UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 4, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File Number: 1-9595

BEST BUY CO., INC.

(Exact name of registrant as specified in its charter)

Minnesota	41-0907483
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
7601 Penn Avenue South
Richfield, Minnesota	55423
(Address of principal executive offices)	(Zip Code)

(612) 291-1000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock, $0.10 par value per share	BBY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐		Non-accelerated filer ☐
Smaller reporting company ☐		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐ No ☒

The registrant had 267,043,142 shares of common stock outstanding as of June 5, 2019.

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BEST BUY CO., INC.

FORM 10-Q FOR THE QUARTER ENDED MAY 4, 2019

TABLE OF CONTENTS

Part I — Financial Information			3
Item 1.		Financial Statements	3
	a)	Condensed Consolidated Balance Sheets as of May 4, 2019, February 2, 2019, and May 5, 2018	3
	b)	Condensed Consolidated Statements of Earnings for the three months ended May 4, 2019, and May 5, 2018	4
	c)	Condensed Consolidated Statements of Comprehensive Income for the three months ended May 4, 2019, and May 5, 2018	5
	d)	Condensed Consolidated Statements of Cash Flows for the three months ended May 4, 2019, and May5,2018	6
	e)	Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended May4,2019, and May 5, 2018	7
	f)	Notes to Condensed Consolidated Financial Statements	8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.		Controls and Procedures	32
Part II — Other Information			33
Item 1.		Legal Proceedings	33
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6.		Exhibits	34
Signatures			35

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PART I — FINANCIAL INFORMATION

Item 1.    Financial Statements

Condensed Consolidated Balance Sheets

$ in millions, except per share amounts (unaudited)

	May 4, 2019		February 2, 2019		May 5, 2018
Assets
Current assets
Cash and cash equivalents	$	1,561	$	1,980	$	1,848
Short-term investments		-		-		785
Receivables, net		833		1,015		860
Merchandise inventories		5,195		5,409		4,964
Other current assets		425		466		473
Total current assets		8,014		8,870		8,930
Property and equipment, net		2,334		2,510		2,385
Operating lease assets		2,708		-		-
Goodwill		915		915		425
Other assets		579		606		342
Total assets	$	14,550	$	12,901	$	12,082
Liabilities and equity
Current liabilities
Accounts payable	$	4,718	$	5,257	$	4,619
Unredeemed gift card liabilities		265		290		285
Deferred revenue		409		446		371
Accrued compensation and related expenses		275		482		296
Accrued liabilities		851		982		934
Current portion of operating lease liabilities		639		-		-
Current portion of long-term debt		14		56		550
Total current liabilities		7,171		7,513		7,055
Long-term liabilities		659		750		815
Long-term operating lease liabilities		2,173		-		-
Long-term debt		1,193		1,332		792
Contingencies (Note 13)
Equity
Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - none		-		-		-
Common stock, $0.10 par value: Authorized - 1.0 billion shares; Issued and outstanding - 267 million, 266 million, and 281 million shares, respectively		27		27		28
Retained earnings		3,038		2,985		3,082
Accumulated other comprehensive income		289		294		310
Total equity		3,354		3,306		3,420
Total liabilities and equity	$	14,550	$	12,901	$	12,082

NOTE: The Consolidated Balance Sheet as of February 2, 2019, has been condensed from the audited consolidated financial statements.

See Notes to Condensed Consolidated Financial Statements. 

3

Condensed Consolidated Statements of Earnings

$ and shares in millions, except per share amounts (unaudited)

	Three Months Ended
	May 4, 2019		May 5, 2018
Revenue	$	9,142	$	9,109
Cost of goods sold		6,973		6,984
Gross profit		2,169		2,125
Selling, general and administrative expenses		1,835		1,830
Restructuring charges		-		30
Operating income		334		265
Other income (expense):
Investment income and other		14		11
Interest expense		(18)		(19)
Earnings before income tax expense		330		257
Income tax expense		65		49
Net earnings	$	265	$	208
Basic earnings per share	$	0.99	$	0.74
Diluted earnings per share	$	0.98	$	0.72
Weighted-average common shares outstanding
Basic		267.6		282.6
Diluted		271.5		288.3

See Notes to Condensed Consolidated Financial Statements.

4

Condensed Consolidated Statements of Comprehensive Income

$ in millions (unaudited)

	Three Months Ended
	May 4, 2019		May 5, 2018
Net earnings	$	265	$	208
Foreign currency translation adjustments		(5)		(4)
Comprehensive income	$	260	$	204

See Notes to Condensed Consolidated Financial Statements.

5

Condensed Consolidated Statements of Cash Flows

$ in millions (unaudited)

	Three Months Ended
	May 4, 2019		May 5, 2018
Operating activities
Net earnings	$	265	$	208
Adjustments to reconcile net earnings to total cash provided by operating activities:
Depreciation and amortization		200		176
Restructuring charges		-		30
Stock-based compensation		36		32
Deferred income taxes		13		9
Other, net		1		(2)
Changes in operating assets and liabilities, net of acquired assets and liabilities:
Receivables		182		189
Merchandise inventories		207		243
Other assets		(14)		(13)
Accounts payable		(519)		(214)
Other liabilities		(379)		(506)
Income taxes		10		52
Total cash provided by operating activities		2		204
Investing activities
Additions to property and equipment		(193)		(181)
Sales of investments		-		1,245
Other, net		1		9
Total cash provided by (used in) investing activities		(192)		1,073
Financing activities
Repurchase of common stock		(98)		(400)
Issuance of common stock		11		24
Dividends paid		(134)		(128)
Repayments of debt		(4)		(11)
Other, net		(1)		(1)
Total cash used in financing activities		(226)		(516)
Effect of exchange rate changes on cash		(1)		(12)
Increase (decrease) in cash, cash equivalents and restricted cash		(417)		749
Cash, cash equivalents and restricted cash at beginning of period		2,184		1,300
Cash, cash equivalents and restricted cash at end of period	$	1,767	$	2,049

See Notes to Condensed Consolidated Financial Statements.

6

Condensed Consolidated Statements of Changes in Shareholders' Equity

$ and shares in millions, except per share amounts (unaudited)

	Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balances at February 2, 2019		266	$	27	$	-	$	2,985	$	294	$	3,306
Adoption of ASU 2016-02		-		-		-		(19)		-		(19)
Net earnings, three months ended May 4, 2019		-		-		-		265		-		265
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		-		-		-		-		(5)		(5)
Stock-based compensation		-		-		36		-		-		36
Issuance of common stock		2		-		11		-		-		11
Common stock dividends, $0.50 per share		-		-		2		(136)		-		(134)
Repurchase of common stock		(1)		-		(49)		(57)		-		(106)
Balances at May 4, 2019		267	$	27	$	-	$	3,038	$	289	$	3,354
Balances at February 3, 2018		283	$	28	$	-	$	3,270	$	314	$	3,612
Adoption of ASU 2014-09		-		-		-		73		-		73
Net earnings, three months ended May 5, 2018		-		-		-		208		-		208
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		-		-		-		-		(4)		(4)
Stock-based compensation		-		-		32		-		-		32
Issuance of common stock		3		-		24		-		-		24
Common stock dividends, $0.45 per share		-		-		2		(128)		-		(126)
Repurchase of common stock		(5)		-		(58)		(341)		-		(399)
Balances at May 5, 2018		281	$	28	$	-	$	3,082	$	310	$	3,420

See Notes to Condensed Consolidated Financial Statements. 

7

Notes to Condensed Consolidated Financial Statements

(unaudited)

1.Basis of Presentation

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

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.

Historically, we have generated a large proportion of our revenue and earnings in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico. Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019. The first three months of fiscal 2020 and fiscal 2019 included 13 weeks.

In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Our policy is to accelerate recording the effect of events occurring in the lag period that significantly affect our condensed consolidated financial statements. No such events were identified for the reported periods.

In preparing the accompanying condensed consolidated financial statements, we evaluated the period from May 4, 2019, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. Other

than as disclosed in Note 14, Subsequent Event, no such events were identified for the reported periods.

Unadopted Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). We do not believe the new guidance, which is effective for fiscal years beginning after December 15, 2019, will have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements for fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact of adopting the updated provisions.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance requires companies to apply the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to implementation costs incurred in a hosting arrangement that is a service contract to determine whether to capitalize certain implementation costs or expense them as incurred. We are currently evaluating the impact of adopting the updated provisions, which is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, which requires the recognition of operating lease assets and lease liabilities on the balance sheet. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new standard, disclosures are required to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

In the first quarter of fiscal 2020, we adopted ASU 2016-02 using the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption will be as originally reported under the previous standard – ASC 840, Leases. The effects of adopting the new standard (ASC 842, Leases) in fiscal 2020 were recognized as a

8

cumulative-effect adjustment to retained earnings as of the beginning of the fiscal first quarter. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification as operating or capital leases. We also elected to combine lease and non-lease components and to exclude short-term leases from our consolidated balance sheets. We did not elect the hindsight practical expedient in determining the lease term for existing leases as of February 3, 2019.

The most significant impact of adoption was the recognition of operating lease assets and operating lease liabilities of $2.7 billion and $2.8 billion, respectively, while our accounting for existing capital leases (now referred to as finance leases) remained substantially unchanged. The cumulative impact of these changes decreased retained earnings by $19 million. We expect the impact of adoption to be immaterial to our consolidated statements of earnings and consolidated statements of cash flows on an ongoing basis. As part of our adoption, we also modified our control procedures and processes, none of which materially affected our internal control over financial reporting. See Note 3, Leases, for additional information regarding our accounting policy for leases and additional disclosures.

