☒ | ☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended February 10, 2018, or
☐ | | For the quarterly period ended May 7, 2022, or | | | | ☐ | | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | | | For the transition period from _______ to ________. | | | | | | Commission file number 1-10714 |
For the transition period from _______ to ________.
Commission file number1-10714
AUTOZONE, INC.INC. (Exact name of registrant as specified in its charter) | | | Nevada | | 62-1482048 | (State or other jurisdiction of | | (I.R.S. Employer Identification No.) | incorporation or organization) | | |
| | | 123 South Front Street, Memphis, Tennessee | | 38103 | (Address of principal executive offices) | | (Zip Code) |
(901)(901) 495-6500
(Registrant’s telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on which Registered | Common Stock ($0.01 par value) | | AZO | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act. | | | Large accelerated filer ☒ | | Accelerated filer ☐ | Non-accelerated filer ☐ (Do not check if a smaller | Smaller reporting company)company ☐ | Emerging growth company ☐ | | Smaller reporting company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 12b-2 of the Exchange Act). Yes ☐No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock, $.01 Par Value – 26,900,87319,487,599 shares outstanding as of March 9, 2018.June 3, 2022. PART I. FINANCIAL INFORMATION Item 1. | Financial Statements. |
Item 1.Financial Statements. AUTOZONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | | | | | | | | | | | | | | | | | (in thousands) | | | | | February 10, 2018 | | | | | | August 26, 2017 | | | | | | | Assets | | | | | | | | | | | | | | | | | Current assets: | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | | | | $ | 288,522 | | | | | | | $ | 293,270 | | Accounts receivable | | | | | | | 282,532 | | | | | | | | 280,733 | | Merchandise inventories | | | | | | | 4,085,528 | | | | | | | | 3,882,086 | | Other current assets | | | | | | | 169,725 | | | | | | | | 155,166 | | | | | | | | | | | | | | | | | | | Total current assets | | | | | | | 4,826,307 | | | | | | | | 4,611,255 | | | | | | | Property and equipment: | | | | | | | | | | | | | | | | | Property and equipment | | | | | | | 7,041,562 | | | | | | | | 6,873,193 | | Less: Accumulated depreciation and amortization | | | | | | | (2,960,261 | ) | | | | | | | (2,842,175 | ) | | | | | | | | | | | | | | | | | | | | | | | | | 4,081,301 | | | | | | | | 4,031,018 | | | | | | | Goodwill | | | | | | | 302,645 | | | | | | | | 391,887 | | Deferred income taxes | | | | | | | 34,251 | | | | | | | | 35,308 | | Other long-term assets | | | | | | | 159,215 | | | | | | | | 190,313 | | | | | | | | | | | | | | | | | | | | | | | | | | 496,111 | | | | | | | | 617,508 | | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,403,719 | | | | | | | $ | 9,259,781 | | | | | | | | | | | | | | | | | | | | | | | | Liabilities and Stockholders’ Deficit | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | | | | | Accounts payable | | | | | | $ | 4,365,666 | | | | | | | $ | 4,168,940 | | Accrued expenses and other | | | | | | | 576,224 | | | | | | | | 563,350 | | Income taxes payable | | | | | | | 5,338 | | | | | | | | 34,011 | | | | | | | | | | | | | | | | | | | Total current liabilities | | | | | | | 4,947,228 | | | | | | | | 4,766,301 | | | | | | | Long-term debt | | | | | | | 5,043,541 | | | | | | | | 5,081,238 | | Deferred income taxes | | | | | | | 222,932 | | | | | | | | 371,111 | | Other long-term liabilities | | | | | | | 520,565 | | | | | | | | 469,508 | | | | | | | Commitments and contingencies | | | | | | | – | | | | | | | | – | | | | | | | Stockholders’ deficit: | | | | | | | | | | | | | | | | | Preferred stock, authorized 1,000 shares; no shares issued | | | | | | | – | | | | | | | | – | | Common stock, par value $.01 per share, authorized 200,000 shares; 27,465 shares issued and 27,251 shares outstanding as of February 10, 2018; 28,735 shares issued and 27,833 shares outstanding as of August 26, 2017 | | | | | | | 275 | | | | | | | | 287 | | Additionalpaid-in capital | | | | | | | 1,112,748 | | | | | | | | 1,086,671 | | Retained deficit | | | | | | | (1,990,317 | ) | | | | | | | (1,642,387 | ) | Accumulated other comprehensive loss | | | | | | | (286,384 | ) | | | | | | | (254,557 | ) | Treasury stock, at cost | | | | | | | (166,869 | ) | | | | | | | (618,391 | ) | | | | | | | | | | | | | | | | | | Total stockholders’ deficit | | | | | | | (1,330,547 | ) | | | | | | | (1,428,377 | ) | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,403,719 | | | | | | | $ | 9,259,781 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | May 7, | | August 28, | (in thousands) | | 2022 | | 2021 | | | | | | | | Assets | | | | | | | Current assets: | | | | | | | Cash and cash equivalents | | $ | 263,044 | | $ | 1,171,335 | Accounts receivable | | | 439,820 | | | 378,392 | Merchandise inventories | | | 5,313,114 | | | 4,639,813 | Other current assets | | | 238,743 | | | 225,763 | Total current assets | | | 6,254,721 | | | 6,415,303 | | | | | | | | Property and equipment: | | | | | | | Property and equipment | | | 9,139,576 | | | 8,807,178 | Less: Accumulated depreciation and amortization | | | (4,167,950) | | | (3,950,287) | | | | 4,971,626 | | | 4,856,891 | | | | | | | | Operating lease right-of-use assets | | | 2,764,631 | | | 2,718,712 | Goodwill | | | 302,645 | | | 302,645 | Deferred income taxes | | | 40,707 | | | 41,043 | Other long-term assets | | | 186,235 | | | 181,605 | | | | 3,294,218 | | | 3,244,005 | Total assets | | $ | 14,520,565 | | $ | 14,516,199 | | | | | | | | Liabilities and Stockholders’ Deficit | | | | | | | Current liabilities: | | | | | | | Accounts payable | | $ | 6,793,205 | | $ | 6,013,924 | Current portion of operating lease liabilities | | | 268,975 | | | 236,568 | Accrued expenses and other | | | 925,271 | | | 1,039,788 | Income taxes payable | | | 76,625 | | | 79,474 | Total current liabilities | | | 8,064,076 | | | 7,369,754 | | | | | | | | Long-term debt | | | 6,057,444 | | | 5,269,820 | Operating lease liabilities, less current portion | | | 2,659,535 | | | 2,632,842 | Deferred income taxes | | | 418,869 | | | 337,125 | Other long-term liabilities | | | 707,871 | | | 704,194 | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | Stockholders’ deficit: | | | | | | | Preferred stock, authorized 1,000 shares; 0 shares issued | | | — | | | — | Common stock, par value $.01 per share, authorized 200,000 shares; 20,707 shares issued and 19,576 shares outstanding as of May 7, 2022; 23,007 shares issued and 21,138 shares outstanding as of August 28, 2021 | | | 207 | | | 230 | Additional paid-in capital | | | 1,315,717 | | | 1,465,669 | Retained deficit | | | (2,138,160) | | | (419,829) | Accumulated other comprehensive loss | | | (302,191) | | | (307,986) | Treasury stock, at cost | | | (2,262,803) | | | (2,535,620) | Total stockholders’ deficit | | | (3,387,230) | | | (1,797,536) | Total liabilities and stockholders' deficit | | $ | 14,520,565 | | $ | 14,516,199 |
See Notes to Condensed Consolidated Financial Statements. AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | | | | | | | | | | | | | | | Twelve Weeks Ended | | Thirty-Six Weeks Ended | | | May 7, | | May 8, | | May 7, | | May 8, | (in thousands, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 | | | | | | | | | | | | | | Net sales | | $ | 3,865,222 | | $ | 3,651,023 | | $ | 10,903,875 | | $ | 9,716,101 | Cost of sales, including warehouse and delivery expenses | | | 1,858,808 | | | 1,736,077 | | | 5,187,075 | | | 4,566,155 | Gross profit | | | 2,006,414 | | | 1,914,946 | | | 5,716,800 | | | 5,149,946 | Operating, selling, general and administrative expenses | | | 1,220,744 | | | 1,111,441 | | | 3,549,885 | | | 3,249,449 | Operating profit | | | 785,670 | | | 803,505 | | | 2,166,915 | | | 1,900,497 | Interest expense, net | | | 41,888 | | | 45,026 | | | 127,642 | | | 137,217 | Income before income taxes | | | 743,782 | | | 758,479 | | | 2,039,273 | | | 1,763,280 | Income tax expense | | | 151,211 | | | 162,315 | | | 419,712 | | | 378,737 | Net income | | $ | 592,571 | | $ | 596,164 | | $ | 1,619,561 | | $ | 1,384,543 | | | | | | | | | | | | | | Weighted average shares for basic earnings per share | | | 19,798 | | | 21,956 | | | 20,433 | | | 22,609 | Effect of dilutive stock equivalents | | | 616 | | | 559 | | | 627 | | | 545 | Weighted average shares for diluted earnings per share | | | 20,414 | | | 22,515 | | | 21,060 | | | 23,154 | | | | | | | | | | | | | | Basic earnings per share | | $ | 29.93 | | $ | 27.15 | | $ | 79.26 | | $ | 61.24 | Diluted earnings per share | | $ | 29.03 | | $ | 26.48 | | $ | 76.90 | | $ | 59.80 |
See Notes to Condensed Consolidated Financial Statements.
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Twelve Weeks Ended | | Thirty-Six Weeks Ended | | | May 7, | | May 8, | | May 7, | | May 8, | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | | | | | | | | | | | | | Net income | | $ | 592,571 | | $ | 596,164 | | $ | 1,619,561 | | $ | 1,384,543 | Other comprehensive income (loss): | | | | | | | | | | | | | Foreign currency translation adjustments | | | 8,531 | | | (3,865) | | | 6,280 | | | 48,731 | Unrealized losses on marketable debt securities, net of taxes | | | (1,138) | | | (337) | | | (2,438) | | | (838) | Net derivative activities, net of taxes | | | 579 | | | 659 | | | 1,953 | | | 1,977 | Total other comprehensive income (loss) | | | 7,972 | | | (3,543) | | | 5,795 | | | 49,870 | Comprehensive income | | $ | 600,543 | | $ | 592,621 | | $ | 1,625,356 | | $ | 1,434,413 |
| | | | | | | | | | | | | | | | | | | | | | | Twelve Weeks Ended | | Twenty-Four Weeks Ended | (in thousands, except per share data) | | February 10, 2018 | | February 11, 2017 | | February 10, 2018 | | February 11, 2017 | | | | | | Net sales | | | $ | 2,413,026 | | | | $ | 2,289,219 | | | | $ | 5,002,156 | | | | $ | 4,757,065 | | Cost of sales, including warehouse and delivery expenses | | | | 1,135,980 | | | | | 1,083,683 | | | | | 2,359,263 | | | | | 2,249,988 | | | | | | | | | | | | | | | | | | | | | | | Gross profit | | | | 1,277,046 | | | | | 1,205,536 | | | | | 2,642,893 | | | | | 2,507,077 | | Operating, selling, general and administrative expenses | | | | 1,071,948 | | | | | 821,567 | | | | | 1,969,041 | | | | | 1,664,206 | | | | | | | | | | | | | | | | | | | | | | | Operating profit | | | | 205,098 | | | | | 383,969 | | | | | 673,852 | | | | | 842,871 | | Interest expense, net | | | | 39,340 | | | | | 34,198 | | | | | 78,229 | | | | | 67,504 | | | | | | | | | | | | | | | | | | | | | | | Income before income taxes | | | | 165,758 | | | | | 349,771 | | | | | 595,623 | | | | | 775,367 | | Income taxes | | | | (123,772 | ) | | | | 112,626 | | | | | 25,090 | | | | | 260,097 | | | | | | | | | | | | | | | | | | | | | | | Net income | | | $ | 289,530 | | | | $ | 237,145 | | | | $ | 570,533 | | | | $ | 515,270 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average shares for basic earnings per share | | | | 27,355 | | | | | 28,606 | | | | | 27,496 | | | | | 28,779 | | Effect of dilutive stock equivalents | | | | 527 | | | | | 734 | | | | | 493 | | | | | 743 | | | | | | | | | | | | | | | | | | | | | | | Weighted average shares for diluted earnings per share | | | | 27,882 | | | | | 29,340 | | | | | 27,989 | | | | | 29,522 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic earnings per share | | | $ | 10.58 | | | | $ | 8.29 | | | | $ | 20.75 | | | | $ | 17.90 | | | | | | | | | | | | | | | | | | | | | | | Diluted earnings per share | | | $ | 10.38 | | | | $ | 8.08 | | | | $ | 20.38 | | | | $ | 17.45 | | | | | | | | | | | | | | | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements. AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMECASH FLOWS (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | Twelve Weeks Ended | | Twenty-Four Weeks Ended | (in thousands) | | February 10, 2018 | | February 11, 2017 | | February 10, 2018 | | February 11, 2017 | | | | | | Net income | | | $ | 289,530 | | | | $ | 237,145 | | | | $ | 570,533 | | | | $ | 515,270 | | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | Pension liability adjustments, net of taxes(1) | | | | 2,361 | | | | | 1,953 | | | | | 3,677 | | | | | 3,769 | | Foreign currency translation adjustments | | | | 7,507 | | | | | (2,342 | ) | | | | (35,710 | ) | | | | (42,933 | ) | Unrealized losses on marketable securities, net of taxes(2) | | | | (258 | ) | | | | (46 | ) | | | | (574 | ) | | | | (275 | ) | Net derivative activities, net of taxes(3) | | | | 457 | | | | | 321 | | | | | 780 | | | | | 651 | | | | | | | | | | | | | | | | | | | | | | | Total other comprehensive income (loss) | | | | 10,067 | | | | | (114 | ) | | | | (31,827 | ) | | | | (38,788 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | $ | 299,597 | | | | $ | 237,031 | | | | $ | 538,706 | | | | $ | 476,482 | | | | | | | | | | | | | | | | | | | | | | |
(1) | Pension liability adjustments are presented net of taxes of $117 in fiscal 2018 and $1,248 in fiscal 2017 for the twelve weeks ended and $1,278 in fiscal 2018 and $2,634 in fiscal 2017 for the twenty-four weeks ended. |
(2) | Unrealized gains on marketable securities are presented net of taxes of $139 in fiscal 2018 and $2 in fiscal 2017 for the twelve weeks ended and $309 in fiscal 2018 and $146 in fiscal 2017 for the twenty-four weeks ended. |
(3) | Net derivative activities are presented net of taxes of $52 in fiscal 2018 and $188 in fiscal 2017 for the twelve weeks ended and $237 in fiscal 2018 and $367 in fiscal 2017 for the twenty-four weeks ended. |
| | | | | | | | | Thirty-Six Weeks Ended | | | May 7, | | May 8, | (in thousands) | | 2022 | | 2021 | | | | | | | | Cash flows from operating activities: | | | | | | | Net income | | $ | 1,619,561 | | $ | 1,384,543 | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | Depreciation and amortization of property and equipment and intangibles | | | 301,365 | | | 278,044 | Amortization of debt origination fees | | | 7,826 | | | 9,326 | Deferred income taxes | | | 80,778 | | | 6,047 | Share-based compensation expense | | | 49,058 | | | 38,061 | Changes in operating assets and liabilities: | | | | | | | Accounts receivable | | | (61,361) | | | 8,335 | Merchandise inventories | | | (671,087) | | | (162,271) | Accounts payable and accrued expenses | | | 655,227 | | | 635,058 | Income taxes payable | | | 13,883 | | | 22,989 | Other, net | | | (12,136) | | | 10,215 | Net cash provided by operating activities | | | 1,983,114 | | | 2,230,347 | | | | | | | | Cash flows from investing activities: | | | | | | | Capital expenditures | | | (369,350) | | | (375,653) | Purchase of marketable debt securities | | | (46,540) | | | (52,553) | Proceeds from sale of marketable debt securities | | | 37,918 | | | 72,268 | Investment in tax credit equity investments | | | (21,398) | | | (3,908) | Proceeds from disposal of capital assets and other, net | | | 38,651 | | | 1,183 | Net cash used in investing activities | | | (360,719) | | | (358,663) | | | | | | | | Cash flows from financing activities: | | | | | | | Net proceeds from commercial paper | | | 1,283,310 | | | — | Repayment of debt | | | (500,000) | | | (250,000) | Net proceeds from sale of common stock | | | 98,090 | | | 121,924 | Purchase of treasury stock | | | (3,359,994) | | | (2,478,322) | Repayment of principal portion of finance lease liabilities | | | (48,867) | | | (44,844) | Other, net | | | (3,362) | | | — | Net cash used in financing activities | | | (2,530,823) | | | (2,651,242) | | | | | | | | Effect of exchange rate changes on cash | | | 137 | | | 4,389 | | | | | | | | Net decrease in cash and cash equivalents | | | (908,291) | | | (775,169) | Cash and cash equivalents at beginning of period | | | 1,171,335 | | | 1,750,815 | Cash and cash equivalents at end of period | | $ | 263,044 | | $ | 975,646 | | | | | | | |
See Notes to Condensed Consolidated Financial Statements. AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ DEFICIT (Unaudited) | | | | | | | | | | | Twenty-Four Weeks Ended | | (in thousands) | | February 10, 2018 | | | February 11, 2017 | | | | | Cash flows from operating activities: | | | | | | | | | Net income | | $ | 570,533 | | | $ | 515,270 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | Depreciation and amortization of property and equipment and intangibles | | | 157,337 | | | | 144,645 | | Amortization of debt origination fees | | | 3,927 | | | | 3,948 | | Deferred income taxes | | | (150,613 | ) | | | 2,777 | | Share-based compensation expense | | | 23,764 | | | | 20,711 | | Asset impairments | | | 193,162 | | | | – | | Changes in operating assets and liabilities: | | | | | | | | | Accounts receivable | | | (3,139 | ) | | | 38,697 | | Merchandise inventories | | | (269,210 | ) | | | (290,921 | ) | Accounts payable and accrued expenses | | | 211,902 | | | | 24,882 | | Income taxes payable | | | (6,967 | ) | | | 82,620 | | Other, net | | | 21,647 | | | | 21,269 | | | | | | | | | | | Net cash provided by operating activities | | | 752,343 | | | | 563,898 | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | Capital expenditures | | | (214,747 | ) | | | (216,103 | ) | Purchase of marketable securities | | | (80,828 | ) | | | (27,798 | ) | Proceeds from sale of marketable securities | | | 63,102 | | | | 40,473 | | Disposal of capital assets and other, net | | | 1,866 | | | | 714 | | | | | | | | | | | Net cash used in investing activities | | | (230,607 | ) | | | (202,714 | ) | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | Net (payments) proceeds of commercial paper | | | (39,600 | ) | | | 625,600 | | Repayment of debt | | | – | | | | (400,000 | ) | Net proceeds from sale of common stock | | | 65,244 | | | | 23,302 | | Purchase of treasury stock | | | (527,454 | ) | | | (560,619 | ) | Payments of capital lease obligations | | | (21,247 | ) | | | (22,627 | ) | Other, net | | | (1,250 | ) | | | (2,224 | ) | | | | | | | | | | Net cash used in financing activities | | | (524,307 | ) | | | (336,568 | ) | | | | | | | | | | | | | Effect of exchange rate changes on cash | | | (2,177 | ) | | | (3,701 | ) | | | | | | | | | | | | | Net (decrease) increase in cash and cash equivalents | | | (4,748 | ) | | | 20,915 | | Cash and cash equivalents at beginning of period | | | 293,270 | | | | 189,734 | | | | | | | | | | | Cash and cash equivalents at end of period | | $ | 288,522 | | | $ | 210,649 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Twelve Weeks Ended May 7, 2022 | | | | | | | | | | | | | | Accumulated | | | | | | | | | Common | | | | | Additional | | | | Other | | | | | | | | | Shares | | Common | | Paid-in | | Retained | | Comprehensive | | Treasury | | | | (in thousands) | | Issued | | Stock | | Capital | | Deficit | | Loss | | Stock | | Total | | | | | | | | | | | | | | | | | | | | | | Balance at February 12, 2022 | | 20,650 | | $ | 206 | | $ | 1,266,015 | | $ | (2,730,731) | | $ | (310,163) | | $ | (1,362,804) | | $ | (3,137,477) | Net income | | — | | | — | | | — | | | 592,571 | | | — | | | — | | | 592,571 | Total other comprehensive income | | — | | | — | | | — | | | — | | | 7,972 | | | — | | | 7,972 | Purchase of 449 shares of treasury stock | | — | | | — | | | — | | | — | | | — | | | (899,999) | | | (899,999) | Issuance of common stock under stock options and stock purchase plans | | 57 | | | 1 | | | 31,628 | | | — | | | — | | | — | | | 31,629 | Share-based compensation expense | | — | | | — | | | 18,074 | | | — | | | — | | | — | | | 18,074 | Balance at May 7, 2022 | | 20,707 | | $ | 207 | | $ | 1,315,717 | | $ | (2,138,160) | | $ | (302,191) | | $ | (2,262,803) | | $ | (3,387,230) |
