaries.
 
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.

Historically, we have generated a large proportion of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018. The first nine months of fiscal 2019 and fiscal 2018 included 39 weeks.

In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our condensed consolidated financial statements. No such events were identified for the reported periods.

In preparing the accompanying condensed consolidated financial statements, we evaluated the period from November 4, 2018, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such events were identified for the reported periods.

Unadopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases, which will require lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases, and will expand disclosure requirements. The new guidance was issued to increase transparency and comparability among companies. In July 2018, the FASB approved an amendment to the new guidance that allows companies the option of using the effective date of the new standard as the initial application (at the beginning of the period in which is it adopted, rather than at the beginning of the earliest comparative period) and to recognize the effects of applying the new ASU as a cumulative effect adjustment to the opening balance sheet or retained earnings. Based on the effective dates, we expect to adopt the new guidance in the first quarter of fiscal 2020 using the new transition election to not restate comparative periods and are in process of implementing required upgrades to our existing lease systems. While we expect adoption to lead to a material increase in the assets and liabilities recorded on our consolidated balance sheet and an increase to our footnote disclosures related to leases, we are still evaluating the impact on our consolidated statement of earnings. We also expect that adoption of the new standard will require changes to our internal controls over financial reporting.

Adopted Accounting Pronouncements

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

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

In the first quarter of fiscal 2019, we also adopted ASU 2014-09, Revenue from Contracts with Customers. The new guidance establishes a single comprehensive model for entities to use in accounting for revenue and supersedes most revenue recognition guidance. It introduces a five-step process for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards under previous guidance. We elected the modified retrospective method of adoption, which we applied to contracts not completed at the date of adoption. Under this method, we recorded an increase to opening retained earnings of $73

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million, net of tax, due to the cumulative impact of these changes. The impact was primarily related to the timing of revenue recognition related to our gift cards, the sale of certain software licenses and our loyalty programs. We did not make any adjustments to prior period financial statements. We expect the impact of adoption to be immaterial to our revenue, net earnings and cash flows on an ongoing basis. As part of the adoption, we also modified certain control procedures and processes, none of which had a material effect on our internal controls over financial reporting.
 
The cumulative effect of the changes made to our Condensed Consolidated Balance Sheets on February 4, 2018, for the adoption of this standard was as follows ($ in millions):
 
February 3, 2018
As Reported
 
ASU 2014-09 Adjustment on February 4, 2018
 
February 4, 2018 Adjusted
Assets
 
 
 
 
 
Other assets
$
374

 
$
(19
)
 
$
355

Liabilities
 
 
 
 
 
Unredeemed gift card liabilities
385

 
(69
)
 
316

Deferred revenue
453

 
(26
)
 
427

Accrued liabilities
864

 
(3
)
 
861

Accrued income taxes
137

 
6

 
143

Equity
 
 
 
 
 
Retained earnings
3,270

 
73

 
3,343

 
The following tables reflect the impact of adopting this standard on our Condensed Consolidated Balance Sheets as of November 3, 2018, and our Condensed Consolidated Statements of Earnings for the three and nine months ended November 3, 2018 ($ in millions, except per share amounts):
 
November 3, 2018
Impact of Changes to Condensed Consolidated Balance Sheets
As Reported
 
Balances without Adoption of
ASU 2014-09
 
Effect of Change Higher/(Lower)(1)
Assets
 
 
 
 
 
Other current assets
$
508

 
$
459

 
$
49

Other assets
653

 
672

 
(19
)
Liabilities
 
 
 
 
 
Unredeemed gift card liabilities
281

 
349

 
(68
)
Deferred revenue
449

 
472

 
(23
)
Accrued liabilities
823

 
777

 
46

Accrued income taxes
21

 
15

 
6

Equity
 
 
 
 

Retained earnings
2,685

 
2,616

 
69

(1)
Effect of change includes the opening retained earnings adjustment as detailed within the table above.
 
Three Months Ended November 3, 2018
Impact of Changes to Condensed Consolidated Statements of Earnings
As Reported
 
Balances without Adoption of
ASU 2014-09
 
Effect of Change Higher/(Lower)
Revenue
$
9,590

 
$
9,575

 
$
15

Cost of goods sold
7,266

 
7,250

 
16

Gross profit
2,324

 
2,325

 
(1
)
Operating income
322

 
323

 
(1
)
Income tax expense
53

 
53

 
—

Net earnings
277

 
278

 
(1
)
 
 
 
 
 
 
Basic earnings per share
$
1.01

 
$
1.01

 
$
—

Diluted earnings per share
$
0.99

 
$
0.99

 
$
—


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Nine Months Ended November 3, 2018
Impact of Changes to Condensed Consolidated Statements of Earnings
As Reported
 
