Shareholders' Equity

Stock Compensation Plans

Our 2014 Omnibus Incentive Plan (the "Omnibus Plan") authorizes us to grant or issue non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards up to a total of 22.5 million shares. We have not granted incentive stock options under the Omnibus Plan. Under the terms of the Omnibus Plan, awards may be granted to our employees, officers, advisers, consultants and directors. Awards issued under the Omnibus Plan vest as determined by the Compensation and Human Resources Committee of our Board of Directors at the time of grant. Awards granted, forfeited or canceled under the previous plan, the 2004 Omnibus Stock and Incentive Plan, after February 1, 2014, adjust the amount available under the Omnibus Plan. At January 28, 2017, a total of 14.6 million shares were available for future grants under the Omnibus Plan.

Upon adoption and approval of the Omnibus Plan, all of our previous equity incentive compensation plans were terminated. However, existing awards under those plans continued to vest in accordance with the original vesting schedule and will expire at the end of their original term.

Our outstanding stock options have a 10-year term. Outstanding stock options issued to employees generally vest over a three-year period. Share awards vest based either upon attainment of specified goals or solely upon continued employment ("time-based"). Outstanding share awards that are not time-based vest at the end of a three-year incentive period based upon our total shareholder return ("TSR") compared to the TSR of companies that comprise Standard & Poor's 500 Index ("market-based") or upon the achievement of company performance goals ("performance-based"). We have time-based share awards that vest in their entirety at the end of three-year periods, time-based share awards where 25% of the award vests on the date of grant and 25% vests on each of the three anniversary dates thereafter and time-based share awards to directors that vest one year from the grant date.

Our Employee Stock Purchase Plan, as amended, permits employees to purchase our common stock at a 5% discount from the market price at the end of semi-annual purchase periods and is non-compensatory. Employees are required to hold the common stock purchased for 12 months. In fiscal 2017, 2016 and 2015, 0.2 million, 0.2 million and 0.3 million shares, respectively, were purchased through our employee stock purchase plans. At January 28, 2017, and January 30, 2016, plan participants had accumulated $2 million and $2 million, respectively, to purchase our common stock pursuant to these plans.

Stock-based compensation expense was as follows in fiscal 2017, 2016 and 2015 ($ in millions):



	2017		2016		2015
Stock options	$	9	$	15	$	17
Share awards
Market-based	15		16		10
Performance-based	6		—		—
Time-based	78		73		60
Total	$	108	$	104	$	87

Stock Options

Stock option activity was as follows in fiscal 2017:



	Stock Options		Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 30, 2016	14,242,000		$	36.51
Granted	224,000		$	31.79
Exercised	(5,273,000	)	$	31.29
Forfeited/Canceled	(2,206,000	)	$	48.13
Outstanding at January 28, 2017	6,987,000		$	36.61	4.3	$	54
Vested or expected to vest at January 28, 2017	6,987,000		$	36.61	4.3	$	54
Exercisable at January 28, 2017	5,858,000		$	36.63	3.5	$	46

The weighted-average grant-date fair value of stock options granted during fiscal 2017, 2016 and 2015 was $8.04, $11.59 and $9.09, respectively, per share. The aggregate intrinsic value of our stock options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised during fiscal 2017, 2016 and 2015, was $55 million, $14 million and $13 million, respectively. At January 28, 2017, there was $8 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 1.0 years.

Net cash proceeds from the exercise of stock options were $164 million, $40 million and $42 million in fiscal 2017, 2016 and 2015, respectively.

There was $19 million, $5 million and $5 million of income tax benefits realized from stock option exercises in fiscal 2017, 2016 and 2015, respectively.

In fiscal 2017, 2016 and 2015, we estimated the fair value of each stock option on the date of grant using a lattice or Black Scholes valuation model (for certain individuals) with the following assumptions:



Valuation Assumptions⁽¹⁾	2017		2016		2015
Risk-free interest rate⁽²⁾	0.5% – 2.0%		0.1% – 2.1%		0.1% – 2.4%
Expected dividend yield	3.5	%	2.3	%	2.5	%
Expected stock price volatility⁽³⁾	37	%	37	%	40	%
Expected life of stock options (in years)⁽⁴⁾	6.0		6.0		6.0


(1)	Forfeitures are estimated using historical experience and projected employee turnover.