The cumulative effect of the changes made to our Condensed Consolidated Balance Sheets on February 3, 2019, for the adoption of this standard was as follows ($ in millions):

	February 2, 2019 As Reported		ASU 2016-02 Adjustment on February 3, 2019			February 3, 2019 Adjusted
Assets
Other current assets	$	466	$	(65)	(a)	$	401
Net property and equipment		2,510		(173)	(b)		2,337
Operating lease assets		-		2,736	(c)		2,736
Other assets		606		4	(d)		610
Liabilities
Accrued liabilities		982		(28)	(e)		954
Current portion of operating lease liabilities		-		712	(f)		712
Current portion of long-term debt		56		(43)	(b)		13
Long-term liabilities		750		(115)	(e)		635
Long-term operating lease liabilities		-		2,135	(f)		2,135
Long-term debt		1,332		(140)	(b)		1,192
Equity
Retained earnings		2,985		(19)	(g)		2,966

(a)Represents the reclassification of prepaid rent and leasehold acquisition costs to Operating lease assets.

(b)Represents the derecognition of financing obligations and reclassification to Operating lease assets.

(c)Represents the capitalization of operating lease assets and the reclassification of prepaid rent and leasehold acquisition costs, offset by the reclassification of straight-line rent accruals, tenant improvement allowances and vacant space reserves.

(d)Represents the deferred tax impact of the on-adoption adjustments.

(e)Represents the reclassification of straight-line rent accruals, tenant improvement allowances and vacant space reserves to Operating lease assets.

(f)Represents the recognition of operating lease liabilities.

(g)Represents the net-of-tax retained earnings impact of impairment charges and the derecognition of financing obligations.

Total Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the total shown within the Condensed Consolidated Statements of Cash Flows as of May 4, 2019, February 2, 2019, and May 5, 2018 ($ in millions):

	May 4, 2019		February 2, 2019		May 5, 2018
Cash and cash equivalents	$	1,561	$	1,980	$	1,848
Restricted cash included in Other current assets		206		204		201
Total cash, cash equivalents and restricted cash	$	1,767	$	2,184	$	2,049

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

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2.   Fair Value Measurements

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

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

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

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

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

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of May 4, 2019, February 2, 2019, and May 5, 2018, by level within the fair value hierarchy as determined by the valuation techniques we used to determine the fair value ($ in millions):

			Fair Value at
	Fair Value Hierarchy		May 4, 2019		February 2, 2019		May 5, 2018
Assets
Cash and cash equivalents:
Money market funds		Level 1	$	18	$	98	$	19
Time deposits		Level 2		60		300		200
Short-term investments:
Commercial paper		Level 2		-		-		100
Time deposits		Level 2		-		-		685
Other current assets:
Money market funds		Level 1		93		82		58
Time deposits		Level 2		102		101		101
Foreign currency derivative instruments		Level 2		-		-		3
Interest rate swap derivative instruments		Level 2		-		-		5
Other assets:
Marketable securities that fund deferred compensation		Level 1		46		44		99
Interest rate swap derivative instruments		Level 2		28		26		-
Liabilities
Accrued liabilities:
Foreign currency derivative instruments		Level 2		-		-		1
Long-term liabilities:
Interest rate swap derivative instruments		Level 2		6		1		15

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The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Money market funds. Our money market fund investments were measured at fair value as they trade in an active market using quoted market prices and, therefore, were classified as Level 1.

Time deposits. Our time deposits are balances held with banking institutions that cannot be withdrawn for specified terms without a penalty. Time deposits are held at face value plus accrued interest, which approximates fair value, and are classified as Level 2.

Commercial paper. Our investments in commercial paper were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2.

Foreign currency derivative instruments. Comprised primarily of foreign currency forward contracts, our foreign currency derivative instruments were measured at fair value using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. Our foreign currency derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

Interest rate swap derivative instruments. Our interest rate swap contracts were measured at fair value using readily observable inputs, such as the LIBOR interest rate. Our interest rate swap derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

Marketable securities that fund deferred compensation. The assets that fund our deferred compensation consist of investments in corporate-owned life insurance, the value of which is based on select mutual fund performance. These investments were classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on our Condensed 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 Selling, general and administrative (“SG&A”) expenses on our Condensed Consolidated Statements of Earnings for non-restructuring charges.

The following table summarizes the fair value remeasurements of property and equipment impairments recorded during the three months ended May 4, 2019, and May 5, 2018 ($ in millions):

	Impairments
	Three Months Ended				Remaining Net Carrying Value(2)
	May 4, 2019		May 5, 2018		May 4, 2019		May 5, 2018
Property and equipment (non-restructuring)(1)	$	2	$	2	$	2	$	-

(1) Balances exclude immaterial amounts associated with operating lease assets.

(2) Remaining net carrying value approximates fair value. Because assets subject to long-lived asset impairment are not measured at fair value on a recurring basis, certain fair value measurements presented in the table may reflect values at earlier measurement dates and may no longer represent the fair values at May 4, 2019, and May 5, 2018.

All of the fair value remeasurements included in the table above were based on significant unobservable inputs (Level 3). Fixed asset fair values were primarily derived using a discounted cash flow ("DCF") model to estimate the present value of net cash flows that the asset or asset group was expected to generate. The key inputs to the DCF model generally included our forecasts of net cash generated from revenue, expenses and other significant cash outflows, such as capital expenditures, as well as an appropriate discount rate.

Fair Value of Financial Instruments

Our financial instruments, other than those presented in the disclosures above, include cash, receivables, other investments, accounts payable, other payables and long-term debt. The fair values of cash, receivables, accounts payable and other payables approximated carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. Fair values for other

11

investments held at cost are not readily available, but we estimate that the carrying values for these investments approximate fair value. See Note 6, Debt, for information about the fair value of our long-term debt.

3.   Leases

The majority of our lease obligations are real estate operating leases from which we conduct the majority of our retail and distribution operations. Our finance leases are primarily equipment-related. For any lease with an initial term in excess of 12 months, the related lease assets and liabilities are recognized on the Condensed Consolidated Balance Sheets as either operating or finance leases at the inception of an agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components. For lease agreements entered into or reassessed after the adoption of ASC842, Leases, we have elected to combine lease and non-lease components for all classes of assets. Leases with an initial term of 12 months or less are not recorded on our Condensed Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

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

Supplemental balance sheet information as of May 4, 2019, related to our leases was as follows ($ in millions):

	Balance Sheet Location	May 4, 2019
Assets
Operating leases	Operating lease assets	$	2,708
Finance leases	Property and equipment, net(1)		41
Total lease assets		$	2,749
Liabilities
Current:
Operating leases	Current portion of operating lease liabilities	$	639
Finance leases	Current portion of long-term debt		14
Non-current:
Operating leases	Long-term operating lease liabilities		2,173
Finance leases	Long-term debt		27
Total lease liabilities		$	2,853

(1) Finance leases are recorded net of accumulated depreciation of $41 million as of May 4, 2019.

The components of our total lease cost for the three months ended May 4, 2019, were as follows ($ in millions):

	Statement of Earnings Location	Three Months Ended May 4, 2019
Operating lease cost(1)	Cost of goods sold and SG&A(2)	$	195
Finance lease cost:
Depreciation of lease assets	Cost of goods sold and SG&A(2)		3
Interest on lease liabilities	Interest expense		1
Variable lease cost	Cost of goods sold and SG&A(2)		67
Sublease income	SG&A		(4)
Total lease cost		$	262

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

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

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Other information related to our leases for the three months ended May 4, 2019, was as follows ($ in millions):

	Three Months Ended May 4, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	201
Operating cash flows from finance leases		1
Financing cash flows from finance leases		4
Lease assets obtained in exchange for new lease liabilities:
Operating leases		147
Finance leases		2
Weighted average remaining lease term:
Operating leases		5.4 years
Finance leases		5.3 years
Weighted average discount rate:
Operating leases		3.4	%
Finance leases		4.4	%

Future lease payments under our non-cancellable leases as of May 4, 2019, were as follows ($ in millions):

	Operating Leases(1)		Finance Leases(1)
Remainder of fiscal 2020	$	539	$	11
Fiscal 2021		708		13
Fiscal 2022		570		8
Fiscal 2023		418		4
Fiscal 2024		293		3
Fiscal 2025		187		2
Thereafter		378		5
Total future undiscounted lease payments		3,093		46
Less imputed interest		(281)		(5)
Total reported lease liability	$	2,812	$	41

(1) Lease payments exclude $51 million of legally binding fixed costs for leases signed but not yet commenced, primarily related to operating leases.

In accordance with the prior guidance, ASC 840, Leases, our leases were previously designated as either capital, financing or operating. Previously designated capital leases are now considered finance leases under the new guidance, ASC 842, Leases, while our previously existing financing leases have been derecognized and reclassified as operating leases. The designation of operating leases remains substantially unchanged under the new guidance. The future minimum lease payments by fiscal year as determined prior to the adoption of ASC 842, Leases, under our previously designated capital, financing and operating leases (not including contingent rent) as disclosed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, were as follows ($ in millions):

	Capital Leases		Financing Leases		Operating Leases(1)
Fiscal 2020	$	14	$	48	$	700
Fiscal 2021		11		42		648
Fiscal 2022		7		35		513
Fiscal 2023		4		24		371
Fiscal 2024		2		16		253
Thereafter		7		40		476
Total minimum lease payments		45		205	$	2,961
Less amount representing interest		(6)		(24)
Present value of minimum lease payments		39		181
Less current maturities		(12)		(43)
Present value of minimum lease maturities, less current maturities	$	27	$	138

(1) Operating lease obligations do not include payments to landlords covering real estate taxes and common area maintenance. These charges, if included, would have increased total operating lease obligations by $0.8 billion at February 2, 2019.