Balances without Adoption of
ASU 2014-09
 
Effect of Change Higher/(Lower)
Revenue
$
28,078

 
$
28,043

 
$
35

Cost of goods sold
21,400

 
21,361

 
39

Gross profit
6,678

 
6,682

 
(4
)
Operating income
922

 
926

 
(4
)
Income tax expense
187

 
188

 
(1
)
Net earnings
729

 
732

 
(3
)
 
 
 
 
 
 
Basic earnings per share
$
2.62

 
$
2.63

 
$
(0.01
)
Diluted earnings per share
$
2.57

 
$
2.58

 
$
(0.01
)

SEC Disclosure Update

In the third quarter of fiscal 2019, the U.S. Securities and Exchange Commission ("SEC") adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that have become redundant, duplicative, overlapping, outdated or superseded. Other than the amendment's expanded disclosure requirement for interim financial statements to include both current and comparative quarter- and year-to-date reconciliations of changes in shareholders' equity, it did not have a material impact on our interim disclosures or financial statements, nor do we expect it to have a material impact on our annual disclosures or financial statements.

Total Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the total shown within the Condensed Consolidated Statements of Cash Flows as of November 3, 2018, February 3, 2018, and October 28, 2017 ($ in millions):
 
November 3, 2018
 
February 3, 2018
 
October 28, 2017
Cash and cash equivalents
$
1,228

 
$
1,101

 
$
1,103

Restricted cash included in Other current assets
211

 
199

 
197

Total cash, cash equivalents and restricted cash
$
1,439

 
$
1,300

 
$
1,300


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

Discontinued Operations

Discontinued operations reflects activity within our International segment. Gain from discontinued operations for the three and nine months ended October 28, 2017, was $1 million, primarily related to the proceeds attributed to a non-compete clause from the sale of Best Buy Europe to Carphone Warehouse plc.

2.
Acquisition

GreatCall, Inc.

On October 1, 2018, we acquired all of the outstanding shares of GreatCall, Inc. ("GreatCall") for net cash consideration of $792 million. GreatCall, a leading connected health services provider for aging consumers, offers easy-to-use mobile products and connected devices, tailored for seniors. These products are combined with a range of services, including a simple, one-touch connection to U.S.-based, specially-trained agents who can connect the user to family caregivers, provide concierge services and dispatch emergency personnel. The acquisition of GreatCall is aligned with our strategy to address health and wellness with a focus on aging consumers and how technology can help them live a more independent life.

The acquisition was accounted for using the acquisition method of accounting for business combinations. Accordingly, the cost was allocated to the underlying net assets based on their respective fair values. The excess of the purchase price over the

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estimated fair value of the net assets acquired was recorded as goodwill. All of the goodwill was assigned to our Domestic reportable segment and is not expected to be deductible for income tax purposes. We recorded $13 million of transaction costs related to the acquisition within Selling, general and administrative ("SG&A") expenses on our Condensed Consolidated Statements of Earnings for the three months ended November 3, 2018. Results of operations from the date of acquisition were included within our Domestic segment and our Services revenue category. The acquisition of GreatCall was not material to the results of our operations.

The purchase price allocation for the assets acquired and liabilities assumed is substantially complete, but may be subject to immaterial change as we complete our valuation analysis in the fourth quarter of fiscal 2019. The fair value of assets acquired and liabilities assumed as of the acquisition date on October 1, 2018, was as follows ($ in millions):
Current assets
$
34

Goodwill
496

Intangible assets(1)
371

Other assets
27

Total assets acquired
928

Accrued liabilities
56

Long-term liabilities
72

Total liabilities assumed
128

Total purchase price
800

Less: Cash acquired
8

Total purchase price, net of cash acquired
$
792

(1)
The components of Intangible assets included consumer customer relationships of $235 million (amortized over 5 years), tradename of $61 million (amortized over 8 years), developed technology of $52 million (amortized over 5 years) and commercial customer relationships of $23 million (amortized over 10 years).

3.
Revenue Recognition

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

Revenue from product sales and services is reported net of sales refunds, which includes an estimate of future returns and contract cancellations based on historical refund rates, with a corresponding reduction to cost of sales. There is inherent judgment in estimating future refunds as they are susceptible to factors outside of our influence. However, we have significant experience in estimating the amount of refunds, based primarily on historical data. Our refund liability for sales returns was $69 million at November 3, 2018, which is included in Accrued liabilities on our Condensed Consolidated Balance Sheets and represents the expected value of the aggregate refunds that will be due to our customers. We also have a corresponding asset included in Other current assets on our Condensed Consolidated Balance Sheets that represents the inventory we expect to be returned, valued at the lower of cost or net realizable value. As of November 3, 2018, this amount was $48 million.
 
For revenue transactions that involve more than one performance obligation, we defer the revenue associated with any unsatisfied performance obligation until the obligation is satisfied, i.e., when control of a product is transferred to the customer or a service is completed. For such contracts, we allocate revenue and any discounts to each performance obligation based on its relative standalone selling price. We determine standalone selling prices based on the prices charged to customers or, when directly observable selling prices are not available, we generally use an expected cost-plus margin approach.
 