| | | | | | | | | | | | | | | | | | | | | | | Twelve Weeks Ended May 8, 2021 | | | | | | | | | | | | | | Accumulated | | | | | | | | | Common | | | | | Additional | | | | | Other | | | | | | | | | Shares | | Common | | Paid-in | | Retained | | Comprehensive | | Treasury | | | | (in thousands) | | Issued | | Stock | | Capital | | Deficit | | Loss | | Stock | | Total | | | | | | | | | | | | | | | | | | | | | | Balance at February 13, 2021 | | 22,796 | | $ | 228 | | $ | 1,314,424 | | $ | (1,801,764) | | $ | (300,839) | | $ | (735,622) | | $ | (1,523,573) | Net income | | — | | | — | | | — | | | 596,164 | | | — | | | — | | | 596,164 | Total other comprehensive loss | | — | | | — | | | — | | | — | | | (3,543) | | | — | | | (3,543) | Purchase of 663 shares of treasury stock | | — | | | — | | | — | | | — | | | — | | | (899,999) | | | (899,999) | Issuance of common stock under stock options and stock purchase plans | | 101 | | | 1 | | | 55,413 | | | — | | | — | | | — | | | 55,414 | Share-based compensation expense | | — | | | — | | | 12,145 | | | — | | | — | | | — | | | 12,145 | Balance at May 8, 2021 | | 22,897 | | $ | 229 | | $ | 1,381,982 | | $ | (1,205,600) | | $ | (304,382) | | $ | (1,635,621) | | $ | (1,763,392) |
| | | | | | | | | | | | | | | | | | | | | | | Thirty-Six Weeks Ended May 7, 2022 | | | | | | | | | | | | | | Accumulated | | | | | | | | | Common | | | | | Additional | | | | | Other | | | | | | | | | Shares | | Common | | Paid-in | | Retained | | Comprehensive | | Treasury | | | | (in thousands) | | Issued | | Stock | | Capital | | Deficit | | Loss | | Stock | | Total | | | | | | | | | | | | | | | | | | | | | | Balance at August 28, 2021 | | 23,007 | | $ | 230 | | $ | 1,465,669 | | $ | (419,829) | | $ | (307,986) | | $ | (2,535,620) | | $ | (1,797,536) | Net income | | — | | | — | | | — | | | 1,619,561 | | | — | | | — | | | 1,619,561 | Total other comprehensive income | | — | | | — | | | — | | | — | | | 5,795 | | | — | | | 5,795 | Retirement of treasury shares | | (2,484) | | | (25) | | | (294,894) | | | (3,337,892) | | | — | | | 3,632,811 | | | — | Purchase of 1,746 shares of treasury stock | | — | | | — | | | — | | | — | | | — | | | (3,359,994) | | | (3,359,994) | Issuance of common stock under stock options and stock purchase plans | | 184 | | | 2 | | | 98,084 | | | — | | | — | | | — | | | 98,086 | Share-based compensation expense | | — | | | — | | | 46,858 | | | — | | | — | | | — | | | 46,858 | Balance at May 7, 2022 | | 20,707 | | $ | 207 | | $ | 1,315,717 | | $ | (2,138,160) | | $ | (302,191) | | $ | (2,262,803) | | $ | (3,387,230) |
| | | | | | | | | | | | | | | | | | | | | | | Thirty-Six Weeks Ended May 8, 2021 | | | | | | | | | | | | | | Accumulated | | | | | | | | | Common | | | | | Additional | | | | | Other | | | | | | | | | Shares | | Common | | Paid-in | | Retained | | Comprehensive | | Treasury | | | | (in thousands) | | Issued | | Stock | | Capital | | Deficit | | Loss | | Stock | | Total | | | | | | | | | | | | | | | | | | | | | | Balance at August 29, 2020 | | 23,697 | | $ | 237 | | $ | 1,283,495 | | $ | (1,450,970) | | $ | (354,252) | | $ | (356,487) | | $ | (877,977) | Net income | | — | | | — | | | — | | | 1,384,543 | | | — | | | — | | | 1,384,543 | Total other comprehensive income | | — | | | — | | | — | | | — | | | 49,870 | | | — | | | 49,870 | Retirement of treasury shares | | (1,044) | | | (10) | | | (60,005) | | | (1,139,173) | | | — | | | 1,199,188 | | | — | Purchase of 1,999 shares of treasury stock | | — | | | — | | | — | | | — | | | — | | | (2,478,322) | | | (2,478,322) | Issuance of common stock under stock options and stock purchase plans | | 244 | | | 2 | | | 121,922 | | | — | | | — | | | — | | | 121,924 | Share-based compensation expense | | — | | | — | | | 36,570 | | | — | | | — | | | — | | | 36,570 | Balance at May 8, 2021 | | 22,897 | | $ | 229 | | $ | 1,381,982 | | $ | (1,205,600) | | $ | (304,382) | | $ | (1,635,621) | | $ | (1,763,392) |
See Notes to Condensed Consolidated Financial Statements. AUTOZONE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A – General The accompanying unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form10-Q and Article 10 of RegulationS-X of the Securities and Exchange Commission’s (the “SEC”) rules and regulations. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and related notes included in the AutoZone, Inc. (“AutoZone” or the “Company”) Annual Report on Form10-K for the year ended August 26, 2017.28, 2021. Operating results for the twelve and twenty-fourthirty-six weeks ended February 10, 2018May 7, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 25, 2018.27, 2022. Each of the first three quarters of AutoZone’s fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters forof fiscal 20182022 and 20172021 each have 16 weeks. Additionally, the Company’s business is somewhat seasonal in nature, with the highest sales generally occurring during the months of February through September and the lowest sales generally occurring in the months of December and January. Recently Issued Accounting Pronouncements:Pronouncements In May 2014,November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting StandardStandards Update (“ASU”)2014-09, 2021-10, Revenue from Contracts with Customers.Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance This. The update increases the disclosures for entities receiving governmental assistance for more transparency. ASU along with subsequent ASU’s issued to clarify certain provisions of ASU2014-09,2021-10 is a comprehensive new revenue recognition model that expands disclosure requirements and requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This update will be effective for the Company at thefiscal years beginning of its fiscal 2019 year. The Company established a cross-functional implementation team to evaluate and identify the impact of the new standard on the Company’s financial position, results of operations and cash flows. Based on the preliminary work completed, the Company is considering the potential implications of the new standard on the Company’s recognition of customer related accounts receivable, warranty costs, the Company’s loyalty program, gift cards, subscriptions and other related topics in addition to all applicable financial statement disclosures required by the new guidance. The Company is currently in the process of identifying changes to its business processes, systems and controls to support adoption of the new standard. At this time, the team has not completed its full analysis on impact or means of adoption. In February 2016, the FASB issued ASU2016-02,Leases (Topic 842).ASU2016-02 requires an entity to recognize aright-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. Early adoption is permitted. The updated guidance requires a modified retrospective adoption. This update will be effective for the Company at the beginning of its fiscal 2020 year. The Company established a cross-functional implementation team to evaluate and identify the impact of ASU2016-02 on the Company’s financial position, results of operations and cash flows. Based on the preliminary work completed, the Company is considering the possible implications of the new standard, including the discount rate to be used in valuing new and existing leases, the treatment of existing favorable and unfavorable lease agreements acquired in connection with previous acquisitions, procedural and operational changes that may be necessary to comply with the provisions of the guidance and all applicable financial statement disclosures required by the new guidance. The Company is also in the process of identifying changes to its business processes, systems and controls to support adoption of the new standard. At this time, the team has not completed its full analysis and is unable to quantify the impact; however, the Company believes the adoption of the new guidance will have a material impact on the total assets and total liabilities reported on the Company’s consolidated balance sheets.
In October 2016, the FASB issued ASU2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. ASU2016-16 requires that an entity recognize the income tax consequences of an intra-entity transfer of assets other than inventory when the transfer occurs. The guidance must be applied using the modified retrospective basis. The Company does not expect the provisions of ASU2016-16 to have a material impact on its financial statements. This update will be effective for the Company at the beginning of its fiscal 2019 year.
In January 2017, the FASB issued ASU2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU2017-01 provides guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The updated guidance requires a prospective adoption.after December 15, 2021. Early adoption is permitted. The Company does not expectwill adopt this standard beginning with its first quarter ending November 19, 2022. The Company is currently evaluating the provisions of ASU2017-01new guidance to determine the impact the adoption will have a material impact on itsthe Company's consolidated financial statements. This update will be effective for the Company at the beginning of its fiscal 2019 year. statements and related disclosures.In February 2018, the FASB issued ASU2018-02,Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for “stranded tax effects” resulting from the Tax Cuts and Jobs Act (“Tax Reform”). The guidance states that because the adjustment of deferred taxes due to the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate is required to be included in income from continuing operations, the tax effects of items within accumulated other comprehensive income (“stranded tax effects”) do not reflect the appropriate tax rate. As stated within the guidance, the amendments in this update should be applied retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform is recognized. At this time, the Company is in the process of evaluating the impact of the provisions of ASU2018-02 on its consolidated financial statements.R
Note B – Share-Based Payments AutoZone maintains several equity incentive plans, which provide equity-based compensation to non-employee directors and eligible employees for their service to AutoZone, its subsidiaries or affiliates. The Company recognizes compensation expense for share-based payments based on the fair value of the awards at the grant date. Share-based payments include stock option grants, restricted stock grants, restricted stock unit grants, and the discountstock appreciation rights, discounts on shares sold to employees under share purchase plans.plans and other awards. Additionally, directors’ fees are paid in restricted stock units with value equivalent to the value of shares of common stock as of the grant date. The change in fair value of liability-based stock awards is also recognized in share-based compensation expense. Stock Options: The Company made stock option grants of 164,262 shares during the thirty-six week period ended May 7, 2022 and granted options to purchase 196,520 shares during the comparable prior year period. The Company grants options to purchase common stock to certain of its employees under its equity incentive plans at prices equal to the market value of the stock on the date of grant. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The weighted average fair value of the stock option awards granted during the thirty-six week periods ended May 7, 2022 and May 8, 2021, using the Black-Scholes-Merton multiple-option pricing valuation model, was $463.09 and $299.99 per share, respectively, using the following weighted average key assumptions: | | | | | | | | Thirty-Six Weeks Ended | | | | May 7, | | May 8, | | | | 2022 | | 2021 | | | | | | | | Expected price volatility | | 28 | % | 28 | % | Risk-free interest rate | | 1.1 | % | 0.4 | % | Weighted average expected lives (in years) | | 5.6 | | 5.6 | | Forfeiture rate | | 10 | % | 10 | % | Dividend yield | | 0 | % | 0 | % |
During the thirty-six week period ended May 7, 2022, 179,440 stock options were exercised at a weighted average exercise price of $574.79. In the comparable prior year period, 239,177 stock options were exercised at a weighted average exercise price of $513.51. As of May 7, 2022, total unrecognized share-based expense related to stock options, net of estimated forfeitures, was approximately $77.3 million, before income taxes, which we expect to recognize over an estimated weighted average period of 3.3 years. Restricted Stock Units: Restricted stock unit awards are valued at the market price of a share of the Company’s stock on the date of grant. Grants of employee restricted stock units vest ratably on an annual basis over a four-year service period and are payable in shares of common stock on the vesting date. Compensation expense for grants of employee restricted stock units is recognized on a straight-line basis over the four-year service period, less estimated forfeitures, which are consistent with stock option forfeiture assumptions. Grants of non-employee director restricted stock units are made and expensed on January 1 of each year, as they vest immediately. As of May 7, 2022, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $12.3 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.9 years. Transactions related to restricted stock units for the thirty-six weeks ended May 7, 2022 were as follows: | | | | | | | | | | Weighted- | | | Number | | Average Grant | | | of Shares | | Date Fair Value | | | | | | | Nonvested at August 28, 2021 | | 15,751 | | $ | 1,005.41 | Granted | | 5,551 | | | 1,740.19 | Vested | | (6,572) | | | 1,159.53 | Canceled or forfeited | | (1,698) | | | 1,145.06 | Nonvested at May 7, 2022 | | 13,032 | | $ | 1,222.55 |
Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $12.7$18.3 million for the twelve week period ended February 10, 2018,May 7, 2022, and $10.9$13.9 million for the comparable prior year period. Share-basedTotal share-based compensation expense was $23.8$49.1 million for the twenty-fourthirty-six week period ended February 10, 2018,May 7, 2022, and $20.7$38.1 million for the comparable prior year period. During
For the twenty-fourtwelve and thirty-six week periodperiods ended February 10, 2018, 234,114May 7, 2022, 120,515 and 136,994, respectively, stock options were exercised at a weighted average exercise price of $278.69. Inexcluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 91,136periods, 142,660 and 166,456 anti-dilutive stock options were exercised at a weighted average exercise price of $265.16. The Company made stock option grants of 283,290 shares duringexcluded from the twenty-four week period ended February 10, 2018, and granted options to purchase 290,805 shares during the comparable prior year period. The weighted average fair value of the stock option awards granted during the twenty-four week period ended February 10, 2018, and February 11, 2017, using the Black-Scholes-Merton multiple-option pricing valuation model, was $128.99 and $139.80dilutive earnings per share respectively, using the following weighted average key assumptions:computation.
| | | | | | | | | | | Twenty-Four Weeks Ended | | | | February 10, 2018 | | | February 11, 2017 | | | | | Expected price volatility | | | 20% | | | | 18% | | Risk-free interest rate | | | 1.9% | | | | 1.2% | | Weighted average expected lives (in years) | | | 5.1 | | | | 5.1 | | Forfeiture rate | | | 10% | | | | 10% | | Dividend yield | | | 0% | | | | 0% | |
See AutoZone’s Annual Report on Form10-K for the year ended August 26, 2017,28, 2021 and other filings with the SEC, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan, the 2011AutoZone, Inc. 2020 Omnibus Incentive Award Plan and the 2020 Director Compensation Program and the 2014 Director Compensation Plan. Program. For the twelve week period ended February 10, 2018, 609,435 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 645,561 anti-dilutive shares were excluded from the dilutive earnings per share computation. There were 844,912 anti-dilutive shares excluded from the diluted earnings per share computation for the twenty-four week period ended February 10, 2018, and 605,065 anti-dilutive shares excluded for the comparable prior year period.
