What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-17 compared with 2022-03-18 · 113 added, 156 removed, 982 unchanged (22% of the section changed)

61 unchanged sentences

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 future revenues.

Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

The fair value of the Best Buy Health reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized.

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

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

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

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

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(3) underlying source documents, when available, such as customer contracts;

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

(5) forward-looking revenue expectations in external communications made by management to analysts and investors;

and (6) industry reports containing analyses of the Company and its peers utilizing the assistance of our fair value specialists.

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

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Consolidated Balance Sheets

$ and shares in millions, except per share amounts

$ in millions, except per share amounts

January 28, 2023

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Accrued liabilities

Short-term debt

Current portion of operating lease liabilities

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Authorized - 1.0 billion shares;

Issued and outstanding - 227.4 shares and 256.9 shares, respectively

Issued and outstanding - 218.1 million and 227.4 million shares, respectively

Additional paid-in capital

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January 29, 2022

February 1, 2020

January 30, 2021

Cost of sales

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Other income (expense):

Gain on sale of investments

Investment income and other

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January 29, 2022

February 1, 2020

January 30, 2021

Foreign currency translation adjustments, net of tax

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January 29, 2022

February 1, 2020

January 30, 2021

Operating activities

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Balances as of February 1, 2020

Adoption of ASU 2016-02

Other comprehensive income:

Other comprehensive income (loss):

Foreign currency translation adjustments, net of tax

Cash flow hedges

Reclassification of cumulative translation adjustments into earnings due to exit of business

Stock-based compensation

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Repurchase of common stock

Balances as of February 1, 2020

Other comprehensive income (loss):

Balances as of January 30, 2021

Other comprehensive income:

Foreign currency translation adjustments, net of tax

Cash flow hedges

Reclassification of cumulative translation adjustments into earnings due to exit of business

Stock-based compensation

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Balances as of January 29, 2022

Other comprehensive income:

Other comprehensive loss:

Foreign currency translation adjustments, net of tax

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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 and Yardbird and the domain names bestbuy.com, currenthealth.com, lively.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 now comprised of all operations in Canada under the brand names Best Buy, Best Buy Mobile and Geek Squad and the domain name bestbuy.ca.

Refer to Note 3, Restructuring , for additional information on our Mexico exit.

We acquired Current Health Ltd.

(“Current Health”) and Two Peaks, LLC d/b/a Yardbird Furniture (“Yardbird”) during the fourth quarter of fiscal 2022, and Critical Signal Technologies, Inc.

(“CST”) and BioSensics, LLC (“BioSensics”) in fiscal 2020 .

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.

In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic.

At various times throughout fiscal 2021, we operated our stores with a contactless, curbside-only operating model and temporarily suspended in-home delivery, repair and consultation services.

Throughout fiscal 2022, most of our stores remained open as we continued to navigate the pandemic and its resurgences with a focus on the health and safety of our customers and employees.

We continue to offer contactless curbside pick-up, as well as digital, phone and chat options for customers who prefer to shop that way.

On March 27, 2020, in response to the COVID-19 pandemic, the U.S.

Congress enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, contains provisions for deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit, a refundable payroll credit for 50% of wages and health benefits paid to employees not providing services due to the COVID-19 pandemic.

As a result of the CARES Act, we deferred $ 142 million of qualified payroll taxes in fiscal 2021, of which half was repaid in fiscal 2022 and half will be repaid in fiscal 2023.

We also claimed employee retention credits of $ 81 million in fiscal 2021 that were recorded as an offset to the related employee expenses within Selling, general and administrative (“SG&A”) expenses.

Basis of Presentation

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Fiscal 2023, fiscal 2022 and fiscal 2021 included 52 weeks.

Adopted Accounting Pronouncements

In the fourth quarter of fiscal 2022, we prospectively adopted Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, issued by the Financial Accounting Standards Board.

This ASU requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) .

The update will generally result in the recognition of contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value.

The adoption of the new standard did not have a material impact on our results of operations, cash flows or financial position.

Segment Information

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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 and Mexico, prior to our exit from Mexico).

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.

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January 29, 2022

February 1, 2020

January 30, 2021

Cash and cash equivalents

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Total cash, cash equivalents and restricted cash

Cash primarily consists of cash on hand and bank deposits.

Cash equivalents consist of money market accounts, money market funds and time deposits with an original maturity of three months or less when purchased.