Our contract liabilities primarily relate to product merchandise not yet delivered to customers; unredeemed gift cards; services not yet completed; services technical support contracts, where performance is satisfied over the duration of the contract; and options that provide a material right to customers, such as our customer loyalty programs. Most of our contract liabilities have a duration of one year or less. For an insignificant portion of our technical support service contracts, terms of up to three years apply. We do not have any material contract assets.

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The following table provides information about receivables and contract liabilities from our contracts with customers, which reflects the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied as of November 3, 2018, and February 4, 2018 ($ in millions):
 
November 3, 2018
 
February 4, 2018
Receivables, net of an allowance for doubtful accounts of $15 and $24, respectively
$
588

 
$
674

Short-term contract liabilities included in:
 
 
 
Unredeemed gift cards
281

 
316

Deferred revenue
449

 
408

Accrued liabilities
149

 
151

Long-term contract liabilities included in:
 
 
 
Long-term liabilities
12

 
22


We establish allowances for uncollectible receivables based on historical collection trends and write-off history. The following table summarizes our allowance for doubtful accounts activity related to contracts with customers during the nine months ended November 3, 2018 ($ in millions):
 
Allowance for Doubtful Accounts
Balance at February 4, 2018
$
24

Charged to expenses or other accounts
27

Other(1)
(36
)
Balance at November 3, 2018
$
15

(1)
Includes bad debt write-offs, recoveries and the effect of foreign currency fluctuations.

The following table summarizes significant changes in our contract liability balances during the nine months ended November 3, 2018 ($ in millions):
 
Nine Months Ended
 
November 3, 2018
Revenue recognized that was included in the contract liability balance(s) as of February 4, 2018
$
729

Revenue recognized from performance obligations satisfied in previous periods
—

Increase due to acquisition(1)
14

Adjustments(2)
2

(1)
Represents an increase in our contract liability balances due to our acquisition of GreatCall, primarily related to deferred revenue.
(2)
Includes changes in the measure of progress, changes in the estimate of the transaction price or contract modifications.

The following table includes estimated revenue from our contract liability balances expected to be recognized in future periods if performance of the contract is expected to have a duration of more than one year ($ in millions):
 
November 3, 2018(1)
Remainder of fiscal 2019
$
6

Fiscal 2020
14

Fiscal 2021
6

Fiscal 2022
2

Fiscal 2023 and thereafter
1

(1)
We have elected to exclude unsatisfied performance obligations from contract liability balances with a duration of one year or less. The estimated transaction price revenue disclosed above also does not include amounts of variable consideration attributable to contracts where the consideration is constrained at November 3, 2018. Further information about our forms of variable consideration is disclosed below.

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


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See Note 12, Segments, for a disaggregation of revenue by reportable segment and product category, which represents how our chief operating decision maker reviews information internally to evaluate our financial performance and to make resource allocation and other decisions for the enterprise.

Product Revenue

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

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

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

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

Services - When we are the principal

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

For technical support membership contracts, we are responsible for fulfilling the support services to customers. These contracts have terms ranging from one month to three years and typically contain multiple performance obligations. Payment for the membership contracts is due at the start of the contract period. We have determined that our contracts do not include a significant financing component. The primary purpose of our payment terms is to provide customers with a simplified method of purchasing our services, not to provide customers with financing. We recognize revenue over time on a service consumption basis, an input method of measuring progress over the related contract term. This method is based on historical utilization patterns as this depicts when customers use the services and discounts provided and, accordingly, when delivery of the performance obligation occurs. There is judgment in (1) determining the level at which we apply a portfolio approach to these contracts, and (2) measuring the relative standalone selling price for performance obligations within these contracts to the extent that they are only bundled and sold to customers with other performance obligations. When direct observable evidence of the standalone selling price is not available, a cost-plus margin approach is generally used. Additionally, there is judgment in (3) assessing the pattern of delivery across multiple portfolios of customers, including measuring future progress based on historical consumption patterns. When sufficient history of consumption is unavailable, we generally recognize revenue ratably over the life of the contract.

Services - When we are the agent

We sell various hardware protection plans to customers that provide extended warranty coverage on their device purchases. Such plans have terms ranging from one month to five years. Payment is due at the point of sale. Third-party underwriters assume the risk associated with the coverage and are primarily responsible for fulfillment. We record the fixed net commissions (the amount charged to the customer less the premiums remitted to the underwriter) as revenue at a point in time when the corresponding product revenue is recognized. In addition, we are eligible to receive profit-sharing payments,

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a form of variable consideration, which are dependent upon the profitable performance of the portfolio. We do not share in any losses of the portfolio. We record any such profit share as revenue once the uncertainty associated with the portfolio period, which is calendar-year based, is no longer constrained using the expected value method. This typically occurs when claims experience for the annual period is known in our fiscal fourth quarter, with payment of the profit share occurring in the subsequent fiscal year.

