Shareholders' Equity

12 Months Ended

Feb. 01, 2020

7. Shareholders' Equity

Stock Compensation Plans

Our Best Buy Co., Inc. Amended and Restated 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 February 1, 2020, a total of 9.4 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 terms.

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"). Generally, time-based share awards vest 33% on each of the three annual anniversary dates following the grant date. Time-based share awards to directors vest one year from the grant date.

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



	2020		2019		2018
Stock options	$	7	$	3	$	6
Share awards:
Market-based		13		15		19
Performance-based		28		20		13
Time-based		95		85		91
Total	$	143	$	123	$	129

Stock Options

Stock option activity was as follows:



	Stock Options	Weighted-Average ‎Exercise Price per Share		Weighted-Average ‎Remaining Contractual Term (in years)		Aggregate ‎Intrinsic Value ‎(in millions)
Outstanding at February 2, 2019	2,358	$	33.47
Granted	719	$	69.17
Exercised	(1,461)	$	27.92
Outstanding at February 1, 2020	1,616	$	54.38		6.9	$	49
Vested or expected to vest at February 1, 2020	1,616	$	54.38		6.9	$	49
Exercisable at February 1, 2020	712	$	38.29		4.3	$	33

The weighted-average grant-date fair value of stock options granted during fiscal 2020, fiscal 2019 and fiscal 2018 was $19.81, $20.34 and $12.52, 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 2020, fiscal 2019 and fiscal 2018, was $59 million, $33 million and $57 million, respectively. At February 1, 2020, there was $10 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 2.9 years.

Net cash proceeds from the exercise of stock options were $40 million, $30 million and $156 million in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

There was $14 million, $7 million and $19 million of income tax benefits realized from stock option exercises in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

We estimated the fair value of each stock option on the date of grant using a lattice valuation model with the following assumptions:



Valuation Assumptions	2020					2019					2018
Risk-free interest rate⁽¹⁾	1.9	%	-	2.5	%	1.9	%	-	2.8	%	0.9	%	-	2.6	%
Expected dividend yield	2.9				%	2.7				%	3.0				%
Expected stock price volatility⁽²⁾	36				%	39				%	38				%
Expected life of stock options (in years)⁽³⁾	7.4					6.5					6.0

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

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

(3)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 non-vested market-based share awards was as follows (shares in millions):



Market-Based Share Awards	Shares	Weighted-Average Fair Value per Share
Outstanding at February 2, 2019	1,187	$	40.07
Granted	584	$	72.90
Vested	(1,025)	$	29.90
Forfeited/canceled	(54)	$	58.96
Outstanding at February 1, 2020	692	$	59.84

At February 1, 2020, there was $15 million of unrecognized compensation expense related to non-vested market-based share awards that we expect to recognize over a weighted-average period of 1.8 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 non-vested time-based share awards was as follows (shares in millions):



Time-Based Share Awards	Shares	Weighted-Average Fair Value per Share
Outstanding at February 2, 2019	4,098	$	47.13
Granted	1,880	$	68.80
Vested	(1,868)	$	45.01
Forfeited/canceled	(258)	$	62.23
Outstanding at February 1, 2020	3,852	$	57.81

At February 1, 2020, there was $116 million of unrecognized compensation expense related to non-vested time-based share awards that we expect to recognize over a weighted-average period of 1.8 years.

Performance-Based Share Awards

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 non-vested performance-based share awards was as follows (shares in millions):



Performance-Based Share Awards	Shares	Weighted-Average Fair Value per Share
Outstanding at February 2, 2019	819	$	52.78
Granted	516	$	68.90
Vested	(274)	$	42.08
Forfeited/canceled	(108)	$	59.80
Outstanding at February 1, 2020	953	$	63.82

At February 1, 2020, there was $30 million of unrecognized compensation expense related to non-vested performance-based share awards that we expect to recognize over a weighted-average period of 1.8 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 and non-vested share awards. Non-vested market-based share awards and non-vested performance-based share awards are included in the average diluted shares outstanding each period if established market or performance criteria have been met at the end of the respective periods.

At February 1, 2020, options to purchase common stock were all in the money and 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	0.7	100	%	$	38.29	0.9	100	%	$	67.04	1.6	100	%	$	54.38

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



	2020		2019		2018
Numerator
Net earnings from continuing operations	$	1,541	$	1,464	$	999
Denominator
Weighted-average common shares outstanding		264.9		276.4		300.4
Effect of potentially dilutive securities:
Stock options and other		3.2		5.0		6.7
Weighted-average common shares outstanding, assuming dilution		268.1		281.4		307.1
Anti-dilutive securities excluded from Weighted-average common shares outstanding, assuming dilution		0.8		0.2		-
Net earnings per share from continuing operations
Basic	$	5.82	$	5.30	$	3.33
Diluted	$	5.75	$	5.20	$	3.26

Repurchase of Common Stock

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

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



	2020		2019		2018
Total cost of shares repurchased	$	1,009	$	1,493	$	2,009
Average price per share	$	72.34	$	70.28	$	57.16
Number of shares repurchased and retired		14.0		21.2		35.1

Between the end of fiscal 2020 on February 1, 2020, and March 18, 2020, we repurchased an incremental 0.6 million shares of our common stock at a cost of $56 million. We have since temporarily suspended all share repurchases. Repurchased shares have been retired and constitute authorized but unissued shares.