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4.   Goodwill and Intangible Assets

Goodwill and Indefinite-Lived Intangible Assets

The following table provides the carrying values of goodwill and indefinite-lived intangible assets, which includes our Pacific Sales tradename, for the Domestic segment as of May 4, 2019, February 2, 2019, and May 5, 2018 ($ in millions):

	May 4, 2019		February 2, 2019		May 5, 2018
Goodwill	$	915	$	915	$	425
Indefinite-lived tradename included in Other assets		18		18		18

The following table provides the gross carrying amount of goodwill and cumulative goodwill impairment as of May 4, 2019, February 2, 2019, and May 5, 2018 ($ in millions):

	May 4, 2019				February 2, 2019				May 5, 2018
	Gross Carrying Amount		Cumulative Impairment		Gross Carrying Amount		Cumulative Impairment		Gross Carrying Amount		Cumulative Impairment
Goodwill	$	1,590	$	(675)	$	1,590	$	(675)	$	1,100	$	(675)

Definite-Lived Intangible Assets

We have definite-lived intangible assets related to GreatCall, Inc. (“GreatCall”) included within our Domestic segment, which is recorded within Other assets on our Condensed Consolidated Balance Sheets. The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets as of May 4, 2019, and February 2, 2019 ($ in millions). We had no definite-lived intangible assets as of May 5, 2018.

	May 4, 2019				February 2, 2019
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	258	$	29	$	258	$	16
Tradename		63		5		63		3
Developed technology		52		6		52		4
Total	$	373	$	40	$	373	$	23

We recorded $17 million and $0 million of aggregate amortization expense related to definite-lived intangible assets during the three months ended May 4, 2019, and May 5, 2018, respectively. The following table provides the amortization expense expected to be recognized in future periods ($ in millions):

	Amortization Expense
Remainder of fiscal 2020	$	51
Fiscal 2021		68
Fiscal 2022		67
Fiscal 2023		67
Fiscal 2024		48
Fiscal 2025		10
Thereafter		22

5.   Derivative Instruments

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

We record all derivative instruments on our Condensed Consolidated Balance Sheets at fair value and evaluate hedge effectiveness prospectively or retrospectively when electing to apply hedge accounting. We formally document all hedging relations at inception for derivative hedges and the underlying hedged items, as well as the risk management objectives and

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strategies for undertaking the hedge transaction. In addition, we have derivatives which are not designated as hedging instruments.

Net Investment Hedges

We use foreign exchange forward contracts to hedge against the effect of Canadian dollar exchange rate fluctuations on a portion of our net investment in our Canadian operations. The contracts have terms of up to 12 months. For a net investment hedge, we recognize changes in the fair value of the derivative as a component of foreign currency translation within other comprehensive income to offset a portion of the change in translated value of the net investment being hedged, until the investment is sold or liquidated. We limit recognition in net earnings of amounts previously recorded in other comprehensive income to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. We report the gains and losses, if any, related to the amount excluded from the assessment of hedge effectiveness in net earnings.

Interest Rate Swaps

We utilized "receive fixed-rate, pay variable-rate" interest rate swaps to mitigate the effect of interest rate fluctuations on our $500 million principal amount of notes due August 1, 2018, prior to their maturity, and currently have swaps outstanding on our $650 million principal amount of notes due March 15, 2021, and $500 million principal amount of notes due October 1, 2028. Our interest rate swap contracts are considered perfect hedges because the critical terms and notional amounts match those of our fixed-rate debt being hedged and are, therefore, accounted for as fair value hedges using the shortcut method. Under the shortcut method, we recognize the change in the fair value of the derivatives with an offsetting change to the carrying value of the debt. Accordingly, there is no impact on our Condensed Consolidated Statements of Earnings from the fair value of the derivatives.

Derivatives Not Designated as Hedging Instruments

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

Summary of Derivative Balances

The following tables present the gross fair values of our outstanding derivative instruments and the corresponding classification as of May 4, 2019, February 2, 2019, and May 5, 2018 ($ in millions):

	Balance Sheet	Assets
Contract Type	Location	May 4, 2019		February 2, 2019		May 5, 2018
Derivatives designated as net investment hedges	Other current assets	$	-	$	-	$	3
Derivatives designated as interest rate swaps	Other current assets and Other assets		28		26		5
Total		$	28	$	26	$	8

	Balance Sheet	Liabilities
Contract Type	Location	May 4, 2019		February 2, 2019		May 5, 2018
Derivatives designated as net investment hedges	Accrued liabilities	$	-	$	-	$	1
Derivatives designated as interest rate swaps	Long-term liabilities		6		1		15
Total		$	6	$	1	$	16

The following table presents the effects of derivative instruments on other comprehensive income ("OCI") for the three months ended May 4, 2019, and May 5, 2018 ($ in millions):

	Three Months Ended
Derivatives designated as net investment hedges	May 4, 2019		May 5, 2018
Pre-tax gain recognized in OCI	$	-	$	16

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The following table presents the effects of derivatives not designated as hedging instruments on our Condensed Consolidated Statements of Earnings for the three months ended May 4, 2019, and May 5, 2018 ($ in millions):

		Gain Recognized
		Three Months Ended
Contract Type	Statement of Earnings Location	May 4, 2019		May 5, 2018
No hedge designation (foreign exchange contracts)	SG&A	$	1	$	1

The following table presents the effects of interest rate derivatives and adjustments to the carrying value of long-term debt on our Condensed Consolidated Statements of Earnings for the three months ended May 4, 2019, and May 5, 2018 ($ in millions):

		Gain (Loss) Recognized
		Three Months Ended
Contract Type	Statement of Earnings Location	May 4, 2019		May 5, 2018
Interest rate swap contracts	Interest expense	$	(2)	$	(5)
Adjustments to carrying value of long-term debt	Interest expense		2		5
Total		$	-	$	-

The following table presents the notional amounts of our derivative instruments as of May 4, 2019, February 2, 2019, and May5,2018 ($ in millions):

	Notional Amount
Contract Type	May 4, 2019		February 2, 2019		May 5, 2018
Derivatives designated as net investment hedges	$	15	$	15	$	135
Derivatives designated as interest rate swaps		1,150		1,150		1,150
No hedge designation (foreign exchange contracts)		44		9		39
Total	$	1,209	$	1,174	$	1,324

6.   Debt

Short-Term Debt

We have a $1.25 billion five-year senior unsecured revolving credit facility agreement with a syndicate of banks. The agreement permits borrowings of up to $1.25 billion and expires in April 2023. There were no borrowings outstanding as of May 4, 2019, February 2, 2019, or May 5, 2018.

Long-Term Debt

Long-term debt consisted of the following as of May 4, 2019, February 2, 2019, and May 5, 2018 ($ in millions):

	May 4, 2019		February 2, 2019		May 5, 2018
Notes, 5.00%, due August 1, 2018	$	-	$	-	$	500
Notes, 5.50%, due March 15, 2021		650		650		650
Notes, 4.45%, due October 1, 2028		500		500		-
Interest rate swap valuation adjustments		23		25		(10)
Subtotal		1,173		1,175		1,140
Debt discounts and issuance costs		(7)		(7)		(2)
Financing lease obligations (1)		-		181		184
Capital lease obligations (1)		-		39		20
Finance lease obligations (1)		41		-		-
Total long-term debt		1,207		1,388		1,342
Less current portion		14		56		550
Total long-term debt, less current portion	$	1,193	$	1,332	$	792

(1) See Note 3, Leases, for additional information regarding our lease obligations.

The fair value of total long-term debt, excluding debt discounts and issuance costs and lease obligations, approximated $1,213 million, $1,178 million, and $1,176 million as of May 4, 2019, February 2, 2019, and May 5, 2018, respectively, based primarily on the market prices quoted from external sources, compared with carrying values of $1,173 million, $1,175 million,

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and $1,140 million, respectively. If long-term debt were measured at fair value in the financial statements, it would be classified primarily as Level 2 in the fair value hierarchy.

The $500 million principal amount of notes due August 1, 2018, were repaid using existing cash resources and on September27,2018, we issued $500 million principal amount of notes due October 1, 2028.

See Note 6, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for additional information regarding the terms of our other debt facilities, debt instruments and other obligations.

7.   Revenue Recognition

We generate revenue primarily from the sale of products and services, both as a principal and as an agent. We generate all of our operating revenue from contracts with customers. Our revenue excludes sales and usage-based taxes collected.

Revenue from product sales and services is reported net of sales refunds, which includes an estimate of future returns and contract cancellations based on historical refund rates, with a corresponding reduction to cost of sales. For revenue transactions that involve more than one performance obligation, we defer the revenue associated with any unsatisfied performance obligation until the obligation is satisfied.

Our contract liabilities primarily relate to product merchandise not yet delivered to customers; unredeemed gift cards; services not yet completed; services technical support contracts, where performance is satisfied over the duration of the contract; and options that provide a material right to customers, such as our customer loyalty programs. We do not have any material contract assets.

The following table provides information about receivables and contract liabilities from our contracts with customers, which reflects the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied as of May 4, 2019, February 2, 2019, and May 5, 2018 ($ in millions):

	May 4, 2019		February 2, 2019		May 5, 2018
Receivables, net(1)	$	484	$	565	$	582
Short-term contract liabilities included in:
Unredeemed gift cards		265		290		285
Deferred revenue		409		446		371
Accrued liabilities		139		146		139
Long-term contract liabilities included in:
Long-term liabilities		10		11		20

(1) Receivables are recorded net of allowances for doubtful accounts of $12 million, $13 million, and $26 million as of May 4, 2019, February 2, 2019, and May 5, 2018, respectively.

