Item 8. Financial Statements and Supplementary Data.

Management's Report on the Consolidated Financial Statements

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

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

Management's Report on Internal Control Over Financial Reporting

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

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

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

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

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

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of January 28, 2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessment, we have concluded that our internal control over financial reporting was effective as of January 28, 2023. During our assessment, we did not identify any material weaknesses in our internal control over financial reporting. Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements for the year ended January 28, 2023, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, has issued an unqualified attestation report on our internal control over financial reporting as of January 28, 2023.

‎

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 28, 2023 and January 29, 2022, 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 28, 2023, 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 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2023, 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 28, 2023, 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 17, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

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 U.S. 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

Critical Audit Matter Description

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 $1,383 million as of January 28, 2023, of which $891 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 cash flows such as revenue growth rates and estimates of the weighted average cost of capital rate. 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 cash flows, such as revenue growth rates, and estimates of the weighted average cost of capital rate, 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 cash flows, such as revenue growth rates and estimates of the weighted average cost of capital rate 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 and estimates of the weighted average cost of capital rate.

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; and (4) underlying analyses detailing business strategies and growth plans.

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.

With the assistance of our fair value specialists, we evaluated the reasonableness of the weighted average cost of capital rate by: (1) testing the source information underlying the determination of the rate and testing the mathematical accuracy of the calculations; (2) comparing the rate to market data; and (3) developing ranges of independent estimates and comparing those to the rate selected by management.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota

March 17, 2023

We have served as the Company's auditor since 2005.‎

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 28, 2023, 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 28, 2023, 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 28, 2023, of the Company and our report dated March 17, 2023, 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 17, 2023

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Consolidated Balance Sheets

$ in millions, except per share amounts

	January 28, 2023				January 29, 2022
Assets
Current assets
Cash and cash equivalents	$	1,874			$	2,936
Receivables, net		1,141				1,042
Merchandise inventories		5,140				5,965
Other current assets		647				596
Total current assets		8,802				10,539
Property and equipment
Land and buildings		688				671
Leasehold improvements		2,260				2,160
Fixtures and equipment		3,928				5,419
Property under finance leases		100				91
Gross property and equipment		6,976				8,341
Less accumulated depreciation		4,624				6,091
Net property and equipment		2,352				2,250
Operating lease assets		2,746				2,654
Goodwill		1,383				1,384
Other assets		520				677
Total assets	$	15,803			$	17,504
Liabilities and equity
Current liabilities
Accounts payable	$	5,687			$	6,803
Unredeemed gift card liabilities		274				316
Deferred revenue		1,116				1,103
Accrued compensation and related expenses		405				845
Accrued liabilities		843				946
Current portion of operating lease liabilities		638				648
Current portion of long-term debt		16				13
Total current liabilities		8,979				10,674
Long-term operating lease liabilities		2,164				2,061
Long-term liabilities		705				533
Long-term debt		1,160				1,216
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 - 218.1 million and 227.4 million shares, respectively		22				23
Additional paid-in capital		21				-
Retained earnings		2,430				2,668
Accumulated other comprehensive income		322				329
Total equity		2,795				3,020
Total liabilities and equity	$	15,803			$	17,504

See Notes to Consolidated Financial Statements.

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Consolidated Statements of Earnings

$ and shares in millions, except per share amounts

Fiscal Years Ended	January 28, 2023				January 29, 2022				January 30, 2021
Revenue	$	46,298			$	51,761			$	47,262
Cost of sales		36,386				40,121				36,689
Gross profit		9,912				11,640				10,573
Selling, general and administrative expenses		7,970				8,635				7,928
Restructuring charges		147				(34)				254
Operating income		1,795				3,039				2,391
Other income (expense):
Investment income and other		28				10				38
Interest expense		(35)				(25)				(52)
Earnings before income tax expense and equity in income of affiliates		1,788				3,024				2,377
Income tax expense		370				574				579
Equity in income of affiliates		1				4				-
Net earnings	$	1,419			$	2,454			$	1,798
Basic earnings per share	$	6.31			$	9.94			$	6.93
Diluted earnings per share	$	6.29			$	9.84			$	6.84
Weighted-average common shares outstanding:
Basic		224.8				246.8				259.6
Diluted		225.7				249.3				263.0

See Notes to Consolidated Financial Statements.

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Consolidated Statements of Comprehensive Income

$ in millions

Fiscal Years Ended	January 28, 2023				January 29, 2022				January 30, 2021
Net earnings	$	1,419			$	2,454			$	1,798
Foreign currency translation adjustments, net of tax		(7)				1				(4)
Cash flow hedges		-				-				(2)
Reclassification of cumulative translation adjustments into earnings due to exit of business		-				-				39
Comprehensive income	$	1,412			$	2,455			$	1,831

See Notes to Consolidated Financial Statements.

