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 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 3, 2018. The first six months of fiscal 2019 and fiscal 2018 included 26 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 August 5, 2018, through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. Other than as disclosed in Note 13, Subsequent Event, no such events were identified for the reported periods.

Unadopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases, which will require lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases, and will expand disclosure requirements. The new guidance was issued to increase transparency and comparability among companies. In July 2018, the FASB approved an amendment to the new guidance that allows companies the option of using the effective date of the new standard as the initial application (at the beginning of the period in which is it adopted, rather than at the beginning of the earliest comparative period). Based on the effective dates, we expect to adopt the new guidance in the first quarter of fiscal 2020 using the prospective method and have begun implementing required upgrades to our existing lease systems. While we expect adoption to lead to a material increase in the assets and liabilities recorded on our consolidated balance sheet and an increase to our footnote disclosures related to leases, we are still evaluating the impact on our consolidated statement of earnings. We also expect that adoption of the new standard will require changes to our internal controls over financial reporting.

Adopted Accounting Pronouncements

In the first quarter of fiscal 2019, we prospectively adopted the following ASUs, all of which had an immaterial impact on our results of operations, cash flows and financial position.


•	ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory


•	ASU 2017-12, Derivatives and Hedging


•	ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In the first quarter of fiscal 2019, we also adopted ASU 2014-09, Revenue from Contracts with Customers. The new guidance establishes a single comprehensive model for entities to use in accounting for revenue and supersedes most revenue recognition guidance. It introduces a five-step process for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards under previous guidance. We elected the modified retrospective method of adoption, which we applied to contracts not completed at the date of adoption. Under this method, we recorded an increase to opening retained earnings of $73 million, net of tax, due to the cumulative impact of these changes. The impact was primarily related to the timing of revenue recognition related to our gift cards, the sale of certain software licenses and our loyalty programs. We did not make any adjustment to prior period financial statements. We expect the impact of adoption to be immaterial to our revenue, net earnings and cash flows on an ongoing basis. As part of the adoption, we also modified certain control procedures and processes, none of which had a material effect on our internal controls over financial reporting.

The cumulative effect of the changes made to our Condensed Consolidated Balance Sheet on February 4, 2018, for the adoption of this standard was as follows ($ in millions):



	February 3, 2018 As Reported		ASU 2014-09 Adjustment on February 4, 2018			February 4, 2018 Adjusted
Assets
Other assets	$	374	$	(19	)	$	355
Liabilities
Unredeemed gift card liabilities	385		(69		)	316
Deferred revenue	453		(26		)	427
Accrued liabilities	864		(3		)	861
Accrued income taxes	137		6			143
Equity
Retained earnings	3,270		73			3,343

The following tables reflect the impact of adopting this standard on our Condensed Consolidated Balance Sheets as of August 4, 2018, and our Condensed Consolidated Statements of Earnings for the three and six months ended August 4, 2018 ($ in millions, except per share amounts):



	August 4, 2018
Impact of Changes to Condensed Consolidated Balance Sheets	As Reported		Balances without Adoption of ASU 2014-09		Effect of Change Higher/(Lower)⁽¹⁾
Assets
Other current assets	$	510	$	461	$	49
Other assets	365		384		(19		)
Liabilities
Unredeemed gift card liabilities	275		344		(69		)
Deferred revenue	438		462		(24		)
Accrued liabilities	801		754		47
Accrued income taxes	12		6		6
Equity
Retained earnings	2,863		2,793		70


(1)	Effect of change includes the opening retained earnings adjustment as detailed within the table above.



	Three Months Ended August 4, 2018
Impact of Changes to Condensed Consolidated Statements of Earnings	As Reported		Balances without Adoption of ASU 2014-09		Effect of Change Higher/(Lower)
Revenue	$	9,379	$	9,368	$	11
Cost of goods sold	7,150		7,138		12
Gross profit	2,229		2,230		(1		)
Operating income	335		336		(1		)
Income tax expense	85		85		—
Net earnings	244		245		(1		)

Basic earnings per share	$	0.88	$	0.88	$	—
Diluted earnings per share	$	0.86	$	0.86	$	—



	Six Months Ended August 4, 2018
Impact of Changes to Condensed Consolidated Statements of Earnings	As Reported		Balances without Adoption of ASU 2014-09		Effect of Change Higher/(Lower)
Revenue	$	18,488	$	18,468	$	20
Cost of goods sold	14,134		14,111		23
Gross profit	4,354		4,357		(3		)
Operating income	600		603		(3		)
Income tax expense	134		135		(1		)
Net earnings	452		454		(2		)

Basic earnings per share	$	1.61	$	1.62	$	(0.01	)
Diluted earnings per share	$	1.58	$	1.59	$	(0.01	)

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 August 4, 2018, February 3, 2018, and July 29, 2017 ($ in millions):



	August 4, 2018		February 3, 2018		July 29, 2017
Cash and cash equivalents	$	1,865	$	1,101	$	1,365
Restricted cash included in Other current assets	203		199		196
Total cash, cash equivalents and restricted cash	$	2,068	$	1,300	$	1,561

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

Goodwill and Intangible Assets

All goodwill and intangible asset balances relate to our Domestic segment. As of August 4, 2018, February 3, 2018, and July 29, 2017, respectively, the carrying amount of goodwill was $425 million, net of $675 million of cumulative impairment. The carrying amount of indefinite-lived tradenames included within Other assets on our Condensed Consolidated Balance Sheets was $18 million as of August 4, 2018, February 3, 2018, and July 29, 2017, respectively.