We establish allowances for uncollectible receivables based on historical collection trends and write-off history.The following table summarizes our allowance for doubtful accounts activity related to contracts with customers during the three months ended May 4, 2019, and May 5, 2018 ($ in millions):

	Allowance for Doubtful Accounts
Balances at February 2, 2019	$	13
Charged to expenses or other accounts		10
Other(1)		(11)
Balances at May 4, 2019	$	12
Balances at February 4, 2018	$	24
Charged to expenses or other accounts		11
Other(1)		(9)
Balances at May 5, 2018	$	26

(1)Includes bad debt write-offs, recoveries and the effect of foreign currency fluctuations.

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During the three months ended May 4, 2019, and May 5, 2018, $466 million and $455 million of revenue was recognized, respectively, that was included in the contract liability balance at the beginning of the respective periods. No revenue was recognized from performance obligations satisfied in previous 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):

	May 4, 2019(1)
Remainder of fiscal 2020	$	9
Fiscal 2021		7
Fiscal 2022		3
Fiscal 2023		1
Thereafter		-

(1)Amounts exclude unsatisfied performance obligations from contract liability balances with a duration of one year or less. The estimated transaction price revenue disclosed above also does not include amounts of variable consideration attributable to contracts where the consideration is constrained at May 4, 2019.

See Note 12, Segments, for a disaggregation of revenue by reportable segment and product category, which represents how our chief operating decision maker reviews information internally to evaluate our financial performance and to make resource allocation and other decisions for the enterprise.

8.   Restructuring Charges

Charges incurred in the three months ended May 4, 2019, and May 5, 2018, for our restructuring activities were $0 million and $30 million, respectively. All charges incurred in the prior-year period related to Best Buy Mobile. As of May 4, 2019, we have no material liabilities remaining for any restructuring plan.

Best Buy Mobile

On March 1, 2018, we announced our intent to close all of our 257 remaining Best Buy Mobile stand-alone stores in the U.S. This decision was a result of changing economics in the mobile industry since we began opening these stores in 2006, along with the integration of our mobile model into our core stores and online channel, which are more economically compelling today. All restructuring charges related to this plan are from continuing operations and are presented in Restructuring charges on our Condensed Consolidated Statements of Earnings.

The composition of the restructuring charges we incurred for Best Buy Mobile during the three months ended May 5, 2018, as well as the cumulative amount incurred through May 4, 2019, were as follows ($ in millions):

	Three Months Ended May 5, 2018		Cumulative Amount
Property and equipment impairments	$	-	$	1
Termination benefits		1		6
Facility closure and other costs		29		49
Total restructuring charges	$	30	$	56

9.   Earnings per Share

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

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The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months ended May 4, 2019, and May 5, 2018 ($ and shares in millions, except per share amounts):

	Three Months Ended
	May 4, 2019		May 5, 2018
Numerator
Net earnings	$	265	$	208
Denominator
Weighted-average common shares outstanding		267.6		282.6
Dilutive effect of stock compensation plan awards		3.9		5.7
Weighted average common shares outstanding, assuming dilution		271.5		288.3
Potential shares which were anti-dilutive and excluded from weighted average shares computation		0.8		0.1
Basic earnings per share	$	0.99	$	0.74
Diluted earnings per share	$	0.98	$	0.72

10.   Repurchase of Common Stock

On February 23, 2019, our Board of Directors ("Board") authorized a $3.0 billion share repurchase program. There is no expiration date governing the period over which we can repurchase shares under the February 2019 authorization.

The following table presents information regarding the shares we repurchased during the three months ended May 4, 2019, and May 5, 2018 ($ and shares in millions, except per share amounts):

	Three Months Ended
	May 4, 2019		May 5, 2018
Total cost of shares repurchased	$	106	$	399
Average price per share	$	70.77	$	71.78
Number of shares repurchased		1.5		5.6

As of May 4, 2019, $2.9 billion of the $3.0 billion share repurchase authorization was available. Between the end of the first quarter of fiscal 2020 on May 4, 2019, and June 5, 2019, we repurchased an incremental 1.2 million shares of our common stock at a cost of $80 million.

11.   Comprehensive Income

Changes in accumulated other comprehensive income, net of tax, were as follows for the three months ended May 4, 2019, and May 5, 2018 ($  in millions):

	Three Months Ended
	May 4, 2019		May 5, 2018
Foreign currency translation adjustments	$	(5)	$	(4)

The gains and losses on our net investment hedges, which are included in foreign currency translation adjustments, were not material for the periods presented. Foreign currency translation adjustments do not include a provision for income tax expense when earnings from foreign operations are considered to be indefinitely reinvested outside the U.S. Refer to Note 11, Income Taxes, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for additional information.

12.   Segments

Our chief operating decision maker ("CODM") is our Chief Executive Officer. Our business is organized into two reportable segments: Domestic (which is comprised of all states, districts and territories of the U.S., including GreatCall) and International (which is comprised of all operations in Canada and Mexico). Our CODM has ultimate responsibility for enterprise decisions. Our CODM determines, in particular, resource allocation for, and monitors the performance of, the consolidated enterprise, the Domestic segment and the International segment. The Domestic segment managers and International segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. Our

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CODM relies on internal management reporting that analyzes enterprise results to the net earnings level and segment results to the operating income level.

We aggregate our Domestic and GreatCall operating segments into one Domestic reportable segment. We also aggregate our Canada and Mexico businesses into one International operating segment, which represents the International reportable segment. The accounting policies of the segments are the same.

Revenue by reportable segment and product category were as follows for the three months ended May 4, 2019, and May 5, 2018 ($ in millions):

	Three Months Ended
	May 4, 2019		May 5, 2018
Revenue by reportable segment
Domestic	$	8,481	$	8,412
International		661		697
Total revenue	$	9,142	$	9,109
Revenue by product category (1)
Domestic
Computing and Mobile Phones	$	3,851	$	3,899
Consumer Electronics		2,662		2,655
Appliances		961		883
Entertainment		473		548
Services		497		393
Other		37		34
Total Domestic revenue	$	8,481	$	8,412
International
Computing and Mobile Phones	$	305	$	331
Consumer Electronics		203		206
Appliances		59		61
Entertainment		36		43
Services		43		39
Other		15		17
Total International revenue	$	661	$	697

(1)Refer to our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for additional information regarding the key components of each revenue category.

Operating income (loss) by reportable segment and the reconciliation to earnings before income tax expense were as follows for the three months ended May 4, 2019, and May 5, 2018 ($ in millions):

	Three Months Ended
	May 4, 2019		May 5, 2018
Domestic	$	332	$	267
International		2		(2)
Total operating income		334		265
Other income (expense):
Investment income and other		14		11
Interest expense		(18)		(19)
Earnings before income tax expense	$	330	$	257

Assets by reportable segment were as follows as of May 4, 2019, February 2, 2019, and May 5, 2018 ($ in millions):

	May 4, 2019		February 2, 2019		May 5, 2018
Domestic	$	13,332	$	11,908	$	10,955
International		1,218		993		1,127
Total assets	$	14,550	$	12,901	$	12,082

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13.   Contingencies

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

Securities Actions

In February 2011, a purported class action lawsuit captioned, IBEW Local 98 Pension Fund, individually and on behalf of all others similarly situated v. Best Buy Co., Inc., et al., was filed against us and certain of our executive officers in the U.S. District Court for the District of Minnesota. This federal court action alleges, among other things, that we and the officers named in the complaint violated Sections 10(b) and 20A of the Exchange Act and Rule 10b-5 under the Exchange Act in connection with press releases and other statements relating to our fiscal 2011 earnings guidance that had been made available to the public. Additionally, in March 2011, a similar purported class action was filed by a single shareholder, Rene LeBlanc, against us and certain of our executive officers in the same court. In July 2011, after consolidation of the IBEW Local 98 Pension Fund and Rene LeBlanc actions, a consolidated complaint captioned, IBEW Local 98 Pension Fund v. Best Buy Co., Inc., et al., was filed and served. Following discovery and motion practice Plaintiffs moved to certify the purported class. By Order filed August 6, 2014, the court certified a class of persons or entities who acquired Best Buy common stock between 10:00 a.m. EDT on September 14, 2010, and December 13, 2010, and who were damaged by the alleged violations of law. The 8th Circuit Court of Appeals granted our request for interlocutory appeal. On April 12, 2016, the 8th Circuit held the trial court misapplied the law and reversed the class certification order. IBEW petitioned the 8th Circuit for a rehearing en banc, which was denied on June 1, 2016. On June 23, 2017, the trial court denied plaintiff's request to file a new Motion for Class Certification. On October 30, 2017, plaintiffs filed a motion for leave to file a second amended class action complaint which the Magistrate Judge denied on July 11, 2018. On August 24, 2018, the District Court Judge overruled plaintiff’s objections to that ruling, affirming the Magistrate Judge’s denial of leave to amend. On March 8, 2019, the District Court Judge granted Best Buy’s motion for summary judgment dismissing the remaining claims with prejudice. All appeal periods in IBEW have been exhausted and the matter is closed.