Note C – Fair Value Measurements The Company defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. TheIn accordance with ASC 820, Fair Value Measurements and Disclosures, the Company uses the fair value hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are set forth below: Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date. Level 2 inputs—inputs other than quoted market prices included within Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 3 inputs—unobservable inputs for the asset or liability, which are based on the Company’s own assumptions as there is little, if any, observable activity in identical assets or liabilities. Financial Assets & LiabilitiesMarketable Debt Securities Measured at Fair Value on a Recurring Basis
The Company’s assets and liabilitiesmarketable debt securities measured at fair value on a recurring basis were as follows: | | | February 10, 2018 | | | | | | | | | | | | | | | | | | | May 7, 2022 | (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Fair Value | | | | | | | | | | | | | | | | Other current assets | | | $ | 30,007 | | | | $ | 1,928 | | | | $ | – | | | | $ | 31,935 | | | $ | 57,927 | | $ | 335 | | $ | — | | $ | 58,262 | Other long-term assets | | | 61,534 | | | | 24,248 | | | | | – | | | | 85,782 | | | | 49,213 | | | 11,934 | | | — | | | 61,147 | | | | | | | | | | | | | | | | | | | | | | $ | 91,541 | | | | $ | 26,176 | | | | $ | �� – | | | | $ | 117,717 | | | | | | | | | | | | | | | | | | | | | | | | August 26, 2017 | | (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Fair Value | | | Other current assets | | | $ | 18,453 | | | | $ | 120 | | | | $ | – | | | | $ | 18,573 | | | Other long-term assets | | | 53,319 | | | | 28,981 | | | | | – | | | | 82,300 | | | | | | | | | | | | | | | | | | | | | | | | $ | 71,772 | | | | $ | 29,101 | | | | $ | – | | | | $ | 100,873 | | | | | | | | | | | | | | | | | | | | | | | | $ | 107,140 | | $ | 12,269 | | $ | — | | $ | 119,409 |
| | | | | | | | | | | | | | | August 28, 2021 | (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Fair Value | | | | | | | | | | | | | | Other current assets | | $ | 46,007 | | $ | — | | $ | — | | $ | 46,007 | Other long-term assets | | | 54,105 | | | 13,806 | | | — | | | 67,911 | | | $ | 100,112 | | $ | 13,806 | | $ | — | | $ | 113,918 |
At February 10, 2018,May 7, 2022, the fair value measurement amounts for assets and liabilities recorded in the accompanying Condensed Consolidated Balance SheetSheets consisted of short-term marketable debt securities, of $31.9 million, which are included within Other current assets, and long-term marketable debt securities, of $85.8 million, which are included in Other long-term assets. The Company’s marketable debt securities are typically valued at the closing price in the principal active market as of the last business day of the quarter or through the use of other market inputs relating to the securities, including benchmark yields and reported trades. The fair values of the marketable debt securities, by asset class, are described in “Note D – Marketable Debt Securities.” Non-Financial Assets and Liabilities Measured at Fair Value on aNon-Recurring Basis9
Certainnon-financial assets and liabilities are required to be measured at fair value on anon-recurring basis in certain circumstances, including the eventTable of impairment. Thesenon-financial assets and liabilities could include assets and liabilities acquired in an acquisition as well as goodwill, intangible assets and property, plant and equipment that are determined to be impaired. During the second quarter, the Company recorded impairment charges related to its Interamerican Motor Corporation (“IMC”) and AutoAnything businesses as the Company determined that the approximate fair value less costs to sell the businesses was significantly lower than the carrying value of the net assets. Based on the latest offers received as of the end of the second quarter from potential acquirers of these business operations, the Company recorded impairment charges related to goodwill, intangible assets and property, plant and equipment in order to record these assets at fair value. See “Note L – Assets Impairments” for further discussion. The fair value remeasurements are based on Level 2 inputs as defined in the fair value hierarchy. As of February 10, 2018 and August 26, 2017, the Company did not have any other significantnon-financial assets or liabilities that had been measured at fair value on anon-recurring basis subsequent to initial recognition.Contents
Financial Instruments not Recognized at Fair Value The Company has financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short maturities. A discussion of the carrying values and fair values of the Company’s debt is included in “Note HF – Financing.”
Note D – Marketable Debt Securities Marketable debt securities are carried at fair value, with unrealized gains and losses, net of income taxes, recorded in Accumulated other comprehensive loss until realized, and any credit risk related losses are recognized in net income in the period incurred. The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.” Unrealized gains (losses) on The Company’s available-for-sale marketable securities are recorded in Accumulated other comprehensive loss. The Company’savailable-for-sale marketabledebt securities consisted of the following: | | | February 10, 2018 | | | | | | | | | | | | | | | | | | | May 7, 2022 | | | | Amortized | | Gross | | Gross | | | | | | Cost | | Unrealized | | Unrealized | | Fair | (in thousands) | | Amortized Cost Basis | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Basis | | Gains | | Losses | | Value | | Corporate securities | | | $ | 65,261 | | | | $ | – | | | | $ | (533 | ) | | $ | 64,728 | | | | | | | | | | | | | | | | | Corporate debt securities | | | $ | 16,724 | | $ | 11 | | $ | (264) | | $ | 16,471 | Government bonds | | | 22,996 | | | | | – | | | | (129 | ) | | 22,867 | | | | 82,988 | | | 12 | | | (1,672) | | | 81,328 | Mortgage-backed securities | | | 4,005 | | | | | – | | | | (79 | ) | | 3,926 | | | | 5,120 | | | 18 | | | (227) | | | 4,911 | Asset-backed securities and other | | | 26,348 | | | | | – | | | | (152 | ) | | 26,196 | | | | 16,958 | | | 1 | | | (260) | | | 16,699 | | | | | | | | | | | | | | | | | | | | | $ | 118,610 | | | | $ | – | | | | $ | (893 | ) | | $ | 117,717 | | | | | | | | | | | | | | | | | | | | | | | August 26, 2017 | | (in thousands) | | Amortized Cost Basis | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | | Corporate securities | | | $ | 39,917 | | | | $ | 73 | | | | $ | (13 | ) | | $ | 39,977 | | | Government bonds | | | 31,076 | | | | 49 | | | | (74 | ) | | 31,051 | | | Mortgage-backed securities | | | 4,850 | | | | 2 | | | | (42 | ) | | 4,810 | | | Asset-backed securities and other | | | 25,042 | | | | 28 | | | | (35 | ) | | 25,035 | | | | | | | | | | | | | | | | | | | | | | | $ | 100,885 | | | | $ | 152 | | | | $ | (164 | ) | | $ | 100,873 | | | | | | | | | | | | | | | | | | | | | | | $ | 121,790 | | $ | 42 | | $ | (2,423) | | $ | 119,409 |
| | | | | | | | | | | | | | | August 28, 2021 | | | Amortized | | Gross | | Gross | | | | | Cost | | Unrealized | | Unrealized | | Fair | (in thousands) | | Basis | | Gains | | Losses | | Value | | | | | | | | | | | | | | Corporate debt securities | | $ | 23,650 | | $ | 329 | | $ | (2) | | $ | 23,977 | Government bonds | | | 65,416 | | | 338 | | | (2) | | | 65,752 | Mortgage-backed securities | | | 6,552 | | | 58 | | | (8) | | | 6,602 | Asset-backed securities and other | | | 17,551 | | | 43 | | | (7) | | | 17,587 | | | $ | 113,169 | | $ | 768 | | $ | (19) | | $ | 113,918 |
The debt securities held at February 10, 2018,May 7, 2022, had effective maturities ranging from less than one year to approximately three years. TheAt May 7, 2022, the Company did not realize any material gains or losses on its marketable securities during the twenty-four week period ended February 10, 2018. The Company holds 112held 65 securities that are in an unrealized loss position of approximately $893 thousand at February 10, 2018. The Company has the intent and ability to hold these investments until recovery of fair value or maturity, and does not deem the investments to be impaired on an other than temporary basis.$2.4 million. In evaluating whether a credit loss exists for the securities, are deemed to be impaired on an other than temporary basis, the Company considers factors such as the duration and severity of the loss position, the credit worthiness of the investee, the term to maturity and the intent and ability to hold the investments until maturity or until recovery of fair value. An allowance for credit losses was deemed unnecessary given consideration of the factors above.
Included above in total available-for-sale marketable debt securities are $85.0$91.2 million of marketable debt securities transferred by the Company’s insurance captive to a trust account to secure its obligations to an insurance company related to future workers’ compensation and casualty losses. Note E – Derivative Financial Instruments At February 10, 2018, the Company had $9.0 million recorded in Accumulated other comprehensive loss related to realized losses associated with terminated interest rate swap and treasury rate lock derivatives which were designated as hedging instruments. Net losses are amortized into Interest expense over the remaining life of the associated debt. The Company reclassified $509 thousand of net losses from Accumulated other comprehensive loss to interest expense for the twelve weeks ended February 10, 2018 and the comparable prior year period. During the twenty-four week period ended February 10, 2018 and the comparable prior year period, the Company reclassified $1.0 million of net losses from Accumulated other comprehensive loss to Interest expense. The Company expects to reclassify $2.2 million of net losses from Accumulated other comprehensive loss to Interest expense over the next 12 months.
Note F – Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Merchandise inventories include related purchasing, storage and handling costs. Inventory cost has been determined using thelast-in,first-out (“LIFO”) method stated at the lower of cost or net realizable value for domestic inventories and the weighted average cost method stated at the lower of cost or net realizable value for Mexico and Brazil inventories. Due to historical price deflation on the Company’s merchandise purchases, the Company has exhausted its LIFO reserve balance. The Company’s policy is not to write up inventory in excess of replacement cost, which is based on average cost. The difference between LIFO cost and replacement cost, which will behas been reduced upon experiencingdue to price inflation on the Company’s merchandise purchases, was $433.5$91.3 million at February 10, 2018May 7, 2022 and $414.9$335.3 million at August 26, 2017. 28, 2021. Note G – Pension and Savings Plans The components of net periodic pension expense related to the Company’s pension plans consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | Twelve Weeks Ended | | Twenty-Four Weeks Ended | (in thousands) | | February 10, 2018 | | February 11, 2017 | | February 10, 2018 | | February 11, 2017 | | | | | | Interest cost | | | $ | 2,390 | | | | $ | 2,385 | | | | $ | 4,780 | | | | $ | 4,770 | | Expected return on plan assets | | | | (4,384 | ) | | | | (4,628 | ) | | | | (8,768 | ) | | | | (9,257 | ) | Amortization of net loss | | | | 2,478 | | | | | 3,201 | | | | | 4,955 | | | | | 6,403 | | | | | | | | | | | | | | | | | | | | | | | Net periodic pension expense | | | $ | 484 | | | | $ | 958 | | | | $ | 967 | | | | $ | 1,916 | | | | | | | | | | | | | | | | | | | | | | |
The Company makes contributions in amounts at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006. During the twenty-four weeks period ended February 10, 2018, the Company did not make contributions to its funded plan.
On December 19, 2017, the Board of Directors approved a resolution to terminate the Company’s pension plans, effective March 15, 2018. Benefit accruals have been frozen, and the plan closed to new participants on January 1, 2003. The Company has commenced the plan termination process and expects to distribute a portion of the pension plan assets as lump sum payments with the remaining balance transferred to an insurance company in the form of an annuity. The total payments distributed will depend on the participation rate of eligible participants. Based on the estimated value of assets held in the plan, the Company currently estimates that a cash contribution of approximately $20—$30 million will be required to fully fund the plan’s liabilities at termination. The pension plan termination is expected to be completed by the end of fiscal 2018, and the Company is in the process of evaluating the impact of the termination and future settlement accounting on its consolidated financial statements and related disclosures.
Note HF – Financing
The Company’s long-term debt consisted of the following: | | | | | | | | | May 7, | | August 28, | (in thousands) | | 2022 | | 2021 | | | | | | | | 3.700% Senior Notes due April 2022, effective interest rate of 3.85% | | $ | — | | $ | 500,000 | 2.875% Senior Notes due January 2023, effective interest rate of 3.21% | | | 300,000 | | | 300,000 | 3.125% Senior Notes due July 2023, effective interest rate of 3.26% | | | 500,000 | | | 500,000 | 3.125% Senior Notes due April 2024, effective interest rate 3.32% | | | 300,000 | | | 300,000 | 3.250% Senior Notes due April 2025, effective interest rate 3.36% | | | 400,000 | | | 400,000 | 3.625% Senior Notes due April 2025, effective interest rate 3.78% | | | 500,000 | | | 500,000 | 3.125% Senior Notes due April 2026, effective interest rate of 3.28% | | | 400,000 | | | 400,000 | 3.750% Senior Notes due June 2027, effective interest rate of 3.83% | | | 600,000 | | | 600,000 | 3.750% Senior Notes due April 2029, effective interest rate of 3.86% | | | 450,000 | | | 450,000 | 4.000% Senior Notes due April 2030, effective interest rate 4.09% | | | 750,000 | | | 750,000 | 1.650% Senior Notes due January 2031, effective interest rate of 2.19% | | | 600,000 | | | 600,000 | Commercial paper, weighted average interest rate of 0.80% at May 7, 2022 | | | 1,283,310 | | | — | Total debt before discounts and debt issuance costs | | | 6,083,310 | | | 5,300,000 | Less: Discounts and debt issuance costs | | | 25,866 | | | 30,180 | Long-term Debt | | $ | 6,057,444 | | $ | 5,269,820 |
| | | | | | | | | | | (in thousands) | | February 10, 2018 | | August 26, 2017 | 7.125% Senior Notes due August 2018, effective interest rate of 7.28% | | | $ | 250,000 | | | | $ | 250,000 | | 1.625% Senior Notes due April 2019, effective interest rate of 1.77% | | | | 250,000 | | | | | 250,000 | | 4.000% Senior Notes due November 2020, effective interest rate of 4.43% | | | | 500,000 | | | | | 500,000 | | 2.500% Senior Notes due April 2021, effective interest rate of 2.62% | | | | 250,000 | | | | | 250,000 | | 3.700% Senior Notes due April 2022, effective interest rate of 3.85% | | | | 500,000 | | | | | 500,000 | | 2.875% Senior Notes due January 2023, effective interest rate of 3.21% | | | | 300,000 | | | | | 300,000 | | 3.125% Senior Notes due July 2023, effective interest rate of 3.26% | | | | 500,000 | | | | | 500,000 | | 3.250% Senior Notes due April 2025, effective interest rate 3.36% | | | | 400,000 | | | | | 400,000 | | 3.125% Senior Notes due April 2026, effective interest rate of 3.28% | | | | 400,000 | | | | | 400,000 | | 3.750% Senior Notes due June 2027, effective interest rate of 3.83% | | | | 600,000 | | | | | 600,000 | | Commercial paper, weighted average interest rate of 1.80% and 1.44% at February 10, 2018 and August 26, 2017, respectively | | | | 1,115,500 | | | | | 1,155,100 | | | | | | | | | | | | | Total debt before discounts and debt issuance costs | | | | 5,065,500 | | | | | 5,105,100 | | Less: Discounts and debt issuance costs | | | | 21,959 | | | | | 23,862 | | | | | | | | | | | | | Long-term debt | | | $ | 5,043,541 | | | | $ | 5,081,238 | | | | | | | | | | | | |
As of February 10, 2018, the commercial paper borrowings and the $250 million 7.125% Senior Notes due August 2018 were classified as long-term in the accompanying Consolidated Balance Sheets asOn November 15, 2021, the Company had the abilityamended and intent to refinance on a long-term basis through available capacity inrestated its revolving credit facility. As of February 10, 2018, the Company had $1.997 billion of availability under its $2.0 billionexisting revolving credit facility which would allow it(the “Revolving Credit Agreement”) pursuant to replace these short-term obligations with long-term financing facilities.
The Company entered into a Master Extension, New Commitment and Amendment Agreement dated as of November 18, 2017 (the “Extension Amendment”) to the Third Amended and Restated Credit Agreement dated as of November 18, 2016, as amended, modified, extended or restated from time to time. Under the Extension Amendment: (i)which the Company’s borrowing capacity under the Revolving Credit Agreement was increased from $1.6$2.0 billion to $2.0 billion; (ii) the Company’s option to increase its borrowing capacity under the Revolving Credit Agreement was “refreshed”$2.25 billion and the amount of such option remained at $400 million; the maximum borrowing under the Revolving Credit Agreement may, at the Company’s option, subject to lenders approval, be increased from $2.0$2.25 billion to $2.4 billion; (iii) the termination date of the$3.25 billion. The Revolving Credit Agreement was extended fromwill terminate, and all amounts borrowed will be due and payable on November 18, 2021 until November 18, 2022; and (iv) the Company has the option15, 2026, but AutoZone may make up to make one additional written request of the lenderstwo requests to extend the termination date then in effect for an additional period of one year. Underyear each. Revolving borrowings under the revolving credit facility, the CompanyRevolving Credit Agreement may borrow funds consisting of Eurodollar loans,be base rate loans, Eurodollar loans, or a combination of both. Interest accrues on Eurodollarboth, at AutoZone’s election. The Revolving Credit Agreement includes (i) a $75 million sublimit for swingline loans, at(ii) a defined Eurodollar rate, defined as LIBOR plus the applicable percentage, as defined in the revolving $50 million individual issuer letter of credit sublimit and (iii) a $250 million aggregate sublimit for all letters of credit.credit facility, depending uponUnder the Company’s senior, unsecured,(non-credit enhanced) long-termRevolving Credit Agreement, covenants include restrictions on liens, a maximum debt rating. Interest accrues on base rate loans as defined into earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the credit facility. repayment obligations under certain circumstances.
As of February 10, 2018,May 7, 2022, the Company had $3.30 outstanding borrowings and $1.8 million of outstanding letters of credit under the Revolving Credit Agreement. On NovemberJanuary 18, 2016,2022, the Company amended and restated its existing364-Day revolving credit facility (the “New364-Day Credit Agreement”) by decreasingrepaid the committed credit amount from $500 million to $400 million, extending3.700% Senior Notes due April 2022, which were callable at par in January 2022. As of May 7, 2022, the expiration date by one year and renegotiating other terms and conditions. The credit facility was available to primarily support commercial paper borrowings and other short-term unsecured bank loans. Under the credit facility,$300 million 2.875% Senior Notes due January 2023 were classified as long-term in the accompanying Condensed Consolidated Balance Sheets, as the Company could borrow funds consistingcurrently has the ability and intent to refinance them on a long-term basis through available capacity in its Revolving Credit Agreement. As of Eurodollar loans, baseMay 7, 2022, the Company had $2.2 billion of availability under its Revolving Credit Agreement, without giving effect to commercial paper borrowings, which would allow it to replace these short-term obligations with a long-term financing facility. All Senior Notes are subject to an interest rate loans or a combination of both. Interest accrued on Eurodollar loans at a defined Eurodollar rate, defined as LIBOR plusadjustment if the applicable margin, asdebt ratings assigned are downgraded (as defined in the revolving credit facility, depending uponagreements). Further, the Company’s senior, unsecured,(non-credit enhanced) long-term debt rating. Interest accrued on base rate loans asSenior Notes contain a provision that repayment may be accelerated if the Company experiences a change in control (as defined in the credit facility.agreements). The New364-Day Credit Agreement expiredCompany’s borrowings under its Senior Notes contain minimal covenants, primarily restrictions on November 17, 2017,liens, sale and leaseback transactions and consolidations, mergers and the Company did not renew this revolving credit facility.sale of assets. All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs. The fair value of the Company’s debt was estimated at $5.049$5.9 billion as of February 10, 2018,May 7, 2022, and $5.171$5.7 billion as of August 26, 2017,28, 2021, based on the quoted market prices for the same or similar issues or on the current rates available to the Company for debt of the same terms (Level 2). Such fair value is less than the carrying value of debt by $163.3 million at May 7, 2022, and greater than the carrying value of debt by $5.4 million at February 10, 2018, and $90.3$413.1 million at August 26, 2017,28, 2021, which reflects their face amount, adjusted for any unamortized debt issuance costs and discounts. All senior notes are subject to an interest rate adjustment if the debt ratings assigned to the senior notes are downgraded (as defined in the agreements). Further, the senior notes contain a provision that repayment of the senior notes may be accelerated if we experience a change in control (as defined in the agreements). Our borrowings under our senior notes contain minimal covenants, primarily restrictions on liens. Under our revolving credit facilities, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances. All of the repayment obligations under our borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs. As of February 10, 2018, we wereMay 7, 2022, the Company was in compliance with all covenants and expectexpects to remain in compliance with all covenants under ourits borrowing arrangements.