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

Credit Card Revenue

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

Best Buy Gift Cards

We sell Best Buy gift cards to our customers in our retail stores, online and through select third parties. Our gift cards do not have an expiration date. We recognize revenue from gift cards when the card is redeemed by the customer. We also recognize revenue for the portion of gift card values that is not expected to be redeemed ("breakage"). We estimate breakage based on historical patterns and other factors, such as laws and regulations applicable to each jurisdiction.

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

Sales Incentives

We frequently offer sales incentives that entitle our customers to receive a gift card at the time of purchase or an instant savings coupon that can be redeemed towards a future purchase. For sales incentives issued to customers that are only earned in conjunction with the purchase of products or services, the sales incentives represent an option that is a material right and, accordingly, is a performance obligation in the contract. The relative standalone selling price of these sales incentives is deferred as a contract liability, based on the cards or coupons that are projected to be redeemed. We recognize revenue for this performance obligation when it is redeemed by the customer or when it is not expected to be redeemed. There is judgment in determining (1) the level at which we group incentives based on similar redemption patterns, (2) redemption patterns, and (3) the ultimate number of incentives that we do not expect to be redeemed.

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

Customer Loyalty Programs

We have customer loyalty programs which allow members to earn points for each qualifying purchase. Points earned enable members to receive a certificate that may be redeemed on future purchases at our Best Buy branded stores. Depending on the customer's membership level within our loyalty program, certificate expirations typically range from 2 to 12 months from the date of issuance. Our loyalty programs represent customer options that provide a material right and, accordingly, are performance obligations for each applicable contract. The relative standalone selling price of points earned

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by our loyalty program members is deferred and included in Accrued liabilities on our Condensed Consolidated Balance Sheets based on the percentage of points that are projected to be redeemed. We recognize revenue for this performance obligation over time when a certificate is estimated to be redeemed by the customer. There is judgment in measuring the standalone selling price of this performance obligation related to our estimate of the amount of and subsequent timing of redemptions of certificates (“certificate breakage”). We determine our certificate breakage rate based upon an analysis of historic trends. There is judgment in assessing (1) the level at which we group certificates for analysis of breakage rates, (2) redemption patterns, and (3) the ultimate value of certificates that we do not expect to be redeemed.

4.
Fair Value Measurements
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs:
 
Level 1 — Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.
 
Level 2 — Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:
 
•
Quoted prices for similar assets or liabilities in active markets;
•
Quoted prices for identical or similar assets or liabilities in non-active markets;
•
Inputs other than quoted prices that are observable for the asset or liability; and
•
Inputs that are derived principally from or corroborated by other observable market data.
 
Level 3 — Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis at November 3, 2018, February 3, 2018, and October 28, 2017, by level within the fair value hierarchy as determined by the valuation techniques we used to determine the fair value ($ in millions):

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 Fair Value Hierarchy
 
Fair Value at
 
 
November 3, 2018
 
February 3, 2018
 
October 28, 2017
Assets
 
 
 

 
 

 
 

Cash and cash equivalents:
 
 
 

 
 

 
 

Money market funds
Level 1
 
$
126

 
$
21

 
$
84

Commercial paper
Level 2
 
—

 
90

 
—

Time deposits
Level 2
 
—

 
65

 
—

Short-term investments:
 
 
 
 
 
 
 
Commercial paper
Level 2
 
—

 
474

 
588

Time deposits
Level 2
 
76

 
1,558

 
1,649

Other current assets:
 
 
 

 
 
 
 
Money market funds
Level 1
 
72

 
3

 
8

Commercial paper
Level 2
 
—

 
60

 
60

Time deposits
Level 2
 
100

 
101

 
100

Foreign currency derivative instruments
Level 2
 
1

 
2

 
5

Interest rate swap derivative instruments
Level 2
 
—

 
—

 
3

Other assets:
 
 
 
 
 
 
 
Marketable securities that fund deferred compensation
Level 1
 
100

 
99

 
98

 
 
 
 
 
 
 
 
Liabilities
 
 
 

 
 

 
 

Accrued liabilities:
 
 
 

 
 

 
 

Foreign currency derivative instruments
Level 2
 
—

 
8

 
5

Interest rate swap derivative instruments
Level 2
 
—

 
1

 
—

Long-term liabilities:
 
 
 
 
 
 
 
Interest rate swap derivative instruments
Level 2
 
22

 
4

 
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, were classified as Level 1.
 
Commercial paper. Our investments in commercial paper were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2.

Time deposits. Our time deposits are balances held with banking institutions that cannot be withdrawn for specified terms without a penalty. Time deposits are held at face value plus accrued interest, which approximates fair value, and are classified as Level 2.
 