In June 2011, a purported shareholder derivative action captioned, Salvatore M. Talluto, Derivatively and on Behalf of Best Buy Co., Inc. v. Richard M. Schulze, et al., as Defendants and Best Buy Co., Inc. as Nominal Defendant, was filed against both present and former members of our Board serving during the relevant periods in fiscal 2011 and us as a nominal defendant in the U.S. District Court for the State of Minnesota. The lawsuit alleges that the director defendants breached their fiduciary duty, among other claims, including violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in failing to correct public misrepresentations and material misstatements and/or omissions regarding our fiscal 2011 earnings projections and, for certain directors, selling stock while in possession of material adverse non-public information. Additionally, in July 2011, a similar purported class action was filed by a single shareholder, Daniel Himmel, against us and certain of our executive officers in the same court. In November 2011, the respective lawsuits of Salvatore M. Talluto and Daniel Himmel were consolidated into a new action captioned, In Re: Best Buy Co., Inc. Shareholder Derivative Litigation, and a stay ordered pending the close of discovery in the consolidated IBEW Local 98 Pension Fund v. Best Buy Co., Inc., et al. case. Additionally, in June 2015, a similar purported class action was filed by a single shareholder, Khuong Tran, derivatively on behalf of Best Buy Co., Inc. against us and certain of our executive officers and directors in the same court. The Khuong Tran lawsuit has also been stayed pending the close of discovery in IBEW. In Tran, the court entered an Order for Dismissal Without Prejudice on March27,2019.

The plaintiffs in the above remaining securities actions seek damages, including interest, equitable relief and reimbursement of the costs and expenses they incurred in the lawsuits. As stated above, we believe the allegations in the above securities actions are without merit, and we intend to defend these actions vigorously. Based on our assessment of the facts underlying the claims in the above securities actions, their respective procedural litigation history and the degree to which we intend to defend our company in these matters, the amount or range of reasonably possible losses, if any, cannot be estimated.

Other Legal Proceedings

We are involved in various other legal proceedings arising in the normal course of conducting business. For such legal proceedings, we have accrued an amount that reflects the aggregate liability deemed probable and estimable, but this amount is not material to our consolidated financial position, results of operations or cash flows. Because of the preliminary nature of many of these proceedings, the difficulty in ascertaining the applicable facts relating to many of these proceedings, the variable treatment of claims made in many of these proceedings and the difficulty of predicting the settlement value of many of these proceedings, we are not able to estimate an amount or range of any reasonably possible additional losses. However, based upon

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our historical experience, the resolution of these proceedings is not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

14.   Subsequent Event

On April 11, 2019, we signed a definitive agreement to acquire Critical Signal Technologies, Inc. (“CST”), a health services company, for approximately $125 million and the acquisition was completed on May 9, 2019. CST will be included in our GreatCall operating segment and our Domestic reportable segment.

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, the use of the terms “Best Buy,” “we,” “us” and “our” refers to Best Buy Co., Inc. and its consolidated subsidiaries. Any references to our website addresses do not constitute incorporation by reference of the information contained on the websites.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in the following sections:

· Overview

· Business Strategy Update

· Results of Operations

· Liquidity and Capital Resources

· Off-Balance-Sheet Arrangements and Contractual Obligations

· Significant Accounting Policies and Estimates

· New Accounting Pronouncements

· Safe Harbor Statement Under the Private Securities Litigation Reform Act

Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, (including the information presented therein under Risk Factors), as well as our reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited.

Overview

We strive to enrich the lives of consumers through technology, whether they connect with us online, visit our stores or invite us into their homes. We do this by solving technology problems and addressing key human needs across a range of areas, including entertainment, productivity, communication, food preparation, security and health and wellness. We have operations in the U.S., Canada and Mexico. We have two reportable segments: Domestic and International. The Domestic segment is comprised of the operations in all states, districts and territories of the U.S., including GreatCall, Inc. ("GreatCall"). The International segment is comprised of all operations in Canada and Mexico.

Our fiscal year ends on the Saturday nearest the end of January. Our business, like that of many retailers, is seasonal. A large proportion of our revenue and earnings is generated in the fiscal fourth quarter, which includes the majority of the holiday shopping season in the U.S., Canada and Mexico.

Comparable Sales

Throughout this MD&A, we refer to comparable sales. In the first quarter of fiscal 2020, we refined our methodology for calculating comparable sales. It now reflects certain revenue streams previously excluded from the comparable sales calculation, such as credit card revenue, gift card breakage, commercial sales and sales of merchandise to wholesalers and dealers, as applicable. The impact of adopting these changes is immaterial to all periods presented, and therefore prior-period comparable sales disclosures have not been restated. Our comparable sales calculation compares revenue from stores, websites and call centers operating for at least 14 full months, as well as revenue related to certain other comparable sales channels for a particular period to the corresponding period in the prior year. Relocated stores, as well as remodeled, expanded and downsized stores closed more than 14 days, are excluded from the comparable sales calculation until at least 14 full months after reopening. Acquisitions are included in the comparable sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The calculation of comparable sales excludes the impact of revenue from discontinued operations and the effect of fluctuations in foreign currency exchange rates (applicable to our International

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segment only). On March 1, 2018, we announced our intent to close all of our 257 remaining Best Buy Mobile stand-alone stores in the U.S. As a result, all revenue related to these stores has been excluded from the comparable sales calculation beginning in March 2018. On October 1, 2018, we acquired all outstanding shares of GreatCall. Consistent with our comparable sales policy, the results of GreatCall are excluded from our comparable sales calculation for the periods presented. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers' methods.

Non-GAAP Financial Measures

This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), as well as certain adjusted or non-GAAP financial measures, such as constant currency, non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted earnings per share ("EPS") from continuing operations. We believe that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, our internal management reporting also includes non-GAAP financial measures. Generally, our non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill impairments, gains and losses on investments, certain acquisition-related costs and the tax effect of all such items. In addition, certain other items may be excluded from non-GAAP financial measures when we believe doing so provides greater clarity to management and our investors. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Non-GAAP financial measures as presented herein may not be comparable to similarly titled measures used by other companies.

In our discussions of the operating results of our consolidated business and our International segment, we sometimes refer to the impact of changes in foreign currency exchange rates or the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert the International segment’s operating results from local currencies into U.S. dollars for reporting purposes. We also may use the term "constant currency," which represents results adjusted to exclude foreign currency impacts. We calculate those impacts as the difference between the current period results translated using the current period currency exchange rates and using the comparable prior period currency exchange rates. We believe the disclosure of revenue changes in constant currency provides useful supplementary information to investors in light of significant fluctuations in currency rates.

Refer to the Consolidated Non-GAAP Financial Measures section below for a detailed reconciliation of items that impacted non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS from continuing operations in the presented periods.

Business Strategy Update

In the first quarter of fiscal 2020, we generated $9.1 billion in revenue and grew our Enterprise comparable sales by 1.1%. We expanded our GAAP operating income rate by 80 basis points and our non-GAAP operating income rate by 50 basis points, both compared to the first quarter of fiscal 2019. We delivered GAAP diluted EPS of $0.98 and non-GAAP diluted EPS of $1.02, increases of 36% and 24% compared to the first quarter of fiscal 2019, respectively. From a capital allocation standpoint, we returned $232 million to our shareholders through dividends and share repurchases.

Our purpose as a company is clear - to enrich lives through technology. We aim to do this by addressing key human needs in areas including entertainment, productivity, communication, food preparation, security and health and wellness.

During the first quarter, we continued to make progress in the implementation of our Best Buy 2020 strategy. In Health, this progress is evident both in terms of scaling GreatCall consumer devices and services, and advancing our commercial monitoring service, which included our recent acquisition of Critical Signal Technologies, Inc. that closed in the second quarter. We also continued to expand our Total Tech Support program, which provides members unlimited Geek Squad support for all their technology no matter where or when they bought it. We also continued to transform our supply chain to improve the experience for our customers, which includes improving our speed of delivery to customers.

In parallel to the customer experience work, we continued to drive efficiencies and reduce costs in order to fund investments and offset pressures. During the first quarter, we achieved $75 million in annualized cost reductions and efficiencies, bringing the cumulative total to $575 million towards our current goal of reaching $600 million by the end of fiscal 2021.

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Tariffs

Given that a significant number of consumer electronics products are imported from China, we are actively addressing the risks related to increases to current tariff rates and proposed new tariffs on Chinese imports. In September 2018, the U.S. Trade Representation implemented List 3 tariffs of 10% affecting certain products imported from China. These items represent approximately 7% of our cost of goods sold.Thus far, including in the first quarter of fiscal 2020, we have been able to minimize the impact on our business by accelerating purchases and working with our vendors. We expect the administration to continue to seek input into potential further tariff developments and we intend to remain fully engaged in this process. We are also looking into a range of mitigation actions. While our outlook for fiscal 2020 includes the impact of List 3 tariffs increasing from 10% to 25%, we cannot predict, at this stage, the likelihood or impact of further expansion of tariffs to other products we sell or potential new tariffs.

Results of Operations

In order to align our fiscal reporting periods and comply with statutory filing requirements, we consolidate the financial results of our Mexico operations on a one-month lag. Consistent with such consolidation, the financial and non-financial information presented in our MD&A relative to these operations is also presented on a lag. Our policy is to accelerate the recording of events occurring in the lag period that significantly affect our consolidated financial statements. No such events were identified for the periods presented.