Note IG – Stock Repurchase Program From January 1, 1998 to February 10, 2018,May 7, 2022, the Company has repurchased a total of 143.1152.0 million shares of its common stock at an aggregate cost of $18.354$29.1 billion, including 824,7331.7 million shares of its common stock at an aggregate cost of $527.5 million$3.4 billion during the twenty-fourthirty-six week period ended February 10, 2018. May 7, 2022. On March 21, 2017,22, 2022, the Board voted to increaseauthorize the authorization by $750 million. Thisrepurchase of an additional $2.0 billion of the Company’s common stock in connection with its ongoing share repurchase program, which raised the total value of shares authorized to be repurchased to $18.65$31.2 billion. Considering the cumulative repurchases as of February 10, 2018,May 7, 2022, the Company had $296.2 million$2.1 billion remaining under the Board’s authorization to repurchase its common stock. During the twenty-fourthirty-six week period ended February 10, 2018,May 7, 2022, the Company retired 1.52.5 million shares of treasury stock which had been previously been repurchased under the Company’s share repurchase program. The retirement increased Retained deficit by $918.5 million$3.3 billion and decreased Additionalpaid-in capital by $60.5$294.9 million. During the comparable prior year period, the Company retired 1.81.0 million shares of treasury stock, which increased Retained deficit by $1.321$1.1 billion and decreased Additionalpaid-in capital by $64.9$60.0 million. Subsequent to February 10, 2018,May 7, 2022 and through June 3, 2022, the Company has repurchased 382,928103,726 shares of its common stock at an aggregate cost of $264.9$203.6 million. Note JH – Accumulated Other Comprehensive Loss Accumulated other comprehensive loss includes certain adjustments to pension liabilities, foreign currency translation adjustments, certain activity for interest rate swaps and treasury rate locks that qualifyqualified as cash flow hedges and unrealized gains (losses) onavailable-for-sale marketable debt securities. Changes in Accumulated other comprehensive loss for the twelve week periods ended February 10, 2018May 7, 2022 and February 11, 2017May 8, 2021 consisted of the following: | | | | | | | | | | | | | | | | | | Net | | | | | | | | | Foreign | | Unrealized | | | | | | | | | Currency and | | Gain (Loss) | | | | | | | (in thousands) | | Other(1) | | on Securities | | Derivatives | | Total | | | | | | | | | | | | | | Balance at February 12, 2022 | | $ | (289,889) | | $ | (711) | | $ | (19,563) | | $ | (310,163) | Other comprehensive income (loss) before reclassifications(2)(3) | | | 8,531 | | | (1,138) | | | 0 | | | 7,393 | Amounts reclassified from Accumulated other comprehensive loss(3) | | | — | | | — | | | 579 | | | 579 | Balance at May 7, 2022 | | $ | (281,358) | | $ | (1,849) | | $ | (18,984) | | $ | (302,191) |
| | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands) | | Pension Liability | | Foreign Currency(3) | | Net Unrealized Gain on Securities | | Derivatives | | Total | | | | | | | Balance at November 18, 2017 | | | $ | (71,060 | ) | | | $ | (219,031 | ) | | | $ | (327 | ) | | | $ | (6,033 | ) | | | $ | (296,451 | ) | Other comprehensive income (loss) before reclassifications(1) | | | | – | | | | | 7,507 | | | | | (224 | ) | | | | – | | | | | 7,283 | | Amounts reclassified from Accumulated other comprehensive loss(1) | | | | 2,361 | (2) | | | | – | | | | | (34 | )(4) | | | | 457 | (5) | | | | 2,784 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at February 10, 2018 | | | $ | (68,699 | ) | | | $ | (211,524 | ) | | | $ | (585 | ) | | | $ | (5,576 | ) | | | $ | (286,384 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands) | | Pension Liability | | Foreign Currency(3) | | Net Unrealized Gain on Securities | | Derivatives | | Total | | | | | | | Balance at November 19, 2016 | | | $ | (87,074 | ) | | | $ | (251,603 | ) | | | $ | (109 | ) | | | $ | (7,417 | ) | | | $ | (346,203 | ) | Other comprehensive loss before reclassifications(1) | | | | – | | | | | (2,342 | ) | | | | (13 | ) | | | | – | | | | | (2,355 | ) | Amounts reclassified from Accumulated other comprehensive loss(1) | | | | 1,953 | (2) | | | | – | | | | | (33 | )(4) | | | | 321 | (5) | | | | 2,241 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at February 11, 2017 | | | $ | (85,121 | ) | | | $ | (253,945 | ) | | | $ | (155 | ) | | | $ | (7,096 | ) | | | $ | (346,317 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Net | | | | | | | | | Foreign | | Unrealized | | | | | | | | | Currency and | | Gain (Loss) | | | | | | | (in thousands) | | Other(1) | | on Securities | | Derivatives | | Total | | | | | | | | | | | | | | Balance at February 13, 2021 | | $ | (279,725) | | $ | 1,344 | | $ | (22,458) | | $ | (300,839) | Other comprehensive (loss) before reclassifications(2)(3) | | | (3,865) | | | (346) | | | — | | | (4,211) | Amounts reclassified from Accumulated other comprehensive loss(3) | | | — | | | 9 | | | 659 | | | 668 | Balance at May 8, 2021 | | $ | (283,590) | | $ | 1,007 | | $ | (21,799) | | $ | (304,382) |
Changes in Accumulated other comprehensive loss for the thirty-six week periods ended May 7, 2022 and May 8, 2021 consisted of the following: | | | | | | | | | | | | | | | | | | Net | | | | | | | | | Foreign | | Unrealized | | | | | | | | | Currency and | | Gain (Loss) | | | | | | | (in thousands) | | Other(1) | | on Securities | | Derivatives | | Total | | | | | | | | | | | | | | Balance at August 28, 2021 | | $ | (287,638) | | $ | 589 | | $ | (20,937) | | $ | (307,986) | Other comprehensive income (loss) before reclassifications(2)(3) | | | 6,280 | | | (2,438) | | | 0 | | | 3,842 | Amounts reclassified from Accumulated other comprehensive loss(3) | | | — | | | — | | | 1,953 | | | 1,953 | Balance at May 7, 2022 | | $ | (281,358) | | $ | (1,849) | | $ | (18,984) | | $ | (302,191) |
| | | | | | | | | | | | | | | | | | Net | | | | | | | | | Foreign | | Unrealized | | | | | | | | | Currency and | | Gain (Loss) | | | | | | | (in thousands) | | Other(1) | | on Securities | | Derivatives | | Total | | | | | | | | | | | | | | Balance at August 29, 2020 | | $ | (332,321) | | $ | 1,845 | | $ | (23,776) | | $ | (354,252) | Other comprehensive income (loss) before reclassifications(2)(3) | | | 48,731 | | | (861) | | | — | | | 47,870 | Amounts reclassified from Accumulated other comprehensive loss (3) | | | — | | | 23 | | | 1,977 | | | 2,000 | Balance at May 8, 2021 | | $ | (283,590) | | $ | 1,007 | | $ | (21,799) | | $ | (304,382) |
(1) | Amounts in parentheses indicate debits to Accumulated other comprehensive loss. |
(2) | Represents amortization of pension liability adjustments,Foreign currency is shown net of taxesU.S. tax to account for foreign currency impacts of $117 for the twelve weeks ended February 10, 2018 and $1,248 for the twelve weeks ended February 11, 2017, which is recorded in Operating, selling, general and administrative expenses on the Condensed Consolidated Statements of Income. See “Note G – Pension and Savings Plans” for further discussion. |
(3) | Foreigncertain undistributed non-U.S. subsidiaries’ earnings. Other foreign currency is not shown net of additional U.S. tax as earningsother basis differences ofnon-U.S. subsidiaries are intended to be permanently reinvested. |
(4) | Represents realized losses on marketable securities, net of taxes of $16 for the twelve weeks ended February 10, 2018 and $18 for the twelve weeks ended February 11, 2017, which is recorded in Operating, selling, general and administrative expenses on the Condensed Consolidated Statements of Income. See “Note D – Marketable Securities” for further discussion. |
(5) | Represents gains and losses on derivatives, net of taxes of $52 for the twelve weeks ended February 10, 2018 and $188 for the twelve weeks ended February 11, 2017, which is recorded in Interest expense, net, on the Condensed Consolidated Statements of Income. See “Note E – Derivative Financial Instruments” for further discussion. |
Changes in Accumulated other comprehensive loss for the twenty-four week periods ended February 10, 2018 and February 11, 2017, consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands) | | Pension Liability | | Foreign Currency(3) | | Net Unrealized Gain on Securities | | Derivatives | | Total | | | | | | | Balance at August 26, 2017 | | | $ | (72,376 | ) | | | $ | (175,814 | ) | | | $ | (11 | ) | | | $ | (6,356 | ) | | | $ | (254,557 | ) | Other comprehensive income (loss) before reclassifications(1) | | | | – | | | | | (35,710 | ) | | | | (538 | ) | | | | – | | | | | (36,248 | ) | Amounts reclassified from Accumulated other comprehensive loss(1) | | | | 3,677 | (2) | | | | – | | | | | (36 | )(4) | | | | 780 | (5) | | | | 4,421 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at February 10, 2018 | | | $ | (68,699 | ) | | | $ | (211,524 | ) | | | $ | (585 | ) | | | $ | (5,576 | ) | | | $ | (286,384 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands) | | Pension Liability | | Foreign Currency(3) | | Net Unrealized Gain on Securities | | Derivatives | | Total | | | | | | | Balance at August 27, 2016 | | | $ | (88,890 | ) | | | $ | (211,012 | ) | | | $ | 120 | | | | $ | (7,747 | ) | | | $ | (307,529 | ) | Other comprehensive (loss) before reclassifications(1) | | | | – | | | | | (42,933 | ) | | | | (248 | ) | | | | – | | | | | (43,181 | ) | Amounts reclassified from Accumulated other comprehensive loss(1) | | | | 3,769 | (2) | | | | – | | | | | (27 | )(4) | | | | 651 | (5) | | | | 4,393 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at February 11, 2017 | | | $ | (85,121 | ) | | | $ | (253,945 | ) | | | $ | (155 | ) | | | $ | (7,096 | ) | | | $ | (346,317 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)(2) | Amounts in parentheses indicate debits to Accumulated other comprehensive loss.Other Comprehensive Loss. |
(2)(3) | Represents amortization of pension liability adjustments,Amounts shown are net of taxes of $1,278 in fiscal 2018 and $2,634 in fiscal 2017, which is recorded in Operating, selling, general and administrative expenses on the Condensed Consolidated Statements of Income. See “Note G – Pension and Savings Plans” for further discussion.tax. |
(3) | Foreign currency is not shown net of additional U.S. tax as earnings ofnon-U.S. subsidiaries are intended to be permanently reinvested. |
(4) | Represents realized losses on marketable securities, net of taxes of $18 in fiscal 2018 and $15 in fiscal 2017, which is recorded in Operating, selling, general and administrative expenses on the Condensed Consolidated Statements of Income. See “Note D – Marketable Securities” for further discussion. |
(5) | Represents gains and losses on derivatives, net of taxes of $237 in fiscal 2018 and $367 in fiscal 2017, which is recorded in Interest expense, net, on the Condensed Consolidated Statements of Income. See “Note E – Derivative Financial Instruments” for further discussion. |
Note KI – Goodwill and Intangibles The changes in the carrying amount of goodwill are as follows:
| | | | | | | | | | | | | | | | (in thousands) | | Auto Parts Stores | | Other | | Total | | | | | Net balance as of August 26, 2017 | | | $ | 326,703 | | | | $ | 65,184 | | | | $ | 391,887 | | Goodwill adjustments(1) | | | | (24,058 | ) | | | | (65,184 | ) | | | | (89,242 | ) | | | | | | | | | | | | | | | | | | | | | Net balance as of February 10, 2018 | | | $ | 302,645 | | | | $ | – | | | | $ | 302,645 | | | | | | | | | | | | | | | | | |
(1) | See “Note L – Asset Impairments” for further discussion. |
The carrying amounts of intangible assets, other than goodwill, are included in Other long-term assets as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands) | | Estimated Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Impairment(1) | | Net Carrying Amount | | | | | | | Amortizing intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | | | Technology | | | | 3-5 years | | | | $ | 10,570 | | | | $ | (9,994 | ) | | | $ | (576 | ) | | | $ | – | | Noncompete agreements | | | | 5 years | | | | | 1,300 | | | | | (1,223 | ) | | | | (77 | ) | | | | – | | Customer relationships | | | | 3-10 years | | | | | 49,676 | | | | | (27,583 | ) | | | | (10,057 | ) | | | | 12,036 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 61,546 | | | | $ | (38,800 | ) | | | $ | (10,710 | ) | | | | 12,036 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-amortizing intangible asset: | | | | | | | | | | | | | | | | | | | | | | | | | | Trade name | | | | | | | | | | | | | | | | | | $ | (26,900 | ) | | | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total intangible assets other than goodwill | | | | | | | | | | | | | | | | | | | | | | | $ | 12,036 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | See “Note L – Asset Impairments” for further discussion. |
Amortization expense of intangible assets for the twelve and twenty-four week periods ended February 10, 2018 was $1.4 million and $2.8 million, respectively. Amortization expense of intangible assets for the twelve and twenty-four week periods ended February 11, 2017 was $1.9 million and $4.0 million, respectively.
Note L – Asset Impairments
During the second quarter, the Company recorded impairment charges related to its IMC and AutoAnything businesses totaling $193.2 million as the Company determined that the approximate fair value less costs to sell the businesses was significantly lower than the carrying value of the net assets based on recent offers received for these businesses as of the quarter ended February 10, 2018.
The impairment charge for the IMC business, which is reflected as a component of Auto Parts Locations in our segment reporting, includes $48.3 million related to inventory, $24.1 million related to goodwill, $18.0 million related to property and equipment, and $3.2 million related to other intangible assets. The impairment charge for AutoAnything, which is reflected as a component of the Other category in our segment reporting, includes $65.2 million related to goodwill and $34.4 million related to other intangible assets. The Company recorded these impairment charges within Operating, selling, general and administrative expenses in its condensed consolidated statements of income.
The carrying value for the assets and liabilities remaining after these impairment charges total $97.4 million and $59.0 million as of February 10, 2018 and are included in our condensed consolidated balance sheet at that date. The major classes of assets and liabilities included in those amounts consisted of accounts receivable of $22.2 million, merchandise inventories of $64.6 million and accounts payable of $47.7 million as of February 10, 2018.
Note M – Litigation
In July 2014, the Company received a subpoena from the District Attorney of the County of Alameda, along with other environmental prosecutorial offices in the State of California, seeking documents and information related to the handling, storage and disposal of hazardous waste. The Company received notice that the District Attorney will seek injunctive and monetary relief. The Company is cooperating fully with the request and cannot predict the ultimate outcome of these efforts, although the Company has accrued all amounts it believes to be probable and reasonably estimable. The Company does not believe the ultimate resolution of this matter will have a material adverse effect on its consolidated financial position, results of operations or cash flows.
