BEST BUY CO INC, 10-K filed on 3/28/2019
Annual Report
v3.19.1
Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
Feb. 02, 2019
Mar. 26, 2019
Aug. 03, 2018
Document and Entity Information [Abstract}      
Entity Registrant Name BEST BUY CO INC    
Entity Central Index Key 0000764478    
Document Type 10-K    
Document Period End Date Feb. 02, 2019    
Amendment Flag false    
Current Fiscal Year End Date --02-02    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 15.7
Entity Common Stock, Shares Outstanding 265,702,588 267,804,388  
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
v3.19.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Feb. 02, 2019
Feb. 03, 2018
Current assets    
Cash and cash equivalents $ 1,980 $ 1,101
Short-term investments 0 2,032
Receivables, net 1,015 1,049
Merchandise inventories 5,409 5,209
Other current assets 466 438
Total current assets 8,870 9,829
Property and equipment    
Land and buildings 637 623
Leasehold improvements 2,119 2,327
Fixtures and equipment 5,865 5,410
Property under capital and financing leases 579 340
Property and equipment, gross 9,200 8,700
Less accumulated depreciation 6,690 6,279
Net property and equipment 2,510 2,421
Goodwill 915 425
Other assets 606 374
Total assets 12,901 13,049
Current liabilities    
Accounts payable 5,257 4,873
Unredeemed gift card liabilities 290 385
Deferred revenue 446 453
Accrued compensation and related expenses 482 561
Accrued liabilities 982 1,001
Current portion of long-term debt 56 544
Total current liabilities 7,513 7,817
Long-term liabilities 750 809
Long-term debt 1,332 811
Best Buy Co., Inc. Shareholders’ Equity    
Preferred stock, $1.00 par value: Authorized — 400,000 shares; Issued and outstanding — none 0 0
Common stock, $0.10 par value: Authorized — 1.0 billion shares; Issued and outstanding — 265,703,000 and 282,988,000 shares, respectively 27 28
Additional paid-in capital 0 0
Retained earnings 2,985 3,270
Accumulated other comprehensive income 294 314
Total equity 3,306 3,612
Total liabilities and equity $ 12,901 $ 13,049
v3.19.1
CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) - $ / shares
Feb. 02, 2019
Feb. 03, 2018
Preferred stock, par value (in dollars per share) $ 1.00 $ 1.00
Preferred stock, authorized shares 400,000 400,000
Preferred stock, issued shares 0 0
Preferred stock, outstanding shares 0 0
Common stock, par value (in dollars per share) $ 0.10 $ 0.10
Common stock, authorized shares 1,000,000,000 1,000,000,000
Common stock, issued shares 265,703,000 282,988,000
Common stock, outstanding shares 265,703,000 282,988,000
v3.19.1
CONSOLIDATED STATEMENTS OF EARNINGS - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Revenue $ 42,879 $ 42,151 $ 39,403
Cost of goods sold 32,918 32,275 29,963
Gross profit 9,961 9,876 9,440
Selling, general and administrative expenses 8,015 8,023 7,547
Restructuring charges 46 10 39
Operating income 1,900 [1] 1,843 [2] 1,854
Other income (expense):      
Gain on sale of investments 12 1 3
Investment income and other 49 48 31
Interest expense (73) (75) (72)
Earnings from continuing operations before income tax expense 1,888 1,817 1,816
Income tax expense 424 818 609
Net earnings from continuing operations 1,464 999 [3] 1,207
Gain from discontinued operations (Note 3), net of tax expense of $0, $0 and $7, respectively 0 1 21
Net earnings $ 1,464 [4] $ 1,000 $ 1,228
Basic earnings per share      
Continuing operations $ 5.30 $ 3.33 $ 3.79
Discontinued operations 0.00 0.00 0.07
Basic earnings per share 5.30 3.33 3.86
Diluted earnings per share      
Continuing operations 5.20 3.26 3.74
Discontinued operations 0.00 0.00 0.07
Diluted earnings per share $ 5.20 [5] $ 3.26 [5] $ 3.81
Weighted-average common shares outstanding      
Basic 276.4 300.4 318.5
Diluted 281.4 307.1 322.6
[1] (2)Includes $30 million, $17 million, $0 million and $(1) million of restructuring charges (benefit) recorded in the fiscal first, second, third and fourth quarters of 2019, respectively, and $46 million for the fiscal year ended February 2, 2019, related to measures we took to restructure our businesses. Also includes $13 million of acquisition-related transaction costs in the fiscal third quarter of 2019 and $5 million and $17 million of non-cash amortization of definite-lived intangible assets in the fiscal third and fourth quarters of 2019, respectively, associated with the acquisition of GreatCall. Total non-cash amortization of definite-lived intangible assets for the fiscal year ended February 2, 2019 was $22 million. The fiscal first quarter and year ended February 2, 2019, also includes $7 million related to the one-time bonus for certain employees in response to future tax savings created by the Tax Act.
[2] (5)Includes $0 million, $2 million, $(2) million and $10 million of restructuring charges (benefit) recorded in the fiscal first, second, third and fourth quarters of 2018, respectively, and $10 million for the fiscal year ended February 3, 2018, related to measures we took to restructure our businesses. Also includes $80 million related to a one-time bonus for certain employees and $20 million related to a one-time contribution to the Best Buy Foundation in response to future tax savings created by the Tax Act for the fiscal fourth quarter and year ended February 3, 2018.
[3] (6)Includes $283 million of charges resulting from the Tax Act for the fiscal fourth quarter and year ended February 3, 2018, including $209 million associated with the deemed repatriation tax and $74 million primarily related to the revaluation of deferred tax assets and liabilities.
[4] (3)Includes subsequent adjustments resulting from the Tax Act, including $(18) million, $(2) million and $(20) million associated with the deemed repatriation tax recorded in the fiscal third quarter, fourth quarter and year ended February 2, 2019, respectively, and$(5) million and $(5) million related to the revaluation of deferred tax assets and liabilities recorded in the fiscal third quarter and year ended February 2, 2019, respectively.
[5] (4)The sum of our quarterly diluted earnings per share does not equal our annual diluted earnings per share due to differences in quarterly and annual weighted-average shares outstanding.
v3.19.1
CONSOLIDATED STATEMENTS OF EARNINGS (PARENTHETICAL) - USD ($)
$ in Millions
12 Months Ended
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Income Statement [Abstract]      
Tax effect of discontinued operations $ 0 $ 0 $ 7
v3.19.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Statement - USD ($)
$ in Millions
12 Months Ended
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Net earnings $ 1,464 [1] $ 1,000 $ 1,228
Foreign currency translation adjustments (20) 35 10
Reclassification of foreign currency translation adjustments into earnings due to sale of business 0 0 (2)
Comprehensive income $ 1,444 $ 1,035 $ 1,236