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Consolidated Statements of Cash Flows

$ in millions

Fiscal Years Ended	January 28, 2023				January 29, 2022				January 30, 2021
Operating activities
Net earnings	$	1,419			$	2,454			$	1,798
Adjustments to reconcile net earnings to total cash provided by operating activities:
Depreciation and amortization		918				869				839
Restructuring charges		147				(34)				254
Stock-based compensation		138				141				135
Deferred income taxes		51				14				(36)
Other, net		12				11				3
Changes in operating assets and liabilities, net of acquired assets and liabilities:
Receivables		(103)				17				73
Merchandise inventories		809				(328)				(435)
Other assets		(21)				(14)				(51)
Accounts payable		(1,099)				(201)				1,676
Income taxes		36				(156)				173
Other liabilities		(483)				479				498
Total cash provided by operating activities		1,824				3,252				4,927
Investing activities
Additions to property and equipment, net of $35, $46 and $32, respectively, of non-cash capital expenditures		(930)				(737)				(713)
Purchases of investments		(46)				(233)				(620)
Sales of investments		7				66				546
Acquisitions, net of cash acquired		-				(468)				-
Other, net		7				-				(1)
Total cash used in investing activities		(962)				(1,372)				(788)
Financing activities
Repurchase of common stock		(1,014)				(3,502)				(312)
Issuance of common stock		16				29				28
Dividends paid		(789)				(688)				(568)
Borrowings of debt		-				-				1,892
Repayments of debt		(19)				(133)				(1,916)
Other, net		-				(3)				-
Total cash used in financing activities		(1,806)				(4,297)				(876)
Effect of exchange rate changes on cash		(8)				(3)				7
Increase (decrease) in cash, cash equivalents and restricted cash		(952)				(2,420)				3,270
Cash, cash equivalents and restricted cash at beginning of period		3,205				5,625				2,355
Cash, cash equivalents and restricted cash at end of period	$	2,253			$	3,205			$	5,625
Supplemental cash flow information
Income taxes paid	$	283			$	716			$	442
Interest paid	$	31			$	22			$	50

See Notes to Consolidated Financial Statements.

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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 1, 2020		256.5			$	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		3.5				-				28				-				-				28
Common stock dividends, $2.20 per share		-				-				12				(580)				-				(568)
Repurchase of common stock		(3.1)				-				(175)				(143)				-				(318)
Balances as of January 30, 2021		256.9				26				-				4,233				328				4,587
Net earnings		-				-				-				2,454				-				2,454
Other comprehensive income:
Foreign currency translation adjustments, net of tax		-				-				-				-				1				1
Stock-based compensation		-				-				141				-				-				141
Issuance of common stock		2.7				-				29				-				-				29
Common stock dividends, $2.80 per share		-				-				14				(702)				-				(688)
Repurchase of common stock		(32.2)				(3)				(184)				(3,317)				-				(3,504)
Balances as of January 29, 2022		227.4				23				-				2,668				329				3,020
Net earnings		-				-				-				1,419				-				1,419
Other comprehensive loss:
Foreign currency translation adjustments, net of tax		-				-				-				-				(7)				(7)
Stock-based compensation		-				-				138				-				-				138
Issuance of common stock		2.5				-				16				-				-				16
Common stock dividends, $3.52 per share		-				-				14				(804)				-				(790)
Repurchase of common stock		(11.8)				(1)				(147)				(853)				-				(1,001)
Balances as of January 28, 2023		218.1			$	22			$	21			$	2,430			$	322			$	2,795

See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

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

Description of Business

We are driven by our purpose to enrich lives through technology and our vision to personalize and humanize technology solutions for every stage of life. We accomplish this by leveraging our combination of technology and a human touch to meet our customers’ everyday needs, whether they come to us online, visit our stores or invite us into their homes. We have operations in the U.S. and Canada.

We have two reportable segments: Domestic and International. The Domestic segment is comprised of our operations in all states, districts and territories of the U.S. and our Best Buy Health business, and includes the brand names Best Buy, Best Buy Ads, Best Buy Business, Best Buy Health, CST, Current Health, Geek Squad, Lively, Magnolia, Pacific Kitchen and Home, TechLiquidators and Yardbird and the domain names bestbuy.com, currenthealth.com, lively.com, techliquidators.com and yardbird.com. All of our former stores in Mexico were closed as of the end of the first quarter of fiscal 2022, and our International segment is comprised of all operations in Canada under the brand names Best Buy, Best Buy Mobile and Geek Squad and the domain name bestbuy.ca.

In fiscal 2022, we acquired all of the outstanding shares of Current Health Ltd. (“Current Health”) and Two Peaks, LLC d/b/a Yardbird Furniture (“Yardbird”). Refer to Note 2, Acquisitions, for additional information.

Basis of Presentation

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

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 2023, fiscal 2022 and fiscal 2021 included 52 weeks.

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 our Best Buy Health business) and International (which is comprised of all operations in Canada). 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.

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, 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 28, 2023				January 29, 2022				January 30, 2021
Cash and cash equivalents	$	1,874			$	2,936			$	5,494
Restricted cash included in Other current assets		379				269				131
Total cash, cash equivalents and restricted cash	$	2,253			$	3,205			$	5,625

Cash equivalents consist of highly liquid investments with original maturities of three months or less.

Amounts included in restricted cash are primarily restricted to use for product protection plans provided under our Best Buy Totaltech membership offering and other self-insurance liabilities. ‎

Receivables

Receivables consist primarily of amounts due from vendors for various vendor funding programs, banks for customer credit card and debit card transactions, online marketplace partnerships 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 $30 million and $39 million as of January 28, 2023, and January 29, 2022, respectively. We had $41 million and $52 million of write-offs in fiscal 2023 and fiscal 2022, 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 within Cost of sales on our Consolidated Statements of Earnings.

