BEST BUY CO INC, 10-Q filed on 12/6/2019
Quarterly Report
v3.19.3
Document Information Statement - shares
9 Months Ended
Nov. 02, 2019
Dec. 04, 2019
Document Information [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Nov. 02, 2019  
Document Transition Report false  
Entity File Number 1-9595  
Entity Registrant Name BEST BUY CO., INC.  
Entity Incorporation, State or Country Code MN  
Entity Address, Address Line One 7601 Penn Avenue South  
Entity Address, City or Town Richfield  
Entity Address, State or Province MN  
Entity Tax Identification Number 41-0907483  
Entity Address, Postal Zip Code 55423  
City Area Code 612  
Local Phone Number 291-1000  
Title of 12(b) Security Common Stock, $0.10 par value per share  
Trading Symbol BBY  
Security Exchange Name NYSE  
Entity Current Reporting Status No  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   258,777,447
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Entity Central Index Key 0000764478  
Amendment Flag false  
Current Fiscal Year End Date --02-01  
v3.19.3
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Nov. 02, 2019
Feb. 02, 2019
Nov. 03, 2018
Current assets      
Cash and cash equivalents $ 1,205 $ 1,980 $ 1,228
Short-term investments     76
Receivables, net 1,056 1,015 921
Merchandise inventories 7,569 5,409 8,168
Other current assets 345 466 508
Total current assets 10,175 8,870 10,901
Property and equipment, net 2,359 2,510 2,525
Operating lease assets 2,751    
Goodwill 982 915 921
Other assets 659 606 653
Total assets 16,926 12,901 15,000
Current liabilities      
Accounts payable 7,232 5,257 7,964
Contract with customer 445 446 449
Accrued compensation and related expenses 351 482 349
Accrued liabilities 769 982 844
Current portion of operating lease liabilities 644    
Current portion of long-term debt 14 56 46
Total current liabilities 9,726 7,513 9,933
Long-term liabilities 636 750 775
Long-term operating lease liabilities 2,200    
Long-term debt 1,239 1,332 1,280
Contingencies (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 - 260 million, 266 million, and 272 million shares, respectively 26 27 27
Retained earnings 2,809 2,985 2,685
Accumulated other comprehensive income 290 294 300
Total equity 3,125 3,306 3,012
Total liabilities and equity 16,926 12,901 15,000
Gift Card [Member]      
Current liabilities      
Contract with customer $ 271 $ 290 $ 281
v3.19.3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Nov. 02, 2019
Feb. 02, 2019
Nov. 03, 2018
Condensed Consolidated Balance Sheets [Abstract]      
Preferred stock, par value (in dollars per share) $ 1.00 $ 1.00 $ 1.00
Preferred stock, authorized shares 400,000 400,000 400,000
Preferred stock, issued shares 0 0 0
Preferred stock, outstanding shares 0 0 0
Common stock, par value (in dollars per share) $ 0.10 $ 0.10 $ 0.10
Common stock, authorized shares 1,000,000,000.0 1,000,000,000.0 1,000,000,000.0
Common stock, issued shares 260,000,000 266,000,000 272,000,000
Common stock, outstanding shares 260,000,000 266,000,000 272,000,000
v3.19.3
Condensed Consolidated Statements of Earnings - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Nov. 02, 2019
Nov. 03, 2018
Nov. 02, 2019
Nov. 03, 2018
Condensed Consolidated Statements of Earnings [Abstract]        
Revenue $ 9,764 $ 9,590 $ 28,442 $ 28,078
Cost of goods sold 7,403 7,266 21,629 21,400
Gross profit 2,361 2,324 6,813 6,678
Selling, general and administrative expenses 1,973 2,002 5,730 5,709
Restructuring charges (7)   41 47
Operating income 395 322 1,042 922
Other income (expense):        
Gain on sale of investments 1 12 1 12
Investment income and other 9 11 33 35
Interest expense (16) (15) (50) (53)
Earnings before income tax expense 389 330 1,026 916
Income tax expense 96 53 230 187
Net earnings $ 293 $ 277 $ 796 $ 729
Basic earnings per share $ 1.11 $ 1.01 $ 2.99 $ 2.62
Diluted earnings per share $ 1.10 $ 0.99 $ 2.96 $ 2.57
Weighted-average common shares outstanding        
Basic 263.2 274.3 266.0 278.6
Diluted 265.2 279.3 269.1 283.8
v3.19.3
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Nov. 02, 2019
Nov. 03, 2018
Nov. 02, 2019
Nov. 03, 2018
Condensed Consolidated Statements of Comprehensive Income [Abstract]        
Net earnings $ 293 $ 277 $ 796 $ 729
Foreign currency translation adjustments (4) 4 (4) (14)
Comprehensive income $ 289 $ 281 $ 792 $ 715
v3.19.3
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Nov. 02, 2019
Nov. 03, 2018
Operating activities    
Net earnings $ 796 $ 729
Adjustments to reconcile net earnings to total cash provided by operating activities:    
Depreciation and amortization 607 550
Restructuring charges 41 47