[1] (3)Includes subsequent adjustments resulting from the Tax Act, including $(18) million, $(2) million and $(20) million associated with the deemed repatriation tax recorded in the fiscal third quarter, fourth quarter and year ended February 2, 2019, respectively, and$(5) million and $(5) million related to the revaluation of deferred tax assets and liabilities recorded in the fiscal third quarter and year ended February 2, 2019, respectively.
v3.19.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Operating activities      
Net earnings $ 1,464 [1] $ 1,000 $ 1,228
Adjustments to reconcile net earnings to total cash provided by operating activities      
Depreciation and amortization 770 683 654
Restructuring charges 46 10 39
Stock-based compensation 123 129 108
Deferred income taxes 10 162 201
Other, net (25) (13) (17)
Changes in operating assets and liabilities, net of acquired assets and liabilities:      
Receivables 28 315 (193)
Merchandise inventories (194) (335) 199
Other assets (34) (21) 10
Accounts payable 432 (196) 518
Other liabilities (234) 117 23
Income taxes 22 290 (213)
Total cash provided by operating activities 2,408 2,141 2,557
Investing activities      
Additions to property and equipment, net of $53, $123 and $48, respectively, of non-cash capital expenditures (819) (688) (580)
Purchases of investments 0 (4,325) (3,045)
Sales of investments 2,098 4,018 2,689
Acquisition of businesses, net of cash acquired (787) 0 0
Other, net 16 (7) 59
Total cash provided by (used in) investing activities 508 (1,002) (877)
Financing activities      
Repurchase of common stock (1,505) (2,004) (698)
Issuance of common stock 38 163 171
Dividends paid (497) (409) (505)
Borrowings of debt 498 0 0
Repayments of debt (546) (46) (394)
Other, net (6) (1) 8
Total cash used in financing activities (2,018) (2,297) (1,418)
Effect of exchange rate changes on cash (14) 25 10
Increase (decrease) in cash, cash equivalents and restricted cash 884 (1,133) 272
Cash, cash equivalents and restricted cash at end of period 1,300 2,433 2,161
Cash, cash equivalents and restricted cash at end of period 2,184 1,300 2,433
Supplemental disclosure of cash flow information      
Income taxes paid 391 366 628
Interest paid $ 71 $ 81 $ 76
[1] (3)Includes subsequent adjustments resulting from the Tax Act, including $(18) million, $(2) million and $(20) million associated with the deemed repatriation tax recorded in the fiscal third quarter, fourth quarter and year ended February 2, 2019, respectively, and$(5) million and $(5) million related to the revaluation of deferred tax assets and liabilities recorded in the fiscal third quarter and year ended February 2, 2019, respectively.
v3.19.1
CONSOLIDATED STATEMENTS OF CASH FLOWS (PARENTHETICAL) - USD ($)
$ in Millions
12 Months Ended
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Statement of Cash Flows [Abstract]      
Non-cash capital expenditures $ 53 $ 123 $ 48
v3.19.1
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($)
$ in Millions
Total
Common Stock
Prepaid Share Repurchase
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Total Equity
Beginning balances (in shares) at Jan. 30, 2016   324,000,000          
Beginning balances at Jan. 30, 2016   $ 32 $ (55) $ 0 $ 4,130 $ 271 $ 4,378
Increase (decrease) in shareholders' equity              
Net earnings $ 1,228 0   0 1,228 0 1,228
Other comprehensive income (loss), net of tax:              
Foreign currency translation adjustments 10 0   0 0 10 10
Reclassification of foreign currency translation adjustments into earnings due to sale of business (2) 0   0 0 (2) (2)
Settlement of accelerated share repurchase   0 55 0 0 0 55
Tax benefits from stock options exercised, restricted stock vesting and employee stock purchase plan       17     17
Stock-based compensation   $ 0   108 0 0 108
Restricted stock vested and stock options exercised (in shares)   8,000,000          
Issuance of common stock   $ 1   170 0 0 171
Common stock dividends   $ 0   0 (505) 0 (505)
Repurchase of common stock (in shares)   (21,000,000)          
Repurchase of common stock   $ (2)   (295) (454)   (751)
Ending balances (in shares) at Jan. 28, 2017   311,000,000          
Ending balances at Jan. 28, 2017   $ 31 0 0 4,399 279 4,709
Increase (decrease) in shareholders' equity              
Net earnings 1,000 0   0 1,000 0 1,000
Other comprehensive income (loss), net of tax:              
Foreign currency translation adjustments 35 0   0 0 35 35
Reclassification of foreign currency translation adjustments into earnings due to sale of business 0            
Stock-based compensation   $ 0   129 0 0 129
Restricted stock vested and stock options exercised (in shares)   7,000,000          
Issuance of common stock   $ 1   162 0 0 163
Common stock dividends   $ 0   0 (411) 0 (411)
Repurchase of common stock (in shares)   (35,000,000)          
Repurchase of common stock   $ (4)   (299) (1,706)   (2,009)
Other       (2)     (2)
Ending balances (in shares) at Feb. 03, 2018   283,000,000          
Ending balances at Feb. 03, 2018 3,612 $ 28 0 0 3,270 314 3,612
Increase (decrease) in shareholders' equity              
Cumulative effect of new accounting principle in period of adoption | Adoption of ASU 2016-09       10 (12)   (2)
Net earnings 1,464 [1] 0   0 1,464 0 1,464
Other comprehensive income (loss), net of tax:              
Foreign currency translation adjustments (20) 0   0 0 (20) (20)
Reclassification of foreign currency translation adjustments into earnings due to sale of business $ 0            
Stock-based compensation   $ 0   123 0 0 123
Restricted stock vested and stock options exercised (in shares) 869,000 4,000,000          
Issuance of common stock   $ 0   38 0 0 38
Common stock dividends   $ 0   6 (497) 0 (491)
Repurchase of common stock (in shares)   (21,000,000)          
Repurchase of common stock   $ (1)   (167) (1,325)   (1,493)
Ending balances (in shares) at Feb. 02, 2019   266,000,000          
Ending balances at Feb. 02, 2019 $ 3,306 $ 27 $ 0 $ 0 2,985 $ 294 3,306
Increase (decrease) in shareholders' equity              
Cumulative effect of new accounting principle in period of adoption | Adoption of ASU 2014-09         $ 73   $ 73
[1] (3)Includes subsequent adjustments resulting from the Tax Act, including $(18) million, $(2) million and $(20) million associated with the deemed repatriation tax recorded in the fiscal third quarter, fourth quarter and year ended February 2, 2019, respectively, and$(5) million and $(5) million related to the revaluation of deferred tax assets and liabilities recorded in the fiscal third quarter and year ended February 2, 2019, respectively.
v3.19.1
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (PARENTHETICAL) - $ / shares
12 Months Ended
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Statement of Stockholders' Equity [Abstract]      
Common stock dividends per share (in dollars per share) $ 1.80 $ 1.36 $ 1.57
v3.19.1
Summary of Significant Accounting Policies
12 Months Ended
Feb. 02, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
1.   Summary of Significant Accounting Policies

