Item 8. Financial Statements and Supplementary Data.

Management's Report on the Consolidated Financial Statements

Our management is responsible for the preparation, integrity and objectivity of the accompanying consolidated financial statements and the related financial information. The consolidated financial statements have been prepared in conformity with GAAP and necessarily include certain amounts that are based on estimates and informed judgments. Our management also prepared the related financial information included in this Annual Report on Form 10-K and is responsible for its accuracy and consistency with the consolidated financial statements.

The accompanying consolidated financial statements have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, which conducted its audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). The independent registered public accounting firm's responsibility is to express an opinion as to whether such consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows in accordance with GAAP.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is designed under the supervision of our principal executive officer and principal financial officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that:

(1)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets;

(2)provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and Board; and

(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of January 30, 2021, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessment, we have concluded that our internal control over financial reporting was effective as of January 30, 2021. During our assessment, we did not identify any material weaknesses in our internal control over financial reporting. Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements for the year ended January 30, 2021, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, has issued an unqualified attestation report on our internal control over financial reporting as of January 30, 2021.

	/s/ Corie Barry				/s/ Matthew Bilunas
	Corie Barry, Chief Executive Officer				Matthew Bilunas, Chief Financial Officer
	(duly authorized and principal executive officer)				(duly authorized and principal financial officer)

‎

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Best Buy Co., Inc.

Richfield, Minnesota

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Best Buy Co., Inc. and subsidiaries (the "Company") as of January 30, 2021 and February 1, 2020, the related consolidated statements of earnings, comprehensive income, cash flows, and changes in shareholders' equity for each of the three years in the period ended January 30, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 30, 2021 and February 1, 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 19, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

The Company changed its method of accounting for leases in fiscal year 2020 due to the adoption of Accounting Standards Update No. 2016-02 Leases (Topic 842). Our opinion is not modified with respect to this matter.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Vendor Allowances — Refer to Note 1 to the financial statements

Critical Audit Matter Description

The Company receives vendor allowances from certain merchandise vendors through a variety of programs intended to offset the invoice cost of inventory and for promoting and selling merchandise inventory. Allowances based on purchases are initially deferred and recorded as a reduction of merchandise inventory and are recognized as a reduction to cost of sales when the associated inventory is sold. Allowances based on sales volumes are based on merchandise sold and are calculated using an agreed upon amount for each unit sold and recognized as a reduction to cost of sales when the associated inventory is sold. Other promotional allowances not specifically related to volume of purchases or sales, such as advertising and placement are recognized as a reduction to cost of sales ratably over the corresponding performance period. 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.

Given the significance of vendor allowances to the financial statements and volume and diversity of the individual vendor agreements, auditing vendor allowances was complex and subjective due to the extent of effort required to evaluate whether the vendor allowances were recorded in accordance with the terms of the vendor agreements and that the allowances deferred as an offset to inventory were complete and accurate.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to evaluating whether the vendor allowances were recorded in accordance with the terms of the vendor agreements and the completeness and accuracy of deferred vendor allowances included the following, among others:

We tested the effectiveness of controls over the recording of vendor allowances, including management's controls over the establishment of vendor arrangements, the calculation of vendor allowances earned, and the determination of the deferred vendor allowances recorded as a reduction to inventory.

We selected a sample of vendor allowances recorded as a reduction of cost of sales and (1) recalculated the amount recognized using the terms of the vendor agreement; (2) for certain arrangements, confirmed the terms of the agreement directly with the vendor; and (3) evaluated, based on the terms of the agreement, if the amount should be deferred and recorded as a reduction of merchandise inventory.

Where confirmation responses from vendors were not received, we completed alternative procedures such as agreement to underlying contractual arrangements, tested the settlement of the arrangement and held discussions with a sample of Company buyers to understand the terms of the agreement.

We tested the amount of deferred vendor allowances recorded as a reduction to inventory by developing an expectation for the amount and comparing our expectation to the amount recorded by management.

Goodwill — Best Buy Health Reporting Unit — Refer to Note 1 to the financial statements

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The goodwill balance was $986 million as of January 30, 2021, of which $542 million was related to the Best Buy Health reporting unit. The Company uses the discounted cash flow model to estimate the fair value of the Best Buy Health reporting unit, which requires management to make subjective estimates and assumptions related to forecasts of future revenues. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The fair value of the Best Buy Health reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized.

Given the significant judgments made by management to estimate the fair value of the Best Buy Health reporting unit, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the forecasts of future revenue of the Best Buy Health reporting unit, specifically for new products and services, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future revenue used by management to estimate the fair value of the Best Buy Health reporting unit included the following, among others:

We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the Best Buy Health reporting unit, such as controls related to management’s forecasts of future revenue.

We evaluated management’s ability to accurately forecast future revenues by comparing actual results to management’s historical forecasts.

We evaluated the reasonableness of management’s revenue forecasts for the new products and services by comparing the forecasts to: (1) the Company’s historical revenue growth rates, including for similar existing products and services; (2) internal communications to management and the board of directors; (3) underlying source documents, when available, such as customer contracts; (4) underlying analyses detailing business strategies and growth plans; (5) forward-looking revenue expectations in external communications made by management to analysts and investors; and (6) industry reports containing analyses of the Company and its peers utilizing the assistance of our fair value specialists.

We inquired of operating and sales management teams to determine whether the judgments and assumptions used in the future revenue projections were consistent with the strategy and long-range plans for the Best Buy Health reporting unit.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

March 19, 2021

We have served as the Company's auditor since 2006.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Best Buy Co., Inc.

Richfield, Minnesota

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Best Buy Co., Inc. and subsidiaries (the “Company”) as of January 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended January 30, 2021, of the Company and our report dated March 19, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

March 19, 2021

Consolidated Balance Sheets

$ and shares in millions, except per share amounts

	January 30, 2021				February 1, 2020
Assets
Current assets
Cash and cash equivalents	$	5,494			$	2,229
Receivables, net		1,061				1,149
Merchandise inventories		5,612				5,174
Other current assets		373				305
Total current assets		12,540				8,857
Property and equipment
Land and buildings		658				650
Leasehold improvements		2,192				2,203
Fixtures and equipment		6,333				6,286
Property under finance leases		73				89
Gross property and equipment		9,256				9,228
Less accumulated depreciation		6,996				6,900
Net property and equipment		2,260				2,328
Operating lease assets		2,612				2,709
Goodwill		986				984
Other assets		669				713
Total assets	$	19,067			$	15,591
Liabilities and equity
Current liabilities
Accounts payable	$	6,979			$	5,288
Unredeemed gift card liabilities		317				281
Deferred revenue		711				501
Accrued compensation and related expenses		725				410
Accrued liabilities		972				906
Short-term debt		110				-
Current portion of operating lease liabilities		693				660
Current portion of long-term debt		14				14
Total current liabilities		10,521				8,060
Long-term operating lease liabilities		2,012				2,138
Long-term liabilities		694				657
Long-term debt		1,253				1,257
Contingencies and commitments (Note 13)
Equity
Best Buy Co., Inc. Shareholders' Equity
Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - none		-				-
Common stock, $0.10 par value: Authorized - 1.0 billion shares; Issued and outstanding - 257 and 256 shares, respectively		26				26
Additional paid-in capital		-				-
Retained earnings		4,233				3,158
Accumulated other comprehensive income		328				295
Total equity		4,587				3,479
Total liabilities and equity	$	19,067			$	15,591

See Notes to Consolidated Financial Statements.