The Company is involved in various other legal proceedings incidental to the conduct of its business, including, but not limited to, several lawsuits containing class-action allegations in which the plaintiffs are current and former hourly and salaried employees who allege various wage and hour violations and unlawful termination practices. The CompanyWhile the resolution of these matters cannot be predicted with certainty, management does not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to its consolidated financial condition, resultsthe Company’s Condensed Consolidated Statements of operationsIncome, Condensed Consolidated Balance Sheets or cash flows.Condensed Consolidated Statements of Cash Flows. Note NJ – Segment Reporting The Company’s four operating segments (Domestic Auto Parts, Mexico Brazil and IMC)Brazil) are aggregated as one1 reportable segment: Auto Parts Locations.Stores. The criteria the Company used to identify the reportable segment are primarily the nature of the products the Company sells and the operating results that are regularly reviewed by the Company’s chief operating decision maker to make decisions about the resources to be allocated to the business units and to assess performance. The accounting policies of the Company’s reportable segment are the same as those described in Note“Note A – Significant Accounting Policies” in its Annual Report on Form10-K for the year ended August 26, 2017.28, 2021. The Auto Parts LocationsStores segment is a retailer and distributor of automotive parts and accessories through the Company’s 6,088 locations6,846 stores in the United States, Puerto Rico,U.S., Mexico and Brazil. Each locationstore carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories andnon-automotive products. The Other category reflects business activities of three2 operating segments that are not separately reportable due to the materiality of these operating segments. The operating segments include ALLDATA, which produces, sells and maintains automotive diagnostic, repair and repair informationshop management software used in the automotive repair industry;industry and E-commerce, which includes direct sales to customers through www.autozone.com; and AutoAnything, which includes directwww.autozone.com for sales to customers through www.autoanything.com.that are not fulfilled by local stores. The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. Segment results for the periods presented were as follows: | | | Twelve Weeks Ended | | Twenty-Four Weeks Ended | | | | | | | | | | | | | | | | | | | Twelve Weeks Ended | | Thirty-Six Weeks Ended | | | | May 7, | | May 8, | | May 7, | | May 8, | (in thousands) | | February 10, 2018 | | February 11, 2017 | | February 10, 2018 | | February 11, 2017 | | 2022 | | 2021 | | 2022 | | 2021 | | | | | | | | | | | | | | | | Net Sales | | | | | | | | | | | | | | | | | | | | | | Auto Parts Locations | | | $ | 2,331,572 | | | $ | 2,205,562 | | | $ | 4,841,700 | | | $ | 4,595,123 | | | Auto Parts Stores | | | $ | 3,795,290 | | $ | 3,590,281 | | $ | 10,707,019 | | $ | 9,551,576 | Other | | | 81,454 | | | 83,657 | | | 160,456 | | | 161,942 | | | | 69,932 | | | 60,742 | | | 196,856 | | | 164,525 | | | | | | | | | | | | | | | | Total | | | $ | 2,413,026 | | | $ | 2,289,219 | | | $ | 5,002,156 | | | $ | 4,757,065 | | | $ | 3,865,222 | | $ | 3,651,023 | | $ | 10,903,875 | | $ | 9,716,101 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Segment Profit | | | | | | | | | | | | | | | | | | | | | | Auto Parts Locations | | | $ | 1,233,008 | | | $ | 1,160,923 | | | $ | 2,555,452 | | | $ | 2,418,689 | | | Auto Parts Stores | | | $ | 1,966,089 | | $ | 1,877,240 | | $ | 5,600,778 | | $ | 5,042,124 | Other | | | 44,038 | | | 44,613 | | | 87,441 | | | 88,388 | | | | 40,325 | | | 37,706 | | | 116,022 | | | 107,822 | | | | | | | | | | | | | | | | Gross profit | | | 1,277,046 | | | 1,205,536 | | | 2,642,893 | | | 2,507,077 | | | | 2,006,414 | | | 1,914,946 | | | 5,716,800 | | | 5,149,946 | Operating, selling, general and administrative expenses(1) | | | (1,071,948 | ) | | (821,567 | ) | | (1,969,041 | ) | | (1,664,206 | ) | | Operating, selling, general and administrative expenses | | | | (1,220,744) | | | (1,111,441) | | | (3,549,885) | | | (3,249,449) | Interest expense, net | | | (39,340 | ) | | (34,198 | ) | | (78,229 | ) | | (67,504 | ) | | | (41,888) | | | (45,026) | | | (127,642) | | | (137,217) | | | | | | | | | | | | | | | | Income before income taxes | | | $ | 165,758 | | | $ | 349,771 | | | $ | 595,623 | | | $ | 775,367 | | | $ | 743,782 | | $ | 758,479 | | $ | 2,039,273 | | $ | 1,763,280 | | | | | | | | | | | | | | | |
(1) | Includes impairment charges of $193.2 million. See “Note L – Asset Impairments” for further discussion. |
Note O – Income Taxes
Our effective income tax rate was (74.7%)
Table of pretax income for the twelve weeks ended February 10, 2018. The effective tax rate was lower than the U.S. statutory federal rate primarily due to a $111.9 million provisional tax benefit resulting from the enactment of the Tax Reform as described in further detail below; $32.1 million of excess tax benefits from option exercises; a $35.3 million benefit from the previously reported quarter one tax expense due to the reduction of the U.S. statutory rate from 35% to approximately 25.9%; and a second quarter tax benefit of $24.2 million due to the reduction of the U.S. statutory rate from 35% to approximately 25.9%.Contents Our effective income tax rate was 4.2% of pretax income for the twenty-four weeks ended February 10, 2018. The effective tax rate was lower than the U.S. statutory federal rate primarily due to a $111.9 million provisional tax benefit resulting from the enactment of Tax Reform as described in further detail below; $34.3 million of excess tax benefits from option exercises; and a $59.5 million benefit from the reduction of the U.S. statutory rate from 35% to approximately 25.9%.
At the end of each interim period, the Company estimates its effective tax rate and applies that rate to its ordinary quarterly earnings. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur. In addition, the effects of changes in enacted tax laws or rates or tax status are recognized in the interim period in which the change occurs.
On December 22, 2017, Tax Reform was enacted by the U.S. government. Tax Reform contains several key provisions that affected the Company. The enacted provisions impacting the current financial statements include a mandatoryone-time transition tax on certain earnings of foreign subsidiaries and a permanent reduction of the U.S. corporate income tax rate from 35 to 21 percent, effective January 1, 2018. As the Company has an August 25th fiscalyear-end, the impact of the lower rate will be phased in resulting in a U.S. statutory federal tax rate of approximately 25.9% for the fiscal year ending August 25, 2018 and a 21% U.S. statutory federal rate for fiscal years thereafter. Other enacted provisions which may impact the Company beginning in fiscal 2019 include: limitations on the deductibility of executive compensation, eliminating U.S. federal taxation of future remitted foreign earnings, and other new provisions requiring current inclusion of certain earnings of controlled foreign corporations. The Company maintained its permanent reinvestment assertion fornon-U.S. subsidiary earnings but will continue to evaluate and analyze potential impacts of any additional foreign and/or state income taxes on cash repatriation. The Company has not recorded deferred taxes attributable to its foreign operations at this time. Based on information currently available and subject to change, the Company currently forecasts its long-term effective tax rate to be approximately 24.5 percent.
The Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of Tax Reform. To the extent that a company’s accounting for certain income tax effects of Tax Reform is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of Tax Reform.
The ultimate impact may differ from provisional amounts recorded, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, and additional regulatory guidance that may be issued. The accounting is expected to be completed within one year from the enactment date of Tax Reform.
Based on the current analysis, the Company recorded a provisional income tax benefit of $111.9 million in its consolidated financial statements for the quarter ended February 10, 2018. The Company was able to determine a reasonable estimate for the mandatoryone-time transition tax to increase tax expense by $24.8 million and for there-measurement of the Company’s net U.S. federal deferred tax liability at the lower rate to reduce tax expense by $136.7 million. The Company’s analysis of these items is incomplete at this time. The Company will complete the accounting for these items during the measurement period, which will not exceed beyond one year from the enactment date.
As of February 10, 2018, the Company has estimated the following obligations with respect to the mandatory deemed repatriation of the Company’s foreign subsidiaries. The estimate may change, possibly materially, due to among other things, further refinement of the Company’s calculations, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of Tax Reform.
| | | | | | | | | | | (in thousands) | | Scheduled Payments | | | | 2018 | | | $ | 3,507 | | | | | | | 2019 | | | | 1,847 | | | | | | | 2020 | | | | 1,847 | | | | | | | 2021 | | | | 1,847 | | | | | | | 2022 | | | | 1,847 | | | | | | | 2023 | | | | 3,464 | | | | | | | 2024 | | | | 4,619 | | | | | | | 2025 | | | | 5,773 | | | | | | | | | | | | | | | | | | TotalOne-Time Transition Tax Forecasted Obligation Payments | | | $ | 24,751 | | | | | | | | | | | | | | | | | |
Note P – Subsequent Events
Subsequent to the balance sheet date, on February 22, 2018, the Company entered into an asset purchase agreement to sell substantially all of the assets, net of assumed liabilities related to its IMC operations for consideration that approximates the remaining net book value of the business. The transaction is expected to close in the third quarter of fiscal 2018. On February 26, 2018, the Company sold substantially all of the assets, net of assumed liabilities, related to its AutoAnything operations for consideration that approximates the remaining net book value of the business.
Report of Independent Registered Public Accounting Firm The
To the Stockholders and Board of Directors and Stockholdersof AutoZone, Inc. Results of Review of Interim Financial Statements We have reviewed the accompanying condensed consolidated balance sheet of AutoZone, Inc. (the Company) as of February 10, 2018,May 7, 2022, the related condensed consolidated statements of income, comprehensive income and stockholders’ deficit for the twelve and twenty-fourthirty-six week periods ended February 10, 2018May 7, 2022 and February 11, 2017, the condensed consolidated statements of comprehensive income for the twelve and twenty-four week periods ended February 10, 2018 and February 11, 2017, andMay 8, 2021, the condensed consolidated statements of cash flows for the twenty-fourthirty-six week periods ended February 10, 2018May 7, 2022 and February 11, 2017. TheseMay 8, 2021, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements are the responsibility of the Company’s management.for them to be in conformity with U.S. generally accepted accounting principles. We conducted our reviewhave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of August 28, 2021, the related consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated October 25, 2021, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August 28, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Basis for Review Results These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial informationstatements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board,PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of AutoZone, Inc. as of August 26, 2017, and the related consolidated statements of income, comprehensive income, stockholders’ deficit, and cash flows for the year then ended, not presented herein, and, in our report dated October 25, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August 26, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s//s/ Ernst & Young LLP
Memphis, Tennessee March 16, 2018 June 10, 2022 Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect ourthe future results.results of AutoZone, Inc. (“AutoZone” or the “Company”). The review of Management’s Discussion and Analysisfollowing MD&A discussion should be maderead in conjunction with our condensed consolidated financial statements,Condensed Consolidated Financial Statements, related notes to those statements and other financial information, including forward-looking statements and other risk factors, includedthat appear elsewhere in this quarterly report.Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended August 28, 2021 and other filings we make with the SEC. Forward-Looking Statements Certain statements contained in this Quarterly Report on Form10-Q constitute forward-looking statements that are forward-looking statements.subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically use words such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy”“strategy,” “seek,” “may,” “could,” and similar expressions. These are based on assumptions and assessments made by our management in light of experience and perception of historical trends, current conditions, expected future developments and other factors that we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including without limitation: product demand;demand, due to changes in fuel prices, miles driven or otherwise; energy prices; weather; competition; credit market conditions; cash flows; access to available and feasible financing; future stock repurchases; the impact of recessionary conditions; consumer debt levels; changes in laws or regulations; risks associated with self -insurance; war and the prospect of war, including terrorist activity; the impact of public health issues, such as the ongoing global coronavirus (“COVID-19”) pandemic; inflation; the ability to hire, train and retain qualified employees; construction delays; the compromising of confidentiality, availability or integrity of information, including cyber attacks;due to cyber-attacks; historic growth rate sustainability; downgrade of our credit ratings; damage to our reputation; challenges in international markets; failure or interruption of our information technology systems; origin and raw material costs of suppliers.suppliers; inventory availability; disruption in our supply chain; impact of tariffs; anticipated impact of new accounting standards; and business interruptions. Certain of these risks and uncertainties are discussed in more detail in the “Risk Factors” section contained in Item 1A under Part 1 of our Annual Report on Form10-K for the year ended August 26, 2017,28, 2021, and these Risk Factors should be read carefully. Forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those contemplated by such forward-looking statements, and events described above and in the “Risk Factors” could materially and adversely affect our business. However, it should be understood that it is not possible to identify or predict all such risks and other factors that could affect these forward-looking statements. Forward-looking statements speak only as of the date made. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Actual results may materially differ from anticipated results. Overview We are the nation’s leading retailer and a leading distributor of automotive replacement parts and accessories in the United States.Americas. We began operations in 1979 and at February 10, 2018,May 7, 2022, operated 5,514 AutoZone6,115 stores in the United States, including Puerto Rico; 532U.S., 673 stores in Mexico; 16Mexico and 58 stores in Brazil; and 26 IMC branches.Brazil. Each AutoZone store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories andnon-automotive products. At February 10, 2018,May 7, 2022, in 4,6455,276 of our domestic AutoZone stores, we also had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts. We also have commercial programs in AutoZoneall stores in Mexico and Brazil. We sell the ALLDATA brand automotive diagnostic, repair and repairshop management software through www.alldata.com and www.alldatadiy.com.www.alldata.com. Additionally, we sell automotive hard parts, maintenance items, accessories andnon-automotive products through www.autozone.com, and our commercial customers can make purchases through www.autozonepro.com. We also provide product information on our Duralast branded products through www.duralastparts.com. We do not derive revenue from automotive repair or installation services. Operating results for the twelve and twenty-fourthirty-six weeks ended February 10, 2018May 7, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending August 25, 2018.27, 2022. Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters forof fiscal 20172022 and 20182021 each have 16 weeks. Our business is somewhat seasonal in nature, with the highest sales generally occurring during the months of February through September, and the lowest sales generally occurring in the months of December and January. COVID-19 Impact The COVID-19 pandemic continues to impact the global economy and numerous aspects of our business including our customers, employees and suppliers. Our highest priority remains the safety and well-being of our customers and employees. Since the beginning of the COVID-19 pandemic, we have experienced strong same store sales, and our sales have remained at all-time high volumes. The long-term impact of COVID-19 to our business remains unknown, may magnify risks associated with our business and operations and may continue to cause fluctuations in demand and availability for our products, our store hours and our workforce availability. Please refer to the “Risk Factors” section of our Annual report on Form 10-K for the year ended August 28, 2021 for additional information. Executive Summary Net sales were up 5.4%increased 5.9% for the quarter ended May 7, 2022 compared to the prior year period, which was driven by sales of $43.1 million from new domestic AutoZone stores and an increase in domestic same store sales (sales from stores open at least one year) of 2.2%2.6%. EarningsDomestic commercial sales increased 26.0%, which represents approximately 30% of our domestic auto parts sales. Operating profit decreased 2.2% to $785.7 million compared to $803.5 million. Net income for the quarter decreased 0.6% to $592.6 million compared to $596.2 million. Diluted earnings per share increased 28.5% for the quarter and were significantly impacted by the Tax Reform and asset impairments recorded during the quarter.9.6% to $29.03 per share from $26.48 per share. Our business is impacted by various factors within the economy that affect both our consumerconsumers and our industry, including but not limited to inflation, fuel costs, unemploymentwage rates, foreign exchange and interest rates,supply chain disruptions, hiring and other economic conditions.conditions, including the effects of, and responses to, the ongoing COVID-19 pandemic. Given the nature of these macroeconomic factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future. During the secondthird quarter of fiscal 2018,2022, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 85%84% of total sales, which wasis consistent towith the comparable prior year period, with failure related categories continuing to be the largest portion of our largest set of categories. sales mix. We did not experience any fundamental shifts in our category sales mix as compared to the previous year. Our sales mix can be impacted by severe or unusual weather over a short termshort-term period. Over the long term,long-term, we believe the impact of the weather on our sales mix is not significant. Our primary response to fluctuations in the demand for the products we sell is to adjust our advertising message, store staffing and product assortment. In recent years, we initiated a variety
The two statistics we believe have the most positiveclosest correlation to our market growth over the long-term are miles driven and the number of seven year old or older vehicles on the road. While over the long-term we have seen a positiveclose correlation between our net sales and the number of miles driven, we have also seen time frames of minimal correlation in sales performance and miles driven. During the periods of minimal correlation between net sales and miles driven, we believe net sales have been positively impacted by other factors, including macroeconomic factors and the number of seven year old or older vehicles on the road. The average age of the U.S. light vehicle fleet continues to trend in our industry’s favor.favor as the average age has exceeded 11 years since 2012, according to the latest data provided by the Auto Care Association. As of January 1, 2022, the average age of light vehicles on the road was 12.2 years, up from 12.1 years in 2021. Since the beginning of 2017the fiscal year and through December 2017March 2022 (latest publicly available information), miles driven in the U.S. increased by 1.2%.7.9% compared to the same period in the prior year. We believe the increase in miles driven is due to the nation beginning to return to pre-pandemic levels, but we are unable to predict if the increase will continue, due to rising fuel prices, general macroeconomic conditions or otherwise, or the extent of the impact it will have on our business. Twelve Weeks Ended February 10, 2018May 7, 2022 Compared with Twelve Weeks Ended February 11, 2017May 8, 2021 Net sales for the twelve weeks ended February 10, 2018May 7, 2022 increased $123.8$214.2 million to $2.413$3.9 billion, or 5.4%,5.9% over net sales of $2.289$3.7 billion for the comparable prior year period. Total auto parts sales increased by 5.7%, primarily driven by net sales of $43.1 million from new domestic AutoZone stores and an increase in domestic same store sales of 2.2%.2.6% and net sales of $69.6 million from new stores. Domestic commercial sales increased $24.8$215.7 million to $1.0 billion, or 5.7%26.0%, over the comparable prior year period. Gross profit for the twelve weeks ended February 10, 2018May 7, 2022 was $1.277$2.0 billion, compared with $1.9 billion during the comparable prior year period. Gross profit, as a percentage of sales, was 51.9% compared to 52.4% during the comparable prior year period. The decrease in gross margin was primarily driven by accelerated growth in our lower margin commercial business. Operating, selling, general and administrative expenses for the twelve weeks ended May 7, 2022 were $1.2 billion, or 52.9%31.6% of net sales, compared with $1.206$1.1 billion, or 52.7%30.4% of net sales during the comparable prior year period. The increase in gross margin was attributable to lower distribution costs (17 basis points) and higher merchandise margins. Operating, selling, general and administrativeoperating expenses, for the twelve weeks ended February 10, 2018 were $1.072 billion, or 44.4% of net sales and included impairment charges of approximately $193.2 million, or 8.0% of sales, compared with $821.6 million, or 35.9% of net sales, during the comparable prior year period. Operating expenses before impairment charges, as a percentage of sales, were higher thanwas driven by payroll deleverage as last year primarily due to incentive compensation(-16 basis points), higher advertising costs(-12 basis points) and deleverage on occupancy costs(-10 basis points).year’s historic comparable store sales drove significant leverage.