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

Description of Business

We strive to enrich the lives of consumers through technology, whether they connect with us online, visit our stores or invite us into their homes. We do this by solving technology problems and addressing key human needs across a range of areas, including entertainment, productivity, communication, food preparation, security and health and wellness. We have operations in the U.S., Canada and Mexico. We have two reportable segments: Domestic and International. The Domestic segment is comprised of the operations in all states, districts and territories of the U.S., under various brand names including Best Buy, bestbuy.com, Best Buy Direct, Best Buy Express, Best Buy Mobile, Geek Squad, GreatCall, Magnolia and Pacific Kitchen and Home. The International segment is comprised of all operations in Canada and Mexico under the brand names Best Buy, Best Buy Express, Best Buy Mobile, Geek Squad and the domain names bestbuy.ca and bestbuy.com.mx.

On October 1, 2018, we acquired all of the outstanding shares of GreatCall, Inc. ("GreatCall"). Refer to Note 2, Acquisition, for additional information.

Basis of Presentation

The consolidated financial statements include the accounts of Best Buy Co., Inc. and its consolidated subsidiaries. All intercompany balances and transactions are eliminated upon consolidation.

In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our consolidated financial statements. No significant intervening event occurred in these operations that would have materially affected our financial condition, results of operations, liquidity or other factors had it been recorded during fiscal 2019, fiscal 2018 or fiscal 2017.

Discontinued Operations

Discontinued operations are primarily comprised of activity related to Jiangsu Five Star Appliance Co., Limited ("Five Star") within our International segment. Refer to Note 3, Discontinued Operations, for further information.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts in the consolidated financial statements, as well as the disclosure of contingent liabilities. Future results could be materially affected if actual results were to differ from these estimates and assumptions.

Fiscal Year

Our fiscal year ends on the Saturday nearest the end of January. Fiscal 2019 and fiscal 2017 included 52 weeks and fiscal 2018 included 53 weeks, with the additional week occurring in the fourth quarter.

Unadopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases, which will require the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet for operating leases. 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 meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

We will be adopting the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption will be as originally reported under the current standard - Accounting Standards Codification ("ASC") 840, Leases. The effects of adopting the new standard (ASC 842, Leases) in fiscal 2020 will be recognized as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal first quarter. We will elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical lease classification as operating or capital leases.

The most significant impact of adoption will be the recognition of ROU assets and lease liabilities in the range of approximately $2.6 billion to $3.0 billion for operating leases, while our accounting for existing capital leases remains substantially unchanged. We currently estimate the cumulative pre-tax impact of these changes will decrease retained earnings by approximately $20 million to $30 million in fiscal 2020. We do not believe the standard will materially affect our consolidated statements of earnings or cash flows. As part of our adoption, we have also modified our control procedures and processes.

In January 2017, the FASB issued 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 impact our consolidated financial statements, but are still evaluating the impact it will have on future annual or interim goodwill impairment tests performed.

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. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact of adopting the updated provisions.

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 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 are currently evaluating the impact of adopting the updated provisions, which is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

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 million, net of tax, due to the cumulative impact of these changes, which were 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. The adoption did not have a material impact on our fiscal 2019 consolidated statements of earnings. 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
1,001

 
3

 
1,004

Equity
 
 
 
 
 
Retained earnings
3,270

 
73

 
3,343

 
The following tables reflect the impact of adopting this standard on our Consolidated Balance Sheets as of February 2, 2019, and our Consolidated Statements of Earnings for the fiscal year ended February 2, 2019 ($ in millions, except per share amounts):
 
February 2, 2019
Impact of Changes to Consolidated Balance Sheets
As Reported
 
Balances without Adoption of
ASU 2014-09
 
Effect of Change Higher/(Lower)(1)
Assets
 
 
 
 
 
Other current assets
$
466

 
$
410

 
$
56

Other assets
606

 
625

 
(19
)
Liabilities
 
 
 
 
 
Unredeemed gift card liabilities
290

 
352

 
(62
)
Deferred revenue
446

 
470

 
(24
)
Accrued liabilities
982

 
923

 
59

Equity
 
 
 
 
 
Retained earnings
2,985

 
2,921

 
64


(1)
Effect of change includes the opening retained earnings adjustment as detailed within the table above.
 
Fiscal Year Ended February 2, 2019
Impact of Changes to Consolidated Statements of Earnings
As Reported
 
Balances without Adoption of
ASU 2014-09
 
Effect of Change Higher/(Lower)
Revenue
$
42,879

 
$
42,830

 
$
49

Cost of goods sold
32,918

 
32,860

 
58

Gross profit
9,961

 
9,970

 
(9
)
Operating income
1,900

 
1,909

 
(9
)
Income tax expense
424

 
426

 
(2
)
Net earnings
1,464

 
1,471

 
(7
)
 
 
 
 
 
 
Basic earnings per share
$
5.30

 
$
5.32

 
$
(0.02
)
Diluted earnings per share
$
5.20

 
$
5.23

 
$
(0.03
)


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. While the amendment expanded the disclosure requirements 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 or annual disclosures or financial statements.

Business Combinations

We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to business combinations are included prospectively beginning with the date of acquisition and transaction costs related to business combinations are recorded within selling, general and administrative ("SG&A") expenses. Refer to Note 2, Acquisition, for further information regarding our acquisition of GreatCall in fiscal 2019.

Cash, Cash Equivalents and Restricted Cash

Cash primarily consists of cash on hand and bank deposits. Cash equivalents consist of money market funds, commercial paper, corporate bonds and time deposits with an original maturity of 3 months or less when purchased. The amounts of cash equivalents at February 2, 2019, and February 3, 2018, were $1,410 million and $524 million, respectively, and the weighted-average interest rates were 2.5% and 1.1%, respectively.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our Consolidated Balance Sheets to the total shown within our Consolidated Statements of Cash Flows ($ in millions):
 
February 2, 2019
 
February 3, 2018
 
January 28, 2017
Cash and cash equivalents
$
1,980

 
$
1,101

 
$
2,240

Restricted cash included in Other current assets
204

 
199

 
193

Total cash, cash equivalents and restricted cash
$
2,184

 
$
1,300

 
$
2,433



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

Receivables

Receivables consist primarily of amounts due from vendors for various vendor funding programs, banks for customer credit card and debit card transactions and mobile phone network operators for device sales and commissions. We establish allowances for uncollectible receivables based primarily on historical collection trends. Our allowances for uncollectible receivables were $23 million and $37 million at February 2, 2019, and February 3, 2018, respectively.

Merchandise Inventories

Merchandise inventories are recorded at the lower of cost or net realizable value and the weighted average method is used to determine the cost of inventory. The costs of in-bound freight to move inventory into our distribution centers are included as part of the net cost of merchandise inventories. Also included in the cost of inventory are certain vendor allowances. Costs associated with storing and transporting merchandise inventories to our retail stores are expensed as incurred and included in cost of goods sold.

Our inventory valuation reflects adjustments for anticipated physical inventory losses (e.g., theft) that have occurred since the last physical inventory. Physical inventory counts are taken on a regular basis to ensure that the inventory reported in our consolidated financial statements is properly stated.