Stock-based compensation 109 92
Deferred income taxes 20 15
Other, net 16 (10)
Changes in operating assets and liabilities, net of acquired assets and liabilities:    
Receivables (36) 121
Merchandise inventories (2,159) (2,950)
Other assets (2) (45)
Accounts payable 1,984 3,085
Other liabilities (292) (400)
Income taxes (147) (127)
Total cash provided by operating activities 937 1,107
Investing activities    
Additions to property and equipment (586) (619)
Purchases of investments (319)  
Sales of investments 322 1,970
Acquisitions, net of cash acquired (145) (792)
Other, net 1 15
Total cash provided by (used in) investing activities (727) 574
Financing activities    
Repurchase of common stock (696) (1,144)
Issuance of common stock 45 37
Dividends paid (398) (376)
Borrowings of debt   498
Repayments of debt (11) (535)
Other, net   (6)
Total cash used in financing activities (1,060) (1,526)
Effect of exchange rate changes on cash (2) (16)
Increase (decrease) in cash, cash equivalents and restricted cash (852) 139
Cash, cash equivalents and restricted cash at beginning of period 2,184 1,300
Cash, cash equivalents and restricted cash at end of period $ 1,332 $ 1,439
v3.19.3
Condensed Consolidated Statements of Changes in Shareholders' Equity - USD ($)
shares in Millions, $ in Millions
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Total
Increase (Decrease) in Shareholders' Equity          
Cumulative effect of new accounting principle in period of adoption | Adoption of ASU 2014-09 [Member]     $ 73   $ 73
Beginning balances at Feb. 03, 2018 $ 28   3,270 $ 314 3,612
Beginning balances (in shares) at Feb. 03, 2018 283        
Increase (Decrease) in Shareholders' Equity          
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   37     37
Issuance of common stock (in shares) 4        
Common stock dividends   5 (379)   (374)
Repurchase of common stock $ (1) (134) (1,008)   (1,143)
Repurchase of common stock (in shares) (15)        
Ending balances at Nov. 03, 2018 $ 27   2,685 300 3,012
Ending balances (in shares) at Nov. 03, 2018 272        
Beginning balances at Aug. 04, 2018 $ 27   2,863 296 3,186
Beginning balances (in shares) at Aug. 04, 2018 276        
Increase (Decrease) in Shareholders' Equity          
Net earnings     277   277
Other comprehensive loss, net of tax:          
Foreign currency translation adjustments       4 4
Stock-based compensation   29     29
Issuance of common stock   8     8
Common stock dividends   1 (124)   (123)
Repurchase of common stock   (38) (331)   (369)
Repurchase of common stock (in shares) (4)        
Ending balances at Nov. 03, 2018 $ 27   2,685 300 3,012
Ending balances (in shares) at Nov. 03, 2018 272        
Increase (Decrease) in Shareholders' Equity          
Cumulative effect of new accounting principle in period of adoption | Adoption of ASU 2016-02 [Member]     (22)   (22)
Beginning balances at Feb. 02, 2019 $ 27   2,985 294 3,306
Beginning balances (in shares) at Feb. 02, 2019 266        
Increase (Decrease) in Shareholders' Equity          
Net earnings     796   796
Other comprehensive loss, net of tax:          
Foreign currency translation adjustments       (4) (4)
Stock-based compensation   109     109
Issuance of common stock   45     45
Issuance of common stock (in shares) 4        
Common stock dividends   6 (404)   (398)
Repurchase of common stock $ (1) (160) (546)   (707)
Repurchase of common stock (in shares) (10)        
Ending balances at Nov. 02, 2019 $ 26   2,809 290 3,125
Ending balances (in shares) at Nov. 02, 2019 260        
Beginning balances at Aug. 03, 2019 $ 26   2,965 294 3,285
Beginning balances (in shares) at Aug. 03, 2019 265        
Increase (Decrease) in Shareholders' Equity          
Net earnings     293   293
Other comprehensive loss, net of tax:          
Foreign currency translation adjustments       (4) (4)
Stock-based compensation   35     35
Issuance of common stock   18     18
Common stock dividends   2 (133)   (131)
Repurchase of common stock   $ (55) (316)   (371)
Repurchase of common stock (in shares) (5)        
Ending balances at Nov. 02, 2019 $ 26   $ 2,809 $ 290 $ 3,125
Ending balances (in shares) at Nov. 02, 2019 260        
v3.19.3
Condensed Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) - $ / shares
3 Months Ended 9 Months Ended
Nov. 02, 2019
Nov. 03, 2018
Nov. 02, 2019
Nov. 03, 2018
Condensed Consolidated Statements of Changes in Shareholders' Equity [Abstract]        
Dividends declared per common share $ 0.50 $ 0.45 $ 1.50 $ 1.35
v3.19.3
Basis of Presentation
9 Months Ended
Nov. 02, 2019
Basis of Presentation [Abstract]  
Basis of Presentation 1. Basis of Presentation