Net interest expense for the twelve weeks ended February 10, 2018May 7, 2022 was $39.3$41.9 million compared with $34.2$45.0 million during the comparable prior year period. The increase was primarily due to higher weighted average borrowing rates over the comparable prior year period. Average borrowings for the twelve weeks ended February 10, 2018May 7, 2022 were $5.033$6.0 billion, compared with $5.133$5.4 billion for the comparable prior year period. Weighted average borrowing rates were 3.1%2.74% and 3.29% for the quarter ended May 7, 2022 and May 8, 2021, respectively. Our effective income tax rate was 20.3% of pretax income for the twelve weeks ended February 10, 2018May 7, 2022, and 2.6%21.4% for the comparable prior year period. The decrease in the tax rate was primarily attributable to an increased benefit from stock options exercised during the twelve weeks ended May 7, 2022. The benefit of stock options exercised for the twelve weeks ended February 11, 2017.May 7, 2022 was $21.1 million compared to $16.0 million in the comparable prior year period. Net income for the twelve week period ended February 10, 2018 increasedMay 7, 2022 decreased by $52.4$3.6 million to $289.5$592.6 million due to the factors set forth above, and diluted earnings per share increased by 28.5%9.6% to $10.38$29.03 from $8.08 in the comparable prior year period. Adjusted for impairment charges, Tax Reform, excess tax benefits from option exercises and operating results from IMC and AutoAnything, adjusted net income for the twelve week period ended February 10, 2018 increased by $8.8 million to $236.3 million, while adjusted diluted earnings per share increased by 9.3% to $8.47 from $7.75 in the comparable prior year period.$26.48. The impact on current quarter diluted earnings per share from stock repurchases since the end of the comparable prior year period was an increase of $0.40.$2.51. Twenty-Four
Thirty-Six Weeks Ended February 10, 2018May 7, 2022 Compared with Twenty-FourThirty-Six Weeks Ended February 11, 2017May 8, 2021 Net sales for the twenty-fourthirty-six weeks ended February 10, 2018May 7, 2022 increased $245.1 million$1.2 billion to $5.002$10.9 billion, or 5.2%,12.2% over net sales of $4.757$9.7 billion for the comparable prior year period. Total auto parts sales increased by 5.4%12.1%, primarily driven by net sales of $87.5 million from new domestic AutoZone stores and an increase in domestic same store sales of 2.3%.9.5% and net sales of $200.3 million from new stores. Domestic commercial sales increased $55.4$625.3 million to $2.8 billion, or 6.2%28.9%, over the comparable prior year period. Gross profit for the twenty-fourthirty-six weeks ended February 10, 2018May 7, 2022 was $2.643$5.7 billion, compared with $5.1 billion during the comparable prior year period. Gross profit, as a percentage of sales was 52.4% compared to 53.0% during the comparable prior year period. The decrease in gross margin was primarily driven by initiatives to accelerate commercial business growth. Operating, selling, general and administrative expenses for the thirty-six weeks ended May 7, 2022 were $3.5 billion, or 52.8%32.6% of net sales, compared with $2.507$3.2 billion, or 52.7%33.4% of net sales during the comparable prior year period. The increasedecrease in gross margin was attributable to lower distribution costs (13 basis points) and higher merchandise margins. Operating, selling, general and administrativeoperating expenses, for the twenty-four weeks ended February 10, 2018 were $1.969 billion, or 39.4% of net sales, and included impairment charges of approximately $193.2 million, or 3.9% of sales, compared with $1.664 billion, or 35.0% of net sales, during the comparable prior year period. Operating expenses before impairment charges, as a percentage of sales, were higher than lastwas driven by strong sales growth and approximately $46 million in prior year primarily due to hurricane-relatedpandemic related expenses, incurred during the first quarter(-17 basis points), higher incentive compensation(-17 basis points), deleverage on occupancy(-15 basis points) and higher advertising costs(-5 basis points).including Emergency Time-Off benefit enhancements for our AutoZoners.
Net interest expense for the twenty-fourthirty-six weeks ended February 10, 2018May 7, 2022 was $78.2$127.6 million compared with $67.5$137.2 million during the comparable prior year period. The increase was primarily due to higher weighted average borrowing rates over the comparable year period. Average borrowings for the twenty-fourthirty-six weeks ended February 10, 2018May 7, 2022 were $4.990$5.6 billion, compared with $5.034$5.5 billion for the comparable prior year period. Weighted average borrowing rates were 3.1%3.03% and 3.28% for the twenty-fourthirty-six week periods ended May 7, 2022 and May 8, 2021, respectively. Our effective income tax rate was 20.6% of pretax income for the thirty-six weeks ended February 10, 2018May 7, 2022, and 2.6%21.5% for the twenty-fourcomparable prior year period. The decrease in the tax rate was primarily attributable to an increased benefit from stock options exercised during the thirty-six weeks ended February 11, 2017.May 7, 2022. The benefit of stock options exercised for the thirty-six week period ended May 7, 2022 was $55.9 million compared to $35.2 million in the comparable prior year period. Net income for the twenty-four weeksthirty-six week period ended February 10, 2018May 7, 2022 increased by $55.3$235.0 million to $570.5 million$1.6 billion due to the factors set forth above, and diluted earnings per share increased by 16.8%28.6% to $20.38$76.90 from $17.45 in the comparable prior year period. Adjusted for impairment charges, Tax Reform, excess tax benefits from option exercises and operating results from IMC and AutoAnything, adjusted net income for the twenty-four weeks period ended February 10, 2018 increased by $11.4 million to $517.2 million, while adjusted diluted earnings per share increased by 7.8% to $18.47 from $17.13 in the comparable prior year period.$59.80. The impact on current year to date diluted earnings per share from stock repurchases since the end of the comparable prior year period was an increase of $0.91. Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Reform legislation. The Tax Reform contains several key provisions that affected the Company. The enacted provisions impacting the current financial statements include a mandatoryone-time transition tax on certain earnings of foreign subsidiaries and a permanent reduction of the U.S. corporate income tax rate from 35 to 21 percent, effective January 1, 2018. As the Company has an August 25th fiscalyear-end, the impact of the lower rate will be phased in resulting in a U.S. statutory federal tax rate of approximately 25.9% for the fiscal year ending August 25, 2018 and a 21% U.S. statutory federal rate for fiscal years thereafter. Other enacted provisions which may impact the Company beginning in fiscal 2019 include limitations on the deductibility of executive compensation, eliminating U.S. federal taxation of future remitted foreign earnings, and other new provisions requiring current inclusion of certain earnings of controlled foreign corporations. The Company maintained its permanent reinvestment assertion fornon-U.S. subsidiary earnings but will continue to evaluate and analyze potential impacts of any additional foreign and/or state income taxes on cash repatriation. We have not recorded deferred taxes attributable to its foreign operations at this time. Based on information currently available and subject to change, we currently forecasts its long-term effective tax rate to be approximately 24.5 percent.
The Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of Tax Reform. To the extent that a company’s accounting for certain income tax effects of Tax Reform is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of Tax Reform. The ultimate impact may differ from provisional amounts recorded, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, and additional regulatory guidance that may be issued. The accounting is expected to be completed within one year from the enactment date of Tax Reform.
Based on our current analysis, we recorded a provisional income tax benefit of $111.9 million in its consolidated financial statements for the quarter ended February 10, 2018. We were able to determine a reasonable estimate for the mandatoryone-time transition tax to increase tax expense by $24.8 million and for there-measurement of our net U.S. federal deferred tax liability at the lower rate to reduce tax expense by $136.7 million. Our analysis of these items is incomplete at this time. We will complete the accounting for these items during the measurement period, which will not extend beyond one year from the enactment date.
Our effective income tax rate was (74.7%) of pretax income for the twelve weeks ended February 10, 2018 and 32.2% for the comparable prior year period. The lower tax rate resulted from the $111.9 million provisional amount discussed above, $32.1 million of excess tax benefits from option exercises, $35.3 million benefit from the previously reported 2018 first quarter tax expense due to the reduction of the U.S. statutory rate from 35% to approximately 25.9% and a 2018 second quarter tax benefit of $24.2 million due to the reduction of the U.S. statutory rate from 35% to approximately 25.9%.
Our effective income tax rate was 4.2% of pretax income for the twenty-four weeks ended February 10, 2018 and 33.5% for the comparable prior year period. The lower tax rate resulted from the $111.9 million provisional amount discussed above, $34.3 million of excess tax benefits from option exercises and a $59.5 million benefit from the reduction of the U.S. statutory rate from 35% to approximately 25.9%.$4.58.
Liquidity and Capital Resources The primary source of our liquidity is our cash flows realized through the sale of automotive parts, products and accessories. Our cash flow results benefitted from the quarter’s strong sales and continued progress on our initiatives. We believe that our cash generated from operating activities and available credit, supplemented with our long-term borrowings will provide ample liquidity to fund our operations while allowing us to make strategic investments to support long-term growth initiatives and return excess cash to shareholders in the form of share repurchases. As of May 7, 2022, we held $263.0 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our Revolving Credit Agreement, before giving effect to commercial paper borrowings. We believe our sources of liquidity will continue to be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due and fund our share repurchases over the short-term and long-term. In addition, we believe we have the ability to obtain alternative sources of financing, if necessary. However, decreased demand for our products or changes in customer buying patterns would negatively impact our ability to generate cash from operating activities. Decreased demand or changes in buying patterns could also impact our ability to meet our debt covenants of our credit agreements and, therefore, negatively impact the funds available under our Revolving Credit Agreement. In the event our liquidity is insufficient, we may be required to limit our spending. For the twenty-fourthirty-six weeks ended February 10, 2018,May 7, 2022, our net cash flows from operating activities provided $752.3 million, as$2.0 billion compared with $563.9 million provided$2.2 billion during the comparable prior year period. The increasedecrease is primarily driven by higher inventory growth, net of accounts payable in the current year, and a decrease in accrued benefits and withholdings in the current period, as compared to the same period in the prior year due to increased earningsthe ability to defer certain payroll tax payments in the prior year under the Coronavirus Aid, Relief, and favorable changesEconomic Security Act. The decrease was partially offset by growth in taxes payable.net income due to accelerated sales growth. Our net cash flows used in investing activities for the twenty-fourthirty-six weeks ended February 10, 2018 was $230.6May 7, 2022 were $360.7 million as compared with $202.7$358.7 million in the comparable prior year period. Capital expenditures for the twenty-fourthirty-six weeks ended February 10, 2018May 7, 2022 were $214.7$369.4 million compared to $216.1$375.7 million forin the comparable prior year period. During the twenty-four week period ended February 10, 2018, we opened 59 net new locations. In the comparable prior year period, we opened 58 net new locations. Investing cash flows were impacted by our wholly owned captive, which purchased $80.8$46.5 million and sold $63.1$37.9 million in marketable debt securities during the twenty-fourthirty-six weeks ended February 10, 2018. May 7, 2022. During the comparable prior year period, the captive purchased $27.8$52.6 million in marketable debt securities and sold $40.5 million in marketable securities.$72.3 million.
Our net cash flows used in financing activities for the twenty-fourthirty-six weeks ended February 10, 2018May 7, 2022 were $524.3 million$2.5 billion compared to $336.6 million in the comparable prior year period. During the twenty-four week period ended February 10, 2018, we repaid no debt. During the comparable prior year period, we repaid our $400 million 1.35% Senior Notes due in January 2017 using commercial paper borrowings. For the twenty-four week period ended February 10, 2018, our commercial paper activity resulted in $39.6 million in net repayments of commercial paper, as compared to $625.6 million in net proceeds$2.7 billion in the comparable prior year period. Stock repurchases were $527.5 million$3.4 billion in the current twenty-fourthirty-six week period as compared with $560.6$2.5 billion in the prior year period. The treasury stock repurchases were primarily funded by cash flows from operations. During the thirty-six weeks ended May 7, 2022, we repaid our $500 million 3.700% Senior Notes due April 2022, which were callable at par in January 2022. In the comparable prior year period.period, we repaid the $250 million 2.500% Senior Notes due April 2021, which were callable at par in March 2021. For the twenty-four weeksthirty-six week period ended February 10, 2018,May 7, 2022, our commercial paper activity resulted in $1.3 billion in net proceeds from commercial paper compared to no commercial paper borrowings in the prior year period. Proceeds from the sale of common stock and exercises of stock options for the thirty-six weeks ended May 7, 2022 and May 8, 2021 provided $65.2 million. In the comparable prior year period, proceeds from the sale of common stock$98.1 million and exercises of stock options provided $23.3 million.$121.9 million, respectively. During fiscal 2018,2022, we expect to investincrease the investment in our business at a rate consistent withas compared to fiscal 2017.2021. Our investments continueare expected to be directed primarily to new locations,expansion of our store base and supply chain infrastructure, enhancements to fuel the growth of our domestic and international businesses, which includes new stores, including hubs and mega hubs, as well as new distribution centers and expansions of existing locations and investments in technology.distribution centers. The amount of our investments in our new locationsstores is impacted by different factors, including such factors as whether the building and land are purchased (requiring higher investment) or leased (generally lower initial investment), and whether such buildings are located in the United States,U.S., Mexico or Brazil, or located in urban or rural areas. In addition to the building and land costs, our new locationsstores require working capital, predominantly for inventories. Historically, we have negotiated extended payment terms from suppliers, reducing the working capital required and resulting in a high accounts payable to inventory ratio. We plan to continue leveraging our inventory purchases; however, our ability to do so may be limited by our vendors’ capacity to factor their receivables from us. Certain vendors participate in financing arrangements with financial institutions whereby they factor their AutoZone receivables, from us, allowing them to receive early payment from the financial institution on our invoices at a discounted rate. In recent years,The terms of these agreements are between the vendor and the financial institution. Upon request from the vendor, we initiated a varietyconfirm to the vendor’s financial institution the balances owed to the vendor, the due date and agree to waive any right of strategic tests focused on increasing inventory availability,offset to the confirmed balances. A downgrade in our credit or changes in the financial markets may limit the financial institutions’ willingness to participate in these arrangements, which increased our inventory per location. Many of our vendors have supported our initiativemay result in the vendor wanting to update our product assortments by providing extendedrenegotiate payment terms. These extendedA reduction in payment terms would increase the working capital required to fund future inventory investments. Extended payment terms from our vendors have allowed us to continue our high accounts payable to inventory ratio. Accounts payable, as a percentage of gross inventory, was 106.9%127.9% at February 10, 2018,May 7, 2022, compared to 105.5%123.9% at February 11, 2017.May 8, 2021. The slight increase in this ratio isfrom the comparable prior year period was primarily due to inventory impairment charges related to IMC and increases in accounts payable due toincreased purchases with favorable vendor payment terms.terms and higher inventory turns. Depending on the timing and magnitude of our future investments (either in the form of leased or purchased properties or acquisitions), we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures, working capital requirements and stock repurchases. The balance may be funded through new borrowings. We anticipate that we will be able to obtain such financing in view ofbased on our current credit ratings and favorable experiences in the debt markets in the past. Tax Reform was enacted on December 22, 2017. As part of the transition to the new territorial tax system, Tax Reform imposes a tax on the mandatory deemed repatriation of earnings of the Company’s foreign subsidiaries. It is estimated that the deemed repatriation tax will be approximately $24.8 million, which has been recorded to income tax expense. The estimate may change, possibly materially, due to among other things, further refinement of the Company’s calculations, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of Tax Reform.
For the trailing four quarters ended February 10, 2018,May 7, 2022, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 30.2%51.4% as compared to 31.0%40.2% for the comparable prior year period. Adjusted ROIC is calculated as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating leases). We use adjusted ROIC to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance. Refer to the “Reconciliation ofNon-GAAP Financial Measures” section for further details of our calculation. Debt Facilities We entered into a Master Extension, New CommitmentOn November 15, 2021, we amended and Amendment Agreement dated as of November 18, 2017restated our existing revolving credit facility (the “Extension Amendment”“Revolving Credit Agreement”) pursuant to the Third Amended and Restated Credit Agreement dated as of November 18, 2016, as amended, modified, extended or restated from time to time. Under the Extension Amendment: (i)which our borrowing capacity under the Revolving Credit Agreement was increased from $1.6$2.0 billion to $2.0 billion; (ii) our option to increase the borrowing capacity under the Revolving Credit Agreement was “refreshed”$2.25 billion and the amount of such option remained at $400 million; the maximum borrowing under the Revolving Credit Agreement may, at our option, subject to lenders approval, be increased from $2.0$2.25 billion to $2.4 billion; (iii) the termination date of the$3.25 billion. The Revolving Credit Agreement was extended fromwill terminate, and all amounts borrowed will be due and payable, on November 18, 2021 until November 18, 2022; and (iv)15, 2026, but we have the optionmay make up to make one additional written request of the lenderstwo requests to extend the termination date then in effect for an additional period of one year. Underyear each. Revolving borrowings under the revolving credit facility, weRevolving Credit Agreement may borrow funds consisting of Eurodollar loans,be base rate loans, Eurodollar loans, or a combination of both. Interest accrues on Eurodollar loansboth, at a defined Eurodollar rate, defined as LIBOR plus the applicable percentage, as defined in the revolving credit facility, depending upon our senior, unsecured,(non-credit enhanced) long-term debt rating. Interest accrues on base rate loans as defined in the credit facility. As of February 10, 2018, we had $3.3 million of outstanding letters of credit under theelection. The Revolving Credit Agreement.
On November 18, 2016, we amended and restated our existing364-Day revolving credit facility (the “New364-Day Credit Agreement”) by decreasing the committed credit amount from $500Agreement includes (i) a $75 million to $400sublimit for swingline loans, (ii) a $50 million extending the expiration date by one year and renegotiating other terms and conditions. The credit facility was available to primarily support commercial paper borrowings and other short-term unsecured bank loans. Under the credit facility, we could borrow funds consisting of Eurodollar loans, base rate loans or a combination of both.
Interest accrued on Eurodollar loans at a defined Eurodollar rate, defined as LIBOR plus the applicable margin, as defined in the revolving credit facility, depending upon our senior, unsecured,(non-credit enhanced) long-term debt rating. Interest accrued on base rate loans as defined in the credit facility. The New364-Day Credit Agreement expired on November 17, 2017, and we did not renew this revolving credit facility.
We also maintain aindividual issuer letter of credit facility that allows us to request the participating bank to issuesublimit and (iii) a $250 million aggregate sublimit for all letters of credit oncredit.
Under our behalf up to an aggregate amount of $75 million. The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement. As of February 10, 2018, we had $75.0 million in letters of credit outstanding under the letter of credit facility, which expires in June 2019. In addition to the outstanding letters of credit issued under the committed facilities discussed above, we had $30.1 million in letters of credit outstanding as of February 10, 2018. These letters of credit have various maturity dates and were issued on an uncommitted basis.
All senior notes are subject to an interest rate adjustment if the debt ratings assigned to the senior notes are downgraded (as defined in the agreements). Further, the senior notes contain a provision that repayment of the senior notes may be accelerated if we experience a change in control (as defined in the agreements). Our borrowings under our senior notes contain minimal covenants, primarily restrictions on liens. Under our revolving credit facilities,Agreement, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances.