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 are expensed as incurred until technological feasibility is established, which generally leads to expensing substantially all costs.

Costs associated with implementing cloud computing arrangements that are service contracts are capitalized using methodology similar to internal-use software, but are included in Other Assets on our Consolidated Balance Sheets.

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

Asset Category	Useful Life
Buildings	5-35
Leasehold improvements	5-10
Fixtures and equipment	2-20

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 either the individual store level or at the local market level. Such reviews involve comparing the net carrying value of all assets to the net cash flow projections for each store or market. 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.

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 SG&A. No other triggering events were identified for the periods presented.

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. We generally do not include options to extend or terminate a 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. We have goodwill in two reporting units – Best Buy Domestic and Best Buy Health – with carrying values of $492 million and $891 million, respectively, as of January 28, 2023.

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, we conclude 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 lives of the assets. 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 $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.

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 investment operations, as well as an appropriate discount rate.

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.

Insurance

We are self-insured for certain losses related to workers’ compensation, medical, general liability and auto 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 28, 2023				January 29, 2022
Accrued liabilities	$	111			$	80
Long-term liabilities		53				51
Total	$	164			$	131

Income Taxes

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

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

Our income tax returns are routinely examined by domestic and foreign tax 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, insurance liabilities and customer deposits.

Long-Term Liabilities

The major components of long-term liabilities are unrecognized tax benefits, deferred revenue from our private label and co-branded credit card arrangement and income tax liabilities.

Foreign Currency

Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at our Consolidated Balance Sheet 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 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 delivery, installation, set-up, software troubleshooting, product repair, and data services 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 Best Buy Totaltech membership offering), we are responsible for fulfilling the support services to customers. These contracts have terms ranging from one month to one year 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. 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 0.9%, 1.4% and 1.6% of revenue in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

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 2023, fiscal 2022 and fiscal 2021 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 $59 million, $49 million and $33 million in fiscal 2023, fiscal 2022, and fiscal 2021, 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 private label and co-branded credit cards. Points earned enable members to receive a certificate that may be redeemed on future purchases. Certificate expirations are typically two 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 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, primarily in the form of purchases-based or sales-based volumes and for product advertising and placement. 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 within SG&A when incurred.

Advertising Costs

Advertising costs, which are included in SG&A, are expensed the first time the advertisement runs. Advertising costs consist primarily of digital advertisements. Advertising expenses were $864 million, $915 million and $819 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

Stock-Based Compensation

We recognize stock-based compensation expense for the fair value of our stock-based compensation awards, which is determined based on the closing market price of our stock at the date of grant for time-based and performance-based share awards, and Monte-Carlo simulation for market-based share awards. Compensation expense is recognized on a straight-line basis over the period in which services are required, except for performance-based share awards that vest on a graded basis, in which case the expense is front-loaded or recognized on a graded-attribution basis. Forfeitures are expensed as incurred or upon termination.

Comprehensive Income (Loss)

Comprehensive income (loss) is computed as net earnings plus certain other items that are recorded directly to shareholders’ equity.

2. Acquisitions

Current Health Ltd.

In fiscal 2022, we acquired all of the outstanding shares of Current Health Ltd. (“Current Health”), a care-at-home technology platform, on November 2, 2021, for net cash consideration of $389 million. The acquired assets included $351 million of goodwill that was assigned to our Best Buy Health reporting unit and was deductible for income tax purposes. The acquisition is aligned with our focus in virtual care to enable people in their homes to connect seamlessly with their health care providers and is included in our Domestic reportable segment and Services revenue category. The acquisition was accounted for using the acquisition method of accounting for business combinations and was not material to the results of operations.

Two Peaks, LLC d/b/a Yardbird Furniture

In fiscal 2022, we acquired all of the outstanding shares of Two Peaks, LLC d/b/a Yardbird Furniture (“Yardbird”), a direct-to-consumer outdoor furniture company, on November 4, 2021, for net cash consideration of $79 million. The acquired assets included $47 million of goodwill that was assigned to our Best Buy Domestic reporting unit and was deductible for income tax purposes. The acquisition expands our assortment in categories like outdoor living, as more and more consumers look to make over or upgrade their outdoor living spaces. The acquisition was accounted for using the acquisition method of accounting for business combinations and was not material to the results of our operations.

3. Restructuring

Restructuring charges were as follows ($ in millions):

						2023				2022				2021
Fiscal 2023 Resource Optimization Initiative						$	145			$	-			$	-
Mexico Exit and Strategic Realignment(1)							2				(41)				277
Fiscal 2020 U.S. Retail Operating Model Changes							-				1				-
Total						$	147			$	(40)			$	277

(1)Includes ($6) million and $23 million related to inventory markdowns recorded in Cost of sales on our Consolidated Statements of Earnings in fiscal 2022 and fiscal 2021, respectively.