Consolidated Performance Summary

The following table presents selected consolidated financial data for the three months ended May 4, 2019, and May 5, 2018 ($ in millions, except per share amounts):

	Three Months Ended
	May 4, 2019			May 5, 2018
Revenue	$	9,142		$	9,109
Revenue % increase		0.4	%		6.8	%
Comparable sales growth		1.1	%		7.1	%
Gross profit	$	2,169		$	2,125
Gross profit as a % of revenue(1)		23.7	%		23.3	%
SG&A	$	1,835		$	1,830
SG&A as a % of revenue(1)		20.1	%		20.1	%
Restructuring charges	$	-		$	30
Operating income	$	334		$	265
Operating income as a % of revenue		3.7	%		2.9	%
Net earnings	$	265		$	208
Diluted earnings per share	$	0.98		$	0.72

(1)Because retailers vary in how they record costs of operating their supply chain between cost of goods sold and SG&A, our gross profit rate and SG&A rate may not be comparable to other retailers’ corresponding rates. For additional information regarding costs classified in cost of goods sold and SG&A, refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019.

All gross profit rate, SG&A rate and operating income rate changes for the first three months of fiscal 2020 were primarily driven by our Domestic segment. For further discussion of each segment's rate changes, see the Segment Performance Summary below.

Income Tax Expense

Income tax expense increased to $65 million for the three months ended May 4, 2019, compared to $49 million for the three months ended May 5, 2018. The higher tax expense was primarily due to an increase in pre-tax earnings. Our effective income tax rate (“ETR”) for the three months ended May 4, 2019, was 19.8% compared to a rate of 19.2% for the three months ended May 5, 2018. The increase in the ETR was primarily due to an increase in pre-tax earnings, as the impact of discrete items on our ETR is less when our pre-tax earnings are higher, partially offset by an increase in excess tax benefits related to stock-based compensation in the current year period.

Our tax provision for interim periods is determined using an estimate of our annual ETR, adjusted for discrete items, if any, that are taken into account in the relevant period. We update our estimate of the annual ETR each quarter, and we make a cumulative adjustment if our estimated tax rate changes. Our quarterly tax provision and our quarterly estimate of our annual

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ETR are subject to variation due to several factors, including our ability to accurately forecast our pre-tax and taxable income and loss by jurisdiction, tax audit developments, recognition of excess tax benefits or deficiencies related to stock-based compensation, foreign currency gains (losses), changes in laws or regulations, and expenses or losses for which tax benefits are not recognized. Our ETR can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items and non-deductible losses on our ETR is greater when our pre-tax income is lower.

Segment Performance Summary

Domestic

The following table presents selected financial data for the Domestic segment for the three months ended May 4, 2019, and May 5, 2018 ($ in millions):

	Three Months Ended
	May 4, 2019			May 5, 2018
Revenue	$	8,481		$	8,412
Revenue % increase		0.8	%		6.3	%
Comparable sales growth(1)		1.3	%		7.1	%
Gross profit	$	2,009		$	1,962
Gross profit as a % of revenue		23.7	%		23.3	%
SG&A	$	1,677		$	1,665
SG&A as a % of revenue		19.8	%		19.8	%
Restructuring charges	$	-		$	30
Operating income	$	332		$	267
Operating income as a % of revenue		3.9	%		3.2	%
Selected Online Revenue Data
Total online revenue	$	1,308		$	1,143
Online revenue as a % of total segment revenue		15.4	%		13.6	%
Comparable online sales growth(1)		14.5	%		12.0	%

(1)Comparable online sales are included in the comparable sales calculation.

The increase in revenue for the three months ended May 4, 2019, was primarily driven by the comparable sales growth of 1.3% and revenue from GreatCall, which was acquired in the third quarter of fiscal 2019. These increases were partially offset by the loss of revenue from store closures, primarily Best Buy Mobile stand-alone stores. Online revenue of $1.3 billion for the three months ended May 4, 2019, increased 14.5% on a comparable basis, primarily due to higher average order values and increased traffic.

The following table reconciles the number of Domestic stores open at the beginning and end of the first quarters of fiscal 2020 and fiscal 2019:

	Fiscal 2020								Fiscal 2019
	Total Stores at Beginning of First Quarter		Stores Opened		Stores Closed		Total Stores at End of First Quarter		Total Stores at Beginning of First Quarter		Stores Opened		Stores Closed		Total Stores at End of First Quarter
Best Buy		997		-		(2)		995		1,008		-		(1)		1,007
Best Buy Mobile stand-alone		-		-		-		-		257		-		(152)		105
Outlet Centers		8		2		-		10		6		-		-		6
Pacific Sales		21		-		-		21		28		-		-		28
Total Domestic segment stores		1,026		2		(2)		1,026		1,299		-		(153)		1,146

We continuously monitor store performance. As we approach the expiration date of our store leases, we evaluate various options for each location, including whether a store should remain open. On March 1, 2018, we announced our intent to close

all of our 257 remaining Best Buy Mobile stand-alone stores in the U.S., of which 152 were closed during the first quarter of fiscal 2019. Refer to Note 8, Restructuring Charges, in the Notes to Condensed Consolidated Financial Statements for additional information.

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The following table presents the Domestic segment revenue mix percentages and comparable sales percentage changes by revenue category for the three months ended May 4, 2019, and May 5, 2018:

	Revenue Mix				Comparable Sales
	Three Months Ended				Three Months Ended
	May 4, 2019		May 5, 2018		May 4, 2019		May 5, 2018
Computing and Mobile Phones	46	%	46	%	1.0	%	10.2	%
Consumer Electronics	31	%	32	%	0.9	%	2.9	%
Appliances	11	%	10	%	10.5	%	13.0	%
Entertainment	6	%	7	%	(12.7)	%	(0.8)	%
Services	6	%	5	%	6.8	%	7.3	%
Total	100	%	100	%	1.3	%	7.1	%

We continue to believe the strong execution of our business strategy, a continued healthy consumer confidence and positive macro conditions contributed to our Domestic comparable sales growth across most of our categories. The following is a description of the notable comparable sales changes in our Domestic segment by revenue category:

· Computing and Mobile Phones: The 1.0% comparable sales gain was primarily driven by wearables and tablets.

· Consumer Electronics: The 0.9% comparable sales gain was driven primarily by portable audio and smart home, partially offset by declines in digital imaging.

· Appliances: The 10.5% comparable sales gain was driven by both large and small appliances.

· Entertainment: The 12.7% comparable sales decline was driven primarily by gaming and movies.

· Services: The 6.8% comparable sales gain was driven primarily by growth in our support business.

Our gross profit rate increased in the three months ended May 4, 2019, primarily driven by the higher gross profit rate of GreatCall and improved product margin rates, which included the benefit of gross profit optimization initiatives, partially offset by higher supply chain costs.

Our SG&A rate remained flat in the three months ended May 4, 2019, primarily due to sales leverage, as SG&A increased primarily due to GreatCall expenses, partially offset by lower incentive compensation.

No restructuring charges were incurred for the three months ended May 4, 2019. Restructuring charges for the three months ended May 5, 2018, related to our Best Buy Mobile stand-alone store closures. Refer to Note 8, Restructuring Charges, in the Notes to Condensed Consolidated Financial Statements for additional information.

Our operating income rate increased in the three months ended May 4, 2019, primarily driven by the decrease in restructuring charges and the increase in gross profit rate described above.

International

The following table presents selected financial data for the International segment for the three months ended May 4, 2019, and May 5, 2018 ($ in millions):

		Three Months Ended
		May 4, 2019			May 5, 2018
Revenue	$	661		$	697
Revenue % change		(5.2)	%		13.1	%
Comparable sales % change		(1.2)	%		6.4	%
Gross profit	$	160		$	163
Gross profit as a % of revenue		24.2	%		23.4	%
SG&A	$	158		$	165
SG&A as a % of revenue		23.9	%		23.7	%
Operating income (loss)	$	2		$	(2)
Operating income (loss) as a % of revenue		0.3	%		(0.3)	%

The decrease in revenue in the three months ended May 4, 2019, was primarily driven by the negative impact of foreign currency exchange rate fluctuations and the comparable sales decline in Canada.

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The following table reconciles the number of International stores open at the beginning and end of the first quarters of fiscal 2020 and fiscal 2019:

	Fiscal 2020								Fiscal 2019
	Total Stores at Beginning of First Quarter		Stores Opened		Stores Closed		Total Stores at End of First Quarter		Total Stores at Beginning of First Quarter		Stores Opened		Stores Closed		Total Stores at End of First Quarter
Canada
Best Buy		132		-		-		132		134		-		-		134
Best Buy Mobile		45		-		(1)		44		51		-		(2)		49
Mexico
Best Buy		29		-		-		29		25		1		-		26
Best Buy Express		6		3		-		9		6		-		-		6
Total International segment stores		212		3		(1)		214		216		1		(2)		215

The following table presents the International segment's revenue mix percentages and comparable sales percentage changes by revenue category for the three months ended May 4, 2019, and May 5, 2018:

	Revenue Mix						Comparable Sales
	Three Months Ended						Three Months Ended
	May 4, 2019			May 5, 2018			May 4, 2019			May 5, 2018
Computing and Mobile Phones		46	%		47	%		(4.0)	%		4.4	%
Consumer Electronics		31	%		30	%		2.5	%		9.4	%
Appliances		9	%		9	%		(2.0)	%		37.7	%
Entertainment		5	%		6	%		(14.0)	%		(8.3)	%
Services		7	%		6	%		13.4	%		(6.1)	%
Other		2	%		2	%		15.3	%		(1.9)	%
Total		100	%		100	%		(1.2)	%		6.4	%

The following is a description of the notable comparable sales changes in our International segment by revenue category for the three months ended May 4, 2019:

· Computing and Mobile Phones: The 4.0% comparable sales decline was driven primarily by computing and wearables, partially offset by gains in mobile phones.