Foreign currency derivative instruments. Comprised primarily of foreign currency forward contracts and foreign currency swap contracts, our foreign currency derivative instruments were measured at fair value using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. Our foreign currency derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

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.

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


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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on our Condensed 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 SG&A expenses or Restructuring charges on our Condensed Consolidated Statements of Earnings for non-restructuring and restructuring charges, respectively.

The following table summarizes the fair value remeasurements of property and equipment impairments recorded during the three and nine months ended November 3, 2018, and October 28, 2017 ($ in millions):
 
Impairments
 
Remaining Net Carrying Value(1)
 
Three Months Ended
 
Nine Months Ended
 
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Property and equipment (non-restructuring)
$
3

 
$
2

 
$
8

 
$
8

 
$
—

 
$
—

(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 November 3, 2018, and October 28, 2017.

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 discounted cash flow ("DCF") model to estimate the present value of net cash flows that the asset or asset group was expected to generate. The key inputs to the DCF model generally included our forecasts of net cash generated from revenue, expenses and other significant cash outflows, such as capital expenditures, as well as an appropriate discount rate.

Fair Value of Financial Instruments

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

5.
Goodwill and Intangible Assets

Goodwill and Indefinite-Lived Intangible Assets

The following table provides the carrying values of goodwill and indefinite-lived intangible assets, which includes our Pacific Sales tradename, for the Domestic segment as of November 3, 2018, February 3, 2018, and October 28, 2017 ($ in millions):
 
November 3, 2018
 
February 3, 2018
 
October 28, 2017
Goodwill
$
921

 
$
425

 
$
425

Indefinite-lived tradename included in Other assets
18

 
18

 
18


The following table provides the gross carrying amount of goodwill and cumulative goodwill impairment as of November 3, 2018, February 3, 2018, and October 28, 2017 ($ in millions):
 
November 3, 2018
 
February 3, 2018
 
October 28, 2017
 
Gross Carrying
Amount
 
Cumulative
Impairment
 
Gross Carrying
Amount
 
Cumulative
Impairment
 
Gross Carrying
Amount
 
Cumulative
Impairment
Goodwill
$
1,596

 
$
675

 
$
1,100

 
$
675

 
$
1,100

 
$
675


Definite-Lived Intangible Assets

We have definite-lived intangible assets related to GreatCall included within our Domestic segment, which is recorded within Other assets on our Condensed Consolidated Balance Sheets. The following table provides the gross carrying amount and

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related accumulated amortization of definite-lived intangible assets as of November 3, 2018 ($ in millions). We had no definite-lived intangible assets as of February 3, 2018, or October 28, 2017.
 
November 3, 2018
 
Gross Carrying Amount
 
Accumulated Amortization
Customer relationships
$
258

 
$
4

Tradename
61

 
1

Developed technology
52

 
1

Total
$
371

 
$
6


We recorded $6 million of aggregate amortization expense related to definite-lived intangible assets during the three and nine months ended November 3, 2018, and $0 million during the three and nine months ended October 28, 2017. The following table provides the amortization expense expected to be recognized in future periods ($ in millions):
 
Amortization Expense
Remainder of fiscal 2019
$
17

Fiscal 2020
67

Fiscal 2021
67

Fiscal 2022
67

Fiscal 2023 and thereafter
147


6.
Restructuring Charges

Restructuring charges incurred in the three and nine months ended November 3, 2018, and October 28, 2017, were as follows ($ in millions):
 
Three Months Ended
 
Nine Months Ended
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Best Buy Mobile
$
—

 
$
—

 
$
47

 
$
—

Canadian brand consolidation
—

 
(2
)
 
—

 
(3
)
Renew Blue
—

 
—

 
—

 
3

Total
$
—

 
$
(2
)
 
$
47

 
$
—


Best Buy Mobile

On March 1, 2018, we announced our intent to close all of our 257 remaining Best Buy Mobile stand-alone stores in the U.S., of which all remaining stores were closed during the second quarter of fiscal 2019. This decision was a result of changing economics in the mobile industry since we began opening these stores in 2006, along with the integration of our mobile model into our core stores and on-line channel, which are more economically compelling today. All restructuring charges related to this plan are from continuing operations and are presented in Restructuring charges on our Condensed Consolidated Statements of Earnings.

The composition of the restructuring charges we incurred for Best Buy Mobile during the three and nine months ended November 3, 2018, as well as the cumulative amount incurred through November 3, 2018, were as follows ($ in millions):
 
Three Months Ended
 
Nine Months Ended
 
Cumulative Amount
 
November 3, 2018
 
November 3, 2018
 
November 3, 2018
Property and equipment impairments
$
—

 
$
—

 
$
1

Termination benefits
—

 
(2
)
 
6

Facility closure and other costs
—

 
49

 
49

Total
$
—


$
47

 
$
56



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The following table summarizes our restructuring accrual activity during the nine months ended November 3, 2018, related to termination benefits and facility closure and other costs associated with Best Buy Mobile ($ in millions):
 
Termination
Benefits
 
Facility
Closure and
Other Costs
 
Total
Balances at February 3, 2018
$
8

 
$
—

 
$
8

Charges
1

 
49

 
50

Cash payments
(6
)
 
(48
)
 
(54
)
Adjustments(1)
(3
)
 
—

 
(3
)
Balances at November 3, 2018
$
—

 
$
1

 
$
1

(1)
Adjustments to termination benefits represent changes in retention assumptions.

