What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-17 · 247 added, 250 removed, 845 unchanged (37% of the section changed)

Financial Statements and Supplementary Data.

Management's Report on the Consolidated Financial Statements

Financial Statements and Supplementary Da ta.

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.

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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).

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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.

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 February 3, 2024, 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 February 3, 2024.

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.

Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements for the year ended February 3, 2024, 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 February 3, 2024.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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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.

and subsidiaries (the "Company") as of February 3, 2024 and January 28, 2023, 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 February 3, 2024, 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 February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for each of the three years in the period ended February 3, 2024, 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 February 3, 2024, 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 15, 2024, 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.

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.

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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

Vendor Allowances – Domestic Reporting Segment — Refer to Note 1 to the financial statements

Critical Audit Matter Description

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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.

Given the significance of vendor allowances recorded by the Domestic Reporting Segment to the financial statements and the volume and diversity of individual vendor agreements, auditing these vendor allowances was complex and subjective due to the extent of effort required to evaluate whether these vendor allowances were recorded in accordance with the terms of the vendor agreements and that these 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.

Our audit procedures related to evaluating whether these 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 these 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 these vendor allowances recorded as a reduction of cost of sales and (1) recalculated the amount recognized using the terms of the vendor agreement;

(2) evaluated, based on the terms of the agreement, if the amount should be deferred and recorded as a reduction of merchandise inventory;

and (3) tested the settlement of the arrangement.

 We tested the amount of these 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

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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.

The goodwill balance was $1,383 million as of February 3, 2024, of which $891 million was related to the Best Buy Health reporting unit.

The Company uses a combination of the discounted cash flow model and market data to estimate the fair value of the Best Buy Health reporting unit.

The discounted cash flow model requires management to make subjective estimates and assumptions related to forecasts of cash flows, such as revenue growth rates and margin 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.

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 margin 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;

Our audit procedures related to the forecasts of cash flows, such as revenue growth rates and margin 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 margin rates, and estimates of the weighted average cost of capital rate .

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

 We evaluated the reasonableness of management’s revenue forecasts and margin rates by comparing the forecasts to:

(1) the Company’s historical revenue growth rates, including, for new products and services, similar existing products and services;

(2) internal communications to management and the board of directors;

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

(4) forecasted information included in industry reports, applicable market data, and certain peer companies;

and (5) underlying analyses detailing business strategies and growth plans.

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 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.

(1) testing the mathematical accuracy of the calculations;

and (2) developing a range based upon our independent estimate and comparing the rate selected by management to that range .

/s/ Deloitte & Touche LLP

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March 15, 2024

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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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.

and subsidiaries (the “Company”) as of February 3, 2024, 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 February 3, 2024, 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 February 3, 2024, of the Company and our report dated March 15, 2024, 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.

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$ in millions, except per share amounts

January 28, 2023

February 3, 2024

January 28, 2023

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Best Buy Co., Inc.

Shareholders'

Shareholders' Equity

Preferred stock, $ 1.00 par value:

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Fiscal Years Ended

January 28, 2023

February 3, 2024

January 28, 2023

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Other income (expense):

Gain on sale of subsidiary, net

Investment income and other

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Fiscal Years Ended

January 28, 2023

February 3, 2024

January 28, 2023

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Foreign currency translation adjustments, net of tax

Cash flow hedges

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

Comprehensive income

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Fiscal Years Ended

January 28, 2023

February 3, 2024

January 28, 2023

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Deferred income taxes

Gain on sale of subsidiary, net

Changes in operating assets and liabilities, net of acquired assets and liabilities:

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Investing activities

Additions to property and equipment, net of $ 35 , $ 46 and $ 32 , respectively, of non-cash capital expenditures

Additions to property and equipment

Purchases of investments

Net proceeds from sale of subsidiary

Sales of investments

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Dividends paid

Borrowings of debt

Repayments of debt

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Effect of exchange rate changes on cash

Increase (decrease) in cash, cash equivalents and restricted cash

Decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

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Supplemental cash flow information

Income taxes paid

Income taxes paid (includes payments for purchased tax credits of $ 103 million, $ 2 million and $ 4 million, respectively)

Interest paid

See Notes to Consolidated Financial Statements.