Fiscal 2023 Resource Optimization Initiative

In light of ongoing changes in business trends, during the second quarter of fiscal 2023, we commenced an enterprise-wide initiative to better align our spending with critical strategies and operations, as well as to optimize our cost structure. Charges incurred relate to employee termination benefits within our Domestic and International segments of $140 million and $5 million, respectively. We currently do not expect the remaining charges in fiscal 2024 related to this initiative to be material to the results of our operations.

All charges incurred related to this initiative were from continuing operations and were presented within Restructuring charges on our Consolidated Statements of Earnings.

Restructuring accrual activity related to the fiscal 2023 resource optimization initiative described above was as follows ($ in millions):

						Termination Benefits
						Domestic				International				Total
Balances as of January 29, 2022						$	-			$	-			$	-
Charges							145				5				150
Cash payments							(38)				-				(38)
Adjustments(1)							(5)				-				(5)
Balances as of January 28, 2023						$	102			$	5			$	107

(1)Represents adjustments to previously planned organizational changes and higher-than-expected employee retention.

Mexico Exit and Strategic Realignment

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. All of our former stores in Mexico were closed as of the end of the first quarter of fiscal 2022. Charges incurred in our Domestic segment primarily related to actions taken to align our organizational structure in support of our strategy. We do not expect to incur material future restructuring charges related to this initiative and no material liability remains as of January 28, 2023.

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):

	Statement of					2022												2021
	Earnings Location					Domestic				International				Total				Domestic				International				Total
Inventory markdowns	Cost of sales					$	-			$	(6)			$	(6)			$	-			$	23			$	23
Asset impairments(1)	Restructuring charges						-				6				6				10				57				67
Termination benefits	Restructuring charges						(40)				(1)				(41)				123				20				143
Currency translation adjustment	Restructuring charges						-				-				-				-				39				39
Other(2)	Restructuring charges						-				-				-				-				5				5
						$	(40)			$	(1)			$	(41)			$	133			$	144			$	277

						Cumulative Amount as of January 28, 2023
	Statement of Earnings Location					Domestic				International				Total
Inventory markdowns	Cost of sales					$	-			$	17			$	17
Asset impairments(1)	Restructuring charges						10				63				73
Termination benefits	Restructuring charges						83				20				103
Currency translation adjustment	Restructuring charges						-				39				39
Other(2)	Restructuring charges						-				6				6
						$	93			$	145			$	238

(1)Remaining net carrying value of asset impairments approximates fair value and was immaterial as of January 28, 2023.

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

No material restructuring accrual activity occurred in fiscal 2023 related to the exit from Mexico and strategic realignment described above. Restructuring accrual activity in fiscal 2022 related to this initiative was as follows ($ in millions):

						Termination Benefits
						Domestic				International				Total
Balances as of January 30, 2021						$	104			$	20			$	124
Charges							4				-				4
Cash payments							(57)				(18)				(75)
Adjustments(1)							(44)				(1)				(45)
Changes in foreign currency exchange rates							-				(1)				(1)
Balances as of January 29, 2022						$	7			$	-			$	7

(1)Represents adjustments to previously planned organizational changes in our Domestic segment and higher-than-expected employee retention in both our Domestic and International segments.

4. Goodwill and Intangible Assets

Goodwill

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

	January 28, 2023								January 29, 2022
	Gross Carrying Amount				Cumulative Impairment				Gross Carrying Amount				Cumulative Impairment
Domestic	$	1,450			$	(67)			$	1,451			$	(67)
International		608				(608)				608				(608)
Total	$	2,058			$	(675)			$	2,059			$	(675)

No impairment charges were recorded for the periods presented.

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 28, 2023								January 29, 2022								Weighted-Average
	Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization				Useful Life Remaining as of January 28, 2023 (in years)
Customer relationships	$	360			$	236			$	360			$	180				8.4
Tradenames		108				56				108				38				5.4
Developed technology		64				51				64				39				2.6
Total	$	532			$	343			$	532			$	257				7.2

Amortization expense was as follows ($ in millions):

	Statement of Earnings Location		2023				2022				2021
Amortization expense	SG&A		$	86			$	82			$	80

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

Fiscal Year														Amount
Fiscal 2024													$	61
Fiscal 2025														21
Fiscal 2026														21
Fiscal 2027														18
Fiscal 2028														12
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 accounted for at fair value were as follows ($ in millions):

				Fair Value		Fair Value at
Assets		Balance Sheet Location**(1)**		Hierarchy		January 28, 2023				January 29, 2022
Money market funds(2)		Cash and cash equivalents		Level 1		$	280			$	548
Time deposits(3)		Cash and cash equivalents		Level 2			203				278
Money market funds(2)		Other current assets		Level 1			178				-
Marketable securities that fund deferred compensation(4)		Other assets		Level 1			47				54
Interest rate swap derivative instruments(5)		Other assets		Level 2			-				50

(1)Balance sheet location is determined by the length to maturity at date of purchase.

(2)Valued at quoted market prices in active markets at period end.

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

(4)Valued using the performance of mutual funds 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 2022 and fiscal 2021, we recorded asset impairments related to our exit from operations in Mexico. See Note 3, 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, restricted cash, receivables, accounts payable 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 were 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 28, 2023								January 29, 2022
	Fair Value				Carrying Value				Fair Value				Carrying Value
Long-term debt(1)	$	1,019			$	1,143			$	1,205			$	1,200

(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 by using interest rate swaps to mitigate the effect of interest rate fluctuations 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.