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

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

Historically, we have generated a large proportion of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019. The first nine months of fiscal 2020 and fiscal 2019 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 2, 2019, 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 January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). We do not believe the new guidance, which is effective for fiscal years beginning after December 15, 2019, will have a material impact on our consolidated financial statements.

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

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

Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, which requires the recognition of operating lease assets and lease liabilities on the balance sheet. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new standard, disclosures are required to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

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

The most significant impact of adoption was the recognition of operating lease assets and operating lease liabilities of $2.7 billion and $2.8 billion, respectively, while our accounting for existing capital leases (now referred to as finance leases) remained substantially unchanged. The cumulative impact of these changes decreased retained earnings by $22 million, which includes a $3 million net-of-tax adjustment made during the second quarter of fiscal 2020 related to on-adoption impairment charges. We expect the impact of adoption to be immaterial to our consolidated statements of earnings and consolidated statements of cash flows on an ongoing basis. As part of our adoption, we also modified our control procedures and processes, none of which materially affected our internal control over financial reporting. See Note 4, Leases, for additional information regarding our accounting policy for leases and additional disclosures.

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

February 2, 2019
As Reported

ASU 2016-02
Adjustment on
February 3, 2019

February 3, 2019
Adjusted

Assets

Other current assets

$

466 

$

(65)

(a)

$

401 

Net property and equipment

2,510 

(173)

(b)

2,337 

Operating lease assets

-

2,732 

(c)

2,732 

Other assets

606 

5 

(d)

611 

Liabilities

Accrued liabilities

982 

(28)

(e)

954 

Current portion of operating lease liabilities

-

712 

(f)

712 

Current portion of long-term debt

56 

(43)

(b)

13 

Long-term liabilities

750 

(115)

(e)

635 

Long-term operating lease liabilities

-

2,135 

(f)

2,135 

Long-term debt

1,332 

(140)

(b)

1,192 

Equity

Retained earnings

2,985 

(22)

(g)

2,963 

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

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

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

(d)Represents the deferred tax impact of the on-adoption adjustments.

(e)Represents the reclassification of straight-line rent accruals, tenant improvement allowances and vacant space reserves to Operating lease assets.

(f)Represents the recognition of operating lease liabilities.

(g)Represents the net-of-tax retained earnings impact of impairment charges and the derecognition of financing obligations.

Total Cash, Cash Equivalents and Restricted Cash

The reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the totals shown within the Condensed Consolidated Statements of Cash Flows was as follows ($ in millions):

November 2, 2019

November 3, 2018

Cash and cash equivalents

$

1,205 

$

1,228 

Restricted cash included in Other current assets

127 

211 

Total cash, cash equivalents and restricted cash

$

1,332 

$

1,439 

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

 
v3.19.3
Acquisitions
9 Months Ended
Nov. 02, 2019
Acquisitions [Abstract]  
Acquisitions 2. Acquisitions

Critical Signal Technologies, Inc.

On May 9, 2019, we acquired all of the outstanding shares of Critical Signal Technologies, Inc. (“CST”), a health services company, for net cash consideration of $125 million. The acquisition of CST is aligned with our strategy to address health and wellness with a focus on aging seniors and how technology can help them live longer in their homes.

 

The acquisition was accounted for using the acquisition method of accounting for business combinations. Accordingly, the cost was allocated to the underlying net assets based on their respective fair values, and the excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill. The purchase price allocation for the assets acquired and liabilities assumed is substantially complete, but may be subject to immaterial changes. The acquired assets were primarily comprised of $83 million of customer relationships (amortized over 15 years) recorded within Other assets on our Condensed Consolidated Balance Sheets. Goodwill of $50 million was recorded and assigned to our Health (previously referred to as GreatCall) reporting unit and is not expected to be deductible for income tax purposes. We recorded $3 million of transaction costs related to the acquisition within Selling, general and administrative (“SG&A”) expenses on our Condensed Consolidated Statements of Earnings during the second quarter of fiscal 2020. Results of operations from the date of acquisition were included within our Health (previously referred to as GreatCall) operating segment, Domestic reportable segment and Services revenue category. The acquisition of CST is not material to the results of our operations.