Consolidated Statements of Changes in Shareholders'

Consolidated Statements of Changes in Shareholders' Equity

$ and shares in millions, except per share amounts

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‎ Income (Loss)

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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Repurchase of common stock

Balances as of January 28, 2023

Balances as of February 3, 2024

See Notes to Consolidated Financial Statements.

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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.

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.

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Refer to Note 2, Acquisitions , for additional information.

In fiscal 2024, we completed the sale of a Mexico subsidiary subsequent to our exit from operations in Mexico and recognized a $ 21 million gain within Gain on sale of subsidiary, net on our Consolidated Statements of Earnings.

Refer to Note 3, Restructuring , for additional information regarding our exit from operations in Mexico.

Basis of Presentation

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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.

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Our fiscal year ends on the Saturday nearest the end of January.

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

Fiscal 2024, fiscal 2023 and fiscal 2022 ended February 3, 2024, January 28, 2023, and January 29, 2022, respectively.

Unless otherwise noted, references to years in these notes to consolidated financial statements relate to fiscal years, and not calendar years.

Fiscal 2024 included 53 weeks with the 53 rd week occurring in the fiscal fourth quarter.

Fiscal 2023 and fiscal 2022 each included 52 weeks.

Adopted Accounting Pronouncements

In the first quarter of fiscal 2024, we adopted the Accounting Standards Update (“ASU”) 2022-04, Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations .

ASU 2022-04 requires entities to disclose the key terms of the supplier finance programs they use in connection with the purchase of goods and services, along with the amount of obligations outstanding at the end of each period.

Beginning in fiscal 2025, an annual roll-forward of such obligations is also required.

Below are the applicable disclosures as a result of ASU 2022-04.

Supply Chain Financing

We have a supply chain financing program with an independent financial institution, whereby some of our suppliers have the opportunity to receive accounts payable settlements early, at a discount, facilitated by the financial institution.

Under this program, the financial institution agrees to terms with our suppliers, including amounts that are eligible for early payment, the timing of such payments and the discounts.

The financial institution then pays the supplier based on the payment terms agreed to.

Suppliers’ participation in this program is at their own option.

The financial institution can vary discounts offered at their own discretion.

Our rights and obligations to our suppliers – which are typically formalized in standardized agreements – are not affected by the existence of the program.

Our liability associated with the funded participation in the program, which is included in Accounts payable on our Consolidated Balance Sheets, was $ 426 million and $ 386 million as of February 3, 2024, and January 28, 2023, respectively.

New Accounting Pronouncements and Disclosure Rules

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which enhances reportable segment disclosure requirements primarily through expanded disclosures around significant segment expenses.

The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024.

The amendments should be applied retrospectively to all prior periods presented in the financial statements.

We are currently evaluating the impact of the ASU and expect to include updated segment expense disclosures in our fiscal 2025 Form 10-K.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires disclosure of specific categories meeting a quantitative threshold within the income tax rate reconciliation, as well as disaggregation of income taxes paid by jurisdiction.

This ASU, which can be applied either prospectively or retrospectively, is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact of the ASU and expect to include updated income tax disclosures in our fiscal 2026 Form 10-K.

In March 2024, the U.S.

Securities and Exchange Commission issued its final climate disclosure rule, which requires the disclosure of Scope 1 and Scope 2 greenhouse gas emissions and other climate-related topics in annual reports and registration statements, when material.

Disclosure requirements will begin phasing in for fiscal years beginning on or after January 1, 2025.

We are currently evaluating the impact of the new rule and expect to include updated climate-related disclosures in our fiscal 2026 Form 10-K.

Segment Information

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The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill.

Results of operations related to business combinations are included prospectively beginning with the date of acquisition and transaction costs related to business combinations are recorded within Selling, general and administrative expenses (“SG&A”) on our Consolidated Statements of Earnings.

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

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

February 3, 2024

January 28, 2023

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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.

Amounts included in restricted cash are primarily restricted to cover product protection plans provided under our membership offerings and other self-insurance liabilities.

Receivables consist primarily of amounts due from banks for customer credit card and debit card transactions, vendors for various vendor funding programs, mobile phone network operators for device sales and commissions, and online marketplace partnerships.

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.

Our allowances for uncollectible receivables were $ 32 million and $ 30 million as of February 3, 2024, and January 28, 2023, respectively.

We had $ 43 million and $ 41 million of write-offs in fiscal 2024 and fiscal 2023, respectively.

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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.

Also included as a reduction to 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.

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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.