Our inventory valuation also reflects markdown adjustments for the excess of the cost over the net recovery we expect to realize from the ultimate disposition of inventory and establishes a new cost basis. No adjustment is recorded for inventory that we are able to return to our vendors for full credit. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdown adjustments or an increase in the newly established cost basis.

Property and Equipment

Property and equipment are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the period from the date the assets are placed in service to the end of the lease term, which includes optional renewal periods if they are reasonably assured. Accelerated depreciation methods are generally used for income tax purposes.

When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from our Consolidated Balance Sheets and any resulting gain or loss is reflected on our Consolidated Statements of Earnings.

Repairs and maintenance costs are expensed as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated.

Costs associated with the acquisition or development of software for internal use are capitalized and amortized over the expected useful life of the software, generally from two to seven years. A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software's functionality or extends its useful life. Capitalized software is included in Fixtures and equipment on our Consolidated Balance Sheets. Software maintenance and training costs are expensed in the period incurred.

Property under capital and financing leases is comprised of buildings and equipment used in our operations. These assets are typically depreciated over the shorter of the useful life of the asset or the term of the lease.

Estimated useful lives by major asset category are as follows:
Asset
Life
(in years)
Buildings
5-35
Leasehold improvements
2-10
Fixtures and equipment
2-15
Property under capital and financing leases
3-7


Impairment of Long-Lived Assets and Costs Associated With Exit Activities

Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not limited to, negative operating income for the most recent 12-month period, significant under-performance relative to historical or planned operating results, significant changes in the manner of use or expected life of the assets or significant changes in our business strategies. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from the disposition of the asset, if any, are less than the carrying value of the asset net of other liabilities. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value using a discounted cash flow analysis.

When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For example, long-lived assets deployed at store locations are reviewed for impairment at the individual store level, which involves comparing the carrying value of all land, buildings, leasehold improvements, fixtures and equipment located at each store to the net cash flow projections for each store. In addition, we conduct separate impairment reviews at other levels as appropriate, for example, to evaluate potential impairment of assets shared by several areas of operations, such as information technology systems. Refer to Note 4, Fair Value Measurements, for further information associated with the long-lived asset impairments, including valuation techniques used, impairment charges incurred and remaining carrying values.

The present value of costs associated with vacated properties, primarily future lease costs net of expected sublease income, are charged to earnings when we cease using the property. We accelerate depreciation on property and equipment we expect to retire when a decision is made to abandon a property.

At February 2, 2019, and February 3, 2018, the obligation associated with vacant properties included in Accrued liabilities on our Consolidated Balance Sheets was $14 million and $17 million, respectively, and the obligation associated with vacant properties included in Long-term liabilities on our Consolidated Balance Sheets was $11 million and $21 million, respectively. The obligation associated with vacant properties at February 2, 2019, and February 3, 2018, included amounts associated with our restructuring activities as further described in Note 9, Restructuring Charges.

Leases

We conduct the majority of our retail and distribution operations from leased locations. The leases generally require payment of real estate taxes, insurance and common area maintenance, in addition to rent. For most large-format stores, the remaining life is less than 5 years with one or more renewal options thereafter. Some leases also contain escalation clauses and certain store leases require payments based on factors, such as specified percentages of revenue or the consumer price index.

For leases that contain predetermined fixed escalations of the minimum rent, we recognize the related rent expense on a straight-line basis from the date we take possession of the property to the end of the initial lease term. We record any difference between the straight-line rent amounts and amounts payable under the leases as part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.

Cash or lease incentives received upon entering into certain store leases ("tenant allowances") are recognized on a straight-line basis as a reduction to rent from the date we take possession of the property through the end of the initial lease term. We record the unamortized portion of tenant allowances as a part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.

At February 2, 2019, and February 3, 2018, deferred rent included in Accrued liabilities on our Consolidated Balance Sheets was $28 million and $30 million, respectively, and deferred rent included in Long-term liabilities on our Consolidated Balance Sheets was $99 million and $107 million, respectively.

In addition, we have financing leases for agreements when we are deemed the owner of the leased buildings, typically due to significant involvement during the construction period, and do not qualify for sales recognition under the sale-leaseback accounting guidance. We record the cost of the building in property and equipment, with the related short-term liability recorded in current portion of long-term debt and the long-term liability recorded in long-term debt. At February 2, 2019, and February 3, 2018, we had $181 million and $191 million, respectively, outstanding under financing lease obligations. Refer to Note 10, Leases, for maturity details.
Assets acquired under capital and financing leases are depreciated over the shorter of the useful life of the asset or the lease term, including renewal periods, if reasonably assured.
Goodwill and Intangible Assets
Goodwill

Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. We test goodwill for impairment annually, as of the first day of the fiscal fourth quarter, or when indications of potential impairment exist. We monitor the existence of potential impairment indicators throughout the fiscal year. We test for goodwill impairment at the reporting unit level and determine whether our reporting units are the components of operating segments which constitute businesses for which discrete financial information is available and is regularly reviewed by segment management. No components were aggregated in arriving at our reporting units. The two reporting units with goodwill balances at the end of fiscal 2019 were our Domestic and GreatCall operating segments.

Our detailed impairment testing involves a quantitative assessment to compare the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on discounted cash flows or relative market-based approaches. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit's goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. In fiscal 2019 and fiscal 2018, we determined that the fair value of the Domestic reporting unit exceeded its carrying value, and as a result, no goodwill impairment was recorded. In addition, we determined that the fair value of the GreatCall reporting unit exceeded its carrying value in fiscal 2019 and as a result, no goodwill impairment was recorded. The carrying value of goodwill at February 2, 2019, and February 3, 2018, was $915 million and $425 million, respectively.

The following table provides the gross carrying amount of goodwill and cumulative goodwill impairment as of February 2, 2019, and February 3, 2018 ($ in millions):
 
February 2, 2019
 
February 3, 2018
 
Gross Carrying
Amount
 
Cumulative
Impairment
 
Gross Carrying
Amount
 
Cumulative
Impairment
Goodwill
$
1,590

 
$
(675
)
 
$
1,100

 
$
(675
)


Indefinite-lived Intangible Assets

We have an indefinite-lived tradename related to Pacific Sales included within our Domestic reportable segment, which is recorded within Other assets on our Consolidated Balance Sheets.

Our valuation of identifiable intangible assets acquired is based on information and assumptions available to us at the time of acquisition, using income and market approaches to determine fair value. We do not amortize our indefinite-lived tradenames, but test for impairment annually, or when indications of potential impairment exist. We utilize the relief from royalty method to determine the fair value of our indefinite-lived tradename. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess. In fiscal 2019 and fiscal 2018, we determined that the fair value of the tradename exceeded its carrying value, and as a result, no impairment was recorded. The carrying value of the indefinite-lived tradename at February 2, 2019, and February 3, 2018, was $18 million.