· Consumer Electronics: The 2.5% comparable sales gain was driven primarily by health and fitness and portable audio, partially offset by declines in digital imaging.

· Appliances: The 2.0% comparable sales decline was driven by large appliances, partially offset by gains in small appliances.

· Entertainment: The 14.0% comparable sales decline was driven primarily by gaming and movies.

· Services: The 13.4% comparable sales gain was driven primarily by warranty and repair services.

· Other: The 15.3% comparable sales gain was driven primarily by baby, partially offset by declines in luggage.

Our gross profit rate increased in the three months ended May 4, 2019,  primarily due to Canada, which delivered improved gross profit rates in several product categories and increased revenue in the higher margin services category.

Our SG&A rate increased in the three months ended May 4, 2019, primarily due to sales leverage, as SG&A decreased $7 million due to the favorable impact of foreign currency exchange rates related to Canada.

Our operating income rate increased in the three months ended May 4, 2019, primarily driven by a higher gross profit rate, partially offset by a higher SG&A rate described above.

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Consolidated Non-GAAP Financial Measures

The following table reconciles consolidated operating income, effective tax rate and diluted EPS for the periods presented (GAAP financial measures) to non-GAAP operating income, non-GAAP effective tax rate and non-GAAP diluted EPS for the periods presented ($ in millions, except per share amounts):

		Three Months Ended
		May 4, 2019			May 5, 2018
Operating income	$	334		$	265
Intangible asset amortization(1)		17			-
Restructuring charges(2)		-			30
Tax reform related item - employee bonus(3)		-			7
Non-GAAP operating income	$	351		$	302
Effective tax rate		19.8	%		19.2	%
Intangible asset amortization(1)		0.3	%		-	%
Restructuring charges(2)		-	%		0.7	%
Tax reform related item - employee bonus(3)		-	%		0.1	%
Non-GAAP effective tax rate		20.1	%		20.0	%
Diluted EPS	$	0.98		$	0.72
Intangible asset amortization(1)		0.06			-
Restructuring charges(2)		-			0.11
Tax reform related item - employee bonus(3)		-			0.02
Income tax impact of non-GAAP adjustments(4)		(0.02)			(0.03)
Non-GAAP diluted EPS	$	1.02		$	0.82

(1) Represents the non-cash amortization of definite-lived intangible assets associated with the acquisition of GreatCall, including customer relationships, tradenames and technology. Refer to Note 4,  Goodwill and Intangible Assets, in the Notes to Condensed Consolidated Financial Statements for additional information.

(2) Represents charges associated with the closure of Best Buy Mobile stand-alone stores in the U.S. Refer to Note 8,  Restructuring Charges, in the Notes to Condensed Consolidated Financial Statements for additional information.

(3) Represents final adjustments for amounts paid and associated taxes related to a one-time bonus for certain employees announced in response to future tax savings created by the Tax Cuts and Jobs Act of 2017 enacted into law in the fourth quarter of fiscal 2018.

(4) The non-GAAP adjustments relate primarily to adjustments in the U.S. As such, the income tax charge is calculated using the statutory tax rate for the U.S. (24.5% for the periods ended May 4, 2019, and May 5, 2018).

Non-GAAP operating income increased  $49 million in the three months ended May 4, 2019, compared to the corresponding prior year period. The increase was primarily driven by a decrease in SG&A from lower incentive compensation.

Our non-GAAP effective tax rate remained relatively flat in the three months ended May 4, 2019, compared to the corresponding prior year period.

Non-GAAP diluted EPS increased in the three months ended May 4, 2019, driven by the increase in non-GAAP operating income and lower diluted weighted-average common shares outstanding driven by share repurchases. Refer to the Share Repurchases and Dividends section below for additional information.

Liquidity and Capital Resources

Summary

We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment required to support our business strategies, the performance of our business, capital expenditures, credit facilities, short-term borrowing arrangements and working capital management. Capital expenditures and share repurchases are a component of our cash flow and capital management strategy which, to a large extent, we can adjust in response to economic and other changes in our business environment. We have a disciplined approach to capital allocation, which focuses on investing in key priorities that support our strategy.

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The following table summarizes our cash, cash equivalents and short-term investments as of May 4, 2019, February 2, 2019, and May 5, 2018 ($ in millions):

	May 4, 2019		February 2, 2019		May 5, 2018
Cash and cash equivalents	$	1,561	$	1,980	$	1,848
Short-term investments		-		-		785
Total cash, cash equivalents and short-term investments	$	1,561	$	1,980	$	2,633

The decrease in total cash, cash equivalents and short-term investments from February 2, 2019, was primarily due to capital expenditures and dividends. The decrease from May 5, 2018, was primarily due to share repurchases and the acquisition of GreatCall.

Cash Flows

The following table summarizes our cash flows from total operations for the three months ended May 4, 2019, and May 5, 2018 ($ in millions):

	Three Months Ended
	May 4, 2019		May 5, 2018
Total cash provided by (used in):
Operating activities	$	2	$	204
Investing activities		(192)		1,073
Financing activities		(226)		(516)
Effect of exchange rate changes on cash		(1)		(12)
Increase (decrease) in cash and cash equivalents	$	(417)	$	749

Operating Activities

The decrease in cash provided by operating activities in fiscal 2020 was primarily due to changes in working capital which were primarily due to timing of receipts and payments on inventory and income taxes. This was partially offset by lower incentive compensation payments due to a special one-time incentive payment in fiscal 2019 and timing of indirect tax payments. During fiscal 2019, we had fewer payments occur prior to year-end than the prior year, causing more payments to occur in the first quarter of fiscal 2020.

Investing Activities

The decrease in cash provided by investing activities in fiscal 2020 was primarily due to a decrease in the sale of investments. All of our short-term investments matured during fiscal 2019.

Financing Activities

The decrease in cash used in financing activities was primarily due to a decrease in shares repurchased during fiscal 2020.

Sources of Liquidity

Funds generated by operating activities, available cash and cash equivalents, our credit facilities and other debt arrangements are our most significant sources of liquidity. We believe our sources of liquidity will be sufficient to fund operations and anticipated capital expenditures, share repurchases, dividends and strategic initiatives, including business combinations. However, in the event our liquidity is insufficient, we may be required to limit our spending. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms.

We have a $1.25 billion five-year senior unsecured revolving credit facility (the “facility”) with a syndicate of banks that expires in April 2023. Refer to Note 6, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for additional information. There have been no borrowings under the facility.

Our ability to access the facility is subject to our compliance with its terms and conditions, including financial covenants. The financial covenants require us to maintain certain financial ratios. At May 4, 2019, we were in compliance with all financial

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covenants. If an event of default were to occur with respect to any of our other debt, it would likely constitute an event of default under our facility as well.

Our credit ratings and outlook as of June 5, 2019, are summarized below.

Rating Agency	Rating		Outlook
Standard & Poor's		BBB		Stable
Moody's		Baa1		Positive
Fitch		BBB		Stable

Credit rating agencies review their ratings periodically, and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the retail and consumer electronics industries, our financial position and changes in our business strategy. If further changes in our credit ratings were to occur, they could impact, among other things, interest costs for certain of our credit facilities, our future borrowing costs, access to capital markets, vendor financing terms and future new-store leasing costs.

Restricted Cash

Our liquidity is also affected by restricted cash balances that are pledged as collateral or restricted to use for worker’s compensation and general liability insurance claims. Restricted cash and cash equivalents, which are included in Other current assets on our Condensed Consolidated Balance Sheets, remained relatively flat at $206 million, $204 million, and $201 million at May 4, 2019, February 2, 2019, and May 5, 2018, respectively.

Debt and Capital

As of May 4, 2019, we had $650 million principal amount of notes due March 15, 2021, and $500 million principal amount of notes due October 1, 2028, outstanding. Refer to Note 6, Debt, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for further information about our outstanding notes.

Share Repurchases and Dividends

We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors ("Board"). Our long-term capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through dividends and share repurchases while maintaining investment grade credit metrics.

On February 23, 2019, our Board authorized a $3.0 billion share repurchase program. As of May 4, 2019, $2.9 billion of the $3.0 billion share repurchase authorization was available. Between the end of the first quarter of fiscal 2020 on May 4, 2019, and June 5, 2019, we repurchased an incremental 1.2 million shares of our common stock at a cost of $80 million.

The following table presents our share repurchase activity for the three months ended May 4, 2019, and May 5, 2018 ($ and shares in millions, except per share amounts):

	Three Months Ended
	May 4, 2019		May 5, 2018
Total cost of shares repurchased	$	106	$	399
Average price per share	$	70.77	$	71.78
Number of shares repurchased		1.5		5.6

The payment of cash dividends is subject to customary legal and contractual restrictions. The following table presents our dividend activity for the three months ended May 4, 2019, and May 5, 2018 ($ in millions, except per share amounts):

	Three Months Ended
	May 4, 2019		May 5, 2018
Regular quarterly cash dividends per share	$	0.50	$	0.45
Cash dividends declared and paid	$	134	$	128

The increase in cash dividends declared and paid for the three months ended May 4, 2019, compared to the same period in the prior year was the result of an increase in the regular quarterly dividend rate, partially offset by fewer shares due to the return of capital to shareholders through share repurchases.

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Other Financial Measures

Our current ratio, calculated as current assets divided by current liabilities, was 1.1 as of May 4, 2019, compared to 1.2 as of February 2, 2019, and 1.3 as of May 5, 2018. The decrease from February 2, 2019, was primarily due to the adoption of the new lease accounting standard which brought additional current liabilities onto the balance sheet. The decrease from May 5, 2018, was primarily due to the use of cash for share repurchases and the acquisition of GreatCall as well as the adoption of the new lease accounting standard. This was partially offset by the repayment of our notes due in August 2018 which were included in current liabilities as of May 5, 2018.