‎

Consolidated Statements of Earnings

$ and shares in millions, except per share amounts

Fiscal Years Ended	January 30, 2021				February 1, 2020				February 2, 2019
Revenue	$	47,262			$	43,638			$	42,879
Cost of sales		36,689				33,590				32,918
Gross profit		10,573				10,048				9,961
Selling, general and administrative expenses		7,928				7,998				8,015
Restructuring charges		254				41				46
Operating income		2,391				2,009				1,900
Other income (expense):
Gain on sale of investments		1				1				12
Investment income and other		37				47				49
Interest expense		(52)				(64)				(73)
Earnings before income tax expense		2,377				1,993				1,888
Income tax expense		579				452				424
Net earnings	$	1,798			$	1,541			$	1,464
Basic earnings per share	$	6.93			$	5.82			$	5.30
Diluted earnings per share	$	6.84			$	5.75			$	5.20
Weighted-average common shares outstanding:
Basic		259.6				264.9				276.4
Diluted		263.0				268.1				281.4

See Notes to Consolidated Financial Statements.

‎

Consolidated Statements of Comprehensive Income

$ in millions

Fiscal Years Ended	January 30, 2021				February 1, 2020				February 2, 2019
Net earnings	$	1,798			$	1,541			$	1,464
Foreign currency translation adjustments, net of tax		(4)				1				(20)
Cash flow hedges		(2)				-				-
Reclassification of cumulative translation adjustments into earnings due to exit of business		39				-				-
Comprehensive income	$	1,831			$	1,542			$	1,444

See Notes to Consolidated Financial Statements.

‎

Consolidated Statements of Cash Flows

$ in millions

Fiscal Years Ended	January 30, 2021				February 1, 2020				February 2, 2019
Operating activities
Net earnings	$	1,798			$	1,541			$	1,464
Adjustments to reconcile net earnings to total cash provided by operating activities:
Depreciation and amortization		839				812				770
Restructuring charges		254				41				46
Stock-based compensation		135				143				123
Deferred income taxes		(36)				70				10
Other, net		3				21				(25)
Changes in operating assets and liabilities, net of acquired assets and liabilities:
Receivables		73				(131)				28
Merchandise inventories		(435)				237				(194)
Other assets		(51)				16				(34)
Accounts payable		1,676				47				432
Income taxes		173				(132)				22
Other liabilities		498				(100)				(234)
Total cash provided by operating activities		4,927				2,565				2,408
Investing activities
Additions to property and equipment, net of $32, $10 and $53, respectively, of non-cash capital expenditures		(713)				(743)				(819)
Purchases of investments		(620)				(330)				-
Sales of investments		546				322				2,098
Acquisitions, net of cash acquired		-				(145)				(787)
Other, net		(1)				1				16
Total cash provided by (used in) investing activities		(788)				(895)				508
Financing activities
Repurchase of common stock		(312)				(1,003)				(1,505)
Issuance of common stock		28				48				38
Dividends paid		(568)				(527)				(497)
Borrowings of debt		1,892				-				498
Repayments of debt		(1,916)				(15)				(546)
Other, net		-				(1)				(6)
Total cash used in financing activities		(876)				(1,498)				(2,018)
Effect of exchange rate changes on cash		7				(1)				(14)
Increase in cash, cash equivalents and restricted cash		3,270				171				884
Cash, cash equivalents and restricted cash at beginning of period		2,355				2,184				1,300
Cash, cash equivalents and restricted cash at end of period	$	5,625			$	2,355			$	2,184
Supplemental cash flow information
Income taxes paid	$	442			$	514			$	391
Interest paid	$	50			$	62			$	71

See Notes to Consolidated Financial Statements.

‎

Consolidated Statements of Changes in Shareholders' Equity

$ and shares in millions, except per share amounts

	Common‎Shares			Common‎Stock				Additional‎Paid-In‎Capital				Retained‎Earnings				Accumulated‎Other‎Comprehensive‎Income (Loss)				Total‎Equity
Balances as of February 3, 2018	283			$	28			$	-			$	3,270			$	314			$	3,612
Adoption of ASU 2014-09	-				-				-				73				-				73
Net earnings	-				-				-				1,464				-				1,464
Other comprehensive loss:
Foreign currency translation adjustments, net of tax	-				-				-				-				(20)				(20)
Stock-based compensation	-				-				123				-				-				123
Issuance of common stock	4				-				38				-				-				38
Common stock dividends, $1.80 per share	-				-				6				(497)				-				(491)
Repurchase of common stock	(21)				(1)				(167)				(1,325)				-				(1,493)
Balances as of February 2, 2019	266				27				-				2,985				294				3,306
Adoption of ASU 2016-02	-				-				-				(22)				-				(22)
Net earnings	-				-				-				1,541				-				1,541
Other comprehensive income:
Foreign currency translation adjustments, net of tax	-				-				-				-				1				1
Stock-based compensation	-				-				143				-				-				143
Issuance of common stock	4				-				48				-				-				48
Common stock dividends, $2.00 per share	-				-				9				(536)				-				(527)
Repurchase of common stock	(14)				(1)				(198)				(810)				-				(1,009)
Other	-				-				(2)				-				-				(2)
Balances as of February 1, 2020	256				26				-				3,158				295				3,479
Net earnings	-				-				-				1,798				-				1,798
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax	-				-				-				-				(4)				(4)
Cash flow hedges	-				-				-				-				(2)				(2)
Reclassification of cumulative translation adjustments into earnings due to exit of business	-				-				-				-				39				39
Stock-based compensation	-				-				135				-				-				135
Issuance of common stock	4				-				28				-				-				28
Common stock dividends, $2.20 per share	-				-				12				(580)				-				(568)
Repurchase of common stock	(3)				-				(175)				(143)				-				(318)
Balances as of January 30, 2021	257			$	26			$	-			$	4,233			$	328			$	4,587

See Notes to Consolidated Financial Statements.

‎

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

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

Description of Business

Our purpose is to enrich lives through technology. We have two reportable segments: Domestic and International. The Domestic segment is comprised of the operations, including our Best Buy Health business, in all states, districts and territories of the U.S. under various brand names including Best Buy, Best Buy Business, Best Buy Express, Best Buy Health, CST, Geek Squad, GreatCall, Lively, Magnolia and Pacific Kitchen and Home and the domain names bestbuy.com and greatcall.com. 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.

During the third quarter of fiscal 2021 we made the decision to exit our operations in Mexico. In fiscal 2020 we acquired all of the outstanding shares of Critical Signal Technologies, Inc. (“CST”) and the predictive healthcare technology business of BioSensics, LLC (“BioSensics”). In fiscal 2019 we acquired all of the outstanding shares of GreatCall, Inc. (“GreatCall”). Refer to Note 2, Restructuring, and Note 3, Acquisitions, for additional information.

COVID-19

In March 2020 the World Health Organization declared the outbreak of novel coronavirus disease ("COVID-19") as a pandemic. Except where otherwise directed by state and local authorities, we made the decision for the health and safety of our customers and employees to move our stores to a contactless, curbside-only operating model in the fiscal first quarter. We also temporarily suspended in-home delivery, repair and consultation services. At the beginning of the fiscal second quarter, we started welcoming customers back into our stores by offering an in-store consultation service to customers, by appointment only. On June 15, 2020, we began allowing customers to shop without an appointment at more than 800 stores across the U.S. As of June 22, 2020, almost all of our stores were open for shopping. We continue to offer contactless curbside pick-up and in-store consultations for customers who prefer to shop that way.