Definite-lived Intangible Assets

We have definite-lived intangible assets related to GreatCall included within our Domestic reportable segment, which are recorded within Other assets on our Consolidated Balance Sheets. We had no definite-lived intangible assets as of February 3, 2018. The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets as of February 2, 2019 ($ in millions):
 
February 2, 2019
 
Gross Carrying Amount
 
Accumulated Amortization
Customer relationships
$
258

 
$
16

Tradename
63

 
3

Developed technology
52

 
4

Total
$
373

 
$
23



The following table provides the amortization expense expected to be recognized in future periods ($ in millions):
Fiscal Year
Amortization Expense
2020
$
68

2021
68

2022
67

2023
67

2024
48

Thereafter
32



Insurance

We are self-insured for certain losses related to workers' compensation, medical and general liability claims; however, we obtain third-party excess insurance coverage to limit our exposure to certain claims. Some of these self-insured losses are managed through a wholly-owned insurance captive. Liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported. We utilize valuations provided by qualified, independent third-party actuaries as well as internal insurance and risk expertise. Our self-insured liabilities included in our Consolidated Balance Sheets were as follows ($ in millions):
 
February 2, 2019
 
February 3, 2018
Accrued liabilities
$
69

 
$
67

Long-term liabilities
60

 
64

Total
$
129

 
$
131



Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. We record a valuation allowance to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.

In determining our provision for income taxes, we use an annual effective income tax rate based on annual income, permanent differences between book and tax income and statutory income tax rates. The effective income tax rate also reflects our assessment of the ultimate outcome of tax audits. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available. Discrete events, such as audit settlements or changes in tax laws, are recognized in the period in which they occur.

Our income tax returns are periodically audited by U.S. federal, state and local and foreign tax authorities. At any one time, multiple tax years are subject to audit by the various tax authorities. In evaluating the exposures associated with our various tax filing positions, we may record a liability for such exposures. A number of years may elapse before a particular matter, for which we have established a liability, is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provisions in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. We include our liability for unrecognized tax benefits, including accrued penalties and interest, in Long-term liabilities on our Consolidated Balance Sheets and in Income tax expense on our Consolidated Statements of Earnings.

Accrued Liabilities

The major components of accrued liabilities at February 2, 2019, and February 3, 2018, were non-income tax liabilities, advertising accruals, income tax accruals, loyalty program liabilities, rent-related liabilities and sales return reserves.

Long-Term Liabilities

The major components of long-term liabilities at February 2, 2019, and February 3, 2018, were unrecognized tax benefits, income tax liabilities, rent-related liabilities and self-insurance reserves.

Foreign Currency

Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our Consolidated Balance Sheet dates. For operations reported on a one-month lag, we use the exchange rates in effect one month prior to our Consolidated Balance Sheet dates. Results of operations and cash flows are translated using the average exchange rates throughout the periods. The effect of exchange rate fluctuations on the translation of assets and liabilities is included as a component of shareholders' equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are included in SG&A, have not been significant in any period presented.

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. Our revenue excludes sales and usage-based taxes collected and is reported net of sales refunds, which includes an estimate of future returns and contract cancellations based on historical refund rates, with a corresponding reduction to cost of sales. For revenue transactions that involve more than one performance obligation, we defer the revenue associated with any unsatisfied performance obligation until the obligation is satisfied, i.e., when control of a product is transferred to the customer or a service is completed. Refer to Note 8, Revenue Recognition, for additional information.

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 usage 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; (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, or alternatively, using a cost-plus margin approach; and, (3) assessing the pattern of delivery across multiple portfolios of customers, including estimating current and future usage patterns. When insufficient history of usage is available, we generally recognize revenue ratably over the life of the contract.

Services - When we are the agent

We sell various hardware protection plans to customers that provide extended warranty coverage on their device purchases. Such plans have terms ranging from one month to five years. Payment is due at the point of sale. Third-party underwriters assume the risk associated with the coverage and are primarily responsible for fulfillment. We record the fixed net commissions (the amount charged to the customer less the premiums remitted to the underwriter) as revenue at a point in time when the corresponding product revenue is recognized. In addition, we are eligible to receive profit-sharing payments, a form of variable consideration, which are dependent upon the profitable performance of the portfolio. We do not share in any losses of the portfolio. We record any such profit share as revenue once the uncertainty associated with the portfolio period, which is calendar-year based, is no longer constrained using the expected value method. This typically occurs when claims experience for the annual period is known in our fiscal fourth quarter, with payment of the profit share occurring in the subsequent fiscal year. Service and commission revenues earned from the sale of extended warranties represented 2.0%, 2.0% and 2.2% of revenue in fiscal 2019, fiscal 2018 and fiscal 2017, respectively. These percentages include $10 million, $68 million and $133 million in fiscal 2019, fiscal 2018 and fiscal 2017, respectively, of profit-share revenue.

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 activate the service with the customer and when we receive payment from the content provider 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 certain of 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 expire. 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 breakage revenue using a method that is consistent with customer redemption patterns. Typically, over 90% of gift card redemptions (and therefore recognition of over 90% of gift card breakage revenue) occur within one year of issuance. There is judgment in assessing (1) the level at which we group gift cards for analysis of breakage rates, (2) redemption patterns, and (3) the ultimate value of gift cards which we do not expect to be redeemed. Gift card breakage income was $34 million, $40 million and $37 million in fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

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) future 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 purchase completed with us or when using our co-branded credit cards. Points earned enable members to receive a certificate that may be redeemed on future purchases 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 by our loyalty program members is deferred and included in Accrued liabilities on our 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 inherent judgment in estimating the value of our customer loyalty programs as they are susceptible to factors outside of our influence, particularly customer redemption activity. However, we have significant experience in estimating the amount and timing of redemptions of certificates, based primarily on historical data.

Cost of Goods Sold and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in each major expense category:
Cost of Goods Sold
 
Cost of products sold, including:
 
 
 
Freight expenses associated with moving merchandise inventories from our vendors to our distribution centers;
 
 
 
Vendor allowances that are not a reimbursement of specific, incremental and identifiable costs; and
 
 
 
Cash discounts on payments to merchandise vendors;
 
Cost of services provided, including:
 
 
 
Payroll and benefit costs for services employees; and
 
 
 
Cost of replacement parts and related freight expenses;
 
Physical inventory losses;
 
Markdowns;
 
Customer shipping and handling expenses;
 
Costs associated with operating our distribution network, including payroll and benefit costs, occupancy costs and depreciation; and
 
Freight expenses associated with moving merchandise inventories from our distribution centers to our retail stores.
Selling, General and Administrative Expenses
 
Payroll and benefit costs for retail and corporate employees;
 
Occupancy and maintenance costs of retail, services and corporate facilities;
 
Depreciation and amortization related to retail, services and corporate assets;
 
Advertising costs;
 
Vendor allowances that are a reimbursement of specific, incremental and identifiable costs;
 
Tender costs, including bank charges and costs associated with credit and debit card interchange fees;
 
Charitable contributions;
 
Outside and outsourced service fees;
 
Long-lived asset impairment charges; and
 
Other administrative costs, such as supplies, travel and lodging.


Vendor Allowances

We receive funds from certain vendors through a variety of programs and arrangements, primarily in the form of purchases-based or sales-based volumes and for product advertising and placement in our stores. We recognize these funds as a reduction of cost of sales when the associated inventory is sold. If the funds are not specifically related to purchase or sales volumes, the funds are recognized ratably over the performance period as the product promotion is completed. Funds that are determined to be a reimbursement of specific, incremental and identifiable costs incurred to sell a vendor's products are recorded as an offset to the related expense when incurred.