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 28, 2023				January 29, 2022
Derivatives designated as net investment hedges	$	114			$	155
Derivatives designated as interest rate swap contracts		500				500
No hedging designation (foreign exchange forward contracts)		56				68
Total	$	670			$	723

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	2023				2022				2021
Interest rate swap contracts	Interest expense	$	(57)			$	(41)			$	2
Adjustments to carrying value of long-term debt	Interest expense		57				41				(2)
Total		$	-			$	-			$	-

7. Leases

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

	Balance Sheet Location		January 28, 2023				January 29, 2022
Assets
Operating leases	Operating lease assets		$	2,746			$	2,654
Finance leases	Property under finance leases, net(1)			50				45
Total lease assets			$	2,796			$	2,699
Liabilities
Current:
Operating leases	Current portion of operating lease liabilities		$	638			$	648
Finance leases	Current portion of long-term debt			16				13
Non-current:
Operating leases	Long-term operating lease liabilities			2,164				2,061
Finance leases	Long-term debt			26				27
Total lease liabilities			$	2,844			$	2,749

(1)Finance leases were recorded net of accumulated depreciation of $50 million and $46 million as of January 28, 2023, and January 29, 2022, respectively. ‎

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

	Statement of Earnings Location		2023				2022				2021
Operating lease cost(1)	Cost of sales and SG&A(2)		$	780			$	770			$	777
Finance lease cost:
Depreciation of lease assets	Cost of sales and SG&A(2)			15				13				13
Interest on lease liabilities	Interest expense			1				1				1
Variable lease cost	Cost of sales and SG&A(2)			233				238				249
Sublease income	SG&A			(12)				(13)				(16)
Total lease cost			$	1,017			$	1,009			$	1,024

(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):

			2023				2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	781			$	814
Operating cash flows from finance leases				1				1
Financing cash flows from finance leases				18				18
Lease assets obtained in exchange for new lease liabilities:
Operating leases				809				759
Finance leases				18				21
Weighted average remaining lease term (in years):
Operating leases				5.1				5.1
Finance leases				5.5				5.0
Weighted average discount rate:
Operating leases				3.0	%			2.5	%
Finance leases				3.2	%			2.4	%

Future lease payments under our non-cancellable leases as of January 28, 2023, were as follows ($ in millions):

					Operating Leases**(1)**				Finance Leases**(1)**
Fiscal 2024					$	707			$	16
Fiscal 2025						670				14
Fiscal 2026						544				8
Fiscal 2027						432				3
Fiscal 2028						297				1
Thereafter						383				4
Total future undiscounted lease payments						3,033				46
Less imputed interest						231				4
Total reported lease liability					$	2,802			$	42

(1)Lease payments exclude $63 million of legally binding fixed costs for leases signed but not yet commenced.

8. Debt

Short-Term Debt

U.S. Revolving Credit Facility

On May 18, 2021, we entered into a $1.25 billion five year senior unsecured revolving credit facility agreement (the “Five Year Facility Agreement”) with a syndicate of banks. The Five Year Facility Agreement permits borrowings of up to $1.25 billion and expires in May 2026. There were no borrowings outstanding under the Five Year Facility Agreement as of January 28, 2023, or January 29, 2022.

The interest rate under the Five Year Facility Agreement is variable and is determined at our option as: (i) the sum of (a) the greatest of (1) JPMorgan Chase Bank, N.A.’s prime rate, (2) the greater of the federal funds rate and the overnight bank funding rate plus, in each case, 0.5%, and (3) the one-month London Interbank Offered Rate (“LIBOR”), subject to certain adjustments plus 1%, and (b) a variable margin rate (the “ABR Margin”); or (ii) the LIBOR plus a variable margin rate (the “LIBOR Margin”). In addition, a facility fee is assessed on the commitment amount. The ABR Margin, LIBOR Margin and the facility fee are based upon our current senior unsecured debt rating. Under the Five Year Facility Agreement, the ABR Margin ranges from 0.00% to 0.225%, the LIBOR Margin ranges from 0.805% to 1.225%, and the facility fee ranges from 0.07% to 0.15%. Additionally, the Five Year Facility Agreement includes fallback language related to the transition from LIBOR to alternative rates. The Five Year Facility Agreement is guaranteed by certain of our subsidiaries and contains customary affirmative and negative covenants. Among other things, these covenants restrict our and certain of our subsidiaries’ abilities to incur liens on certain assets; make material changes in corporate structure or the nature of our business; dispose of material assets; engage in certain mergers, consolidations and other fundamental changes; or engage in certain transactions with affiliates.

The Five Year Facility Agreement also contains covenants that require us to maintain a maximum cash flow leverage ratio. The Five Year Facility Agreement contains default provisions including, but not limited to, failure to pay interest or principal when due and failure to comply with covenants.

Long-Term Debt

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

	January 28, 2023				January 29, 2022
2028 Notes	$	500			$	500
2030 Notes		650				650
Interest rate swap valuation adjustments		(7)				50
Subtotal		1,143				1,200
Debt discounts and issuance costs		(9)				(11)
Finance lease obligations		42				40
Total long-term debt		1,176				1,229
Less: current portion		16				13
Total long-term debt, less current portion	$	1,160			$	1,216

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.