In light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a short-term draw on the full amount of our $1.25 billion five year senior unsecured revolving credit facility (the “Facility”) on March 19, 2020, that remained outstanding until July 27, 2020, when the amounts we had borrowed under the Facility were repaid in full. See Note 8, Debt, for additional information on the Facility. In March 2020 we also announced the temporary suspension of all share repurchases which we resumed in November 2020.

In the first quarter of fiscal 2021 we concluded that the COVID-19 pandemic’s impact on our store operations was a triggering event to review for potential impairments of our store assets. As a result of this analysis, we recorded an immaterial asset impairment charge for a small number of stores within Selling, general and administrative (“SG&A”) expenses. We also completed a review for potential impairments of our goodwill in the first quarter of fiscal 2021, concluding that no impairment had occurred. A similar conclusion was reached upon completion of our annual goodwill impairment review during the fourth quarter of fiscal 2021.

On March 27, 2020, in response to the COVID-19 pandemic, the U.S. Congress enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, contains provisions for deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit, a refundable payroll credit for 50% of wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. As a result of the CARES Act, we deferred $142 million of qualified payroll taxes in fiscal 2021 and claimed the employee retention credit, which was treated as a government subsidy to offset related operating expenses. Based on our analysis of the CARES Act, we reduced our SG&A expenses in fiscal 2021 by $81 million for employee retention credits.

The COVID-19 pandemic remains an evolving situation. The extent of the impact of COVID-19 on our business and financial results will depend on future developments, including the duration of the outbreak within the markets in which we operate and the related impact on consumer confidence and spending, all of which are highly uncertain.

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. Other than as disclosed in Note 2, Restructuring, no such events were identified for the reported periods that would have materially affected our financial condition, results of operations, liquidity or other factors had they been recorded during fiscal 2021, fiscal 2020 or fiscal 2019.

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 2021, fiscal 2020 and fiscal 2019 included 52 weeks.

Adopted Accounting Pronouncements

In the first quarter of fiscal 2021 we prospectively adopted the following Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board, all of which had an immaterial impact on our results of operations, cash flows and financial position.

ASU 2016-13, Measurement of Credit Losses on Financial Instruments

ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820)

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

Segment Information

Our business is organized into two reportable segments: Domestic (which is comprised of all states, districts and territories of the U.S.) and International (which is comprised of all operations in Canada and Mexico). Our chief operating decision maker ("CODM") is our Chief Executive Officer. Our CODM has ultimate responsibility for enterprise decisions, including determining resource allocation for, and monitoring the performance of, the consolidated enterprise, the Domestic reportable segment and the International reportable segment.

Our CODM relies on internal management reporting that analyzes enterprise results to the net earnings level and reportable segment results to the operating income level. We aggregate our Best Buy Domestic and Best Buy Health operating segments into one Domestic reportable segment. We also aggregate our Canada and Mexico businesses into one International operating segment, which represents the International reportable segment.

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 SG&A.

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 three months or less when purchased. The amounts of cash equivalents as of January 30, 2021, and February 1, 2020, were $3,559 million and $1,668 million, respectively, and the weighted-average interest rates were 0.6% and 1.8%, respectively.

Cash, cash equivalents and restricted cash reported on our Consolidated Balance Sheets is reconciled to the total shown on our Consolidated Statements of Cash Flows as follows ($ in millions):

-
	January 30, 2021				February 1, 2020				February 2, 2019
Cash and cash equivalents	$	5,494			$	2,229			$	1,980
Restricted cash included in Other current assets		131				126				204
Total cash, cash equivalents and restricted cash	$	5,625			$	2,355			$	2,184

Amounts included in restricted cash are primarily 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. Receivables are stated at their carrying values, net of a reserve for expected credit losses, which is primarily based on historical collection trends. Our allowances for uncollectible receivables were $38 million and $24 million as of January 30, 2021, and February 1, 2020, respectively. We had $88 million and $32 million of write-offs in fiscal 2021 and fiscal 2020, respectively.

Merchandise Inventories

Merchandise inventories are recorded at the lower of cost or net realizable value. The weighted average method is used to determine the cost of inventory which includes costs of in-bound freight to move inventory into our distribution centers. 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 sales.

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, including consideration of any rights we may have to return inventory to vendors for a refund, and establishes a new cost basis. 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.

Our inventory valuation reflects adjustments for physical inventory losses (resulting from, for example, theft). Physical inventory is maintained through a combination of full location counts (typically once per year) and more regular cycle counts.

Property and Equipment

Property and equipment is recorded at cost. We depreciate property and equipment to its residual value 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 certain. 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 years to five years. A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software's functionality. Capitalized software is included in Fixtures and equipment on our Consolidated Balance Sheets. Software maintenance and training costs are expensed in the period incurred. The costs of developing software for sale to customers is expensed as incurred until technological feasibility is established, which generally leads to expensing substantially all costs.

Estimated useful lives by major asset category are as follows (in years):

Asset Category	Useful Life
Buildings	5-35
Leasehold improvements	2-10
Fixtures and equipment	2-15

Impairment of Long-Lived Assets

Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets with impairment indicators for potential impairment, we first compare the carrying value of the asset to its estimated undiscounted future cash flows. If the sum of the estimated undiscounted future cash flows is less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to its estimated fair value, which is typically based on estimated discounted future cash flows. We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value.

We evaluate locations for triggering events on a quarterly basis. For store locations, our primary indicator that asset carrying values may not be recoverable is negative store operating income for the most recent 12-month period. We also monitor other factors when evaluating store locations for impairment, including significant changes in the manner of use or expected life of the assets or significant changes in our business strategies.

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 net carrying value of all assets 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.

Leases

The majority of our lease obligations are real estate operating leases used in our retail and distribution operations. Our finance leases are primarily equipment-related. For any lease with an initial term in excess of 12 months, the related lease assets and liabilities are recognized on our Consolidated Balance Sheets as either operating or finance leases at the inception of an agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components. For lease agreements entered into or reassessed after the adoption of Accounting Standard’s Codification 842, Leases, in fiscal 2020, we have elected to combine lease and non-lease components for all classes of assets. Leases with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

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

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 in the fiscal fourth quarter or whenever events or circumstances indicate the carrying value may not be recoverable. We monitor the existence of potential impairment indicators throughout the fiscal year. We test for goodwill impairment at the reporting unit level. Reporting units are determined by identifying 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. We have goodwill in two reporting units – Best Buy Domestic and Best Buy Health – with carrying values of $444 million and $542 million, respectively, as of January 30, 2021.

Our detailed impairment testing involves comparing the fair value of each reporting unit with its carrying value, including goodwill. Fair value reflects the price a potential market participant would be willing to pay for the reporting unit in an arms-length transaction and typically requires analysis of discounted cash flows and other market information, such as trading multiples and other observable metrics. If the fair value of a reporting unit exceeds its carrying value, then it is concluded that no goodwill impairment has occurred. If the carrying value of a reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the total amount of goodwill allocated to that reporting unit.

Intangible Assets

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, as appropriate.

We amortize our definite-lived intangible assets over the estimated useful life of the asset. We review these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets might not be recoverable and monitor for the existence of potential impairment indicators throughout the fiscal year. We record an impairment loss for any portion of the carrying value that is not recoverable.

Derivatives

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 $650 million principal amount of notes due March 15, 2021 (“2021 Notes”) prior to their retirement in December 2020, and on our $500 million principal amount of notes due October 1, 2028 (“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 our Consolidated Statements of Earnings.

Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs:

Level 1 — Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date.

Level 2 — Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:

• Quoted prices for similar assets or liabilities in active markets;

• Quoted prices for identical or similar assets or liabilities in non-active markets;

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

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

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

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.

