Shareholders' Equity

12 Months Ended

Jan. 30, 2021

9. Shareholders' Equity

Stock Compensation Plans

The Best Buy Co., Inc. 2020 Omnibus Incentive Plan (the “2020 Plan”) approved by shareholders in June 2020 authorizes us to issue up to 18.6 million shares plus the remaining unused shares available for issuance under the Best Buy Co., Inc. Amended and Restated 2014 Omnibus Incentive Plan (the “2014 Plan”). In addition, shares subject to any outstanding awards under our prior stock incentive plans that are forfeited, cancelled or reacquired by the Company will become available for reissuance under the 2020 Plan. The 2014 Plan was terminated as to the grant of any additional awards, but prior awards remain outstanding and continue to vest in accordance with the original terms of such plan.

The 2020 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. We have not granted incentive stock options. Under the terms of the 2020 Plan, awards may be granted to our employees, officers, advisers, consultants and directors. Awards issued under the 2020 Plan vest as determined by the Compensation and Human Resources Committee of our Board of Directors at the time of grant. As of January 30, 2021, a total of 22.3 million shares were available for future grants under the 2020 Plan.

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):



	2021		2020		2019
Stock options	$	4	$	7	$	3
Share awards:
Market-based		11		13		15
Performance-based		21		28		20
Time-based		99		95		85
Total	$	135	$	143	$	123

Stock Options

Stock option activity was as follows:



	Stock Options ‎(in thousands)	Weighted-Average ‎ Exercise Price ‎per Share		Weighted-Average ‎ Remaining Contractual Term ‎(in years)		Aggregate ‎Intrinsic Value ‎(in millions)
Outstanding as of February 1, 2020	1,616	$	54.38
Granted	235	$	51.65
Exercised	(494)	$	41.96
Forfeited/canceled	(85)	$	67.32
Outstanding as of January 30, 2021	1,272	$	57.83		6.2	$	65
Vested or expected to vest as of January 30, 2021	1,272	$	57.83		6.2	$	65
Exercisable as of January 30, 2021	409	$	44.85		3.2	$	26

The weighted-average grant-date fair value of stock options granted during fiscal 2021, fiscal 2020 and fiscal 2019 was $19.89, $19.81 and $20.34 per share, respectively. 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 2021, fiscal 2020 and fiscal 2019 was $21 million, $59 million and $33 million, respectively. As of January 30, 2021, there was $9 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 2.0 years.

Net cash proceeds from the exercise of stock options were $20 million, $40 million and $30 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

There was $5 million, $14 million and $7 million of income tax benefits realized from stock option exercises in fiscal 2021, fiscal 2020 and fiscal 2019, 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	2021					2020					2019
Risk-free interest rate⁽¹⁾	0.1	%	-	0.9	%	1.9	%	-	2.5	%	1.9	%	-	2.8	%
Expected dividend yield	2.9				%	2.9				%	2.7				%
Expected stock price volatility⁽²⁾	56				%	36				%	39				%
Expected life of stock options (in years)⁽³⁾	6.3					7.4					6.5

(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)Estimated 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 thousands):



Market-Based Share Awards	Shares	Weighted-Average Fair Value per Share
Outstanding as of February 1, 2020	692	$	59.84
Granted	376	$	53.18
Vested	(453)	$	41.44
Forfeited/canceled	(57)	$	70.04
Outstanding as of January 30, 2021	558	$	65.88

As of January 30, 2021, there was $12 million of unrecognized compensation expense related to non-vested market-based share awards that we expect to recognize over a weighted-average period of 1.6 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 the vesting period 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 thousands):



Time-Based Share Awards	Shares	Weighted-Average Fair Value per Share
Outstanding as of February 1, 2020	3,852	$	57.81
Granted	2,339	$	53.10
Vested	(2,102)	$	50.11
Forfeited/canceled	(246)	$	61.22
Outstanding as of January 30, 2021	3,843	$	58.94

As of January 30, 2021, there was $120 million of unrecognized compensation expense related to non-vested time-based share awards that we expect to recognize over a weighted-average period of 1.9 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 the vesting period 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 thousands):



Performance-Based Share Awards	Shares	Weighted-Average Fair Value per Share
Outstanding as of February 1, 2020	953	$	63.82
Granted	451	$	50.75
Vested	(386)	$	49.43
Forfeited/canceled	(89)	$	66.58
Outstanding as of January 30, 2021	929	$	63.20

As of January 30, 2021, there was $21 million of unrecognized compensation expense related to non-vested performance-based share awards that we expect to recognize over a weighted-average period of 1.7 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.

As of January 30, 2021, 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	0.4	32	%	$	44.85	0.9	68	%	$	63.98	1.3	100	%	$	57.83

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



	2021		2020		2019
Numerator
Net earnings	$	1,798	$	1,541	$	1,464
Denominator
Weighted-average common shares outstanding		259.6		264.9		276.4
Dilutive effect of stock compensation plan awards		3.4		3.2		5.0
Weighted-average common shares outstanding, assuming dilution		263.0		268.1		281.4

Potential shares which were anti-dilutive and excluded from weighted-average share computations		-		0.8		0.2

Basic earnings per share	$	6.93	$	5.82	$	5.30
Diluted earnings per share	$	6.84	$	5.75	$	5.20

Repurchase of Common Stock

On February 23, 2019, our Board of Directors (“Board”) authorized a $3.0 billion share repurchase program. On February 16, 2021, our Board approved a new $5.0 billion share repurchase program, replacing the existing program which had $1.7 billion remaining available for repurchases as of January 30, 2021. There is no expiration date governing the period over which we can repurchase shares under this authorization. We temporarily suspended all share repurchases from March to November of fiscal 2021 to conserve liquidity in light of COVID-19-related uncertainties.

Repurchased shares have been retired and constitute authorized but unissued shares. Information regarding the shares we repurchased and retired was as follows ($ and shares in millions, except per share amounts):



	2021		2020		2019
Total cost of shares repurchased	$	318	$	1,009	$	1,493
Average price per share	$	102.63	$	72.34	$	70.28
Number of shares repurchased and retired		3.1		14.0		21.2

Between the end of fiscal 2021 on January 30, 2021, and March 18, 2021, we repurchased an incremental 8.1 million shares of our common stock at a cost of $873 million. On February 25, 2021, we announced our plans to spend at least $2 billion on share repurchases in fiscal 2022.