Best Buy : Non-GAAP Reconciliation PDF (466 KB)

BEST BUY CO., INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

($ in millions, except per share amounts) (Unaudited and subject to reclassification)

The following information provides reconciliations of the most comparable financial measures presented in accordance with accounting principles generally accepted in the U.S. (GAAP financial measures) to presented non- GAAP financial measures. The company believes 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, internal management reporting also includes non-GAAP financial measures. Generally, presented non-GAAP financial measures include adjustments for items such as restructuring charges, goodwill impairments, gains and losses on investments, intangible asset amortization, 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 the company believes this provides greater clarity to management and investors. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, the GAAP financial measures presented in this earnings release and the company's financial statements and other publicly filed reports. Non-GAAP financial measures as presented herein may not be comparable to similarly titled measures used by other companies.

					Three Months Ended								Three Months Ended
							October 31, 2020									November 2, 2019
			Domestic International Consolidated Domestic International Consolidated
Gross profit		$	2,604				$			191				$		2,795				$	2,181				$			180				$		2,361
% of revenue				24.0 %					19.0 %				23.6 %				24.3 %					22.5 %				24.2 %
Restructuring - inventory markdowns1				-							36						36						-							-						-
Non-GAAP gross profit	$	2,604				$			227				$		2,831			$	2,181				$			180				$		2,361
% of revenue				24.0	%					22.6	%				23.9	%				24.3	%					22.5	%				24.2	%
SG&A		$	1,948				$			175				$		2,123				$	1,800				$			173				$		1,973
% of revenue				18.0 %					17.4 %				17.9 %				20.1 %					21.6 %				20.2 %
Intangible asset amortization2				(20)							-						(20)						(18)							-						(18)
Non-GAAP SG&A	$	1,928				$			175				$		2,103			$	1,782				$			173				$		1,955
% of revenue				17.8	%					17.4	%				17.7	%				19.9	%					21.6	%				20.0	%
Operating income (loss)		$	612				$			(51)				$		561				$	388				$			7				$		395
% of revenue				5.6 %					(5.1)%				4.7 %				4.3 %					0.9 %				4.0 %
Restructuring - inventory markdowns1				-							36						36						-							-						-
Intangible asset amortization2				20							-						20						18							-						18
Restructuring charges3				44							67						111						(7)							-						(7)
Non-GAAP operating income	$	676				$			52				$		728			$	399				$			7				$		406
% of revenue				6.2	%					5.2	%				6.1	%				4.5	%					0.9	%				4.2	%
Effective tax rate																	29.6	%																	24.8	%
Intangible asset amortization2																	(1.5)%																	0.1 %
Restructuring charges3																	(3.2)	%																	(0.1)	%
Non-GAAP effective tax rate																	24.9 %																	24.8 %
						Three Months Ended									Three Months Ended
								October 31, 2020										November 2, 2019
				Pretax																Pretax
				Earnings			Net of Tax4		Per Share				Earnings			Net of Tax4		Per Share
GAAP diluted EPS																$	1.48																		$	1.10
Restructuring - inventory markdowns1	$	36		$	36				0.14			$	-			$	-				-
Intangible asset amortization2				20					15				0.06						18					14				0.05
Restructuring charges3				111					100				0.38						(7)					(5)				(0.02)
Gain on investments, net				-					-				-					(1)					(1)				-
Non-GAAP diluted EPS															$	2.06																	$	1.13

							Nine Months Ended										Nine Months Ended
								October 31, 2020										November 2, 2019
			Domestic International Consolidated Domestic International Consolidated
Gross profit		$		6,509				$				521				$			7,030				$		6,303				$				510				$			6,813
% of revenue					23.3 %							21.4 %						23.2 %					24.0 %							23.4 %						24.0 %
Restructuring - inventory markdowns1					-									36								36							-									-								-
Non-GAAP gross profit	$		6,509				$				557				$			7,066			$		6,303				$				510				$			6,813
% of revenue					23.3	%							22.9	%						23.3	%					24.0	%							23.4	%						24.0	%
SG&A		$		5,087				$				473				$			5,560				$		5,233				$				497				$			5,730
% of revenue					18.2 %							19.4 %						18.3 %					19.9 %							22.8 %						20.1 %
Intangible asset amortization2					(60)									-								(60)							(53)									-								(53)
Acquisition-related transaction costs2					-									-								-							(3)									-								(3)
Non-GAAP SG&A		$		5,027				$				473				$			5,500				$		5,177				$				497				$			5,674
% of revenue					18.0 %							19.4 %						18.1 %					19.7 %							22.8 %						19.9 %
Operating income (loss)	$		1,377				$				(19)			$			1,358			$		1,029				$				13				$			1,042
% of revenue					4.9	%							(0.8)	%						4.5	%					3.9	%							0.6	%						3.7	%
Restructuring - inventory markdowns1					-									36								36							-									-								-
Intangible asset amortization2					60									-								60							53									-								53
Acquisition-related transaction costs2					-									-								-							3									-								3
Restructuring charges3					45									67								112							41									-								41
Non-GAAP operating income	$		1,482				$				84				$			1,566			$		1,126				$				13				$			1,139
% of revenue					5.3	%							3.5	%						5.2	%					4.3	%							0.6	%						4.0	%
Effective tax rate																						26.4	%																						22.5	%
Intangible asset amortization2																						(1.1)%																						0.1 %
Restructuring charges3																						(0.8)	%																						-	%
Non-GAAP effective tax rate																						24.5 %																						22.6 %
							Nine Months Ended										Nine Months Ended
									October 31, 2020											November 2, 2019
					Pretax																					Pretax
					Earnings					Net of Tax4				Per Share					Earnings					Net of Tax4				Per Share
GAAP diluted EPS																				$	3.74																						$	2.96
Restructuring - inventory markdowns1	$	36		$	36						0.13			$	-				$	-						-
Intangible asset amortization2					60							45						0.17							53							40						0.15
Acquisition-related transaction costs2					-							-						-					3							2						-
Restructuring charges3					112							101						0.39							41							32						0.12
Gain on investments, net					-							-						-					(1)							(1)						-
Non-GAAP diluted EPS																			$	4.43																						$	3.23