The amounts of cash equivalents as of January 29, 2022, and January 30, 2021, were $ 1,584 million and $ 3,559 million, respectively, and the weighted-average interest rates were 0.2 % and 0.6 %, respectively.

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

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 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.

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Software maintenance and training costs are expensed in the period incurred.

The costs of developing software for sale to customers is expensed as incurred until technological feasibility is established, which generally leads to expensing substantially all costs.

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):

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When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

For example, long-lived assets deployed at store locations are reviewed for impairment at the individual store level, which involves comparing the net carrying value of all assets to the net cash flow projections for each store.

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.

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Operating lease assets also include prepaid lease payments and initial direct costs and are reduced by lease incentives.

Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised.

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.

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Fair value reflects the price a potential market participant would be willing to pay for the reporting unit in an arms-length transaction and typically requires analysis of discounted cash flows and other market information, such as trading multiples and other observable metrics.

If the fair value of a reporting unit exceeds its carrying value, then it is concluded that no goodwill impairment has occurred.

If the 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.

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Our valuation of identifiable intangible assets acquired is based on information and assumptions available to us at the time of acquisition, using income and market approaches to determine fair value, as appropriate.

We amortize our definite-lived intangible assets over the estimated useful life of the asset.

We 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.

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Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on our Consolidated Balance Sheets.

For these assets, we do not periodically adjust carrying value to fair value, except in the event of impairment.

When we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded within SG&A and Restructuring charges on our Consolidated Statements of Earnings for non-restructuring and restructuring charges, respectively.

Fair value remeasurements are based on significant unobservable inputs (Level 3).

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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.

For these assets, we do not periodically adjust carrying value to fair value, except in the event of impairment.

We are self-insured for certain losses related to workers’ compensation, medical, general liability and auto claims;

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Accrued Liabilities

The major components of accrued liabilities are sales tax liabilities, advertising accruals, sales return reserves, customer deposits and insurance 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, income tax liabilities and self-insurance reserves.

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

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Services - When we are the principal

We recognize revenue for services, such as installation, set-up, software troubleshooting, product repair, consultation and educational classes once the service is completed, as this is when the customer has the ability to direct the use of and obtain the benefits of the service or serviced product.

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 Totaltech membership offering), we are responsible for fulfilling the support services to customers.

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.

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Customer Loyalty Programs

We have customer loyalty programs which allow members to earn points for each purchase completed with us or when using our co-branded credit cards.

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.

Depending on the customer’s membership level within our loyalty program, certificate expirations typically range from 2 to 6 months from the date of issuance.

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 estimated to be redeemed by the customer.

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.

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Advertising costs, which are included in SG&A, are expensed the first time the advertisement runs.

Advertising costs consist primarily of digital and television advertisements, as well as support costs.

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.

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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 where there are performance-based share awards that vest on a graded basis, in which case the expense for these awards is front-loaded or recognized on a graded-attribution basis.

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.

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

In addition to net earnings, the significant component of comprehensive income (loss) includes foreign currency translation adjustments.

Current Health Ltd.

On November 2, 2021, we acquired all of the outstanding shares of Current Health Ltd.

(“Current Health”) for net cash consideration of $ 389 million.

Current Health is a care-at-home technology platform that brings together remote patient monitoring, telehealth and patient engagement into a single solution for healthcare organizations.

The acquisition of Current Health is aligned with our focus in virtual care to enable people in their homes to connect seamlessly with their health care providers.

The acquisition was accounted for using the acquisition method of accounting for business combinations.

The purchase price allocation for the assets acquired and liabilities assumed is substantially complete, but may be subject to changes as we complete our valuation analysis in fiscal 2023.

The acquired assets included $ 351 million of goodwill that was assigned to our Best Buy Health reporting unit and was not deductible for income tax purposes.

Results of operations from the date of acquisition were included within our Domestic reportable segment and our Services revenue category.

The acquisition of Current Health was not material to the results of our operations.

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

On November 4, 2021, we acquired all of the outstanding shares of Two Peaks, LLC d/b/a Yardbird Furniture (“Yardbird”) for net cash consideration of $ 79 million.

The acquisition of Yardbird, a direct-to-consumer outdoor furniture company, 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.

The purchase price allocation for the assets acquired and liabilities assumed is substantially complete, but may be subject to changes as we complete our valuation analysis in fiscal 2023.

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.

Results of operations from the date of acquisition were included within our Domestic reportable segment and Other revenue category.

The acquisition of Yardbird was not material to the results of our operations.