Advertising Costs

Advertising costs, which are included in SG&A, are expensed over the period in which the advertisement is customer-facing. Advertising costs consist primarily of digital and television advertisements, as well as agency fees and production costs. Advertising expenses were $777 million, $776 million and $743 million in fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

Stock-Based Compensation

We apply the fair value recognition provisions of accounting guidance as they relate to our stock-based compensation, which requires us to recognize expense for the fair value of our stock-based compensation awards. Refer to Note 7, Shareholders' Equity, for additional information regarding the fair value of our equity-based awards under our stock compensation plan. Compensation expense is recognized over the period in which services are required. It is recognized on a straight-line basis, except where there are performance awards that vest on a graded basis, in which case the expense for these awards is front-loaded or recognized on a graded attribution basis.
v3.19.1
Acquisition Acquisition (Notes)
12 Months Ended
Feb. 02, 2019
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]
Acquisition

GreatCall, Inc.

On October 1, 2018, we acquired all of the outstanding shares of GreatCall for net cash consideration of $787 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 more independent lives.

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 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 in fiscal 2019 related to the acquisition within SG&A expenses on our Consolidated Statements of Earnings. Results of operations from the date of acquisition were included within our Domestic reportable 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 through the end of the third quarter of fiscal 2020. The fair value of assets acquired and liabilities assumed was as follows ($ in millions):
 
Fair Value at Acquisition Date
 
Measurement Period Adjustments
 
Adjusted Fair Value
Current assets
$
34

 
$
(2
)
 
$
32

Goodwill
496

 
(6
)
 
490

Intangible assets(1)
371

 
2

 
373

Other assets
27

 
(2
)
 
25

Total assets acquired
928

 
(8
)
 
920

Accrued liabilities
56

 
(1
)
 
55

Long-term liabilities
72

 
(2
)
 
70

Total liabilities assumed
128

 
(3
)
 
125

Total purchase price(2)
800

 
(5
)
 
795

Less cash acquired
8

 

 
8

Total purchase price, net of cash acquired
$
792

 
$
(5
)
 
$
787


(1)
The adjusted fair value of Intangible assets included consumer customer relationships of $235 million (amortized over 5 years), tradename of $63 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).
(2)
Measurement period adjustments included the finalization of the working capital adjustment.
v3.19.1
Discontinued Operations
12 Months Ended
Feb. 02, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
Discontinued Operations

Discontinued operations reflects activity within our International Segment. Fiscal 2018 activity is primarily related to the proceeds attributed to a non-compete clause from the sale of Best Buy Europe to Carphone Warehouse plc. Fiscal 2017 activity is primarily related to the sale of remaining Five Star property assets that were held for sale as of January 30, 2016.

Fiscal 2019 had no financial results from discontinued operations. The aggregate financial results of all discontinued operations for fiscal 2018 and fiscal 2017 were as follows ($ in millions):
 
2018
 
2017
Gain from discontinued operations before income tax expense
$
1

 
$
28

Income tax expense

 
(7
)
Net earnings from discontinued operations
$
1

 
$
21

v3.19.1
Fair Value Measurements (Notes)
12 Months Ended
Feb. 02, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements
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 February 2, 2019, and February 3, 2018, by level within the fair value hierarchy as determined by the valuation techniques we used to determine the fair value ($ in millions):
 
 
 
Fair Value at
 
Fair Value Hierarchy
 
February 2, 2019
 
February 3, 2018
Assets
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
Money market funds
Level 1
 
$
98

 
$
21

Commercial paper
Level 2
 

 
90

Time deposits
Level 2
 
300

 
65

Short-term investments:
 
 
 
 
 

Commercial paper
Level 2
 

 
474

Time deposits
Level 2
 

 
1,558

Other current assets:

 
 
 
 
Money market funds
Level 1
 
82

 
3

Commercial paper
Level 2
 

 
60

Time deposits
Level 2
 
101

 
101

Foreign currency derivative instruments
Level 2
 

 
2

Other assets:
 
 
 
 
 

Marketable securities that fund deferred compensation
Level 1
 
44

 
99

Interest rate swap derivative instruments
Level 2
 
26

 

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
Foreign currency derivative instruments
Level 2
 

 
8

Interest rate swap derivative instruments
Level 2
 

 
1

Long-term liabilities:
 
 
 
 
 
Interest rate swap derivative instruments
Level 2
 
1

 
4



The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
 
Money market funds. Our money market fund investments were measured at fair value as they trade in an active market using quoted market prices and, therefore, were classified as Level 1.
 
Commercial paper. Our investments in commercial paper were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2.

Time deposits. Our time deposits are balances held with banking institutions that cannot be withdrawn for specified terms without a penalty. Time deposits are held at face value plus accrued interest, which approximates fair value, and are classified as Level 2.
 
Foreign currency derivative instruments. Comprised primarily of foreign currency swap contracts and 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, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on our Consolidated Balance Sheets. For these assets, we do not periodically adjust carrying value to fair value, except in the event of impairment. When we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded within SG&A and Restructuring charges on our Consolidated Statements of Earnings for non-restructuring and restructuring charges, respectively.

The following table summarizes the fair value remeasurements related to continuing operations recorded in fiscal 2019 and fiscal 2018 ($ in millions):
 
2019
 
2018
 
Impairments
 
Remaining Net
Carrying Value(1)
 
Impairments
 
Remaining Net
Carrying Value (1)
Property and equipment (non-restructuring)
$
9

 
$
1

 
$
9

 
$

Property and equipment (restructuring)(2)

 

 
1

 

Total
$
9

 
$
1

 
$
10

 
$

(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 February 2, 2019, and February 3, 2018.
(2)
See Note 9, Restructuring Charges, for additional information.
 
All of the fair value remeasurements included in the table above were based on significant unobservable inputs (Level 3). Fixed asset fair values were 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. In the case of assets for which the impairment was the result of restructuring activities, no future cash flows have been assumed as the assets will cease to be used and expected sale values are nominal.

Fair Value of Financial Instruments

Our financial instruments, other than those presented in the disclosures above, include cash, receivables, other investments, accounts payable, other payables and long-term debt. The fair values of cash, receivables, accounts payable and other payables approximated carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. Fair values for other investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate fair value. See Note 6, Debt, for information about the fair value of our long-term debt.
v3.19.1
Derivative Instruments Derivative Instruments (Notes)
12 Months Ended
Feb. 02, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Derivative Instruments

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

We record all derivative instruments on our 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 Consolidated Statements of Earnings from the fair value of the derivatives.

