Best Buy : Non-GAAP Reconciliation PDF (518 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, provide additional useful information for evaluating current period performance and assessing future performance. For these reasons, internal management reporting, internal budgets and forecasts, and financial targets used for short-term incentives are based on non-GAAP financial measures. Generally, non-GAAP financial measures include adjustments for items such as restructuring charges, price-fixing settlements, 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 it provides greater clarity to management and investors. The reconciliations that follow enable investors to understand the adjustments made in arriving at the non-GAAP financial measures and to evaluate performance using the same metrics as management. 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 may be calculated differently to similarly titled measures used by other companies, thereby limiting their usefulness for comparative purposes.

Three Months Ended

July 30, 2022

Three Months Ended

July 31, 2021

	Domestic	International Consolidated	Domestic	International Consolidated
SG&A	$	1,732	$	150	$	1,882	$	1,849	$	160	$	2,009
% of revenue		18.1 %		19.7 %		18.2 %		16.8 %		19.1 %		17.0 %
Intangible asset amortization1		(22)		-		(22)		(20)		-		(20)
Non-GAAP SG&A	$	1,710	$	150	$	1,860	$	1,829	$	160	$	1,989
% of revenue		17.9 %		19.7 %		18.0 %		16.6 %		19.1 %		16.8 %
Operating income	$	343	$	28	$	371	$	757	$	40	$	797
% of revenue		3.6 %		3.7 %		3.6 %		6.9 %		4.8 %		6.7 %
Intangible asset amortization1		22		-		22		20		-		20
Restructuring charges2		34		-		34		-		4		4
Non-GAAP operating income	$	399	$	28	$	427	$	777	$	44	$	821
% of revenue		4.2 %		3.7 %		4.1 %		7.1 %		5.3 %		6.9 %
Effective tax rate						15.6 %						8.0 %
Intangible asset amortization1						0.4 %						0.4 %
Restructuring charges2						0.7 %						-%
Non-GAAP effective tax rate						16.7 %						8.4 %

Three Months Ended		Three Months Ended
July 30, 2022		July 31, 2021
Pretax		Pretax
Earnings Net of Tax4Per Share		Earnings Net of Tax4Per Share

Diluted EPS				$	1.35					$	2.90
Intangible asset amortization1	$	22	$	17	0.07	$	20	$	15		0.06
Restructuring charges2		34		26	0.12		4		4		0.02
Non-GAAP diluted EPS				$	1.54					$	2.98

					Six Months Ended									Six Months Ended
							July 30, 2022														July 31, 2021
	Domestic		International Consolidated Domestic International Consolidated
Gross profit	$	4,279			$	361					$			4,640				$	5,132				$	393					$			5,525
% of revenue		22.0	%			23.9	%						22.1	%			23.5	%			24.1	%						23.5	%
Restructuring - inventory markdowns3		-					-								-					-					(6)								(6)
Non-GAAP gross profit	$	4,279			$	361					$			4,640				$	5,132				$	387					$			5,519

% of revenue		22.0 %			23.9 %		22.1 %		23.5 %			23.7 %		23.5 %
SG&A	$	3,473	$		299	$	3,772	$	3,685	$		312	$	3,997
% of revenue		17.8 %			19.8 %		18.0 %		16.9 %			19.1 %		17.0 %
Intangible asset amortization1		(44)			-		(44)		(40)			-		(40)
Non-GAAP SG&A	$	3,429	$		299	$	3,728	$	3,645	$		312	$	3,957
% of revenue		17.6 %			19.8 %		17.8 %		16.7 %			19.1 %		16.8 %
Operating income	$	772	$		61	$	833	$	1,491	$		75	$	1,566
% of revenue		4.0 %			4.0 %		4.0 %		6.8 %			4.6 %		6.7 %
Intangible asset amortization1		44			-		44		40			-		40
Restructuring charges2		34			1		35		(44)			6		(38)
Restructuring - inventory markdowns3		-			-		-		-			(6)		(6)
Non-GAAP operating income	$	850	$		62	$	912	$	1,487	$		75	$	1,562
% of revenue		4.4 %			4.1 %		4.3 %		6.8 %			4.6 %		6.7 %
Effective tax rate							20.5 %							15.1 %
Intangible asset amortization1							0.2 %							0.3 %
Restructuring charges2							0.1 %							(0.3)%
Non-GAAP effective tax rate							20.8 %							15.1 %
		Six Months Ended			Six Months Ended
				July 30, 2022					July 31, 2021
		Pretax							Pretax
		Earnings		Net of Tax4	Per Share		Earnings		Net of Tax4	Per Share
Diluted EPS						$	2.85						$	5.22
Intangible asset amortization1	$	44		$	34		0.14	$	40		$	30		0.12
Restructuring charges2		35			27		0.12		(38)			(27)		(0.11)
Restructuring - inventory markdowns3		-			-		-		(6)			(6)		(0.02)
Non-GAAP diluted EPS						$	3.11						$	5.21

1. Represents the non-cash amortization of definite-lived intangible assets associated with acquisitions, including customer relationships, tradenames and developed technology assets.
2. Represents charges primarily related to termination benefits in the Domestic segment associated with an enterprise-wide initiative that commenced in Q2 FY23 to better align the company's spending with critical strategies and operations, as well as to optimize its cost structure, for the periods ended July 30, 2022. Represents adjustments to previously planned organizational changes and higher-than- expected retention rates in the Domestic segment and charges associated with the exit from operations in Mexico in the International segment for the periods ended July 31, 2021.
3. Represents inventory markdown adjustments recorded within cost of sales associated with the exit from operations in Mexico for the six months ended July 31, 2021.
4. The non-GAAP adjustments primarily relate to the U.S., the UK 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 UK and Mexico non-GAAP items, as there was no tax benefit recognized on these expenses in the calculation of GAAP income tax expense.