(2)	Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of our stock options.


(3)	In projecting expected stock price volatility, we consider both the historical volatility of our stock price as well as implied volatilities from exchange-traded options on our stock.


(4)	We estimate the expected life of stock options based upon historical experience.

Market-Based Share Awards

The fair value of market-based share awards is determined using Monte-Carlo simulation. A summary of the status of our nonvested market-based share awards at January 28, 2017, and changes during fiscal 2017, is as follows:



Market-Based Share Awards	Shares		Weighted-Average Fair Value per Share
Outstanding at January 30, 2016	1,462,000		$	32.33
Granted	1,088,000		$	29.52
Vested	(781,000	)	$	26.84
Forfeited/Canceled	(217,000	)	$	33.27
Outstanding at January 28, 2017	1,552,000		$	32.99

At January 28, 2017, there was $23 million of unrecognized compensation expense related to nonvested market-based share awards that we expect to recognize over a weighted-average period of 1.7 years.

Time-Based Share Awards

The fair value of time-based share awards is determined based on the closing market price of our stock on the date of grant. This value is reduced by the present value of expected dividends during vesting when the employee is not entitled to dividends.

A summary of the status of our nonvested time-based share awards at January 28, 2017, and changes during fiscal 2017, is as follows:



Time-Based Share Awards	Shares		Weighted-Average Fair Value per Share
Outstanding at January 30, 2016	5,103,000		$	31.89
Granted	2,979,000		$	30.68
Vested	(2,202,000	)	$	30.83
Forfeited/Canceled	(515,000	)	$	32.76
Outstanding at January 28, 2017	5,365,000		$	31.57

At January 28, 2017, there was $98 million of unrecognized compensation expense related to nonvested time-based share awards that we expect to recognize over a weighted-average period of 1.7 years.

Performance-Based Share Awards

The fair value of performance-based share awards is determined based on the closing market price of our stock on the date of grant. This value is reduced by the present value of expected dividends during vesting when the employee is not entitled to dividends.

A summary of the status of our nonvested performance-based share awards at January 28, 2017, and changes during fiscal 2017, is as follows:



Performance-Based Share Awards	Shares		Weighted-Average Fair Value per Share
Outstanding at January 30, 2016	—		$	—
Granted	513,000		$	29.08
Forfeited/Canceled	(75,000	)	$	29.66
Outstanding at January 28, 2017	438,000		$	28.98

At January 28, 2017, there was $5 million of unrecognized compensation expense related to nonvested performance-based share awards that we expect to recognize over a weighted-average period of 1.8 years.

Earnings per Share

We compute our basic earnings per share based on the weighted-average number of common shares outstanding, and our diluted earnings per share based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive securities include stock options, nonvested share awards 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 each period if established market or performance criteria have been met at the end of the respective periods.

At January 28, 2017, options to purchase 7.0 million shares of common stock were outstanding as follows (shares in millions):



	Exercisable					Unexercisable					Total
	Shares	%		Weighted- Average Price per Share		Shares	%		Weighted- Average Price per Share		Shares	%		Weighted- Average Price per Share
In-the-money	2.3	39	%	$	26.38	0.5	45	%	$	30.84	2.8	40	%	$	27.13
Out-of-the-money	3.6	61	%	$	43.45	0.6	55	%	$	40.66	4.2	60	%	$	43.01
Total	5.9	100	%	$	36.64	1.1	100	%	$	36.54	7.0	100	%	$	36.61

The computation of dilutive shares outstanding excludes the out-of-the-money stock options because such outstanding options' exercise prices were greater than the average market price of our common shares and, therefore, the effect would be anti-dilutive (i.e., including such options would result in higher earnings per share).