Derivatives Not Designated as Hedging Instruments

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

Summary of Derivative Balances

The following table presents the gross fair values of our outstanding derivative instruments and the corresponding classification at February 2, 2019, and February 3, 2018 ($ in millions):
 
 
Assets
Contract Type
Balance Sheet Location
February 2, 2019
 
February 3, 2018
Derivatives designated as net investment hedges
Other current assets
$

 
$
2

Derivatives designated as interest rate swaps
Other assets
26

 

Total
 
$
26

 
$
2

 
 
Liabilities
Contract Type
Balance Sheet Location
February 2, 2019
 
February 3, 2018
Derivatives designated as net investment hedges
Accrued liabilities
$

 
$
7

Derivatives designated as interest rate swaps
Accrued liabilities and Long-term liabilities
1

 
5

No hedge designation (foreign exchange forward contracts)
Accrued liabilities

 
1

Total
 
$
1

 
$
13



The following table presents the effects of derivative instruments on other comprehensive income ("OCI") for fiscal 2019 and fiscal 2018 ($ in millions):
Derivatives designated as net investment hedges
2019
 
2018
Pre-tax gain (loss) recognized in OCI
$
21

 
$
(14
)


The following table presents the effects of derivatives not designated as hedging instruments on our Consolidated Statements of Earnings for fiscal 2019 and fiscal 2018 ($ in millions):
 
 
Gain (Loss) Recognized
Contract Type
Statement of Earnings Location
2019
 
2018
No hedge designation (foreign exchange contracts)
SG&A
$
4

 
$
(3
)


The following table presents the effects of interest rate derivatives and adjustments to the carrying value of long-term debt on our Consolidated Statements of Earnings for fiscal 2019 and fiscal 2018 ($ in millions):
 
 
Gain (Loss) Recognized
Contract Type
Statement of Earnings Location
2019
 
2018
Interest rate swap contracts
Interest expense
$
31

 
$
(18
)
Adjustments to carrying value of long-term debt
Interest expense
(31
)
 
18

Total
 
$

 
$



The following table presents the notional amounts of our derivative instruments at February 2, 2019, and February 3, 2018 ($ in millions):
 
Notional Amount
Contract Type
February 2, 2019
 
February 3, 2018
Derivatives designated as net investment hedges
$
15

 
$
462

Derivatives designated as interest rate swap contracts
1,150

 
1,150

No hedge designation (foreign exchange forward contracts)
9

 
33

Total
$
1,174

 
$
1,645

v3.19.1
Debt (Notes)
12 Months Ended
Feb. 02, 2019
Debt Disclosure [Abstract]  
Debt
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 February 2, 2019. There were no borrowings outstanding under the Previous Facility as of February 3, 2018.

The interest rate under the Five-Year Facility Agreement is variable and, barring certain events of default, 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' ability 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 our affiliates. The Five-Year Facility Agreement also contains covenants that require us to maintain a maximum quarterly cash flow leverage ratio and a minimum quarterly interest coverage ratio. 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 February 2, 2019, we were in compliance with all such covenants.

Long-Term Debt
 
Long-term debt consisted of the following ($ in millions):
 
February 2, 2019
 
February 3, 2018
2018 Notes
$

 
$
500

2021 Notes
650

 
650

2028 Notes
500

 

Interest rate swap valuation adjustments
25

 
(5
)
Subtotal
1,175

 
1,145

Debt discounts and issuance costs
(7
)
 
(3
)
Financing lease obligations
181

 
191

Capital lease obligations
39

 
22

Total long-term debt
1,388

 
1,355

Less: current portion
56

 
544

Total long-term debt, less current portion
$
1,332

 
$
811



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 Consolidated Balance Sheets as of February 3, 2018.

2021 Notes

In March 2011, we issued $650 million principal amount of notes due March 15, 2021 (the “2021 Notes”). The 2021 Notes bear interest at a fixed rate of 5.50% per year, payable semi-annually on March 15 and September 15 of each year, beginning on September 15, 2011. The 2021 Notes were issued at a slight discount to par, which when coupled with underwriting discounts of $4 million, resulted in net proceeds from the sale of the 2021 Notes of $644 million.

We may redeem some or all of the 2021 Notes at any time at a redemption price equal to the greater of (i) 100% of the principal amount, and (ii) the sum of the present values of each remaining scheduled payment of principal and interest discounted to the redemption date on a semiannual basis, plus accrued and unpaid interest on the principal amount to the redemption date as described in the indenture (including the supplemental indenture) relating to the 2021 Notes. Furthermore, if a change of control triggering event occurs, we will be required to offer to purchase the remaining unredeemed 2021 Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the purchase date.

The 2021 Notes are unsecured and unsubordinated obligations and rank equally with all of our other unsecured and unsubordinated debt. The 2021 Notes contain covenants that, among other things, limit our ability to incur debt secured by liens or to enter into sale and lease-back transactions.

2028 Notes

In September 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.

Fair Value and Future Maturities

The fair value of long-term debt, excluding debt discounts and issuance costs and financing and capital lease obligations, approximated $1,178 million and $1,199 million at February 2, 2019, and February 3, 2018, respectively, based primarily on the quoted market prices, compared to carrying values of $1,175 million and $1,145 million at February 2, 2019, and February 3, 2018, respectively. If our long-term debt was recorded at fair value, it would be classified as Level 2 in the fair value hierarchy.

At February 2, 2019, the future maturities of long-term debt, net of interest rate swaps and excluding debt discounts, issuance costs and financing and capital lease obligations (see Note 10, Leases, for the future lease obligation maturities), consisted of the following ($ in millions):
Fiscal Year
Amount
2020
$

2021

2022
650

2023

2024

Thereafter
525

Total long-term debt
$
1,175

v3.19.1
Shareholders' Equity
12 Months Ended
Feb. 02, 2019
Equity [Abstract]  
Shareholders Equity
Shareholders' Equity

Stock Compensation Plans

Our Best Buy Co., Inc. Amended and Restated 2014 Omnibus Incentive Plan (the "Omnibus Plan") authorizes us to grant or issue non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards up to a total of 22.5 million shares. We have not granted incentive stock options under the Omnibus Plan. Under the terms of the Omnibus Plan, awards may be granted to our employees, officers, advisers, consultants and directors. Awards issued under the Omnibus Plan vest as determined by the Compensation and Human Resources Committee of our Board of Directors at the time of grant. Awards granted, forfeited or canceled under the previous plan, the 2004 Omnibus Stock and Incentive Plan, after February 1, 2014, adjust the amount available under the Omnibus Plan. At February 2, 2019, a total of 15.2 million shares were available for future grants under the Omnibus Plan.

Upon adoption and approval of the Omnibus Plan, all of our previous equity incentive compensation plans were terminated. However, existing awards under those plans continued to vest in accordance with the original vesting schedule and will expire at the end of their original terms.

Our outstanding stock options have a 10-year term. Outstanding stock options issued to employees generally vest over a three-year period. Share awards vest based either upon attainment of specified goals or solely upon continued employment ("time-based"). Outstanding share awards that are not time-based vest at the end of a three-year incentive period based upon our total shareholder return ("TSR") compared to the TSR of companies that comprise Standard & Poor's 500 Index ("market-based") or upon the achievement of company performance goals ("performance-based"). Generally, time-based share awards vest 33% on each of the three annual anniversary dates following the grant date. Time-based share awards to directors vest one year from the grant date.