Physical inventory is maintained through a combination of full location counts and more regular cycle counts.

Property and Equipment

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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 year s to five year s.

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.

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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.

In addition, we conduct separate impairment reviews at other levels as appropriate, for example, to evaluate the potential impairment of assets shared by several areas of operations, such as information technology systems.

The majority of our lease obligations are real estate operating leases used in our retail and distribution operations.

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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.

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 February 3, 2024, and 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.

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 market data, such as revenue multiples and quoted market prices.

If the fair value of a reporting unit exceeds its carrying value, we conclude that no goodwill impairment has occurred.

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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.

We use foreign currency 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.

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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”) .

We utilize “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.

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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

Our net self-insured liabilities included on our Consolidated Balance Sheets were as follows ($ in millions):

February 3, 2024

January 28, 2023

Accrued liabilities

Short-term liabilities

Long-term liabilities

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Accrued Liabilities

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

The major components of accrued liabilities are sales tax liabilities, advertising accruals, accrued income taxes, sales return reserves and insurance liabilities.

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.

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

Foreign Currency

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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.

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 on our Consolidated Statements of Earnings, 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.

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the 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.

We defer the revenue associated with any unsatisfied performance obligation until the obligation is satisfied, typically 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.

Any fees charged to customers for delivery 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.

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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.

For these transactions, commission revenue is typically recorded once customers have taken possession of licenses or cards and can access their benefits.

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.

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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.

Our service contracts are primarily with retail customers, merchandise vendors (for factory warranty repairs) and extended warranty underwriters.

For technical support membership contracts (for example, our Best Buy Total membership offering), we are responsible for providing 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.

Payment for the membership contracts is typically 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.

For performance obligations provided over time, we recognize revenue primarily 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.

There is judgment in, for example, estimating the relative standalone selling price for bundled performance obligations;

the appropriate recognition methodology for each performance obligation;

and, for those based on usage, the expected pattern of consumption across a large portfolio of customers.

When insufficient reliable and relevant history is available to estimate usage, we generally recognize revenue ratably over the life of the contract until such history has accumulated.

Services - When we are the agent

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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.

We record the net commissions (the amount charged to the customer less the premiums remitted to the underwriter) as revenue once 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.

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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.

Net commissions and profit-sharing revenue earned from the sale of extended warranties represented 0.8 %, 0.9 % and 1.4 % of revenue in fiscal 2024, fiscal 2023 and fiscal 2022, 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.

Revenue is recognized 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 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.

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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.

Approximately 25 % of Domestic revenue in fiscal 2024, fiscal 2023 and fiscal 2022 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.

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Profit-share payments occur quarterly, shortly after the end of each program quarter.

Profit-sharing revenue from our credit card arrangement approximated 1.4 %, 1.4 % and 0.9 % of Domestic revenue in fiscal 2024, fiscal 2023 and fiscal 2022, respectively.

Best Buy Gift Cards

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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 private label and co-branded credit cards.

We have customer loyalty programs which allow members to earn points 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.

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Selling, General and Administrative Expenses

Payroll and benefit costs for retail and corporate employees

Payroll and benefit costs for retail and corporate employees, including termination benefits incurred as part of normal operations

Occupancy and maintenance costs of retail, services and corporate facilities

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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

Tender costs, including bank charges and costs associated with credit card and debit card interchange fees

Charitable contributions

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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 costs, which are included in SG&A on our Consolidated Statements of Earnings, are expensed the first time the advertisement runs and consist primarily of digital advertisements.

Advertising expenses were $ 794 million, $ 864 million and $ 915 million in fiscal 2024, fiscal 2023 and fiscal 2022, 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 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.

Compensation expense is recognized on a straight-line basis over the period in which services are required, except for certain performance-based share awards that vest on a graded basis, in which case the expense is front-loaded using the graded-attribution basis.

Forfeitures are expensed as incurred or upon termination.

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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.

In fiscal 2022, we acquired all outstanding shares of Current Health, a care-at-home technology platform, on November 2, 2021, for net cash consideration of $ 389 million.

The acquisition resulted in $ 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.

The acquisition was not material to the results of our 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.

In fiscal 2022, we acquired all outstanding shares of Yardbird, a direct-to-consumer outdoor furniture company, on November 4, 2021, for net cash consideration of $ 79 million.

The acquisition resulted in $ 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 livin g and was not material to the results of our operations.