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 28, 2023, 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 are 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 (“Board”) at the time of grant. Dividend equivalents accrue on restricted stock and restricted stock units during the vesting period, are forfeitable prior to the vesting date and are settled in shares of our common stock at the vesting or distribution date. As of January 28, 2023, a total of 16.4 million shares were available for future grants under the 2020 Plan.

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

	2023				2022				2021
Share awards:
Time-based	$	121			$	109			$	99
Performance-based		-				17				21
Market-based		14				12				11
Stock options		3				3				4
Stock-based compensation expense		138				141				135
Income tax benefits		27				26				25
Stock-based compensation expense, net of tax	$	111			$	115			$	110

Time-Based Share Awards

Time-based share awards vest solely upon continued employment, generally 33% on each of the three annual anniversary dates following the grant date. Time-based share awards to directors vest one year from the date of grant. Information on our time-based share awards was as follows (shares in thousands):

Time-Based Share Awards	Shares			Weighted-Average Fair Value per Share
Outstanding as of January 29, 2022	3,396			$	80.30
Granted	1,674			$	98.05
Vested and distributed	(1,642)			$	75.55
Forfeited	(382)			$	92.16
Outstanding as of January 28, 2023	3,046			$	90.96

The total fair value vested and distributed during fiscal 2023, fiscal 2022 and fiscal 2021 was $159 million, $194 million and $145 million, respectively. The actual tax benefits realized for the tax deductions related to vesting in fiscal 2023, fiscal 2022 and fiscal 2021 was $33 million, $41 million and $33 million, respectively. As of January 28, 2023, there was $149 million of unrecognized compensation expense related to non-vested time-based share awards that we expect to recognize over a weighted-average period of 1.8 years.

Performance-Based Share Awards

Performance-based share awards generally vest upon the achievement of company performance goals based upon compound annual growth in enterprise revenue (“CAGR”) or attainment of net earnings (“adjusted net earnings”). The number of shares of common stock that could be distributed at the end of the three-year CAGR-incentive period may range from 0% to 150% of each share granted (“target”). Shares are granted at 100% of target. Awards based on adjusted net earnings vest 33% on each of the three annual anniversary dates following the grant date if the adjusted net earnings goal has been met. Information on our performance-based share awards was as follows (shares in thousands):

Performance-Based Share Awards	Shares			Weighted-Average Fair Value per Share
Outstanding as of January 29, 2022	673			$	68.40
Granted	31			$	85.19
Adjustment for performance achievement	30			$	68.91
Distributed	(424)			$	70.71
Forfeited	(22)			$	60.48
Outstanding as of January 28, 2023	288			$	67.36

The total fair value distributed during fiscal 2023, fiscal 2022 and fiscal 2021 was $37 million, $43 million and $28 million, respectively. The actual tax benefits realized for the tax deductions related to distributions in fiscal 2023, fiscal 2022 and fiscal 2021 were $3 million, $3 million and $5 million, respectively. As of January 28, 2023, there was $2 million of unrecognized compensation expense related to non-vested performance-based share awards that we expect to recognize over a weighted-average period of 1.2 years.

Market-Based Share Awards

Market-based share awards 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. The number of shares of common stock that could be distributed at the end of the three-year TSR-incentive period may range from 0% to 150% of each share granted (“target”). Shares are granted at 100% of target. Information on our market-based share awards was as follows (shares in thousands):

Market-Based Share Awards	Shares			Weighted-Average Fair Value per Share
Outstanding as of January 29, 2022	524			$	80.78
Granted	227			$	112.62
Adjustment for performance achievement	9			$	72.87
Distributed	(211)			$	72.87
Forfeited	(35)			$	91.31
Outstanding as of January 28, 2023	514			$	96.61

The total fair value distributed during fiscal 2023, fiscal 2022 and fiscal 2021 was $18 million, $27 million and $37 million, respectively. The actual tax benefits realized for the tax deductions related to distributions in fiscal 2023, fiscal 2022 and fiscal 2021 was $2 million, $3 million and $8 million, respectively. As of January 28, 2023, there was $21 million of unrecognized compensation expense related to non-vested market-based share awards that we expect to recognize over a weighted-average period of 1.7 years.

Stock Options

Our outstanding stock options have a 10-year term and generally vest 33% on each of the three annual anniversary dates following the grant date. Information on our stock options 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 January 29, 2022	835			$	57.39
Exercised	(112)			$	34.83
Forfeited	(3)			$	51.63
Outstanding as of January 28, 2023	720			$	60.91				5.6			$	17
Vested or expected to vest as of January 28, 2023	720			$	60.91				5.6			$	17
Exercisable as of January 28, 2023	368			$	54.94				4.9			$	11

No stock options were granted in fiscal 2023 or fiscal 2022. The weighted-average grant-date fair value of stock options granted during fiscal 2021 was $19.89 per share. The aggregate intrinsic value of our stock options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised during fiscal 2023, fiscal 2022 and fiscal 2021 was $6 million, $19 million and $21 million, respectively. As of January 28, 2023, there was less than $1 million of unrecognized compensation expense related to stock options that we expect to recognize over a weighted-average period of 0.2 years.