As of May 7, 2022, we had no outstanding borrowings and $1.8 million of outstanding letters of credit under our Revolving Credit Agreement. We also maintain a letter of credit facility that allows us to request the participating bank to issue letters of credit on our behalf up to an aggregate amount of $25 million. The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement. As of May 7, 2022, we had $25.0 million in letters of credit outstanding under the letter of credit facility, which expires in June 2022. On May 16, 2022, we amended and restated the letter of credit facility to, among other things, extend the facility through June 2025. In addition to the outstanding letters of credit issued under the committed facilities discussed above, we had $105.1 million in letters of credit outstanding as of May 7, 2022. These letters of credit have various maturity dates and were issued on an uncommitted basis. On January 18, 2022, we repaid the $500 million 3.700% Senior Notes due April 2022, which were callable at par in January 2022. As of May 7, 2022, our $1.3 billion of commercial paper borrowings and the $300 million 2.875% Senior Notes due January 2023 were classified as long-term in the Consolidated Balance Sheets, as we have the current ability and intent to refinance them on a long-term basis through available capacity in our Revolving Credit Agreement. As of May 7, 2022, we had $2.2 billion of availability under our Revolving Credit Agreement, without giving effect to commercial paper borrowings, which would allow us to replace these short-term obligations with a long-term financing facility. All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned are downgraded (as defined in the agreements). Further, the Senior Notes contain a provision that repayment may be accelerated if we experience a change in control (as defined in the agreements). Our borrowings under our Senior Notes contain minimal covenants, primarily restrictions on liens, sale and leaseback transactions and consolidations, mergers and the sale of assets. All of the repayment obligations under our borrowing arrangements may be accelerated and come due prior to the applicable scheduled payment date if covenants are breached or an event of default occurs. As of February 10, 2018,May 7, 2022, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements. As of February 10, 2018, $1.116 billion of commercial paper borrowings and the $250 million 7.125% Senior Notes due August 2018 were classified as long-term in the Consolidated Balance Sheets as we had the ability and intent to refinance them on a long-term basis through available capacity in our revolving credit facility. As of February 10, 2018, we had $1.997 billion of availability under our $2.0 billion revolving credit facilities, which would allow us to replace these short-term obligations with long-term financing facility.
Our adjusted debt to earnings before impairment, interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.5:2.1:1 as of February 10, 2018,May 7, 2022 and was 2.6:2.0:1 as of February 11, 2017.May 8, 2021. We calculate adjusted debt as the sum of total debt, capitalfinancing lease obligationsliabilities and rent times six; and we calculate adjusted EBITDAR by adding impairment before tax impact, interest, taxes, depreciation, amortization, rent, and share-based expensescompensation expense to net income. Adjusted debt to EBITDAR is calculated on a trailing four quarter basis. We target our debt levels to a ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings. We believe this is important information for the management of our debt levels. ToManagement expects the ratio of adjusted debt to EBITDAR to return to pre-pandemic levels in the future, increasing debt levels. Once the target ratio is achieved, to the extent adjusted EBITDAR continues to grow in future years,increases, we expect our debt levels to increase; conversely, if adjusted EBITDAR declines,decreases, we would expect our debt levels to decrease. Refer to the “Reconciliation ofNon-GAAP Financial Measures” section for further details of our calculation. Stock Repurchases From January 1, 1998 to February 10, 2018,May 7, 2022, we have repurchased a total of 143.1152.0 million shares of our common stock at an aggregate cost of $18.354$29.1 billion, including 824,7331.7 million shares of our common stock at an aggregate cost of $527.5 million$3.4 billion during the twenty-fourthirty-six week period ended February 10, 2018. May 7, 2022. On March 21, 2017,22, 2022, the Board voted to increaseauthorize the authorization by $750 million. Thisrepurchase of an additional $2.0 billion of our common stock in connection with our ongoing share repurchase program, which raised the total value of shares authorized to be repurchased to $18.65$31.2 billion. Considering the cumulative repurchases as of February 10, 2018,May 7, 2022, we had $296.2 million$2.1 billion remaining under the Board’s authorization to repurchase our common stock. During the twenty-four week period ended February 10, 2018, we retired 1.5 million shares of treasury stock which had previously been repurchased under our share repurchase program. The retirement increased Retained deficit by $918.5 million and decreased Additionalpaid-in capital by $60.5 million. During the comparable prior year period, we retired 1.8 million shares of treasury stock, which increased Retained deficit by $1.321 billion and decreased Additionalpaid-in capital by $64.9 million.
Subsequent to February 10, 2018,May 7, 2022 and through June 3, 2022, we have repurchased 382,928103,726 shares of our common stock at an aggregate cost of $264.9$203.6 million. Off-Balance Sheet Arrangements Since our fiscal year end, we have cancelled,canceled, issued and modifiedstand-by letters of credit that are primarily renewed on an annual basis to cover deductible payments to our casualty insurance carriers. Our totalstand-by letters of credit commitment at February 10, 2018,May 7, 2022, was $108.4$131.9 million, compared with $88.6$162.4 million at August 26, 2017,28, 2021, and our total surety bonds commitment at February 10, 2018,May 7, 2022, was $32.5$37.6 million, compared with $28.8$35.4 million at August 26, 2017.28, 2021. Financial Commitments Except for the previously discussed amendments to our existing revolving credit facilities, debt issuanceRevolving Credit Agreement and retirement,the repayment of the $500 million 3.700% Senior Notes due April 2022, as of February 10, 2018,May 7, 2022, there were no significant changes to our contractual obligations as described in our Annual Report on Form10-K for the year ended August 26, 2017.28, 2021. Reconciliation ofNon-GAAP Financial Measures Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain financial measures not derived in accordance with GAAP. Thesenon-GAAP financial measures provide additional information for determining our optimumoptimal capital structure and are used to assist management in evaluating performance and in making appropriate business decisions to maximize stockholders’ value. Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. However, we have presented thenon-GAAP financial measures, as we believe they provide additional information that is useful to investors.investors as it indicates more clearly our comparative year-to-year operating results. Furthermore, our management and the Compensation Committee of the Board use the abovementionedthese non-GAAP financial measures to analyze and compare our underlying operating results and use select measurements to determine payments of performance-based compensation. We have included a reconciliation of this information to the most comparable GAAP measures in the following reconciliation tables. Reconciliation ofNon-GAAP Financial Measure: Adjusted After-Tax Return on Invested Capital “ROIC” ROIC The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended February 10, 2018May 7, 2022 and February 11, 2017.May 8, 2021. | | | | | | | | | | | | | | | | | | | A | | B | | A-B=C | | D | | C+D | | | | Fiscal Year | | Thirty-Six | | Sixteen | | Thirty-Six | | Trailing Four | | | | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | | | | August 28, | | May 8, | | August 28, | | May 7, | | May 7, | | (in thousands, except percentage) | | 2021 | | 2021 | | 2021 | | 2022 | | 2022 | | | | | | | | | | | | | | | | | | | Net income | | $ | 2,170,314 | | $ | 1,384,543 | | $ | 785,771 | | $ | 1,619,561 | | $ | 2,405,332 | | Adjustments: | | | | | | | | | | | | | | | | | Interest expense | | | 195,337 | | | 137,217 | | | 58,120 | | | 127,642 | | | 185,762 | | Rent expense(1) | | | 345,380 | | | 236,737 | | | 108,643 | | | 251,433 | | | 360,076 | | Tax effect(2) | | | (110,847) | | | (76,661) | | | (34,186) | | | (77,710) | | | (111,896) | | Adjusted after-tax return | | $ | 2,600,184 | | $ | 1,681,836 | | $ | 918,348 | | $ | 1,920,926 | | $ | 2,839,274 | | | | | | | | | | | | | | | | | | | Average debt(3) | | | | | | | | | | | | | | $ | 5,541,462 | | Average stockholders’ deficit(3) | | | | | | | | | | | | | | | (2,442,077) | | Add: Rent x 6(1) | | | | | | | | | | | | | | | 2,160,456 | | Average finance lease liabilities(3) | | | | | | | | | | | | | | | 268,111 | | Invested capital | | | | | | | | | | | | | | $ | 5,527,952 | | | | | | | | | | | | | | | | | | | Adjusted after-tax ROIC | | | | | | | | | | | | | | | 51.4 | % |
| | | | | | | | | | | | | | | | | | | A | | B | | A-B=C | | D | | C+D | | | | Fiscal Year | | Thirty-Six | | Sixteen | | Thirty-Six | | Trailing Four | | | | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | | | | August 29, | | May 9, | | August 29, | | May 8, | | May 8, | | (in thousands, except percentage) | | 2020 | | 2020 | | 2020 | | 2021 | | 2021 | | | | | | | | | | | | | | | | | | | Net income | | $ | 1,732,972 | | $ | 992,515 | | $ | 740,457 | | $ | 1,384,543 | | $ | 2,125,000 | | Adjustments: | | | | | | | | | | | | | | | | | Interest expense | | | 201,165 | | | 135,528 | | | 65,637 | | | 137,217 | | | 202,854 | | Rent expense(1) | | | 329,783 | | | 227,327 | | | 102,456 | | | 236,737 | | | 339,193 | | Tax effect(2) | | | (115,747) | | | (79,102) | | | (36,645) | | | (81,522) | | | (118,167) | | Adjusted after-tax return | | $ | 2,148,173 | | $ | 1,276,268 | | $ | 871,905 | | $ | 1,676,975 | | $ | 2,548,880 | | | | | | | | | | | | | | | | | | | Average debt(3) | | | | | | | | | | | | | | $ | 5,446,162 | | Average stockholders' deficit(3) | | | | | | | | | | | | | | | (1,364,932) | | Add: Rent x 6(1) | | | | | | | | | | | | | | | 2,035,158 | | Average finance lease liabilities(3) | | | | | | | | | | | | | | | 227,061 | | Invested capital | | | | | | | | | | | | | | $ | 6,343,449 | | | | | | | | | | | | | | | | | | | Adjusted after-tax ROIC | | | | | | | | | | | | | | | 40.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | A | | B | | A-B=C | | D | | C+D | (in thousands, except percentage) | | Fiscal Year Ended August 26, 2017 | | Twenty-Four Weeks Ended February 11, 2017 | | Twenty-Eight Weeks Weeks Ended August 26, 2017 | | Twenty-Four Weeks Ended February 10, 2018 | | Trailing Four Quarters Ended February 10, 2018 | Net income | | | $ | 1,280,869 | | | | $ | 515,270 | | | | $ | 765,599 | | | | $ | 570,533 | | | | $ | 1,336,132 | | Adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | Impairment before tax impact | | | | – | | | | | – | | | | | – | | | | | 193,162 | | | | | 193,162 | | Interest expense | | | | 154,580 | | | | | 67,504 | | | | | 87,076 | | | | | 78,229 | | | | | 165,305 | | Rent expense | | | | 302,928 | | | | | 135,859 | | | | | 167,069 | | | | | 142,712 | | | | | 309,781 | | Tax effect(1) | | | | (153,265 | ) | | | | (69,957 | ) | | | | (83,308 | ) | | | | (112,656 | ) | | | | (195,964 | ) | Deferred tax remeasurement | | | | – | | | | | – | | | | | – | | | | | (136,679 | ) | | | | (136,679 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | After-tax return | | | $ | 1,585,112 | | | | $ | 648,676 | | | | $ | 936,436 | | | | $ | 735,301 | | | | $ | 1,671,737 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average debt(2) | | | | | | | | | | | | | | | | | | | | | | | $ | 5,082,494 | | Average deficit(3) | | | | | | | | | | | | | | | | | | | | | | | | (1,565,135 | ) | Rent x 6(4) | | | | | | | | | | | | | | | | | | | | | | | | 1,858,686 | | Average capital lease obligations(5) | | | | | | | | | | | | | | | | | | | | | | | | 153,599 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Invested capital | | | | | | | | | | | | | | | | | | | | | | | $ | 5,529,644 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ROIC | | | | | | | | | | | | | | | | | | | | | | | | 30.2% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | A | | B | | A-B=C | | D | | C+D | (in thousands, except percentage) | | Fiscal Year Ended August 27, 2016 | | Twenty-Four Weeks Ended February 13, 2016 | | Twenty-Eight Weeks Ended August 27, 2016 | | Twenty-Four Weeks Ended February 11, 2017 | | Trailing Four Quarters Ended February 11, 2017 | Net income | | | $ | 1,241,007 | | | | $ | 486,725 | | | | $ | 754,282 | | | | $ | 515,270 | | | | $ | 1,269,552 | | Adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | Interest expense | | | | 147,681 | | | | | 67,842 | | | | | 79,839 | | | | | 67,504 | | | | | 147,343 | | Rent expense | | | | 280,490 | | | | | 128,897 | | | | | 151,593 | | | | | 135,859 | | | | | 287,452 | | Tax effect(1) | | | | (147,291 | ) | | | | (67,678 | ) | | | | (79,613 | ) | | | | (69,957 | ) | | | | (149,570 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | After-tax return | | | $ | 1,521,887 | | | | $ | 615,786 | | | | $ | 906,101 | | | | $ | 648,676 | | | | $ | 1,554,777 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average debt(2) | | | | | | | | | | | | | | | | | | | | | | | $ | 4,974,468 | | Average deficit(3) | | | | | | | | | | | | | | | | | | | | | | | | (1,822,960 | ) | Rent x 6(4) | | | | | | | | | | | | | | | | | | | | | | | | 1,724,712 | | Average capital lease obligations(5) | | | | | | | | | | | | | | | | | | | | | | | | 140,851 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Invested capital | | | | | | | | | | | | | | | | | | | | | | | $ | 5,017,071 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ROIC | | | | | | | | | | | | | | | | | | | | | | | | 31.0% | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | The effective tax rate was 29.9%, excluding the impact of the revaluation of net deferred tax liabilities, and 34.4% over the trailing four quarters ended February 10, 2018 and February 11, 2017, respectively. |
(2) | Average debt is equal to the average of our debt measured as of the previous five quarters. |
(3) | Average equity is equal to the average of our stockholders’ deficit measured as of the previous five quarters. |
(4) | Rent is multiplied by a factor of six to capitalize operating leases in the determination ofpre-tax invested capital. |
(5) | Average capital lease obligations are equal to the average of our capital lease obligations measured as of the previous five quarters. | Table of ContentsReconciliation ofNon-GAAP Financial Measure: Adjusted Debt to Earnings before Impairment, Interest, Taxes, Depreciation, Rent and Share-Based Expense “EBITDAR”EBITDAR The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended February 10, 2018May 7, 2022 and February 11, 2017.May 8, 2021. | | | | | | | | | | | | | | | | | | A | | B | | A-B=C | | D | | C+D | | | Fiscal Year | | Thirty-Six | | Sixteen | | Twenty-Four | | Trailing Four | | | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | | | August 28, | | May 8, | | August 28, | | May 7, | | May 7, | (in thousands, except ratio) | | 2021 | | 2021 | | 2021 | | 2022 | | 2022 | | | | | | | | | | | | | | | | | Net income | | $ | 2,170,314 | | $ | 1,384,543 | | $ | 785,771 | | $ | 1,619,561 | | $ | 2,405,332 | Add: Interest expense | | | 195,337 | | | 137,217 | | | 58,120 | | | 127,642 | | | 185,762 | Income tax expense | | | 578,876 | | | 378,737 | | | 200,139 | | | 419,712 | | | 619,851 | EBIT | | | 2,944,527 | | | 1,900,497 | | | 1,044,030 | | | 2,166,915 | | | 3,210,945 | Add: Depreciation and amortization expense | | | 407,683 | | | 278,044 | | | 129,639 | | | 301,365 | | | 431,004 | Rent expense(1) | | | 345,380 | | | 236,737 | | | 108,643 | | | 251,433 | | | 360,076 | Share-based expense | | | 56,112 | | | 38,061 | | | 18,051 | | | 49,058 | | | 67,109 | EBITDAR | | $ | 3,753,702 | | $ | 2,453,339 | | $ | 1,300,363 | | $ | 2,768,771 | | $ | 4,069,134 | | | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | $ | 6,057,444 | Financing lease liabilities | | | | | | | | | | | | | | | 288,483 | Add: Rent x 6(1) | | | | | | | | | | | | | | | 2,160,456 | Adjusted debt | | | | | | | | | | | | | | $ | 8,506,383 | | | | | | | | | | | | | | | | | Adjusted debt to EBITDAR | | | | | | | | | | | | | | | 2.1 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | A | | B | | A-B=C | | D | | C+D | | | | | | | (in thousands, except ratio) | | Fiscal Year Ended August 26, 2017 | | Twenty-Four Weeks Ended February 11, 2017 | | Twenty-Eight Weeks Ended August 26, 2017 | | Twenty-Four Weeks Ended February 10, 2018 | | Trailing Four Quarters Ended February 10, 2018 | Net income | | | $ | 1,280,869 | | | | $ | 515,270 | | | | $ | 765,599 | | | | $ | 570,533 | | | | $ | 1,336,132 | | Add: Impairment before tax impact | | | | – | | | | | – | | | | | – | | | | | 193,162 | | | | | 193,162 | | Interest expense | | | | 154,580 | | | | | 67,504 | | | | | 87,076 | | | | | 78,229 | | | | | 165,305 | | Income tax expense | | | | 644,620 | | | | | 260,097 | | | | | 384,523 | | | | | 25,090 | | | | | 409,613 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBIT | | | | 2,080,069 | | | | | 842,871 | | | | | 1,237,198 | | | | | 867,014 | | | | | 2,104,212 | | Add: Depreciation expense | | | | 323,051 | | | | | 144,645 | | | | | 178,406 | | | | | 157,337 | | | | | 335,743 | | Rent expense | | | | 302,928 | | | | | 135,859 | | | | | 167,069 | | | | | 142,712 | | | | | 309,781 | | Share-based expense | | | | 38,244 | | | | | 20,711 | | | | | 17,533 | | | | | 23,764 | | | | | 41,297 | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDAR | | | $ | 2,744,292 | | | | $ | 1,144,086 | | | | $ | 1,600,206 | | | | $ | 1,190,827 | | | | $ | 2,791,033 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | | | | | | | | | | $ | 5,043,541 | | Capital lease obligations | | | | | | | | | | | | | | | | | | | | | | | | 156,238 | | Rent x 6(1) | | | | | | | | | | | | | | | | | | | | | | | | 1,858,686 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted debt | | | | | | | | | | | | | | | | | | | | | | | $ | 7,058,465 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted debt / EBITDAR | | | | | | | | | | | | | | | | | | | | | | | | 2.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | A | | B | | A-B=C | | D | | C+D | | | | | | | (in thousands, except ratio) | | Fiscal Year Ended August 27, 2016 | | Twenty-Four Weeks Ended February 13, 2016 | | Twenty-Eight Weeks Ended August 27, 2016 | | Twenty-Four Weeks Ended February 11, 2017 | | Trailing Four Quarters Ended February 11, 2017 | Net income | | | $ | 1,241,007 | | | | $ | 486,725 | | | | $ | 754,282 | | | | $ | 515,270 | | | | $ | 1,269,552 | | Interest expense | | | | 147,681 | | | | | 67,842 | | | | | 79,839 | | | | | 67,504 | | | | | 147,343 | | Income tax expense | | | | 671,707 | | | | | 266,088 | | | | | 405,619 | | | | | 260,097 | | | | | 665,716 | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBIT | | | | 2,060,395 | | | | | 820,655 | | | | | 1,239,740 | | | | | 842,871 | | | | | 2,082,611 | | Add: Depreciation expense | | | | 297,397 | | | | | 134,936 | | | | | 162,461 | | | | | 144,645 | | | | | 307,106 | | Rent expense | | | | 280,490 | | | | | 128,897 | | | | | 151,593 | | | | | 135,859 | | | | | 287,452 | | Share-based expense | | | | 39,825 | | | | | 18,547 | | | | | 21,278 | | | | | 20,711 | | | | | 41,989 | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDAR | | | $ | 2,678,107 | | | | $ | 1,103,035 | | | | $ | 1,575,072 | | | | $ | 1,144,086 | | | | $ | 2,719,158 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | | | | | | | | | | $ | 5,151,862 | | Capital lease obligations | | | | | | | | | | | | | | | | | | | | | | | | 149,802 | | Rent x 6(1) | | | | | | | | | | | | | | | | | | | | | | | | 1,724,712 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted debt | | | | | | | | | | | | | | | | | | | | | | | $ | 7,026,376 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted debt / EBITDAR | | | | | | | | | | | | | | | | | | | | | | | | 2.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | A | | B | | A-B=C | | D | | C+D | | | Fiscal Year | | Thirty-Six | | Sixteen | | Twenty-Four | | Trailing Four | | | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | | | August 29, | | May 9, | | August 29, | | May 8, | | May 8, | (in thousands, except ratio) | | 2020 | | 2020 | | 2020 | | 2021 | | 2021 | | | | | | | | | | | | | | | | | Net income | | $ | 1,732,972 | | $ | 992,515 | | $ | 740,457 | | $ | 1,384,543 | | $ | 2,125,000 | Add: Interest expense | | | 201,165 | | | 135,528 | | | 65,637 | | | 137,217 | | | 202,854 | Income tax expense | | | 483,542 | | | 271,591 | | | 211,951 | | | 378,737 | | | 590,688 | EBIT | | | 2,417,679 | | | 1,399,634 | | | 1,018,045 | | | 1,900,497 | | | 2,918,542 | Add: Depreciation and amortization expense | | | 397,466 | | | 272,115 | | | 125,351 | | | 278,044 | | | 403,395 | Rent expense(1) | | | 329,783 | | | 227,327 | | | 102,456 | | | 236,737 | | | 339,193 | Share-based expense | | | 44,835 | | | 32,251 | | | 12,584 | | | 38,061 | | | 50,645 | EBITDAR | | $ | 3,189,763 | | $ | 1,931,327 | | $ | 1,258,436 | | $ | 2,453,339 | | $ | 3,711,775 | | | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | $ | 5,267,896 | Financing lease liabilities | | | | | | | | | | | | | | | 228,597 | Add: Rent x 6(1) | | | | | | | | | | | | | | | 2,035,158 | Adjusted debt | | | | | | | | | | | | | | $ | 7,531,651 | | | | | | | | | | | | | | | | | Adjusted debt to EBITDAR | | | | | | | | | | | | | | | 2.0 |