Restructuring

Restructuring charges were as follows ($ in millions):

Fiscal 2024 Restructuring Initiative

Fiscal 2023 Resource Optimization Initiative

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Retail Operating Model Changes

(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.

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

Fiscal 2024 Restructuring Initiative

During the fourth quarter of fiscal 2024, we commenced an enterprise-wide restructuring initiative intended to accomplish the following:

(1) align field labor resources with where customers want to shop to optimize the customer experience;

(2) redirect corporate resources for better alignment with our strategy;

and (3) right-size resources to better align with our revenue outlook for fiscal 2025.

All charges incurred related to this plan were comprised of employee termination benefits from continuing operations, including $ 163 million and $ 8 million within our Domestic and International segments, respectively, and were presented within Restructuring charges on our Consolidated Statements of Earnings.

We currently expect to incur additional charges in fiscal 2025, primarily within our Domestic segment, of approximately $ 10 million to $ 30 million related to this plan.

There were no cash payments related to this plan during fiscal 2024 and our termination benefits liability as of February 3, 2024, was $ 171 million, comprised of $ 163 million in our Domestic segment and $ 8 million in our International segment.

We expect to pay up to $ 135 million of employee termination benefits during fiscal 2025, with the remainder being paid in fiscal 2026.

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

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.

We do not expect to incur material future restructuring charges related to this plan.

All charges incurred related to this plan were comprised of employee termination benefits from continuing operations and were presented within Restructuring charges on our Consolidated Statements of Earnings as follows ($ in millions):

Cumulative Amount as of

‎ February 3, 2024

International

Restructuring accrual activity related to this plan was as follows ($ in millions):

International

Balances as of January 29, 2022

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Balances as of January 28, 2023

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

Cash payments

Adjustments (1)

Balances as of February 3, 2024

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

Mexico Exit and Strategic Realignment

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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):

We do not expect to incur material future restructuring charges related to this initiative and no material liability remains as of February 3, 2024.

All charges incurred related to this plan were from continuing operations and presented as follows ($ in millions):

Cumulative Amount as of

‎ February 3, 2024

Earnings Location

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Restructuring charges

Cumulative Amount as of January 28, 2023

Statement of Earnings Location

International

Inventory markdowns

Cost of sales

Asset impairments (1)

Restructuring charges

Termination benefits

Restructuring charges

Currency translation adjustment

Restructuring charges

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

(1) Remaining net carrying value of asset impairments approximates fair value and was immaterial as of February 3, 2024.

(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

International

Balances as of January 30, 2021

Cash payments

Adjustments (1)

Changes in foreign currency exchange rates

Balances as of January 29, 2022

(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.

No material restructuring accrual activity occurred in fiscal 2024 or fiscal 2023 related to this plan.

Goodwill and Intangible Assets

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

January 28, 2023

February 3, 2024

January 28, 2023

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

January 28, 2023

February 3, 2024

January 28, 2023

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Accumulated Amortization

Useful Life Remaining as of January 28, 2023 (in years)

Useful Life Remaining as of February 3, 2024 (in years)

Customer relationships

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Balance Sheet Location (1)

January 28, 2023

February 3, 2024

January 28, 2023

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Other current assets

Time deposits (3)

Other current assets

Marketable securities that fund deferred compensation (4)

Interest rate swap derivative instruments (5)

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

(1) Balance sheet location is determined by the length to maturity at date of purchase and whether the assets are restricted for particular use.

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

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(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.

In fiscal 2022, 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.

The fair values of cash, certain 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 balances were as follows ($ in millions):

January 28, 2023

February 3, 2024

January 28, 2023

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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 by using 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 currency 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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Contract Type

January 28, 2023

February 3, 2024

January 28, 2023

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Derivatives designated as interest rate swap contracts

No hedging designation (foreign exchange forward contracts)

No hedging designation (foreign currency forward contracts)

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

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Balance Sheet Location

January 28, 2023

February 3, 2024

January 28, 2023

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Total lease liabilities

(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.

(1) Finance leases were recorded net of accumulated depreciation of $ 54 million and $ 50 million as of February 3, 2024, and January 28, 2023, respectively.

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

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Finance leases

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

Future lease payments under our non-cancellable leases as of February 3, 2024, were as follows ($ in millions):

Operating Leases (1)

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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”).