Other
 
We have remaining vacant space liabilities at November 3, 2018, of $9 million related to our Canadian brand consolidation restructuring program, $9 million related to our Renew Blue restructuring program and $2 million related to our U.S. large-format store closures in fiscal 2013. We may continue to incur immaterial adjustments to these liabilities for changes in sublease assumptions or potential lease buyouts. In addition, lease payments for vacated stores will continue until leases expire or are terminated.

7.    Debt

Short-Term Debt

U.S. Revolving Credit Facility

On April 17, 2018, we entered into a $1.25 billion five-year senior unsecured revolving credit facility agreement (the "Five-Year Facility Agreement") with a syndicate of banks. The Five-Year Facility Agreement replaced the previous $1.25 billion senior unsecured revolving credit facility (the "Previous Facility") with a syndicate of banks, which was originally scheduled to expire in June 2021, but was terminated on April 17, 2018. The Five-Year Facility Agreement permits borrowings of up to $1.25 billion and expires in April 2023, with no borrowings outstanding as of November 3, 2018. There were no borrowings outstanding under the Previous Facility as of February 3, 2018, or October 28, 2017.

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

The Five-Year Facility Agreement is guaranteed by certain of our subsidiaries and contains customary affirmative and negative covenants. Among other things, these covenants restrict our and certain of our subsidiaries' abilities to incur liens on certain assets; make material changes in corporate structure or the nature of our business; dispose of material assets; engage in certain mergers, consolidations and other fundamental changes; or engage in certain transactions with affiliates. The Five-Year Facility Agreement also contains covenants that require us to maintain a maximum cash flow leverage ratio and a minimum interest coverage ratio. The Five-Year Facility Agreement contains default provisions including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants. At November 3, 2018, we were in compliance with all such financial covenants.


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Long-Term Debt

Long-term debt consisted of the following at November 3, 2018, February 3, 2018, and October 28, 2017 ($ in millions):
 
November 3, 2018
 
February 3, 2018
 
October 28, 2017
2018 Notes
$
—

 
$
500

 
$
500

2021 Notes
650

 
650

 
650

2028 Notes
500

 
—

 
—

Interest rate swap valuation adjustments
(22
)
 
(5
)
 
—

Subtotal
1,128

 
1,145

 
1,150

Debt discounts and issuance costs
(8
)
 
(3
)
 
(3
)
Financing lease obligations
189

 
191

 
158

Capital lease obligations
17

 
22

 
24

Total long-term debt
1,326

 
1,355

 
1,329

Less: current portion
46

 
544

 
545

Total long-term debt, less current portion
$
1,280

 
$
811

 
$
784

 

The fair value of total long-term debt, excluding debt discounts and issuance costs and financing and capital lease obligations, approximated $1,133 million, $1,199 million and $1,219 million at November 3, 2018, February 3, 2018, and October 28, 2017, respectively, based primarily on the market prices quoted from external sources, compared with carrying values of $1,128 million, $1,145 million and $1,150 million, respectively. If long-term debt was measured at fair value in the financial statements, it would be classified primarily as Level 2 in the fair value hierarchy.

2018 Notes

Our $500 million principal amount of notes due August 1, 2018 (the "2018 Notes"), were repaid on August 1, 2018, using existing cash resources and were classified within Current portion of long-term debt on our Condensed Consolidated Balance Sheets as of February 3, 2018, and October 28, 2017.

2028 Notes

On September 27, 2018, we issued $500 million principal amount of notes due October 1, 2028 (the “2028 Notes”). The 2028 Notes bear interest at a fixed rate of 4.45% per year, payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2019. Net proceeds from the issuance were $495 million after underwriting and issue discounts totaling $5 million.

We may redeem some or all of the 2028 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 2028 Notes. Furthermore, if a change of control triggering event occurs, we will be required to offer to purchase the remaining unredeemed 2028 Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the purchase date.

The 2028 Notes are unsecured and unsubordinated obligations and rank equally with all of our other unsecured and unsubordinated debt. The 2028 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. At November 3, 2018, we were in compliance with all such financial covenants.

See Note 5, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018, for additional information regarding the terms of our other debt facilities, debt instruments and other obligations.

8.
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

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trading or speculative purposes. We have no derivatives that have credit risk-related contingent features, and we mitigate our credit risk by engaging with financial institutions with investment-grade credit ratings as our counterparties.
 