(1) | Rent is multiplied by a factorThe table below outlines the calculation of sixrent expense and reconciles rent expense to capitalize operating leases intotal lease cost, per ASC 842, the determination of adjusted debt.most directly comparable GAAP financial measure, for the trailing four quarters ended May 7, 2022 and May 8, 2021. |
| | | | | | | | | Trailing Four Quarters Ended | (in thousands) | | May 7, 2022 | | May 8, 2021 | | | | | | Total lease cost, per ASC 842 | | $ | 451,601 | | $ | 421,750 | Less: Finance lease interest and amortization | | | (65,128) | | | (55,725) | Less: Variable operating lease components, related to insurance and common area maintenance | | | (26,397) | | | (26,832) | Rent expense | | $ | 360,076 | | $ | 339,193 |
Reconciliation ofNon-GAAP Financial Measure: Adjusted Operating Profit
The following table calculates adjusted operating profit. Adjusted operating profit is calculated to exclude the impact of impairment charges and operating results of IMC and AutoAnything:
| | | | | | | | | | | | | | | | | | | | | | | Twelve Weeks Ended | | Twenty-Four Weeks Ended | (in thousands) | | February 10, 2018 | | February 11, 2017 | | February 10, 2018 | | February 11, 2017 | Operating profit | | | $ | 205,098 | | | | $ | 383,969 | | | | $ | 673,852 | | | | $ | 842,871 | | Impairment | | | | 193,162 | | | | | — | | | | | 193,162 | | | | | — | | Operating results – IMC and AutoAnything | | | | 5,234 | | | | | 4,814 | | | | | 8,270 | | | | | 9,901 | | | | | | | | | | | | | | | | | | | | | | | Adjusted operating profit | | | $ | 403,494 | | | | $ | 388,783 | | | | $ | 875,284 | | | | $ | 852,772 | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation ofNon-GAAP Financial Measure: Adjusted Net Income
The following table calculates adjusted net income. Adjusted net income is calculated to exclude the impact of impairment charges, Tax Reform, excess tax benefits from option exercises and operating results of IMC and AutoAnything:
| | | | | | | | | | | | | | | | | | | | | | | Twelve Weeks Ended | | Twenty-Four Weeks Ended | (in thousands) | | February 10, 2018 | | February 11, 2017 | | February 10, 2018 | | February 11, 2017 | Net income | | | $ | 289,530 | | | | $ | 237,145 | | | | $ | 570,533 | | | | $ | 515,270 | | Impairment, net of $46.6MM income tax benefit | | | | 146,512 | | | | | — | | | | | 146,512 | | | | | — | | Tax Reform | | | | (171,398 | ) | | | | — | | | | | (171,398 | ) | | | | — | | Impact of excess tax benefits from option exercises | | | | (32,076 | ) | | | | (12,698 | ) | | | | (34,328 | ) | | | | (15,646 | ) | Operating results – IMC and AutoAnything(1) | | | | 3,712 | | | | | 2,990 | | | | | 5,859 | | | | | 6,157 | | | | | | | | | | | | | | | | | | | | | | | Adjusted net income | | | $ | 236,280 | | | | $ | 227,437 | | | | $ | 517,178 | | | | $ | 505,781 | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation ofNon-GAAP Financial Measure: Adjusted Diluted Earnings Per Share
The following table calculates the adjusted diluted earnings per share. Adjusted diluted earnings per share is calculated to exclude the impact of impairment charges, Tax Reform, excess tax benefits from option exercises and operating results of IMC and AutoAnything:
| | | | | | | | | | | | | | | | | | | | | | | Twelve Weeks Ended | | Twenty-Four Weeks Ended | | | February 10, 2018 | | February 11, 2017 | | February 10, 2018 | | February 11, 2017 | Diluted earnings per share | | | $ | 10.38 | | | | $ | 8.08 | | | | $ | 20.38 | | | | $ | 17.45 | | Impairment, net of $46.6MM income tax benefit | | | | 5.25 | | | | | — | | | | | 5.23 | | | | | — | | Tax Reform | | | | (6.14 | ) | | | | — | | | | | (6.12 | ) | | | | — | | Impact of excess tax benefits from option exercises | | | | (1.15 | ) | | | | (0.43 | ) | | | | (1.23 | ) | | | | (0.53 | ) | Operating results – IMC and AutoAnything(1) | | | | 0.13 | | | | | 0.10 | | | | | 0.21 | | | | | 0.21 | | | | | | | | | | | | | | | | | | | | | | | Adjusted diluted earnings per share | | | $ | 8.47 | | | | $ | 7.75 | | | | $ | 18.47 | | | | $ | 17.13 | | | | | | | | | | | | | | | | | | | | | | |
(1)(2) | Operating results – IMCEffective tax rate over trailing four quarters ended May 7, 2022 and AutoAnything are net of tax benefit.May 8, 2021 is 20.5% and 21.8%, respectively. |
(3) | All averages are computed based on trailing five quarter balances. |
Recent Accounting Pronouncements Refer to Note A of the Notes to Condensed Consolidated Financial Statements for the discussion of recent accounting pronouncements. Critical Accounting Policies and Estimates Preparation of our consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the financial statements, reported amounts of revenues and expenses during the reporting period and related disclosures of contingent liabilities. Our policies are evaluated on an ongoing basis, and our significant judgments and estimates are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results could differ under different assumptions or conditions.
Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form10-K for the year ended August 26, 2017. Our28, 2021. There have been no significant changes to our critical accounting policies have not changed since the filing of our Annual Report on Form10-K for the year ended August 26, 2017.28, 2021.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Item 3.Quantitative and Qualitative Disclosures about Market Risk At February 10, 2018,May 7, 2022, the only material changechanges to our instruments and positions that are sensitive to market risk since the disclosures in our 2017 Annual Report on Form 10-K for the year ended August 28, 2021 were our Revolving Credit Agreement, which was amended and restated on November 15, 2021 to Stockholders wasincrease our borrowing capacity from $2.0 billion to $2.25 billion, the $39.6$500 million 3.700% Senior Note debt repayment and the $1.3 billion net decreaseincrease in commercial paper. The fair value of our debt was estimated at $5.049$5.9 billion as of February 10, 2018May 7, 2022 and $5.171$5.7 billion as of August 26, 2017,28, 2021, based on the quoted market prices for the same or similar debt issues or on the current rates available to AutoZoneus for debt ofhaving the same terms (Level 2).remaining maturities. Such fair value was less than the carrying value of debt by $163.3 million at May 7, 2022, and greater than the carrying value of debt by $5.4 million at February 10, 2018 and $90.3$413.1 million at August 26, 2017.28, 2021. The carrying value of debt reflects its face amount adjusted for any unamortized debt issuance costs and discounts. We had $1.116$1.3 billion of variable rate debt outstanding at February 10, 2018May 7, 2022 and $1.155 billion ofno variable rate debt outstanding at August 26, 2017.28, 2021. At these borrowing levels for variable rate debt, a one percentage point increase in interest rates would have had an unfavorable annual impact on ourpre-tax earnings and cash flows of $11.2$12.8 million in fiscal 2018.2022. The primary interest rate exposure on variable rate debt is based on LIBOR. We had outstanding fixed rate debt of $3.928$4.8 billion, net of unamortized debt issuance costs of $22.0$25.9 million at February 10, 2018May 7, 2022 and $3.926$5.3 billion, net of unamortized debt issuance costs of $23.9$30.2 million at August 26, 2017.28, 2021. A onepercentage point increase in interest rates would reducehave reduced the fair value of our fixed rate debt by $175.1$182.5 million at February 10, 2018.May 7, 2022. Item 4. | Controls and Procedures |
Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures As of February 10, 2018,May 7, 2022, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules13a-15(e) and15d-15(e) under the Exchange Act, as amended. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of February 10, 2018.May 7, 2022. Changes in Internal Controls There were no changes in our internal control over financial reporting that occurred during the quarter ended February 10, 2018May 7, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION In 2004, we acquired a store siteItem 1. Legal Proceedings
As of the date of this filing, there have been no additional material legal proceedings or material developments in Mount Ephraim, New Jersey that had previously been the sitelegal proceedings disclosed in Part 1, Item 3, of a gasoline service station and contained evidence of groundwater contamination. Upon acquisition, we voluntarily reported the groundwater contamination issue to the New Jersey Department of Environmental Protection (“NJDEP”) and entered into a Voluntary Remediation Agreement providingour Annual Report in Form 10-K for the remediationfiscal year ended August 28, 2021. Table of the contamination associated with the property. We have conducted and paid for (at an immaterial cost to us) remediation of contamination on the property. We have also voluntarily investigated and addressed potential vapor intrusion impacts in downgradient residences and businesses. The NJDEP has asserted, in a Directive and Notice to Insurers dated February 19, 2013 and again in an Amended Directive and Notice to Insurers dated January 13, 2014 (collectively the “Directives”), that we are liable for the downgradient impacts under a joint and severable liability theory. By letter dated April 23, 2015, NJDEP has demanded payment from us, and other parties, in the amount of approximately $296 thousand for costs incurred by NJDEP in connection with contamination downgradient of the property. By letter dated January 29, 2016, we were informed that NJDEP has filed a lien against the property in connection with approximately $355 thousand in costs incurred by NJDEP in connection with contamination downgradient of the property. We have contested, and will continue to contest, any such assertions due to the existence of other entities/sources of contamination, some of which are named in the Directives and the April 23, 2015 Demand, in the area of the property. Pursuant to the Voluntary Remediation Agreement, upon completion of all remediation required by the agreement, we believe we should be eligible to be reimbursed up to 75 percent of qualified remediation costs by the State of New Jersey. We have asked the state for clarification that the agreement applies tooff-site work, and the state is considering the request. Although the aggregate amount of additional costs that we may incur pursuant to the remediation cannot currently be ascertained, we do not currently believe that fulfillment of our obligations under the agreement or otherwise will result in costs that are material to our financial condition, results of operations or cash flows.Contents In July 2014, we received a subpoena from the District Attorney of the County of Alameda, along with other environmental prosecutorial offices in the State of California, seeking documents and information related to the handling, storage and disposal of hazardous waste. We received notice that the District Attorney will seek injunctive and monetary relief. We are cooperating fully with the request and cannot predict the ultimate outcome of these efforts, although we have accrued all amounts we believe to be probable and reasonably estimable. We do not believe the ultimate resolution of this matter will have a material adverse effect on the consolidated financial position, results of operations or cash flows.
In April 2016, we received a letter from the California Air Resources Board seeking payment for alleged violations of the California Health and Safety Code related to the sale of certain aftermarket emission parts in the State of California. We do not believe that any resolution of the matter will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
We are involved in various other legal proceedings incidental to the conduct of our business, including, but not limited to, several lawsuits containing class-action allegations in which the plaintiffs are current and former hourly and salaried employees who allege various wage and hour violations and unlawful termination practices. We do not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to our financial condition, results of operations or cash flows.
Item 1A. Risk Factors As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form10-K for the fiscal year ended August 26, 2017.28, 2021. Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Shares of common stock repurchased by the Company during the quarter ended February 10, 2018May 7, 2022 were as follows: Issuer Repurchases of Equity Securities | | | | | | | | | | | | | | | | | | | | | Issuer Repurchases of Equity Securities | Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs | November 19, 2017 to December 16, 2017 | | | | 13,002 | | | | $ | 616.38 | | | | | 13,002 | | | | $ | 463,116,160 | | December 17, 2017 to January 13, 2018 | | | | 32,537 | | | | | 768.29 | | | | | 32,537 | | | | | 438,118,450 | | January 14, 2018 to February 10, 2018 | | | | 181,764 | | | | | 780.52 | | | | | 181,764 | | | | | 296,247,583 | | | | | | | | | | | | | | | | | | | | | | | Total | | | | 227,303 | | | | $ | 769.38 | | | | | 227,303 | | | | $ | 296,247,583 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Total Number of | | Maximum Dollar | | | | | | | | Shares Purchased as | | Value that May Yet | | | Total Number | | Average | | Part of Publicly | | Be Purchased Under | | | of Shares | | Price Paid | | Announced Plans or | | the Plans or | Period | | Purchased | | per Share | | Programs | | Programs | | | | | | | | | | | | February 13, 2022 to March 12, 2022 | | 119,542 | | $ | 1,898.22 | | 119,542 | | $ | 730,657,085 | March 13, 2022 to April 9, 2022 | | 181,485 | | | 1,972.17 | | 181,485 | | | 2,372,738,270 | April 10, 2022 to May 7, 2022 | | 147,547 | | | 2,136.02 | | 147,547 | | | 2,057,574,959 | Total | | 448,574 | | $ | 2,006.36 | | 448,574 | | $ | 2,057,574,959 |
During 1998, we announced a program permitting us to repurchase a portion of our outstanding shares not to exceed a dollar maximum established by our Board of Directors. This program was most recently amended by the Board on March 21, 201722, 2022 to increaseauthorize the repurchase authorization by $750 million.of an additional $2.0 billion of our common stock. This brings the total value of sharescumulative share repurchase authorization to be repurchased to $18.65$31.2 billion. All of the above repurchases were part of this program. Subsequent to February 10, 2018,May 7, 2022 and through June 3, 2022, we have repurchased 382,928103,726 shares of our common stock at an aggregate cost of $264.9$203.6 million.
Item 3. | Defaults Upon Senior Securities |
Item 3. Defaults Upon Senior Securities Not applicable. Item 4. | Mine Safety Disclosures |
Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits The following exhibits are being filed herewith: | | | | | 3.1 | | | 3.1 | | | Restated Articles of Incorporation of AutoZone, Inc. incorporatedIncorporated by reference to Exhibit 3.1 to the Quarterly Report on Form10-Q for the quarter ended February 13, 1999. | | | | 3.2 | 3.2 | | | SixthSeventh Amended and RestatedBy-laws By-Laws of AutoZone, Inc. incorporatedIncorporated by reference to Exhibit 3.1 to the Current Report onForm 8-K dated October 7, 2015.March 19, 2018.
| | | | 15.1 | 4.1 | | | Master Extension, New Commitment and Amendment Agreement dated as of November 18, 2017 among AutoZone, Inc. as Borrower; Bank of America, N.A. as Administrative Agent and Swingline Lender; JPMorgan Chase Bank, N.A. as Syndication Agent; Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Chase Bank, N.A. as Joint Lead Arrangers; Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Chase Bank, N.A., SunTrust Robinson Humphrey, Inc., U.S. Bank National Association, Wells Fargo Securities, LLC and Barclay’s Capital as Joint Book Runners; SunTrust Bank, U.S. Bank National Association, Wells Fargo Bank, National Association and Barclay’s Bank PLC as Documentation Agents; and the several lenders party thereto. Incorporated by reference to Exhibit 10.1 of the Current Report on Form8-K dated November 18, 2017.
| | | | 12.1 | | | Computation of Ratio of Earnings to Fixed Charges. | | | | 15.1 | | | Letter Regarding Unaudited Interim Financial Statements. | | | | 31.1 | 31.1 | | | Certification of Principal Executive Officer Pursuant to Rules13a-14(a) and15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | AUTOZONE, INC. | | | | By: | /s/ WILLIAM T. GILES JAMERE JACKSON | William T. Giles | Jamere Jackson | | Chief Financial Officer and Executive Vice President | | Finance and Information TechnologyStore Development | | (Principal Financial Officer) | | | | By: | /s/ CHARLIE PLEAS, III J. SCOTT MURPHY | Charlie Pleas, III | J. Scott Murphy | Senior | Vice President, Controller | (Principal Accounting Officer) | | | Dated: June 10, 2022 | |
Dated: March 16, 2018 30
|