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.

Fair value remeasurements are based on significant unobservable inputs (Level 3). Fixed asset fair values are 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 include 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.

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 on our Consolidated Balance Sheets were as follows ($ in millions):

	January 30, 2021				February 1, 2020
Accrued liabilities	$	101			$	75
Long-term liabilities		45				46
Total	$	146			$	121

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 taxing authorities. At any one time, multiple tax years are subject to audit by the various taxing 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 are sales tax liabilities, advertising accruals, sales return reserves, customer deposits and insurance liabilities.

Long-Term Liabilities

The major components of long-term liabilities are unrecognized tax benefits, income tax 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 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. 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.

Product Revenue

Product revenue is recognized when the customer takes physical control, either in our stores or at their home. 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 delivered products and any related delivery fee revenue.

In most cases, we are the principal to product contracts 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 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 revenue for services, such as 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 and merchandise vendors (for factory warranty repairs).

For technical support membership contracts (for example, our Total Tech Support offering), we are responsible for fulfilling the support services to customers. These contracts have terms ranging from one month to three years and typically contain several 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. For performance obligations provided over time, we recognize revenue on a usage basis, an input method of measuring progress over the related contract term. This method is derived by analysis of historical utilization patterns as this depicts when customers use the services 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 is available to estimate usage, we generally recognize revenue ratably over the life of the contract.

Services - When we are the agent

On behalf of third-party underwriters, 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 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, in some cases we are eligible to receive profit-sharing payments, a form of variable consideration, which are dependent upon the financial performance of the underwriter’s protection plan portfolio. We do not share in any losses of the portfolio. We record any 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 during 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 approximately 2% of revenue in fiscal 2021, fiscal 2020 and fiscal 2019.

We earn 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 in the event of 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. Approximately 25% of revenue in fiscal 2021, fiscal 2020 and fiscal 2019 was transacted using one of our branded cards. 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 partners based on the annual performance of their corresponding portfolio, 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 $33 million, $35 million and $34 million in fiscal 2021, fiscal 2020 and fiscal 2019, 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 revenue allocated to these sales incentives is deferred as a contract liability and is based on the cards 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. Depending on the customer's membership level within our loyalty program, certificate expirations typically range from 2 to 6 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 Deferred revenue 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 Sales and Selling, General and Administrative Expenses

The following tables illustrate the primary costs classified in each major expense category.

Cost of Sales
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
Cash discounts on payments to merchandise vendors
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
Freight expenses associated with moving merchandise inventories from our distribution centers to our retail stores
Cost of services provided, including:
Payroll and benefit costs for services employees associated with providing the service
Cost of replacement parts and related freight expenses

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
Other administrative costs, such as supplies, travel and lodging

Vendor Allowances

We receive funds from our merchandise vendors through a variety of programs and arrangements for product advertising and product placement, primarily in the form of allowances based on purchases or sales volumes. We recognize allowances based on purchases and sales as a reduction of cost of sales when the associated inventory is sold. Allowances for advertising and placement are recognized as a reduction of cost of sales ratably over the corresponding performance period. 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 support costs. Advertising expenses were $819 million, $840 million and $777 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

Stock-Based Compensation

We apply the fair value recognition provisions of accounting guidance as they relate to our stock-based compensation, which requires us to recognize expense for the fair value of our stock-based compensation awards. Compensation expense is recognized over the period in which services are required. It is recognized on a straight-line basis, except where there are performance awards that vest on a graded basis, in which case the expense for these awards is front-loaded or recognized on a graded-attribution basis.

Comprehensive Income (Loss)

Comprehensive income (loss) is computed as net earnings plus certain other items that are recorded directly to shareholders' equity. In addition to net earnings, the significant component of comprehensive income (loss) includes foreign currency translation adjustments.

2. Restructuring

Restructuring charges were as follows ($ in millions):

						2021				2020				2019
Mexico Exit and Strategic Realignment(1)						$	277			$	-			$	-
Fiscal 2020 U.S. Retail Operating Model Changes							-				41				-
Best Buy Mobile Exit							-				-				47
Canadian Brand Consolidation							-				-				(1)
Total						$	277			$	41			$	46

(1)Includes $23 million related to inventory markdowns recorded in Cost of sales on our Consolidated Statements of Earnings in fiscal 2021.

Mexico Exit and Strategic Realignment

The COVID-19 pandemic has had significant impacts on, for example, the economic conditions of the markets in which we operate, customer shopping behaviors, the role of technology in peoples’ lives and the way we meet their needs. In light of these changes, we are adapting our Building the New Blue Strategy to ensure that our focus and resources are closely aligned with the opportunities we see in front of us. As a result, in the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico and began taking other actions to more broadly align our organizational structure in support of our strategy.

Charges incurred in our International segment primarily related to our decision to exit our operations in Mexico. As of January 30, 2021, the exit was substantially complete and we do not expect to incur material future restructuring charges.

Charges incurred in our Domestic segment primarily related to actions taken to align our organizational structure in support of our strategy. During the third quarter of fiscal 2021, we incurred $46 million of restructuring charges primarily related to termination benefits associated with corporate organizational changes, as well as impairments of technology assets held in service of our Mexico operations. During the fourth quarter of fiscal 2021, we incurred $87 million of restructuring charges related to termination benefits primarily for field employees in order to be more responsive and flexible with our workforce as we continue to refine our operating model to better serve our customers’ needs.

As we continue to evolve our Building the New Blue Strategy, it is possible that we will incur material future restructuring costs, but we are unable to forecast the timing and magnitude of such costs.

All charges incurred related to the exit from Mexico and strategic realignment described above were from continuing operations and were presented as follows ($ in millions):

							2021
		Statement of Earnings Location					Domestic				International				Total
Inventory markdowns		Cost of sales					$	-			$	23			$	23
Asset impairments(1)		Restructuring charges						10				57				67
Termination benefits		Restructuring charges						123				20				143
Currency translation adjustment		Restructuring charges						-				39				39
Other(2)		Restructuring charges						-				5				5
							$	133			$	144			$	277

(1)Remaining net carrying value approximates fair value and is immaterial as of January 30, 2021.

(2)Other charges are primarily comprised of contract termination costs.

Restructuring accrual activity related to the exit from Mexico and strategic realignment described above was as follows ($ in millions):

						Termination Benefits
						Domestic				International				Total
Balances as of February 1, 2020						$	-			$	-			$	-
Charges							123				20				143
Cash payments							(19)				-				(19)
Balances as of January 30, 2021						$	104			$	20			$	124

Fiscal 2020 U.S. Retail Operating Model Changes

In the second quarter of fiscal 2020, we made changes primarily related to our U.S. retail operating model to increase organization effectiveness and create a more seamless customer experience across all channels. All charges incurred, including $10 million related to a voluntary early retirement offer, related to termination benefits within our Domestic segment and were presented within Restructuring charges from continuing operations on our Consolidated Statements of Earnings. As of January 30, 2021, the cumulative amount of charges incurred was $41 million and no material liability remains.

Best Buy Mobile Exit

On March 1, 2018, we announced our intent to close all of our 257 remaining Best Buy Mobile stand-alone stores in the U.S. This decision was a result of changing economics in the mobile industry since we began opening these stores in 2006, along with the integration of our mobile model into our core stores and online channel, which are more economically compelling today. The cumulative amount of charges incurred was $56 million, comprised of $49 million of facility closure and other costs, $6 million of termination benefits and $1 million of asset impairments. All charges incurred related to our Domestic segment and were presented within Restructuring charges from continuing operations on our Consolidated Statements of Earnings. No restructuring accrual related to this plan remains as of January 30, 2021.