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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")			July 30, 20221				July 31, 20211
Net earnings	$	1,772				$	2,536
Total assets		17,702					19,295
ROA		10.0	%			13.1	%
Non-GAAP Return on Investment ("ROI")			July 30, 20221				July 31, 20211
Numerator
Operating income	$	2,306				$	3,160
Add: Non-GAAP operating income adjustments2		136					291
Add: Operating lease interest3		110					109
Less: Income taxes4		(625)					(872)
Add: Depreciation		806					775
Add: Operating lease amortization5		653					663
Adjusted operating income after tax	$	3,386				$	4,126
Denominator
Total assets	$	17,702				$	19,295
Less: Excess cash6		(1,374)					(4,219)
Add: Accumulated depreciation and amortization7		6,212					7,166
Less: Adjusted current liabilities8		(9,866)					(10,163)
Average invested operating assets	$	12,674				$	12,079
Non-GAAP ROI		26.7	%			34.2	%

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. 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. Accumulated depreciation and amortization represents accumulated depreciation related to property and equipment and accumulated amortization related to definite-lived intangible assets.
8. 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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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
							August 1, 2020									August 3, 2019
			Domestic International Consolidated Domestic International Consolidated
SG&A	$	1,560			$		142			$		1,702		$	1,756			$		166			$		1,922
% of revenue				17.1 %					18.2 %				17.2 %				19.9 %					23.2 %					20.2 %
Intangible asset amortization1				(20)						-					(20)					(18)						-						(18)
Acquisition-related transaction costs1				-						-					-					(3)						-						(3)
Non-GAAP SG&A	$	1,540			$		142			$		1,682		$	1,735			$		166			$		1,901
% of revenue				16.9 %					18.2 %				17.0 %				19.7 %					23.2 %					19.9 %
Operating income	$	524		$		44			$		568		$	309			$		4			$		313
% of revenue				5.7	%					5.6	%				5.7	%				3.5	%					0.6	%					3.3	%
Intangible asset amortization1				20						-					20					18						-						18
Acquisition-related transaction costs1				-						-					-					3						-						3
Restructuring charges2				-						-					-					48						-						48
Non-GAAP operating income	$	544			$		44			$		588		$	378			$		4			$		382
% of revenue				6.0 %					5.6 %				5.9 %				4.3 %					0.6 %					4.0 %
Effective tax rate															22.9 %																22.3 %
Intangible asset amortization1															0.1	%																0.1	%
Restructuring charges2															-%																0.4 %
Non-GAAP effective tax rate															23.0	%																22.8	%
					Three Months Ended							Three Months Ended
							August 1, 2020									August 3, 2019
				Pretax															Pretax
				Earnings				Net of Tax3		Per Share				Earnings			Net of Tax3			Per Share
GAAP diluted EPS														$	1.65																$	0.89
Intangible asset amortization1	$	20	$	15				0.06		$	18		$	13					0.05
Acquisition-related transaction costs1				-					-				-				3					2					0.01
Restructuring charges2				-					-				-				48					37					0.13
Non-GAAP diluted EPS														$	1.71															$	1.08

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					Six Months Ended							Six Months Ended
							August 1, 2020									August 3, 2019
		Domestic International Consolidated Domestic International Consolidated
SG&A	$	3,139			$		298				$		3,437			$	3,433			$		324			$		3,757
% of revenue				18.4 %					20.9 %					18.6 %				19.8 %					23.5 %					20.1 %
Intangible asset amortization1				(40)						-						(40)					(35)						-						(35)
Acquisition-related transaction costs1				-						-						-					(3)						-						(3)
Non-GAAP SG&A	$	3,099			$		298				$		3,397			$	3,395			$		324			$		3,719
% of revenue				18.2 %					20.9 %					18.4 %				19.6 %					23.5 %					19.9 %
Operating income	$	765			$		32				$		797		$	641			$		6			$		647
% of revenue				4.5	%					2.2	%					4.3	%				3.7	%					0.4	%					3.5	%
Intangible asset amortization1				40						-						40					35						-						35
Acquisition-related transaction costs1				-						-						-					3						-						3
Restructuring charges2				1						-						1					48						-						48
Non-GAAP operating income	$	806			$		32				$		838			$	727			$		6			$		733
% of revenue				4.7 %					2.2 %					4.5 %				4.2 %					0.4 %					3.9 %
Effective tax rate																24.2 %																21.0 %
Intangible asset amortization1																-	%																0.2	%
Restructuring charges2																-%																0.3 %
Non-GAAP effective tax rate																24.2	%																21.5	%
						Six Months Ended							Six Months Ended
							August 1, 2020									August 3, 2019
				Pretax															Pretax
				Earnings			Net of Tax3		Per Share				Earnings			Net of Tax3			Per Share
GAAP diluted EPS															$	2.26															$	1.86
Intangible asset amortization1	$	40		$	30					0.12	$	35		$	26					0.10
Acquisition-related transaction costs1				-				-					-				3					2					0.01
Restructuring charges2				1					1					-				48					37					0.13
Non-GAAP diluted EPS															$	2.38															$	2.10

1. 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.
2. Represents charges and adjustments associated with U.S. retail operating model changes.
3. 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 of 24.5% for all periods presented.

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