We record all derivative instruments on our Condensed Consolidated Balance Sheets at fair value and evaluate hedge effectiveness prospectively or retrospectively when electing to apply hedge accounting. We formally document all hedging relations at inception for derivative hedges and the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transaction. In addition, we have derivatives which are not designated as hedging instruments.
 
Net Investment Hedges
 
We use foreign exchange forward contracts to hedge against the effect of Canadian dollar exchange rate fluctuations on a portion of our net investment in our Canadian operations. The contracts have terms of up to 12 months. For a net investment hedge, we recognize changes in the fair value of the derivative as a component of foreign currency translation within other comprehensive income to offset a portion of the change in translated value of the net investment being hedged, until the investment is sold or liquidated. We limit recognition in net earnings of amounts previously recorded in other comprehensive income to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. We report the gains and losses, if any, related to the amount excluded from the assessment of hedge effectiveness in net earnings.
 
Interest Rate Swaps
 
We utilized "receive fixed-rate, pay variable-rate" interest rate swaps to mitigate the effect of interest rate fluctuations on our 2018 Notes, prior to their maturity, and currently have swaps outstanding on our 2021 Notes and 2028 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 for as fair value hedges using the shortcut method. Under the shortcut method, we recognize the change in the fair value of the derivatives with an offsetting change to the carrying value of the debt. Accordingly, there is no impact on our Condensed Consolidated Statements of Earnings from the fair value of the derivatives.
 
Derivatives Not Designated as Hedging Instruments

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

Summary of Derivative Balances

The following tables present the gross fair values of our outstanding derivative instruments and the corresponding classification at November 3, 2018, February 3, 2018, and October 28, 2017 ($ in millions):
 
 
Assets
Contract Type
Balance Sheet Location
November 3, 2018
 
February 3, 2018
 
October 28, 2017
Derivatives designated as net investment hedges
Other current assets
$
1

 
$
2

 
$
3

Derivatives designated as interest rate swaps
Other current assets and Other assets
—

 
—

 
3

No hedge designation (foreign exchange forward contracts)
Other current assets
—

 
—

 
2

Total
 
$
1

 
$
2

 
$
8

 
 
Liabilities
Contract Type
Balance Sheet Location
November 3, 2018
 
February 3, 2018
 
October 28, 2017
Derivatives designated as net investment hedges
Accrued liabilities
$
—

 
$
7

 
$
5

Derivatives designated as interest rate swaps
Accrued liabilities and Long-term liabilities
22

 
5

 
3

No hedge designation (foreign exchange forward contracts)
Accrued liabilities
—

 
1

 
—

Total
 
$
22

 
$
13

 
$
8


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The following table presents the effects of derivative instruments on other comprehensive income ("OCI") for the three and nine months ended November 3, 2018, and October 28, 2017 ($ in millions):
 
Three Months Ended
 
Nine Months Ended
Derivatives designated as net investment hedges
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Pre-tax gain (loss) recognized in OCI
$
2

 
$
8

 
$
21

 
$
(3
)

The following table presents the effects of derivatives not designated as hedging instruments on our Condensed Consolidated Statements of Earnings for the three and nine months ended November 3, 2018, and October 28, 2017 ($ in millions):
 
 
Gain (Loss) Recognized
 
 
Three Months Ended
 
Nine Months Ended
Contract Type
Statement of Earnings Location
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
No hedge designation (foreign exchange contracts)
SG&A
$
—

 
$
2

 
$
2

 
$
(1
)

The following table presents the effects of interest rate derivatives and adjustments to the carrying value of long-term debt on our Condensed Consolidated Statements of Earnings for the three and nine months ended November 3, 2018, and October 28, 2017 ($ in millions):
 
 
Gain (Loss) Recognized
 
 
Three Months Ended
 
Nine Months Ended
Contract Type
Statement of Earnings Location
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Interest rate swap contracts
Interest expense
$
(15
)
 
$
16

 
$
(16
)
 
$
13

Adjustments to carrying value of long-term debt
Interest expense
15

 
(16
)
 
16

 
(13
)
Total
 
$
—


$
—


$
—


$
—


The following table presents the notional amounts of our derivative instruments at November 3, 2018, February 3, 2018, and October 28, 2017 ($ in millions):
 
Notional Amount
Contract Type
November 3, 2018
 
February 3, 2018
 
October 28, 2017
Derivatives designated as net investment hedges
$
16

 
$
462

 
$
240

Derivatives designated as interest rate swap contracts
1,150

 
1,150

 
1,150

No hedge designation (foreign exchange forward contracts)
67

 
33

 
64

Total
$
1,233

 
$
1,645

 
$
1,454


9.
Earnings per Share
 
We compute our basic earnings per share based on the weighted-average number of common shares outstanding and our diluted earnings per share based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had potentially dilutive common shares been issued. Potentially dilutive securities include stock options, nonvested share awards and shares issuable under our employee stock purchase plan. Nonvested market-based share awards and nonvested performance-based share awards are included in the average diluted shares outstanding for each period, if established market or performance criteria have been met at the end of the respective periods.