3. Acquisitions

BioSensics, LLC

In fiscal 2020 we acquired the predictive healthcare technology business of BioSensics, LLC (“BioSensics”) on August 7, 2019, for net cash consideration of $20 million, primarily comprised of $19 million of goodwill and $4 million of definite-lived technology (amortized over 3 years). Goodwill, which was assigned to our Domestic reporting unit, is deductible for tax purposes. The acquisition currently supports our health strategy and is included in our Domestic operating and reportable segments. The transaction was accounted for as a business combination and was not material to the results of our operations.

Critical Signal Technologies, Inc.

In fiscal 2020 we acquired all of the outstanding shares of Critical Signal Technologies, Inc. (“CST”), a health services company, on May 9, 2019, for net cash consideration of $125 million. The acquisition of CST is aligned with our strategy to address health and wellness with a focus on aging seniors and how technology can help them live longer in their homes.

The acquisition was accounted for using the acquisition method of accounting for business combinations. The acquired assets were primarily comprised of $83 million of customer relationships (amortized over 15 years) recorded within Other assets on our Consolidated Balance Sheets. Goodwill of $52 million was recorded and assigned to our Best Buy Health reporting unit and was not deductible for income tax purposes. We recorded $3 million of transaction costs in fiscal 2020 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 Best Buy Heath operating segment, Domestic reportable segment and Services revenue category. The acquisition of CST was not material to the results of our operations.

GreatCall, Inc.

In fiscal 2019 we acquired all of the outstanding shares of GreatCall, Inc. (“GreatCall”) on October 1, 2018, 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 strategic focus on health and wellness.

The acquisition was accounted for using the acquisition method of accounting for business combinations. Goodwill of $490 million was recorded and assigned to our Best Buy Health reporting unit within our Domestic reportable segment, the majority of which was 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 Best Buy Health operating segment, Domestic reportable segment and Services revenue category. The acquisition of GreatCall was not material to the results of our operations.

4. Goodwill and Intangible Assets

Goodwill

Goodwill balances by reportable segment were as follows ($ in millions):

	January 30, 2021								February 1, 2020
	Gross Carrying Amount				Cumulative Impairment				Gross Carrying Amount				Cumulative Impairment
Domestic	$	1,053			$	(67)			$	1,051			$	(67)
International		608				(608)				608				(608)
Total	$	1,661			$	(675)			$	1,659			$	(675)

No goodwill impairment charges were recorded in fiscal 2021 or fiscal 2020.

Indefinite-Lived Intangible Assets

In the first quarter of fiscal 2021, we made the decision to phase out our Pacific Sales tradename in our U.S. Best Buy stores over the coming years. Consequently, we reclassified the tradename from an indefinite-lived intangible asset to a definite-lived intangible asset and have no indefinite-lived intangible assets remaining as of January 30, 2021. The carrying value of the tradename was $18 million as of February 1, 2020, and was recorded within Other assets on our Consolidated Balance Sheets.

Definite-Lived Intangible Assets

We have definite-lived intangible assets which are recorded within Other assets on our Consolidated Balance Sheets as follows ($ in millions):

	January 30, 2021								February 1, 2020								Weighted-Average
	Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization				Useful Life Remaining as of January 30, 2021 (in years)
Customer relationships	$	339			$	124			$	339			$	70				6.6
Tradename		81				24				63				10				4.9
Developed technology		56				27				56				15				2.6
Total	$	476			$	175			$	458			$	95				5.9

Amortization expense was as follows ($ in millions):

	Statement of Earnings Location		2021				2020				2019
Amortization expense	SG&A		$	80			$	72			$	23

Amortization expense expected to be recognized in future periods is as follows ($ in millions):

Fiscal Year														Amount
Fiscal 2022													$	80
Fiscal 2023														79
Fiscal 2024														54
Fiscal 2025														16
Fiscal 2026														16
Thereafter														56

5. Fair Value Measurements

Fair value measurements are reported in one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

Recurring Fair Value Measurements

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

						Fair Value at
		Balance Sheet Location**(1)**		Fair Value Hierarchy		January 30, 2021				February 1, 2020
Assets
Money market funds(2)		Cash and cash equivalents		Level 1		$	1,575			$	524
Commercial paper(2)		Cash and cash equivalents		Level 2			-				75
Time deposits(3)		Cash and cash equivalents		Level 2			865				185
Time deposits(3)		Other current assets		Level 2			65				101
Marketable securities that fund deferred compensation(4)		Other assets		Level 1			53				48
Interest rate swap derivative instruments(5)		Other assets		Level 2			91				89

(1)Balance sheet location is determined by the length to maturity from the current period-end date.

(2)Valued at quoted market prices in active markets for same (Level 1) or similar (Level 2) instruments.

(3)Valued at face value plus accrued interest, which approximates fair value.

(4)Valued using select mutual fund performance that trade with sufficient frequency and volume to obtain pricing information on an ongoing basis.

(5)Valued using readily observable market inputs. These instruments are custom, over-the-counter contracts with various bank counterparties that are not traded on an active market. Refer to Note 6, Derivative Instruments, for additional information.

Nonrecurring Fair Value Measurements

In fiscal 2021 we recorded asset impairments related to our decision to exit our operations in Mexico. See Note 2, Restructuring, for additional information regarding the charges incurred and the net carrying value of assets remaining.

Fair Value of Financial Instruments

The fair values of cash, receivables, accounts payable, short-term debt and other payables approximated their 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 their fair values.

Long-term debt is presented at carrying value on our Consolidated Balance Sheets. If our long-term debt was recorded at fair value, it would be classified as Level 2 in the fair value hierarchy. Long-term debt balances were as follows ($ in millions):

	January 30, 2021								February 1, 2020
	Fair Value				Carrying Value				Fair Value				Carrying Value
Long-term debt(1)	$	1,331			$	1,241			$	1,322			$	1,239

(1)Excludes debt discounts, issuance costs and finance lease obligations.

6. Derivative Instruments

We manage our economic and transaction exposure to certain risks by using 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, and interest rate swaps to mitigate the effect of interest rate fluctuations on our 2021 Notes prior to their retirement in December 2020 and on our 2028 Notes. In addition, we use foreign currency forward contracts not designated as hedging instruments to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies.

In fiscal 2021 we entered into Treasury Rate Lock (“T-Lock”) contracts to hedge the base interest rate variability on a portion of our then-expected refinancing of our maturing 2021 Notes. The T-Lock contracts were cash settled upon issuance of our 2030 Notes. The fair value of the T-Lock contracts upon settlement was released from Accumulated other comprehensive income on our Consolidated Balance Sheets and recorded in Interest expense on our Consolidated Statements of Earnings as interest is accrued over the life of the 2030 Notes.

Our derivative instruments designated as net investment hedges and interest rate swaps are recorded on our Consolidated Balance Sheets at fair value. See Note 5, Fair Value Measurements, for gross fair values of our outstanding derivative instruments and corresponding fair value classifications.