Net cash proceeds from the exercise of stock options were $4 million, $18 million and $20 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively. There was $1 million, $2 million and $5 million of income tax benefits realized from stock option exercises in fiscal 2023, fiscal 2022 and fiscal 2021, 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
Risk-free interest rate(1)		0.1	%	-	0.9	%
Expected dividend yield		2.9				%
Expected stock price volatility(2)		56				%
Expected life of stock options (in years)(3)		6.3

(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.

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 28, 2023, options to purchase common stock were all in-the-money and outstanding as follows (shares in millions):

	Exercisable									Unexercisable									Total
	Shares			%		Weighted-‎Average Price‎per Share				Shares			%		Weighted-‎Average Price‎per Share				Shares			%		Weighted-‎Average Price‎per Share
In-the-money	0.4			51%		$	54.94			0.3			49%		$	67.13			0.7			100%		$	60.91

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

	2023				2022				2021
Numerator
Net earnings	$	1,419			$	2,454			$	1,798
Denominator
Weighted-average common shares outstanding		224.8				246.8				259.6
Dilutive effect of stock compensation plan awards		0.9				2.5				3.4
Weighted-average common shares outstanding, assuming dilution		225.7				249.3				263.0
Potential shares which were anti-dilutive and excluded from weighted-average share computations		0.7				0.1				-
Basic earnings per share	$	6.31			$	9.94			$	6.93
Diluted earnings per share	$	6.29			$	9.84			$	6.84

Repurchase of Common Stock

On February 28, 2022, our Board approved a $5.0 billion share repurchase program, which replaced the $5.0 billion share repurchase program authorized on February 16, 2021. The program had $4,125 million remaining available for repurchases as of January 28, 2023. There is no expiration date governing the period over which we can repurchase shares under this authorization.

Information regarding the shares we repurchased and retired was as follows ($ and shares in millions, except per share amounts):

	2023				2022				2021
Total cost of shares repurchased	$	1,001			$	3,504			$	318
Average price per share	$	84.78			$	108.97			$	102.63
Number of shares repurchased and retired		11.8				32.2				3.1

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, unfulfilled membership benefits and services not yet completed and unredeemed gift cards. Contract balances were as follows ($ in millions):

	January 28, 2023				January 29, 2022
Receivables(1)	$	581			$	591
Short-term contract liabilities included in:
Unredeemed gift cards		274				316
Deferred revenue		1,116				1,103
Accrued liabilities		66				83
Long-term contract liabilities included in:
Long-term liabilities		265				6

(1)Receivables are recorded net of allowances for doubtful accounts of $22 million and $31 million as of January 28, 2023, and January 29, 2022, respectively.

During fiscal 2023 and fiscal 2022, $1,346 million and $924 million of revenue was recognized, respectively, that was included in the contract liabilities at the beginning of the respective periods.

The following table includes estimated revenue from our contract liability balances expected to be recognized in future periods if performance of the contract is expected to have a duration of more than one year ($ in millions):

Fiscal Year						Amount
Fiscal 2024					$	25
Fiscal 2025						30
Fiscal 2026						25
Fiscal 2027						24
Fiscal 2028						24
Thereafter						137

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):

	2023				2022				2021
Federal income tax at the statutory rate	$	376			$	635			$	499
State income taxes, net of federal benefit		63				88				72
Change in unrecognized tax benefits		(45)				(88)				20
Expense (benefit) from foreign operations		(4)				(8)				20
Other		(20)				(53)				(32)
Income tax expense	$	370			$	574			$	579
Effective income tax rate		20.7	%			19.0	%			24.3	%

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

	2023				2022				2021
United States	$	1,533			$	2,677			$	2,203
Foreign		255				347				174
Earnings before income tax expense and equity in income of affiliates	$	1,788			$	3,024			$	2,377

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

	2023				2022				2021
Current:
Federal	$	213			$	367			$	447
State		64				132				117
Foreign		42				61				51
		319				560				615
Deferred:
Federal		33				22				(25)
State		19				(9)				(16)
Foreign		(1)				1				5
		51				14				(36)
Income tax expense	$	370			$	574			$	579

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

	January 28, 2023				January 29, 2022
Deferred revenue	$	67			$	76
Compensation and benefits		41				156
Stock-based compensation		29				31
Other accrued expenses		47				46
Operating lease liabilities		729				707
Loss and credit carryforwards		161				143
Other		43				45
Total deferred tax assets		1,117				1,204
Valuation allowance		(150)				(128)
Total deferred tax assets after valuation allowance		967				1,076
Inventory		(37)				(24)
Property and equipment		(169)				(270)
Operating lease assets		(698)				(676)
Goodwill and intangibles		(71)				(64)
Other		(39)				(39)
Total deferred tax liabilities		(1,014)				(1,073)
Net deferred tax assets (liabilities)	$	(47)			$	3

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

Balance Sheet Location	January 28, 2023				January 29, 2022
Other assets	$	4			$	25
Long-term liabilities		(51)				(22)
Net deferred tax assets (liabilities)	$	(47)			$	3

As of January 28, 2023, we had deferred tax assets for net operating loss carryforwards from international operations of $117 million, of which $92 million will expire in various years through 2040 and the remaining amounts have no expiration; acquired U.S. federal net operating loss carryforwards of $7 million, of which $3 million will expire in various years between 2025 and 2029 and the remaining amounts have no expiration; U.S. federal foreign tax credit carryforwards of $16 million, which will expire between 2024 and 2033; state credit carryforwards of $3 million, which will expire between 2024 and 2028; state net operating loss carryforwards of $9 million, which will expire between 2024 and 2043; international credit carryforwards of $1 million, which have no expiration; and international capital loss carryforwards of $8 million, which have no expiration.