BioSensics, LLC

In fiscal 2020, we acquired the predictive healthcare technology business of BioSensics, LLC (“BioSensics”) on August 7, 2019, for net cash consideration of $ 20 million.

The acquired assets included $ 19 million of goodwill that was assigned to our Best Buy Domestic reporting unit and was deductible for tax purposes.

The acquisition currently supports our health strategy and is included in our Domestic reportable segment.

The transaction was accounted for as a business combination and was not material to the results of our operations.

Critical Signal Technologies, Inc.

In fiscal 2020, we acquired all of the outstanding shares of Critical Signal Technologies, Inc.

(“CST”), a health services company, on May 9, 2019, for net cash consideration of $ 125 million.

The acquired assets included $52 million of goodwill that was assigned to our Best Buy Health reporting unit and was not deductible for income tax purposes.

The acquisition of CST is aligned with our strategy to address health and wellness with a focus on aging seniors and how technology can help them live longer in their homes and is included in our Domestic reportable segment and Services revenue category.

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.

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Restructuring charges were as follows ($ in millions):

Fiscal 2023 Resource Optimization Initiative

Mexico Exit and Strategic Realignment (1)

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(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

International

Balances as of January 29, 2022

Cash payments

Adjustments (1)

Balances as of January 28, 2023

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

Mexico Exit and Strategic Realignment

The COVID-19 pandemic has had significant impacts on, for example, the economic conditions of the markets in which we operate, customer shopping behaviors, the role of technology in peoples’ lives and the way we meet their needs.

In light of these changes, we are adapting our strategy to ensure that our focus and resources are closely aligned with the opportunities we see in front of us.

As a result, in the third quarter of fiscal 2021, we made the decision to exit our operations in Mexico and began taking other actions to more broadly align our organizational structure in support of our strategy.

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 remaining stores in Mexico were closed in the first quarter of fiscal 2022, and we do not expect to incur material future restructuring charges.

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.

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

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 Earnings Location

Earnings Location

International

Inventory markdowns

Cost of sales

Asset impairments (1)

Restructuring charges

Termination benefits

Restructuring charges

Statement of Earnings Location

International

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Restructuring charges

(1) Remaining net carrying value of asset impairments approximates fair value and was immaterial as of January 29, 2022, and January 30, 2021.

(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.

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

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

International

Balances as of February 1, 2020

Cash payments

Balances as of January 30, 2021

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(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.

Fiscal 2020 U.S.

Retail Operating Model Changes

In the second quarter of fiscal 2020, we made changes primarily related to our U.S.

retail operating model to increase organization effectiveness and create a more seamless customer experience across all channels.

All charges incurred, including $ 11 million related to a voluntary early retirement offer, related to termination benefits within our Domestic segment and were presented within Restructuring charges from continuing operations on our Consolidated Statements of Earnings.

As of January 29, 2022, the cumulative amount of charges incurred was $ 42 million and no material liability remains.

Goodwill and Intangible Assets

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International

In the first quarter of fiscal 2021, we completed a review for potential impairments of our goodwill as a result of the COVID-19 pandemic’s impact on our store operations, concluding that no impairment had occurred.

A similar conclusion was reached upon completion of our annual goodwill impairment review during the fourth quarters of fiscal 2021 and fiscal 2022.

As a result, n o goodwill impairment charges were recorded for the periods presented.

No impairment charges were recorded for the periods presented.

Definite-Lived Intangible Assets

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Cash and cash equivalents

Time deposits (3)

Money market funds (2)

Other current assets

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Interest rate swap derivative instruments (5)

(1) Balance sheet location is determined by the length to maturity.

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

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

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

(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.

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Nonrecurring Fair Value Measurements

In fiscal 2022 and fiscal 2021, we recorded asset impairments related to our decision to exit our operations in Mexico.

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, receivables, accounts payable, short-term debt and other payables approximated their carrying values because of the short-term nature of these 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.

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Long-term debt is presented at carrying value on our Consolidated Balance Sheets.

If our long-term debt was recorded at fair value, it would be classified as Level 2 in the fair value hierarchy.

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):

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Derivative Instruments

We manage our economic and transaction exposure to certain risks by using foreign exchange forward contracts to hedge against the effect of Canadian dollar exchange rate fluctuations on a portion of our net investment in our Canadian operations, and interest rate swaps to mitigate the effect of interest rate fluctuations on our 2028 Notes.

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.