The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share from continuing operations for the three and nine months ended November 3, 2018, and October 28, 2017 ($ and shares in millions, except per share amounts):

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Three Months Ended
 
Nine Months Ended
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Numerator
 

 
 

 
 
 
 
Net earnings from continuing operations
$
277

 
$
238

 
$
729

 
$
635

 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
Weighted-average common shares outstanding
274.3

 
299.1

 
278.6

 
304.1

Dilutive effect of stock compensation plan awards
5.0

 
6.3

 
5.2

 
6.5

Weighted-average common shares outstanding, assuming dilution
279.3

 
305.4

 
283.8

 
310.6

 
 
 
 
 
 
 
 
Anti-dilutive securities excluded from Weighted-average common shares outstanding, assuming dilution
0.1

 
0.0

 
0.1

 
0.0

 
 
 
 
 
 
 
 
Net earnings per share from continuing operations
 
 
 
 
 
 
 
  Basic
$
1.01

 
$
0.80

 
$
2.62

 
$
2.09

  Diluted
$
0.99

 
$
0.78

 
$
2.57

 
$
2.05


Beginning with our annual broad grant of restricted stock and restricted stock units in March 2018, we attach dividend equivalents to our restricted stock and restricted stock units equal to dividends payable on the same number of shares of Best Buy common stock during the applicable period. Dividend equivalents, settled in additional shares of Best Buy common stock, accrue on restricted stock and restricted stock unit awards during the vesting period. No dividend equivalents are paid on any restricted stock or restricted stock units that are forfeited prior to the vesting date.

10.
Comprehensive Income
 
Changes in accumulated other comprehensive income, net of tax, were as follows for the three and nine months ended November 3, 2018, and October 28, 2017 ($ in millions):
 
Three Months Ended
 
Nine Months Ended
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Foreign currency translation adjustments
$
4

 
$
(17
)
 
$
(14
)
 
$
25


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

11.
Repurchase of Common Stock

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

The following table presents information regarding the shares we repurchased during the three and nine months ended November 3, 2018, and October 28, 2017 ($ and shares in millions, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Total cost of shares repurchased
$
369

 
$
366

 
$
1,143

 
$
1,147

Average price per share
$
76.04

 
$
57.14

 
$
74.10

 
$
52.35

Number of shares repurchased
4.8

 
6.4

 
15.4

 
21.9


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At November 3, 2018, $1.9 billion of the $5.0 billion of share repurchases authorized by our Board in February 2017 was available for future share repurchases. Between the end of the third quarter of fiscal 2019 on November 3, 2018, and December 5, 2018, we repurchased an incremental 2.5 million shares of our common stock at a cost of $168 million.

12.
Segments
 
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 states, districts and territories of the U.S., including GreatCall) and International (which is comprised of all operations in Canada and Mexico). Our CODM has ultimate responsibility for enterprise decisions. Our CODM determines, in particular, resource allocation for, and monitors the performance of, the consolidated enterprise, the Domestic segment and the International segment. The Domestic segment managers and International segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. Our CODM relies on internal management reporting that analyzes enterprise results to the net earnings level and segment results to the operating income level.

We aggregate our 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.

Revenue by reportable segment and product category were as follows for the three and nine months ended November 3, 2018, and October 28, 2017 ($ in millions):
 
Three Months Ended
 
Nine Months Ended
 
November 3, 2018
 
October 28, 2017
 
November 3, 2018
 
October 28, 2017
Revenue by reportable segment
 
 
 
 
 
 
 
Domestic
$
8,756

 
$
8,491

 
$
25,807

 
$
24,675

International
834

 
829

 
2,271

 
2,113

Total revenue
$
9,590

 
$
9,320


$
28,078


$
26,788

Revenue by product category(1)
 
 
 
 
 
 
 
Domestic:
 
 
 
 
 
 
 
Computing and Mobile Phones
$
4,125

 
$
4,097

 
$
11,947

 
$
11,532

Consumer Electronics
2,665

 
2,590

 
8,091

 
7,782

Appliances
964

 
884

 
2,860

 
2,575

Entertainment
558

 
508

 
1,617

 
1,572

Services
409

 
382

 
1,185

 
1,120

Other
35

 
30

 
107

 
94

Total Domestic revenue
$
8,756

 
$
8,491

 
$
25,807

 
$
24,675

International:
 
 
 
 
 
 
 
Computing and Mobile Phones
$
425

 
$
431

 
$
1,092

 
$
1,040

Consumer Electronics
221

 
227

 
644

 
616

Appliances
69

 
63

 
215

 
165

Entertainment
55

 
49

 
140

 
129

Services
46

 
42

 
127

 
118