As of January 28, 2023, a valuation allowance of $150 million had been established, of which $16 million is against U.S. federal, foreign tax credit carryforwards, $11 million is against international and state capital loss carryforwards, $122 million is against international and state net operating loss carryforwards, and $1 million is against international and state credit carryforwards. The increase in fiscal 2023 was primarily due to current year loss activity from international and state net operating loss carryforwards, the set-up of additional valuation allowances against U.S. federal foreign tax credit and state capital loss carryforwards, and the exchange rate impact on the valuation allowance against certain international net operating loss carryforwards. These increases were partially offset by the expiration of certain international net operating loss carryforwards and the release of valuation allowances relating to federal net operating and capital loss carryforwards.

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

	2023				2022				2021
Balances at beginning of period	$	235			$	327			$	318
Gross increases related to prior period tax positions		28				3				17
Gross decreases related to prior period tax positions(1)		(75)				(103)				(25)
Gross increases related to current period tax positions		21				28				29
Settlements with taxing authorities		-				(7)				(1)
Lapse of statute of limitations		(46)				(13)				(11)
Balances at end of period	$	163			$	235			$	327

(1)Represents multi-jurisdiction, multi-year resolutions of certain discrete tax matters.

Unrecognized tax benefits of $141 million, $214 million and $307 million as of January 28, 2023, January 29, 2022, and January 30, 2021, respectively, would favorably impact our effective income tax rate if recognized.

We recognize interest and penalties (not included in the “unrecognized tax benefits” above), as well as interest received from favorable tax settlements, as components of income tax expense. Interest income of $6 million, interest income of $20 million and interest expense of $4 million was recognized in fiscal 2023, fiscal 2022 and fiscal 2021, respectively. As of January 28, 2023, January 29, 2022, and January 30, 2021, we had accrued interest of $42 million, $46 million and $74 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. An estimate of the amount or range of such changes cannot be made at this time.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.

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. Total employer contributions were $77 million, $77 million and $44 million in fiscal 2023, fiscal 2022 and fiscal 2021, 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 $20 million and $24 million as of January 28, 2023, and January 29, 2022, 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 28, 2023.

14. Segment and Geographic Information

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

	2023				2022				2021
Revenue by reportable segment
Domestic	$	42,794			$	47,830			$	43,293
International		3,504				3,931				3,969
Total revenue	$	46,298			$	51,761			$	47,262

	2023				2022				2021
Revenue by product category
Domestic:
Computing and Mobile Phones	$	18,191			$	20,693			$	19,799
Consumer Electronics		13,040				15,009				13,022
Appliances		6,381				6,784				5,489
Entertainment		2,786				2,963				2,769
Services		2,149				2,190				2,082
Other		247				191				132
Total Domestic revenue	$	42,794			$	47,830			$	43,293
International:
Computing and Mobile Phones	$	1,575			$	1,785			$	1,854
Consumer Electronics		1,054				1,194				1,189
Appliances		355				383				384
Entertainment		267				312				310
Services		183				190				170
Other		70				67				62
Total International revenue	$	3,504			$	3,931			$	3,969

Operating income by reportable segment and the reconciliation to consolidated earnings before income tax expense and equity in income of affiliates, as well as asset information by reportable segment, were as follows ($ in millions):

	2023				2022				2021
Operating income by reportable segment
Domestic(1)	$	1,634			$	2,795			$	2,348
International		161				244				43
Total operating income		1,795				3,039				2,391
Other income (expense):
Investment income and other		28				10				38
Interest expense		(35)				(25)				(52)
Earnings before income tax expense and equity in income of affiliates	$	1,788			$	3,024			$	2,377
Assets
Domestic	$	14,549			$	16,016			$	17,625
International		1,254				1,488				1,442
Total assets	$	15,803			$	17,504			$	19,067
Capital expenditures
Domestic	$	891			$	691			$	680
International		39				46				33
Total capital expenditures	$	930			$	737			$	713
Depreciation
Domestic	$	787			$	738			$	704
International		45				49				55
Total depreciation	$	832			$	787			$	759

(1)Domestic 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):

	2023				2022				2021
Revenue from external customers
U.S.	$	42,794			$	47,830			$	43,293
Canada		3,504				3,911				3,600
Other		-				20				369
Total revenue from external customers	$	46,298			$	51,761			$	47,262
Property and equipment, net
U.S.	$	2,243			$	2,128			$	2,135
Canada		107				120				122
Other		2				2				3
Total property and equipment, net	$	2,352			$	2,250			$	2,260