Notional amounts of our derivative instruments were as follows ($ in millions):

	Notional Amount
Contract Type	January 30, 2021				February 1, 2020
Derivatives designated as net investment hedges	$	153			$	129
Derivatives designated as interest rate swap contracts		500				1,150
No hedging designation (foreign exchange forward contracts)		51				31
Total	$	704			$	1,310

Effects of our derivative instruments on our Consolidated Statements of Earnings were as follows ($ in millions):

		Gain (Loss) Recognized
Contract Type	Statement of Earnings Location	2021				2020
Interest rate swap contracts	Interest expense	$	2			$	64
Adjustments to carrying value of long-term debt	Interest expense		(2)				(64)
Total		$	-			$	-

7. Leases

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

	Balance Sheet Location		January 30, 2021				February 1, 2020
Assets
Operating leases	Operating lease assets		$	2,612			$	2,709
Finance leases	Property under finance leases, net(1)			37				35
Total lease assets			$	2,649			$	2,744
Liabilities
Current:
Operating leases	Current portion of operating lease liabilities		$	693			$	660
Finance leases	Current portion of long-term debt			14				14
Non-current:
Operating leases	Long-term operating lease liabilities			2,012				2,138
Finance leases	Long-term debt			24				24
Total lease liabilities			$	2,743			$	2,836

(1)Finance leases were recorded net of accumulated depreciation of $36 million and $54 million as of January 30, 2021, and February 1, 2020, respectively.

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

	Statement of Earnings Location		2021				2020
Operating lease cost(1)	Cost of sales and SG&A(2)		$	777			$	780
Finance lease cost:
Depreciation of lease assets	Cost of sales and SG&A(2)			13				13
Interest on lease liabilities	Interest expense			1				2
Variable lease cost	Cost of sales and SG&A(2)			249				265
Sublease income	SG&A			(16)				(16)
Total lease cost			$	1,024			$	1,044

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

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

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

			2021				2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	795			$	810
Operating cash flows from finance leases				1				2
Financing cash flows from finance leases				15				15
Lease assets obtained in exchange for new lease liabilities:
Operating leases				608				676
Finance leases				33				10
Weighted average remaining lease term (in years):
Operating leases				5.1				5.3
Finance leases				5.6				5.0
Weighted average discount rate:
Operating leases				2.9	%			3.3	%
Finance leases				2.9	%			4.2	%

Future lease payments under our non-cancellable leases as of January 30, 2021, were as follows ($ in millions):

					Operating Leases**(1)**				Finance Leases**(1)**
Fiscal 2022					$	741			$	14
Fiscal 2023						643				10
Fiscal 2024						504				7
Fiscal 2025						381				4
Fiscal 2026						256				2
Thereafter						392				4
Total future undiscounted lease payments						2,917				41
Less imputed interest						212				3
Total reported lease liability					$	2,705			$	38

(1)Lease payments exclude $56 million of legally binding fixed costs for leases signed but not yet commenced.

8. 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 "Facility") with a syndicate of banks. The Facility permits borrowings of up to $1.25 billion and expires in April 2023. In light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we executed a short-term draw on the full amount of the Facility on March 19, 2020, which remained outstanding until July 27, 2020, when the amounts we had borrowed under the Facility were repaid in full. There were no borrowings outstanding under the Facility as of January 30, 2021, and February 1, 2020.

The interest rate under the Facility 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 Facility, 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 Facility 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 Facility also contains covenants that require us to maintain a maximum quarterly cash flow leverage ratio and a minimum quarterly interest coverage ratio. The Facility contains default provisions including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants. As of January 30, 2021, we were in compliance with all such covenants.

Information regarding our short-term draw on the Facility in fiscal 2021 was as follows ($ in millions):

		Average Amount Outstanding				Maximum Amount Outstanding				Weighted Average Interest Rate
U.S. Revolving Credit Facility		$	446			$	1,250				0.8	%

Ba**nk Advance

In conjunction with a solar energy investment, we were advanced $110 million due October 31, 2021. The advance is recorded within Short-term debt on our Consolidated Balance Sheets and bears interest at 0.14%.

Long-Term Debt

Long-term debt consisted of the following ($ in millions):

	January 30, 2021				February 1, 2020
2021 Notes	$	-			$	650
2028 Notes		500				500
2030 Notes		650				-
Interest rate swap valuation adjustments		91				89
Subtotal		1,241				1,239
Debt discounts and issuance costs		(12)				(6)
Finance lease obligations		38				38
Total long-term debt		1,267				1,271
Less: current portion		14				14
Total long-term debt, less current portion	$	1,253			$	1,257

2021 Notes

In March 2011 we issued $650 million principal amount of notes due March 15, 2021 (the “2021 Notes”). The 2021 Notes bore 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 retired the 2021 Notes in December 2020 by exercising our option to redeem the notes at par.

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 issuance 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.

2030 Notes

In October 2020 we issued $650 million principal amount of notes due October 1, 2030, (the “2030 Notes”) that bear interest at a fixed rate of 1.95% per year, payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2021. Net proceeds from the issuance were $642 million after underwriting and issuance discounts totaling $8 million. The net proceeds were used to replace the 2021 Notes that were retired in December 2020.

We may redeem some or all of the 2030 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 2030 Notes. Furthermore, if a change of control triggering event occurs, we will be required to offer to purchase the remaining unredeemed 2030 Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the purchase date.

The 2030 Notes are unsecured and unsubordinated obligations and rank equally with all of our other unsecured and unsubordinated debt. The 2030 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

See Note 5, Fair Value Measurements, for the fair value of long-term debt.

As of January 30, 2021, we do not have any future maturities of long-term debt within the next five fiscal years.

9. Shareholders' Equity

Stock Compensation Plans

The Best Buy Co., Inc. 2020 Omnibus Incentive Plan (the “2020 Plan”) approved by shareholders in June 2020 authorizes us to issue up to 18.6 million shares plus the remaining unused shares available for issuance under the Best Buy Co., Inc. Amended and Restated 2014 Omnibus Incentive Plan (the “2014 Plan”). In addition, shares subject to any outstanding awards under our prior stock incentive plans that are forfeited, cancelled or reacquired by the Company will become available for reissuance under the 2020 Plan. The 2014 Plan was terminated as to the grant of any additional awards, but prior awards remain outstanding and continue to vest in accordance with the original terms of such plan.

The 2020 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. We have not granted incentive stock options. Under the terms of the 2020 Plan, awards may be granted to our employees, officers, advisers, consultants and directors. Awards issued under the 2020 Plan vest as determined by the Compensation and Human Resources Committee of our Board of Directors at the time of grant. As of January 30, 2021, a total of 22.3 million shares were available for future grants under the 2020 Plan.

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.

Stock-based compensation expense was as follows ($ in millions):

	2021				2020				2019
Stock options	$	4			$	7			$	3
Share awards:
Market-based		11				13				15
Performance-based		21				28				20
Time-based		99				95				85
Total	$	135			$	143			$	123

Stock Options

Stock option activity was as follows:

	Stock Options‎(in thousands)			Weighted-Average****‎ Exercise Price‎per Share				Weighted-Average****‎ Remaining Contractual Term‎(in years)				Aggregate‎Intrinsic Value‎(in millions)
Outstanding as of February 1, 2020	1,616			$	54.38
Granted	235			$	51.65
Exercised	(494)			$	41.96
Forfeited/canceled	(85)			$	67.32
Outstanding as of January 30, 2021	1,272			$	57.83				6.2			$	65
Vested or expected to vest as of January 30, 2021	1,272			$	57.83				6.2			$	65
Exercisable as of January 30, 2021	409			$	44.85				3.2			$	26

The weighted-average grant-date fair value of stock options granted during fiscal 2021, fiscal 2020 and fiscal 2019 was $19.89, $19.81 and $20.34 per share, respectively. 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 2021, fiscal 2020 and fiscal 2019 was $21 million, $59 million and $33 million, respectively. As of January 30, 2021, there was $9 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 $20 million, $40 million and $30 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

There was $5 million, $14 million and $7 million of income tax benefits realized from stock option exercises in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

We estimated the fair value of each stock option on the date of grant using a lattice valuation model with the following assumptions:

Valuation Assumptions	2021						2020						2019
Risk-free interest rate(1)	0.1	%	-	0.9	%		1.9	%	-	2.5	%		1.9	%	-	2.8	%
Expected dividend yield	2.9				%		2.9				%		2.7				%
Expected stock price volatility(2)	56				%		36				%		39				%
Expected life of stock options (in years)(3)	6.3						7.4						6.5

(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)Estimated 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 non-vested market-based share awards was as follows (shares in thousands):

Market-Based Share Awards	Shares			Weighted-Average Fair Value per Share
Outstanding as of February 1, 2020	692			$	59.84
Granted	376			$	53.18
Vested	(453)			$	41.44
Forfeited/canceled	(57)			$	70.04
Outstanding as of January 30, 2021	558			$	65.88

As of January 30, 2021, there was $12 million of unrecognized compensation expense related to non-vested 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 the vesting period when the employee is not entitled to dividends.