Our Employee Stock Purchase Plan, as amended, permits employees to purchase our common stock at a 5% discount from the market price at the end of semi-annual purchase periods and is non-compensatory. Employees are required to hold the common stock purchased for 12 months. In fiscal 2019, fiscal 2018 and fiscal 2017, 0.1 million, 0.1 million and 0.2 million shares, respectively, were purchased through our employee stock purchase plan. At February 2, 2019, and February 3, 2018, plan participants had accumulated $3 million and $3 million, respectively, to purchase our common stock pursuant to this plan.

Stock-based compensation expense was as follows in fiscal 2019, fiscal 2018 and fiscal 2017 ($ in millions):
 
2019
 
2018
 
2017
Stock options
$
3

 
$
6

 
$
9

Share awards:
 
 
 
 
 
Market-based
15

 
19

 
15

Performance-based
20

 
13

 
6

Time-based
85

 
91

 
78

Total
$
123

 
$
129

 
$
108



Stock Options

Stock option activity was as follows in fiscal 2019:
 
Stock
Options
 
Weighted-Average Exercise Price per Share
 
Weighted-Average Remaining Contractual Term
(in years)
 
Aggregate
Intrinsic Value
(in millions)
Outstanding at February 3, 2018
3,069,000

 
$
32.32

 
 
 
 

Granted
161,000

 
$
66.59

 
 
 
 

Exercised
(869,000
)
 
$
35.54

 
 
 
 

Forfeited/canceled
(3,000
)
 
$
33.01

 
 
 
 

Outstanding at February 2, 2019
2,358,000

 
$
33.47

 
4.9
 
$
60

Vested or expected to vest at February 2, 2019
2,358,000

 
$
33.47

 
4.9
 
$
60

Exercisable at February 2, 2019
2,006,000

 
$
30.21

 
4.3
 
$
57



The weighted-average grant-date fair value of stock options granted during fiscal 2019, fiscal 2018 and fiscal 2017 was $20.34, $12.52 and $8.04, respectively, per share. The aggregate intrinsic value of our stock options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised during fiscal 2019, fiscal 2018 and fiscal 2017, was $33 million, $57 million and $55 million, respectively. At February 2, 2019, there was $2 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 2.0 years.

Net cash proceeds from the exercise of stock options were $30 million, $156 million and $164 million in fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

There was $7 million, $19 million and $19 million of income tax benefits realized from stock option exercises in fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

In fiscal 2019, fiscal 2018 and fiscal 2017, we estimated the fair value of each stock option on the date of grant using a lattice or Black Scholes valuation model (for certain individuals) with the following assumptions:
Valuation Assumptions
2019
 
2018
 
2017
Risk-free interest rate(1)
1.9% – 2.8%

 
0.9% – 2.6%

 
0.5% – 2.0%

Expected dividend yield
2.7
%
 
3.0
%
 
3.5
%
Expected stock price volatility(2)
39
%
 
38
%
 
37
%
Expected life of stock options (in years)(3)
6.5

 
6.0

 
6.0


(1)
Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of our stock options.
(2)
In projecting expected stock price volatility, we consider both the historical volatility of our stock price as well as implied volatilities from exchange-traded options on our stock.
(3)
We estimate the expected life of stock options based upon historical experience.
Market-Based Share Awards

The fair value of market-based share awards is determined using Monte-Carlo simulation. A summary of the status of our nonvested market-based share awards at February 2, 2019, and changes during fiscal 2019, were as follows:
Market-Based Share Awards
Shares
 
Weighted-Average Fair Value per Share
Outstanding at February 3, 2018
1,422,000

 
$
36.35

Granted
371,000

 
$
74.27

Vested
(557,000
)
 
$
42.04

Forfeited/canceled
(49,000
)
 
$
40.33

Outstanding at February 2, 2019
1,187,000

 
$
40.07



At February 2, 2019, there was $13 million of unrecognized compensation expense related to nonvested market-based share awards that we expect to recognize over a weighted-average period of 1.6 years.

Time-Based Share Awards

The fair value of time-based share awards is determined based on the closing market price of our stock on the date of grant. This value is reduced by the present value of expected dividends during vesting when the employee is not entitled to dividends.

A summary of the status of our nonvested time-based share awards at February 2, 2019, and changes during fiscal 2019, were as follows:
Time-Based Share Awards
Shares
 
Weighted-Average Fair Value per Share
Outstanding at February 3, 2018
5,050,000

 
$
36.17

Granted
1,543,000

 
$
68.96

Vested
(2,208,000
)
 
$
37.30

Forfeited/canceled
(287,000
)
 
$
47.56

Outstanding at February 2, 2019
4,098,000

 
$
47.13



At February 2, 2019, there was $102 million of unrecognized compensation expense related to nonvested time-based share awards that we expect to recognize over a weighted-average period of 1.8 years.

Performance-Based Share Awards

The fair value of performance-based share awards is determined based on the closing market price of our stock on the date of grant. This value is reduced by the present value of expected dividends during vesting when the employee is not entitled to dividends.

A summary of the status of our nonvested performance-based share awards at February 2, 2019, and changes during fiscal 2019, were as follows:
Performance-Based Share Awards
Shares
 
Weighted-Average Fair Value per Share
Outstanding at February 3, 2018
685,000

 
$
37.04

Granted
354,000

 
$
72.11

Vested
(217,000
)
 
$
34.15

Forfeited/canceled
(3,000
)
 
$
72.05

Outstanding at February 2, 2019
819,000

 
$
52.78



At February 2, 2019, there was $21 million of unrecognized compensation expense related to nonvested performance-based share awards that we expect to recognize over a weighted-average period of 1.7 years.
Earnings per Share

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

At February 2, 2019, options to purchase 2.4 million shares of common stock were outstanding as follows (shares in millions):
 
Exercisable
 
Unexercisable
 
Total
 
Shares
 
%
 
Weighted-
Average Price
per Share
 
Shares
 
%
 
Weighted-
Average Price
per Share
 
Shares
 
%
 
Weighted-
Average Price
per Share
In-the-money
2.0

 
100
%
 
$
30.21

 
0.3

 
75
%
 
$
43.86

 
2.3

 
96
%
 
$
31.72

Out-of-the-money

 
%
 
$

 
0.1

 
25
%
 
$
71.52

 
0.1

 
4
%
 
$
71.52

Total
2.0

 
100
%
 
$
30.21

 
0.4

 
100
%
 
$
52.01

 
2.4

 
100
%
 
$
33.47



The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share from continuing operations in fiscal 2019, fiscal 2018 and fiscal 2017 ($ and shares in millions, except per share amounts):
 
2019
 
2018
 
2017
Numerator
 
 
 
 
 
Net earnings from continuing operations
$
1,464

 
$
999

 
$
1,207

Denominator
 
 
 
 
 
Weighted-average common shares outstanding
276.4

 
300.4

 
318.5

Effect of potentially dilutive securities:
 
 
 
 
 
Stock options and other
5.0

 
6.7