The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share from continuing operations attributable to Best Buy Co., Inc. in fiscal 2017, 2016 and 2015 ($ and shares in millions, except per share amounts):



	2017		2016		2015
Numerator (in millions):
Net earnings from continuing operations attributable to Best Buy Co., Inc., shareholders	$	1,207	$	807	$	1,246
Denominator (in millions):
Weighted-average common shares outstanding	318.5		346.5		349.5
Effect of potentially dilutive securities:
Stock options and other	4.1		4.2		4.1
Weighted-average common shares outstanding, assuming dilution	322.6		350.7		353.6
Net earnings per share from continuing operations attributable to Best Buy Co., Inc. shareholders
Basic	$	3.79	$	2.33	$	3.57
Diluted	$	3.74	$	2.30	$	3.53

Repurchase of Common Stock

In June 2011, our Board of Directors authorized a $5.0 billion share repurchase program. There is no expiration date governing the period over which we can repurchase shares under the June 2011 share repurchase program.

On January 22, 2016, we entered into a variable notional accelerated share repurchase agreement ("January 2016 ASR") with a third party financial institution to repurchase $150 million to $175 million of our common stock. Under the agreement, we paid $175 million at the beginning of the contract and received an initial delivery of 4.4 million shares on January 25, 2016. We retired these shares and recorded a $120 million reduction to stockholders' equity. As of January 30, 2016, the remaining $55 million was included as a reduction of stockholders' equity as prepaid share repurchase on our Consolidated Balance Sheets. The January 2016 ASR was settled on February 17, 2016, for a final notional amount of $165 million. Accordingly we received 1.6 million shares, which were retired, and a $10 million cash payment from our counter-party equal to the difference between the $175 million up-front payment and the final notional amount. The cash received was included as other, net within financing activities on our Consolidated Statements of Cash Flow. The final notional amount was determined based upon the volume-weighted average share price of our common stock during the term of the January 2016 ASR agreement. The number of shares delivered was based upon the final notional amount and the volume-weighted average share price of our common stock during the term of the agreement, less an agreed-upon discount.

The following table presents information regarding the shares we repurchased and retired in fiscal 2017 and 2016, noting that we had no repurchases and retirements in fiscal 2015 ($ and shares in millions, except per share amounts):



	2017		2016
Total cost of shares repurchased
Open market⁽¹⁾	$	706	$	880
January 2016 ASR	45		120
Total	$	751	$	1,000

Average price per share
Open market	$	36.11	$	31.03
January 2016 ASR	$	28.55	$	27.28
Average	$	35.54	$	30.53

Number of shares repurchased and retired
Open market⁽¹⁾	19.5		28.4
January 2016 ASR	1.6		4.4
Total	21.1		32.8


(1)	As of January 28, 2017, $8 million, or 0.1 million shares, in trades remained unsettled. The liability for unsettled trades is included in accrued liabilities in the Consolidated Balance Sheets.

At January 28, 2017, $2.2 billion remained available for additional purchases under the June 2011 share repurchase program. In February 2017, our Board of Directors authorized a new $5.0 billion share repurchase plan, which supersedes the June 2011 share repurchase program. There is no expiration date governing the period over which we can repurchase shares under the February 2017 share repurchase program. Repurchased shares have been retired and constitute authorized but unissued shares.

Comprehensive Income (Loss)

Comprehensive income (loss) is computed as net earnings plus certain other items that are recorded directly to shareholders' equity. In addition to net earnings, the significant components of comprehensive income (loss) include foreign currency translation adjustments and unrealized gains and losses, net of tax, on available-for-sale marketable equity securities. 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.

The following table provides a reconciliation of the components of accumulated other comprehensive income, net of tax, attributable to Best Buy Co., Inc. shareholders for fiscal 2017, 2016, and 2015, respectively ($ in millions):



	Foreign Currency Translation			Available-For-Sale Investments⁽¹⁾			Total
Balances at February 1, 2014	$	485		$	7		$	492
Foreign currency translation adjustments	(103		)	—			(103		)
Unrealized gains on available-for-sale investments	—			(3		)	(3		)
Reclassification of losses on available-for-sale investments into earnings	—			(4		)	(4		)
Balances at January 31, 2015	382			—			382
Foreign currency translation adjustments	(44		)	—			(44		)
Reclassification of foreign currency translation adjustments into earnings due to sale of business	(67		)	—			(67		)
Balances at January 30, 2016	271			—			271
Foreign currency translation adjustments	10			—			10
Reclassification of foreign currency translation adjustments into earnings	(2		)	—			(2		)
Balances at January 28, 2017	$	279		$	—		$	279


(1)	There were no material tax impacts to gains or losses on available-for-sale investments in the periods presented.