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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 replaced the previous $ 1.25 billion senior unsecured revolving credit facility (the “Previous Facility”) with a syndicate of banks, which was originally scheduled to expire in April 2023, but was terminated on May 18, 2021.

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 29, 2022, or under the Previous Facility as of January 30, 2021.

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:

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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.

Ba nk Advance

In conjunction with a solar energy investment, we were advanced $ 110 million due October 31, 2021.

The advance was recorded within Short-term debt on our Consolidated Balance Sheets as of January 30, 2021, and bore interest at 0.14 %.

This advance was repaid on October 29, 2021.

Long-Term Debt

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Performance-Based Share Awards

Performance-based share awards vest upon the achievement of company performance goals based upon compound annual growth in enterprise revenue (“CAGR”) and attainment of net earnings (“adjusted net earnings”).

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”).

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Exercisable as of January 28, 2023

No stock options were granted in fiscal 2022.

The weighted-average grant-date fair value of stock options granted during fiscal 2021 and fiscal 2020 was $ 19.89 and $ 19.81 per share, respectively.

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 29, 2022, there was $ 3 million of unrecognized compensation expense related to stock options that we expect to recognize over a weighted-average period of 1.1 years.

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.

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Repurchase of Common Stock

On February 16, 2021, our Board approved a $ 5.0 billion share repurchase program.

On February 28, 2022, our Board approved a new $ 5.0 billion share repurchase program, replacing the then-existing program, which had $ 1.6 billion remaining available for repurchases as of January 29, 2022.

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.

We temporarily suspended all share repurchases from March to November of fiscal 2021 to preserve liquidity in light of COVID-19-related uncertainties.

On May 27, 2021, we announced our plan to repurchase more than $ 2.5 billion of shares in fiscal 2022.

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

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Number of shares repurchased and retired

On March 3, 2022, we announced our plans to spend approximately $ 1.5 billion on share repurchases in fiscal 2023.

Between the end of fiscal 2022 on January 29, 2022, and March 16, 2022, we repurchased an incremental 2.4 million shares of our common stock at a cost of $ 239 million.

We generate substantially all of our revenue from contracts with customers from the sale of products and services.

Contract balances primarily consist of receivables and liabilities related to product merchandise not yet delivered to customers, unredeemed gift cards, services not yet completed and options that provide a material right to customers, such as our customer loyalty programs.

Contract balances 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):

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Accrued liabilities

Long-term contract liabilities included in:

Long-term liabilities

(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):

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

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Total deferred tax liabilities

Net deferred tax assets

Net deferred tax assets (liabilities)

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

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Long-term liabilities

Net deferred tax assets

Net deferred tax assets (liabilities)

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;

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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;

federal foreign tax credit carryforwards of $ 7 million, which expire between 2024 and 2032;

state credit carryforwards of $ 3 million, which expire between 2023 and 2028;

state net operating loss carryforwards of $ 5 million, which expire between 2023 and 2041;

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;

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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, $ 10 million is against international, federal and state capital loss carryforwards, $ 110 million is against international, acquired federal and state net operating loss carryforwards, and $ 1 million is against international and state credit carryforwards.

The $ 1 million increase in fiscal 2022 is primarily due to acquired international and federal net operating loss carryforwards and the current year loss activity from international net operating loss carryforwards, partially offset by the expiration of certain international net operating loss carryforwards and the exchange rate impact on the valuation allowance against certain international net operating loss carryforwards.

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):

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Balances at end of period

(1) Represents multi-jurisdiction, multi-year non-cash benefits from the resolution of certain discrete tax matters.

Unrecognized tax benefits of $ 214 million, $ 307 million and $ 300 million as of January 29, 2022, January 30, 2021, and February 1, 2020, respectively, would favorably impact our effective income tax rate if recognized.

(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 $ 20 million, interest expense of $ 4 million and interest expense of $ 11 million was recognized in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

As of January 29, 2022, January 30, 2021, and February 1, 2020, we had accrued interest of $ 46 million, $ 74 million and $ 67 million, respectively.

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.

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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.

Benefit Plans

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Employer contributions vest immediately.

In fiscal 2021, we temporarily suspended the employer contribution match from June 1, 2020, to November 6, 2020, due to uncertainty surrounding the impact of COVID-19.

Total employer contributions were $ 77 million, $ 77 million and $ 44 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

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Other income (expense):

Gain on sale of investments

Investment income and other

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Total depreciation

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

(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):

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data