 

BioSensics, LLC

 

On August 7, 2019, we acquired the predictive healthcare technology business of BioSensics, LLC (“BioSensics”) for net cash consideration of $20 million, primarily comprised of $19 million of goodwill and $4 million of definite-lived technology (amortized over 3 years). Goodwill, which was assigned to our Domestic reporting unit, is deductible for tax purposes. The acquisition currently supports our health strategy and is included in our Domestic operating and reportable segments. The transaction was accounted for as a business combination and is not material to the results of our operations.

v3.19.3
Fair Value Measurements
9 Months Ended
Nov. 02, 2019
Fair Value Measurements [Abstract]  
Fair Value Measurements 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 or liabilities in non-active markets;

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

Financial assets and liabilities accounted for at fair value were as follows ($ in millions):

Fair Value

Fair Value at

Hierarchy

November 2, 2019

February 2, 2019

November 3, 2018

Assets

Cash and cash equivalents:

Money market funds

Level 1

$

21 

$

98 

$

126 

Time deposits

Level 2

85 

300 

-

Short-term investments:

Time deposits

Level 2

-

-

76 

Other current assets:

Money market funds

Level 1

20 

82 

72 

Time deposits

Level 2

100 

101 

100 

Foreign currency derivative instruments

Level 2

-

-

1 

Other assets:

Marketable securities that fund deferred compensation

Level 1

47 

44 

100 

Interest rate swap derivative instruments

Level 2

70 

26 

-

Liabilities

Long-term liabilities:

Interest rate swap derivative instruments

Level 2

-

1 

22 

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

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

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

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

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

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

Fair value remeasurements of property and equipment and operating lease assets were as follows ($ in millions):

Impairments

Remaining

Three Months Ended

Nine Months Ended

Net Carrying Value(1)

November 2, 2019

November 3, 2018

November 2, 2019

November 3, 2018

November 2, 2019

November 3, 2018

Property and equipment (non-restructuring)

$

9 

$

3 

$

19 

$

8 

$

-

$

-

Operating lease assets(2)

1 

-

2 

-

-

-

Total

$

10 

$

3 

$

21 

$

8 

$

-

$

-

(1)Remaining net carrying value of assets impaired during the three months ended November 2, 2019, and November 3, 2018, approximates fair value as of November 2, 2019, and November 3, 2018.

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

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

Fair Value of Financial Instruments

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

 
v3.19.3
Leases
9 Months Ended
Nov. 02, 2019
Leases [Abstract]  
Leases 4. Leases

The majority of our lease obligations are real estate operating leases from which we conduct the majority of our retail and distribution operations. Our finance leases are primarily equipment-related. For any lease with an initial term in excess of 12 months, the related lease assets and liabilities are recognized on our Condensed Consolidated Balance Sheets as either operating or finance leases at the inception of an agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components. For lease agreements entered into or reassessed after the adoption of ASC 842, Leases, we have elected to combine lease and non-lease components for all classes of assets. Leases with an initial term of 12 months or less are not recorded on our Condensed Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

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

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

Balance Sheet Location

November 2, 2019

Assets

Operating leases

Operating lease assets

$

2,751 

Finance leases

Property and equipment, net(1)

36 

Total lease assets

$

2,787 

Liabilities

Current:

Operating leases

Current portion of operating lease liabilities

$

644 

Finance leases

Current portion of long-term debt

14 

Non-current:

Operating leases

Long-term operating lease liabilities

2,200 

Finance leases

Long-term debt

25 

Total lease liabilities

$

2,883 

(1)Finance leases are recorded net of accumulated depreciation of $51 million.

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

Three Months Ended

Nine Months Ended

Statement of Earnings Location

November 2, 2019

November 2, 2019

Operating lease cost(1)

Cost of goods sold and SG&A(2)

$

196 

$

585 

Finance lease cost:

Depreciation of lease assets

Cost of goods sold and SG&A(2)

3 

10 

Interest on lease liabilities

Interest expense

-

1 

Variable lease cost

Cost of goods sold and SG&A(2)

66 

201 

Sublease income

SG&A

(3)

(12)

Total lease cost

$

262 

$

785 

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

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

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

Three Months Ended

Nine Months Ended

November 2, 2019

November 2, 2019

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

Operating cash flows from operating leases

$

204 

$

608 

Operating cash flows from finance leases

-

1 

Financing cash flows from finance leases

3 

11 

Lease assets obtained in exchange for new lease liabilities:

Operating leases

157