A summary of the status of our non-vested time-based share awards was as follows (shares in thousands):

Time-Based Share Awards	Shares			Weighted-Average Fair Value per Share
Outstanding as of February 1, 2020	3,852			$	57.81
Granted	2,339			$	53.10
Vested	(2,102)			$	50.11
Forfeited/canceled	(246)			$	61.22
Outstanding as of January 30, 2021	3,843			$	58.94

As of January 30, 2021, there was $120 million of unrecognized compensation expense related to non-vested time-based share awards that we expect to recognize over a weighted-average period of 1.9 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 the vesting period when the employee is not entitled to dividends.

A summary of the status of our non-vested performance-based share awards was as follows (shares in thousands):

Performance-Based Share Awards	Shares			Weighted-Average Fair Value per Share
Outstanding as of February 1, 2020	953			$	63.82
Granted	451			$	50.75
Vested	(386)			$	49.43
Forfeited/canceled	(89)			$	66.58
Outstanding as of January 30, 2021	929			$	63.20

As of January 30, 2021, there was $21 million of unrecognized compensation expense related to non-vested 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 and non-vested share awards. Non-vested market-based share awards and non-vested 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.

As of January 30, 2021, options to purchase common stock were all in-the-money and 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	0.4			32	%		$	44.85			0.9			68	%		$	63.98			1.3			100	%		$	57.83

Reconciliations of the numerators and denominators of basic and diluted earnings per share were as follows ($ and shares in millions, except per share amounts):

	2021				2020				2019
Numerator
Net earnings	$	1,798			$	1,541			$	1,464
Denominator
Weighted-average common shares outstanding		259.6				264.9				276.4
Dilutive effect of stock compensation plan awards		3.4				3.2				5.0
Weighted-average common shares outstanding, assuming dilution		263.0				268.1				281.4
Potential shares which were anti-dilutive and excluded from weighted-average share computations		-				0.8				0.2
Basic earnings per share	$	6.93			$	5.82			$	5.30
Diluted earnings per share	$	6.84			$	5.75			$	5.20

Repurchase of Common Stock

On February 23, 2019, our Board of Directors (“Board”) authorized a $3.0 billion share repurchase program. On February 16, 2021, our Board approved a new $5.0 billion share repurchase program, replacing the existing program which had $1.7 billion remaining available for repurchases as of January 30, 2021. There is no expiration date governing the period over which we can repurchase shares under this authorization. We temporarily suspended all share repurchases from March to November of fiscal 2021 to conserve liquidity in light of COVID-19-related uncertainties.

Repurchased shares have been retired and constitute authorized but unissued shares. Information regarding the shares we repurchased and retired was as follows ($ and shares in millions, except per share amounts):

	2021				2020				2019
Total cost of shares repurchased	$	318			$	1,009			$	1,493
Average price per share	$	102.63			$	72.34			$	70.28
Number of shares repurchased and retired		3.1				14.0				21.2

Between the end of fiscal 2021 on January 30, 2021, and March 18, 2021, we repurchased an incremental 8.1 million shares of our common stock at a cost of $873 million. On February 25, 2021, we announced our plans to spend at least $2 billion on share repurchases in fiscal 2022.

10. Revenue

We generate substantially all of our revenue from contracts with customers from the sale of products and services. Contract balances primarily consist of receivables and liabilities related to product merchandise not yet delivered to customers, unredeemed gift cards, services not yet completed and options that provide a material right to customers, such as our customer loyalty programs. Contract balances were as follows ($ in millions):

	January 30, 2021				February 1, 2020
Receivables(1)	$	618			$	567
Short-term contract liabilities included in:
Unredeemed gift cards		317				281
Deferred revenue		711				501
Accrued liabilities		71				139
Long-term contract liabilities included in:
Long-term liabilities		7				9

(1)Receivables are recorded net of allowances for doubtful accounts of $32 million and $14 million as of January 30, 2021, and February 1, 2020, respectively.

During fiscal 2021 and fiscal 2020, $923 million and $890 million of revenue was recognized, respectively, that was included in the contract liabilities at the beginning of the respective periods.

See Note 14, Segment and Geographic Information, for information on our revenue by reportable segment and product category.

11. Income Taxes

Reconciliations of the federal statutory income tax rate to income tax expense were as follows ($ in millions):

	2021				2020				2019
Federal income tax at the statutory rate	$	499			$	419			$	396
State income taxes, net of federal benefit		79				62				58
Expense (benefit) from foreign operations		29				(2)				-
Other		(28)				(27)				(7)
Tax Act		-				-				(23)
Income tax expense	$	579			$	452			$	424
Effective income tax rate		24.3	%			22.7	%			22.4	%

Tax Reform

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“Tax Act”), which significantly changed U.S. tax law. Among other things, the Tax Act lowered the U.S. statutory tax rate from 35% to 21% effective January 1, 2018, broadened the base to which U.S. income tax applies, imposed a one-time deemed repatriation tax on net unremitted earnings of foreign subsidiaries not previously subject to U.S. income tax and changed how foreign earnings are subject to U.S. income tax.

In response to the Tax Act, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provided guidance on accounting for the impact of the Tax Act. SAB 118 allowed companies to record provisional amounts to the extent they were reasonably estimable and adjust them over time as more information became available, not to extend beyond the measurement period of one year from the enactment of the Tax Act. During fiscal 2019, we completed the accounting for the income tax effects of the Tax Act and recorded a $23 million reduction to the fiscal 2018 provisional tax expense.