On April 12, 2023, 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 entered into in May 2021 and scheduled to expire in May 2026, but was terminated on April 12, 2023.

The Five-Year Facility Agreement permits borrowings of up to $ 1.25 billion and expires in April 2028.

There were no borrowings outstanding under the Five-Year Facility Agreement as of February 3, 2024, or the Previous Facility as of January 28, 2023.

The interest rate under the Five-Year Facility Agreement is variable and, absent certain events of default, is determined at our option as:

(i) the sum of (a) the greatest of (1) JPMorgan Chase Bank, N.A.’s prime rate, (2) the greater of the federal funds effective rate and the overnight bank funding rate plus, in each case, 0.5 %, and (3) Adjusted Term Secured Overnight Financing Rate (the “Adjusted Term SOFR” as defined in the Five-Year Facility Agreement) for an interest period of one month plus 1 %, and (b) a variable margin rate (the “ABR Margin”);

or (ii) Adjusted Term SOFR for the applicable interest period plus a variable margin rate (the “Term SOFR 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 ABR Margin, Term SOFR 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 0.100 %, the Term SOFR Margin ranges from 0.680 % to 1.100 %, and the facility fee ranges from 0.070 % to 0.150 %.

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.

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 materially alter the nature of our business, dispose of material assets, engage in mergers, consolidations and certain other fundamental changes, or engage in certain transactions with affiliates.

The Five-Year Facility Agreement also contains a covenant that requires the registrant to maintain a maximum quarterly cash flow leverage ratio.

The Five-Year Facility Agreement contains customary 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

February 3, 2024

January 28, 2023

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

As of January 28, 2023, we do no t have any future maturities of long-term debt within the next five fiscal years.

Other than our 2028 Notes, we do no t have any future maturities of long-term debt within the next five fiscal years.

Shareholders’ Equity

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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.

As of February 3, 2024, a total of 13.0 million shares were available for future grants under the 2020 Plan.

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

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Vested and distributed

Outstanding as of January 28, 2023

Outstanding as of February 3, 2024

The total fair value vested and distributed during fiscal 2024, fiscal 2023 and fiscal 2022 was $ 114 million, $ 159 million and $ 194 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

Weighted-Average Fair Value per Share

Outstanding as of January 29, 2022

Adjustment for performance achievement

Outstanding as of January 28, 2023

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.

The actual tax benefits realized for the tax deductions related to vesting in fiscal 2024, fiscal 2023 and fiscal 2022 were $ 24 million, $ 33 million and $ 41 million, respectively.

As of February 3, 2024, there was $ 140 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.

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”).

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Adjustment for performance achievement

Outstanding as of February 3, 2024

Distributions of market-based share awards in fiscal 2024 were not significant.

The total fair value distributed during fiscal 2023 and fiscal 2022 was $ 18 million and $ 27 million, respectively.

The actual tax benefits realized for the tax deductions related to distributions were $ 2 million and $ 3 million in fiscal 2023 and fiscal 2022, respectively.

As of February 3, 2024, 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.

Performance-Based Share Awards

Performance-based share awards generally vest upon the achievement of company performance goals based upon certain revenue or profitability measures.

For revenue-based performance awards, the number of shares of common stock that could be distributed at the end of the incentive period may range from 0 % to 150 % of each share granted (“target”).

Shares are granted at 100 % of target.

Awards based on profitability measures vest 33 % on each of the three annual anniversary dates following the grant date if the measure of profitability goal has been met.

Information on our performance-based share awards was as follows (shares in thousands):

Performance-Based Share Awards

Weighted-Average Fair Value per Share

Outstanding as of January 28, 2023

Adjustment for performance achievement

Outstanding as of February 3, 2024

The total fair value distributed during fiscal 2024, fiscal 2023 and fiscal 2022 was $ 15 million, $ 37 million and $ 43 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.

The actual tax benefits realized for the tax deductions related to distributions in fiscal 2024, fiscal 2023 and fiscal 2022 were $ 1 million, $ 3 million and $ 3 million, respectively.

As of February 3, 2024, there was less than $ 1 million of unrecognized compensation expense related to non-vested performance-based share awards that we expect to recognize over a weighted-average period of 0.2 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.

All outstanding stock options were vested and exercisable as of February 3, 2024.

Information on our stock options was as follows:

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Outstanding as of January 28, 2023

Vested or expected to vest as of January 28, 2023

Exercisable as of January 28, 2023

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.