Our debt to earnings ratio, calculated as total debt (including current portion) divided by net earnings from continuing operations over the trailing twelve months, was 0.8 as of May 4, 2019, compared with 0.9 as of February 2, 2019, and 1.3 as of May 5, 2018. The improvement from May 5, 2018, to May 4, 2019, was primarily due to higher earnings over the past twelve months primarily driven by a decrease in tax expense associated with the Tax Cuts and Act of 2017.

Off-Balance-Sheet Arrangements and Contractual Obligations

Our liquidity is not dependent on the use of off-balance-sheet financing arrangements other than in connection with our $1.25 billion in undrawn capacity on our credit facility at May 4, 2019, which, if drawn upon, would be included as short-term debt on our Condensed Consolidated Balance Sheets.

Other than the changes related to the adoption of the new lease accounting standard as described in Note 3, Leases, in the Notes to Condensed Consolidated Financial Statements, there has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2019. See our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for additional information regarding our off-balance-sheet arrangements and contractual obligations.

Significant Accounting Policies and Estimates

We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019. We discuss our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019. In the first quarter of fiscal 2020, we adopted new lease accounting guidance, as described in Note 1, Basis of Presentation, and Note 3, Leases, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q. There have been no other significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2019.

New Accounting Pronouncements

For a description of new applicable accounting pronouncements, see Note 1, Basis of Presentation, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.

Safe Harbor Statement Under the Private Securities Litigation Reform Act

Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies. With the exception of historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as "anticipate," "assume," "believe," "estimate," "expect," "guidance," "intend," "outlook," "plan," "project" and other words and terms of similar meaning. Such statements reflect our current views and estimates with respect to future market conditions, company performance and financial results, operational investments, business prospects, new strategies, the competitive environment and other events. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in such forward-looking statements. Readers should review Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for a description of important factors that could cause our actual results to differ materially from those contemplated by the forward-looking statements made in this Quarterly Report on Form 10-Q. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: competition (including from multi-channel retailers, e-commerce business, technology service providers, traditional store-based retailers, vendors and mobile network carriers), our mix of products and services, our expansion strategies, our focus on services as a strategic priority, our reliance on key vendors and mobile network carriers (including product availability), pricing investments and promotional activity, our ability to attract and retain qualified employees, changes in market compensation rates, risks arising from statutory, regulatory and legal developments (including tax statutes and regulations), macroeconomic pressures in the markets in which we operate (including fluctuations in housing prices, energy markets and jobless rates), conditions in the industries and categories in which we

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operate, failure to effectively manage our costs, our reliance on our information technology systems, our ability to prevent or effectively respond to a privacy or security breach, our ability to effectively manage strategic ventures, alliances or acquisitions, our dependence on cash flows and net earnings generated during the fourth fiscal quarter, susceptibility of our products to technological advancements, product life cycles and launches, changes in consumer preferences, spending and debt, our ability to provide attractive promotional financing, interruptions and other supply chain issues, catastrophic events, our ability to maintain positive brand perception and recognition, product safety and quality concerns, changes to labor or employment laws or regulations, our ability to effectively manage our real estate portfolio, constraints in the capital markets, changes to our vendor credit terms, changes in our credit ratings, any material disruption in our relationship with or the services of third-party vendors, risks related to our exclusive brand products and risks associated with vendors that source products outside of the U.S., trade restrictions or changes in the costs of imports (including existing or new tariffs or duties and changes in the amount of any such tariffs or duties) and risks arising from our international activities. We caution that the foregoing list of important factors is not complete. Any forward-looking statements speak only as of the date they are made, and we assume no obligation to update any forward-looking statement that we may make.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

As disclosed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, in addition to the risks inherent in our operations, we are exposed to certain market risks.

Interest Rate Risk

We are exposed to changes in short-term market interest rates and these changes in rates will impact our net interest expense. Our cash, cash equivalents and short-term investments generate interest income that will vary based on changes in short-term interest rates. In addition, we have swapped our fixed-rate debt to floating-rate such that the interest rate expense on this debt will vary with short-term interest rates. Refer to Note 6, Debt, and Note 5, Derivative Instruments, in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for further information regarding our interest rate swaps.

As of May 4, 2019, we had $1.6 billion of cash and cash equivalentsand $1.2 billion of debt that has been swapped to floating rate. Therefore, we had net cash and cash equivalents of $0.4 billion generating income that is exposed to interest rate changes. As of May 4, 2019, a 50 basis-point increase in short-term interest rates would have led to an estimated $2 million reduction in net interest expense, and conversely a 50 basis-point decrease in short-term interest rates would have led to an estimated $2million increase in net interest expense.

Foreign Currency Exchange Rate Risk

We have market risk arising from changes in foreign currency exchange rates related to our International segment operations. On a limited basis, we utilize foreign exchange forward contracts to manage foreign currency exposure to certain forecast inventory purchases, recognized receivable and payable balances and our investment in our Canadian operations. Our primary objective in holding derivatives is to reduce the volatility of net earnings and cash flows, as well as net asset value associated with changes in foreign currency exchange rates. Our foreign currency risk management strategy includes both hedging instruments and derivatives that are not designated as hedging instruments, which generally have terms of up to 12 months. Refer to Note 5,  Derivative Instruments, in the Notes to Condensed Consolidated Financial Statements for additional information regarding these instruments.

Foreign currency exchange rate fluctuations were primarily driven by the strength of the U.S. dollar compared to the Canadian dollar compared to the prior-year period, which had a negative overall impact on our revenue as these foreign currencies translated into less U.S. dollars. We estimate that foreign currency exchange rate fluctuations had a net unfavorable impact of $27 million on our revenue and a $0 million impact on our net earnings for the three months ended May 4, 2019.

Item 4.Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a regular quarterly basis and otherwise as needed.

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Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at May 4, 2019. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at May 4, 2019, our disclosure controls and procedures were effective.

During the fiscal quarter ended May 4, 2019, we assessed and modified our internal controls in order to facilitate the adoption of the new lease accounting standard, none of which materially affected our internal control over financial reporting. There were no other changes in internal control over financial reporting during the fiscal quarter ended May 4, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

For a description of our legal proceedings, see Note 13, Contingencies, of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(c) Stock Repurchases

The following table presents information regarding our repurchases of common stock during the first quarter of fiscal 2020:

Fiscal Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program(1)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(1)
February 3, 2019 through March 2, 2019		106,000	$	68.74		106,000	$	2,993,000,000
March 3, 2019 through April 6, 2019		796,500	$	68.69		796,500	$	2,938,000,000
April 7, 2019 through May 4, 2019		592,525	$	73.93		592,525	$	2,894,000,000
Total		1,495,025	$	70.77		1,495,025	$	2,894,000,000

(1)Pursuant to a $3.0 billion share repurchase program that was authorized by our Board in February 2019. There is no expiration date governing the period over which we can repurchase shares under the February 2019 share repurchase program. For additional information, see Note 10, Repurchase of Common Stock, in the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.

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Item 6.Exhibits

3.1	Restated Articles of Incorporation (incorporated herein by reference to the Definitive Proxy Statement filed by Best Buy Co., Inc. on May 12, 2009)
3.2	Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Best Buy Co., Inc. on June 14, 2018)
4.1	Third Supplemental Indenture, dated as of September 27, 2018, to the Indenture, dated as of March 11, 2011, between Best Buy Co., Inc. and U.S. Bank National Association, as successor trustee (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by Best Buy Co., Inc. on September 27, 2018)
10.1	Form of Best Buy Co., Inc. Long-Term Incentive Program Award Agreement (2019) – Restricted Shares
10.2	Form of Best Buy Co., Inc. Long-Term Incentive Program Award Agreement (2019) – Restricted Stock  Units
10.3	Employment agreement dated April 13, 2019, between Hubert Joly and Best Buy Co., Inc. (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Best Buy Co., Inc. on April 15, 2019)
10.4	Employment agreement dated April 13, 2019, between Corie Barry and Best Buy Co., Inc. (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Best Buy Co., Inc. on April 15, 2019)
31.1	Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
101	The following financial information from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2020, filed with the SEC on June 7, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets as of May 4, 2019, February2,2019, and May 5, 2018, (ii) the Condensed Consolidated Statements of Earnings for the three months ended May 4, 2019, and May5, 2018, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended May 4, 2019, and May 5, 2018, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended May 4, 2019, and May 5, 2018, (v) the Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended May 4, 2019, and May 5, 2018, and (vi) the Notes to Condensed Consolidated Financial Statements.

____________________________

(1)The certifications in Exhibit 32.1 and Exhibit 32.2 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

Pursuant to Item 601(b)(4)(iii) of Regulation S-K under the Securities Act of 1933, as amended, the registrant has not filed as exhibits to this Quarterly Report on Form 10-Q certain instruments with respect to long-term debt under which the amount of securities authorized does not exceed 10% of the total assets of the registrant. The registrant hereby agrees to furnish copies of all such instruments to the SEC upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BEST BUY CO., INC.
	(Registrant)
Date: June 7, 2019	By:	/s/ HUBERT JOLY
		Hubert Joly
		Chairman and Chief Executive Officer
Date: June 7, 2019	By:	/s/ CORIE BARRY
		Corie Barry
		Chief Financial Officer
Date: June 7, 2019	By:	/s/ MATHEW R. WATSON
		Mathew R. Watson
		Senior Vice President, Finance – Controller and Chief Accounting Officer

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