Earnings before income tax expense by jurisdiction were as follows ($ in millions):

	2021				2020				2019
United States	$	2,203			$	1,704			$	1,574
Foreign		174				289				314
Earnings before income tax expense	$	2,377			$	1,993			$	1,888

Income tax expense (benefit) was comprised of the following ($ in millions):

	2021				2020				2019
Current:
Federal	$	447			$	261			$	275
State		117				73				75
Foreign		51				48				64
		615				382				414
Deferred:
Federal		(25)				56				4
State		(16)				8				-
Foreign		5				6				6
		(36)				70				10
Income tax expense	$	579			$	452			$	424

Deferred taxes are the result of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities were comprised of the following ($ in millions):

	January 30, 2021				February 1, 2020
Deferred revenue	$	67			$	57
Compensation and benefits		122				57
Stock-based compensation		29				34
Other accrued expenses		64				37
Operating lease liabilities		698				734
Loss and credit carryforwards		143				127
Other		48				59
Total deferred tax assets		1,171				1,105
Valuation allowance		(127)				(96)
Total deferred tax assets after valuation allowance		1,044				1,009
Inventory		(13)				(40)
Property and equipment		(258)				(237)
Operating lease assets		(662)				(692)
Goodwill and intangibles		(55)				(45)
Other		(39)				(15)
Total deferred tax liabilities		(1,027)				(1,029)
Net deferred tax assets (liabilities)	$	17			$	(20)

Deferred taxes were presented as follows ($ in millions):

Balance Sheet Location	January 30, 2021				February 1, 2020
Other assets	$	17			$	9
Long-term liabilities		-				(29)
Net deferred tax assets (liabilities)	$	17			$	(20)

As of January 30, 2021, we had deferred tax assets for net operating loss carryforwards from international operations of $109 million, of which $103 million will expire in various years through 2038 and the remaining amounts have no expiration; acquired U.S. federal net operating loss carryforwards of $9 million, of which $8 million will expire in various years between 2024 and 2037 and the remaining amounts have no expiration; U.S. federal foreign tax credit carryforwards of $6 million, which expire between 2024 and 2031; state credit carryforwards of $5 million, which expire between 2023 and 2028; state net operating loss carryforwards of $4 million, which expire between 2022 and 2040; international credit carryforwards of $2 million, which have no expiration; and international capital loss carryforwards of $8 million, which have no expiration.

As of January 30, 2021, a valuation allowance of $127 million had been established, of which $6 million is against U.S. federal foreign tax credit carryforwards, $8 million is against international capital loss carryforwards, $111 million is against international and state net operating loss carryforwards, and $2 million is against international credit carryforwards. The $31 million increase in fiscal 2021 is primarily due to the current year loss activity from international net operating loss carryforwards, partially offset by the expiration of certain international net operating loss carryforwards, the release of a valuation allowance relating to other state deferred tax assets, and the exchange rate impact on the valuation allowance against certain international net operating loss carryforwards.

Reconciliations of changes in unrecognized tax benefits were as follows ($ in millions):

	2021				2020				2019
Balances at beginning of period	$	318			$	300			$	279
Gross increases related to prior period tax positions		17				1				4
Gross decreases related to prior period tax positions		(25)				(5)				(12)
Gross increases related to current period tax positions		29				34				36
Settlements with taxing authorities		(1)				-				(1)
Lapse of statute of limitations		(11)				(12)				(6)
Balances at end of period	$	327			$	318			$	300

Unrecognized tax benefits of $307 million, $300 million and $282 million as of January 30, 2021, February 1, 2020, and February 2, 2019, respectively, would favorably impact our effective income tax rate if recognized.

We recognize interest and penalties (not included in the "unrecognized tax benefits" above), as well as interest received from favorable tax settlements, as components of income tax expense. Interest expense of $4 million, $11 million and $10 million was recognized in fiscal 2021, fiscal 2020 and fiscal 2019, respectively. As of January 30, 2021, February 1, 2020, and February 2, 2019, we had accrued interest of $74 million, $67 million and $53 million, respectively.

We file a consolidated U.S. federal income tax return, as well as income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by taxing authorities for years before fiscal 2011.

Changes in state, federal and foreign tax laws may increase or decrease our tax contingencies. The timing of the resolution of income tax examinations and controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next twelve months we will receive additional assessments by various taxing authorities or reach resolutions of income tax examinations or controversies in one or more jurisdictions. These assessments, resolutions or law changes could result in changes to our gross unrecognized tax benefits. The actual amount of any changes could vary significantly depending on the ultimate timing and nature of any assessments, resolutions or law changes. Although the timing is uncertain, it is reasonably possible that within the next 12 months, the gross unrecognized tax benefits could decrease by as much as $120 million.

12. Benefit Plans

We sponsor retirement savings plans for employees meeting certain eligibility requirements. Participants may choose from various investment options, including a fund comprised of our company stock. Participants can contribute up to 50% of their eligible compensation annually as defined by the plan document, subject to Internal Revenue Service limitations. We match 100% of the first 3% of participating employees' contributions and 50% of the next 2%. Employer contributions vest immediately. In light of the uncertainty surrounding the impact of COVID-19 and to maximize liquidity, we temporarily suspended the employer contribution match from June 1, 2020, to November 6, 2020. Total employer contributions were $44 million, $73 million and $67 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

We offer a non-qualified, unfunded deferred compensation plan for highly-compensated employees and members of our Board. Amounts contributed and deferred under the plan are invested in options offered under the plan and elected by the participants. The liability for compensation deferred under the plan was $25 million and $22 million as of January 30, 2021, and February 1, 2020, respectively, and is included in Long-term liabilities on our Consolidated Balance Sheets. See Note 5, Fair Value Measurements, for the fair value of assets held for deferred compensation.

13. Contingencies and Commitments

We are involved in a number of legal proceedings. Where appropriate, we have made accruals with respect to these matters, which are reflected on our Consolidated Financial Statements. However, there are cases where liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made. We provide disclosure of matters where we believe it is reasonably possible the impact may be material to our Consolidated Financial Statements.

We had outstanding letters of credit with an aggregate fair value of $72 million as of January 30, 2021.

14. Segment and Geographic Information

Segment and product category revenue information was as follows ($ in millions):

	2021				2020				2019
Revenue by reportable segment
Domestic	$	43,293			$	40,114			$	39,304
International		3,969				3,524				3,575
Total revenue	$	47,262			$	43,638			$	42,879

	2021				2020				2019
Revenue by product category
Domestic
Computing and Mobile Phones	$	19,799			$	17,819			$	17,439
Consumer Electronics		13,022				13,129				12,959
Appliances		5,489				4,493				4,020
Entertainment		2,769				2,388				2,952
Services		2,082				2,126				1,783
Other		132				159				151
Total Domestic revenue	$	43,293			$	40,114			$	39,304
International
Computing and Mobile Phones	$	1,854			$	1,580			$	1,625
Consumer Electronics		1,189				1,163				1,103
Appliances		384				317				324
Entertainment		310				209				258
Services		170				199				184
Other		62				56				81
Total International revenue	$	3,969			$	3,524			$	3,575

Segment operating income and asset information was as follows ($ in millions):

	2021				2020				2019
Operating income by reportable segment
Domestic(1)	$	2,348			$	1,907			$	1,797
International		43				102				103
Total operating income		2,391				2,009				1,900
Other income (expense):
Gain on sale of investments		1				1				12
Investment income and other		37				47				49
Interest expense		(52)				(64)				(73)
Earnings before income tax expense	$	2,377			$	1,993			$	1,888
Assets
Domestic	$	17,625			$	14,247			$	11,908
International		1,442				1,344				993
Total assets	$	19,067			$	15,591			$	12,901
Capital expenditures
Domestic	$	680			$	691			$	770
International		33				52				49
Total capital expenditures	$	713			$	743			$	819
Depreciation
Domestic	$	704			$	681			$	687
International		55				59				60
Total depreciation	$	759			$	740			$	747

(1)The Domestic segment operating income includes certain operations that are based in foreign tax jurisdictions and primarily relate to sourcing products into the U.S.

Geographic information was as follows ($ in millions):

	2021				2020				2019
Revenue from external customers
United States	$	43,293			$	40,114			$	39,304
Canada		3,600				3,125				3,214
Other		369				399				361
Total revenue from external customers	$	47,262			$	43,638			$	42,879
Property and equipment, net
United States	$	2,135			$	2,150			$	2,321
Canada		122				140				161
Other		3				38				28
Total property and equipment, net	$	2,260			$	2,328			$	2,510