Outstanding as of February 3, 2024

No stock options were granted in the fiscal years presented.

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 2024, fiscal 2023 and fiscal 2022 was $ 2 million, $ 6 million and $ 19 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.

As of February 3, 2024, there was no unrecognized compensation expense related to stock options that we expect to recognize.

Net cash proceeds from the exercise of stock options were $ 9 million, $ 4 million and $ 18 million in fiscal 2024, fiscal 2023 and fiscal 2022, 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

Risk-free interest rate (1)

Expected dividend yield

Expected stock price volatility (2)

Expected life of stock options (in years) (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.

Income tax benefits realized from stock option exercises were immaterial for all periods presented.

Earnings per Share

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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):

Unexercisable

‎ Average Price

As of February 3, 2024, all outstanding options to purchase common stock were exercisable and in-the-money, with a weighted-average price per share of $ 59.71 .

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

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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.

The program had $ 3,784 million remaining available for repurchases as of February 3, 2024.

There is no expiration date governing the period over which we can repurchase shares under this authorization.

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Number of shares repurchased and retired

We currently expect to spend approximately $ 350 million on share repurchases in fiscal 2025.

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 primarily consist of receivables and liabilities related to unfulfilled membership benefits and services not yet completed, product merchandise not yet delivered to customers, deferred revenue from our private label and co-branded credit card arrangement and unredeemed gift cards.

Contract balances were as follows ($ in millions):

January 28, 2023

February 3, 2024

January 28, 2023

6 unchanged sentences

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.

(1) Receivables are recorded net of allowances for doubtful accounts of $ 23 million and $ 22 million as of February 3, 2024, and January 28, 2023, respectively.

During fiscal 2024 and fiscal 2023, $ 1,283 million and $ 1,346 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):

Estimated revenue from our contract liability balances expected to be recognized in future periods if the performance of the contract is expected to have an initial duration of more than one year is as follows ($ in millions):

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

3 unchanged sentences

Change in unrecognized tax benefits

Expense (benefit) from foreign operations

Benefit from foreign operations

Income tax expense

7 unchanged sentences

Deferred tax assets and liabilities were comprised of the following ($ in millions):

January 28, 2023

February 3, 2024

January 28, 2023

15 unchanged sentences

Balance Sheet Location

January 28, 2023

February 3, 2024

January 28, 2023

1 unchanged sentence

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;

As of February 3, 2024, we had deferred tax assets for net operating loss carryforwards from international operations of $ 118 million, of which $ 32 million will expire in various years through 2040 and the remaining amounts have no expiration;

acquired U.S.

5 unchanged sentences

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.

As of February 3, 2024, a valuation allowance of $ 175 million had been established, of which $ 29 million is against U.S.

federal foreign tax credit carryforwards, $ 14 million is against international, federal and state capital loss carryforwards, $ 124 million is against international and state net operating loss carryforwards, $ 1 million is against international and state credit carryforwards, and $ 7 million is against other foreign deferred tax assets.

The increase in fiscal 2024 was primarily due to current year loss activity from international net operating loss carryforwards, and the set-up of additional valuation allowances against U.S.

federal foreign tax credit and capital loss carryforwards and certain foreign deferred tax assets.

These increases were partially offset by disposals and releases relating to certain international net operating loss carryforwards.

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

7 unchanged sentences

(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.

Unrecognized tax benefits of $ 121 million, $ 141 million and $ 214 million as of February 3, 2024, January 28, 2023, and January 29, 2022, 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.

Interest expense of $ 3 million, interest income of $ 6 million and interest income of $ 20 million was recognized in fiscal 2024, fiscal 2023 and fiscal 2022, respectively.

As of February 3, 2024, January 28, 2023, and January 29, 2022, we had accrued interest of $ 43 million, $ 42 million and $ 46 million, respectively.

We file a consolidated U.S.

9 unchanged sentences

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

7 unchanged sentences

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.

The liability for compensation deferred under the plan was $ 24 million and $ 20 million as of February 3, 2024, and January 28, 2023, 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.

4 unchanged sentences

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.

We had outstanding letters of credit totaling $ 71 million as of February 3, 2024.

Segment and Geographic Information

18 unchanged sentences

Other income (expense):

Gain on sale of subsidiary, net

Investment income and other

15 unchanged sentences

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