1. Represents inventory markdowns recorded within cost of sales associated with the decision to exit operations in Mexico.
2. Represents charges associated with acquisitions, including: (1) the non-cash amortization of definite-lived intangible assets, including customer relationships, tradenames and developed technology; and (2) acquisition-related transaction costs primarily comprised of professional fees.
3. Represents charges related to asset impairments and termination benefits associated with the decision to exit operations in Mexico and other actions to better align the company's organizational structure with its strategic focus for the periods ended October 31, 2020, and charges and subsequent adjustments related to termination benefits associated with U.S. retail operating model changes for the periods ended November 2, 2019.
4. The non-GAAP adjustments relate to the U.S. and Mexico. As such, the income tax charge is calculated using the statutory tax rate of 24.5% for all U.S. non-GAAP items for all periods presented. There is no income tax charge for the Mexico non-GAAP items, as there was no tax benefit recognized on these expenses in the calculation of GAAP income tax expense.

2

Return on Assets and Non-GAAP Return on Investment

The tables below provide calculations of return on assets ("ROA") (GAAP financial measure) and non-GAAP return on investment ("ROI") (non-GAAP financial measure) for the periods presented. The company believes ROA is the most directly comparable financial measure to ROI. Non-GAAP ROI is defined as non-GAAP adjusted operating income after tax divided by average invested operating assets. All periods presented below apply this methodology consistently. The company believes non- GAAP ROI is a meaningful metric for investors to evaluate capital efficiency because it measures how key assets are deployed by adjusting operating income and total assets for the items noted below. This method of determining non-GAAP ROI may differ from other companies' methods and therefore may not be comparable to those used by other companies.

Return on Assets ("ROA")

Net earnings

Total assets

ROA

Non-GAAP Return on Investment ("ROI")

Numerator

	October 31, 20201		November 2, 20191
$	1,727			$	1,531
	17,571				15,219
	9.8	%			10.1	%
	October 31, 20201		November 2, 20191

Operating income - total operations	$	2,325	$	2,020
Add: Non-GAAP operating income adjustments2		227			113
Add: Operating lease interest3		112			112
Less: Income taxes4		(653)			(550)
Add: Depreciation		754			757
Add: Operating lease amortization5		665			653
Adjusted operating income after tax	$	3,430	$	3,105
Denominator
Total assets	$	17,571		$	15,219
Less: Excess cash6		(3,164)			(855)
Add: Capitalized operating lease assets7		-			720
Add: Accumulated depreciation and amortization8		7,056			6,640
Less: Adjusted current liabilities9		(8,724)			(7,940)
Average invested operating assets	$	12,739	$	13,784
Non-GAAP ROI		26.9 %			22.5 %

1. Income statement accounts represent the activity for the trailing 12 months ended as of each of the balance sheet dates. Balance sheet accounts represent the average account balances for the trailing 12 months ended as of each of the balance sheet dates.
2. Non-GAAPoperating income adjustments include continuing operations adjustments for restructuring charges, intangible asset amortization and acquisition-related transaction costs. Additional details regarding these adjustments are included in the Reconciliation of Non-GAAP Financial Measures schedule within the company's quarterly earnings releases.
3. Operating lease interest represents the add-back to operating income to approximate the total interest expense that the company would incur if its operating leases were owned and financed by debt. For periods prior to FY20, the add-back is approximated by using a multiple of 15% of total rent expense. For periods beginning on or after FY20, the add-back is approximated by multiplying average operating lease assets by 4%, which approximates the interest rate on the company's operating lease liabilities.
4. Income taxes are approximated by using a blended statutory rate at the Enterprise level based on statutory rates from the countries in which the company does business, which primarily consists of the U.S. with a statutory rate of 24.5% for the periods presented.
5. Operating lease amortization represents operating lease cost less operating lease interest. Operating lease cost includes short-term leases, which are immaterial, and excludes variable lease costs as these costs are not included in the operating lease asset balance.
6. Excess cash represents the amount of cash, cash equivalents and short-term investments greater than $1 billion, which approximates the amount of cash the company believes is necessary to run the business and may fluctuate over time.
7. Capitalized operating lease assets represent the estimated net assets that the company would record if the company's operating leases were owned. For periods prior to FY20, the asset is approximated by using a multiple of four times total rent expense. For periods beginning on or after FY20, capitalized operating lease assets are included within Total assets and therefore no adjustment is necessary.
8. Accumulated depreciation and amortization represents accumulated depreciation related to property and equipment and accumulated amortization related to definite-lived intangible assets.
9. Adjusted current liabilities represent total current liabilities less short-term debt and the current portions of operating lease liabilities and long-term debt.

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