the economy. In periods of rapidly declining economic conditions, both retail DIY and commercial DIFM customers may defer vehicle maintenance or repair. Additionally, such conditions may affect our customers’ credit availability. During periods of expansionary economic conditions, more of our DIY customers may pay others to repair and maintain their cars instead of working on their own vehicles or they may purchase new vehicles.

rising energy prices. Increases in energy prices may cause our customers to defer purchases of certain of our products as they use a higher percentage of their income to pay for gasoline and other energy costs.

the economy. In periods of declining economic conditions, both retail and commercial customers may defer vehicle maintenance or repair. Additionally, such conditions may affect our customers’ ability to obtain credit. During periods of expansionary economic conditions, more of our DIY customers may pay others to repair and maintain their cars instead of working on their own vehicles or they may purchase new vehicles.

the weather. Mild weather conditions may lower the failure rates of automotive parts, while wet conditions may cause our customers to defer maintenance and repair on their vehicles. Extremely hot or cold conditions may enhance demand for our products due to increased failure rates of our customers’ automotive parts.

technological advances. Advances in automotive technology and parts design could result in cars needing maintenance less frequently and parts lasting longer.

For the long term, demand for our products may be affected by:

the number of miles vehicles are driven annually. Higher vehicle mileage increases the need for maintenance and repair. Mileage levels may be affected by gas prices and other factors.

the quality of the vehicles manufactured by the original vehicle manufacturers and the length of the warranties or maintenance offered on new ~~vehicles; and~~vehicles.

restrictions on access to diagnostic tools and repair information imposed by the original vehicle manufacturers or by governmental regulation.

All of these factors could result in immediate and longer term declines in the demand for our products, which could adversely affect our sales, cash flows and overall financial condition.

If we are unable to compete successfully against other businesses that sell the products that we sell, we could lose customers and our sales and profits may decline.

The sale of automotive parts, accessories and maintenance items is highly competitive and is based on many factors, including name recognition, product availability, customer service, store location and price. Competitors are opening locations near our existing stores. AutoZone competes as a provider in both the DIY and DIFM auto parts and accessories markets.

Competitors include national, regional and local auto parts chains, independently owned parts stores, ~~on-line~~online parts stores, jobbers, repair shops, car washes and auto dealers, in addition to discount and mass merchandise stores, ~~department stores,~~ hardware stores, supermarkets, drugstores, convenience stores, ~~and~~ home stores, and other online retailers that sell aftermarket vehicle parts and supplies, chemicals, accessories, tools and maintenance parts. Although we believe we compete effectively on the basis of customer service, including the knowledge and expertise of our AutoZoners; merchandise quality, selection and availability; product warranty; store layout, location and convenience; price; and the strength of our AutoZone brand name, trademarks and service marks; some competitors may gain competitive advantages, such as greater financial and marketing resources allowing them to sell automotive products at lower prices, larger stores with more merchandise, longer operating histories, more

frequent customer visits and more effective advertising. If we are unable to continue to develop successful competitive strategies, or if our competitors develop more effective strategies, we could lose customers and our sales and profits may decline.

We may not be able to sustain our ~~recent~~historic rate of sales growth.

We have increased our store count in the past five fiscal years, growing from ~~3,673~~4,240 stores at August ~~27, 2005,~~30, 2008, to ~~4,627~~5,201 stores at August ~~28, 2010,~~31, 2013, an average store count increase per year of 5%. Additionally, we have increased annual revenues in the past five fiscal years from ~~$5.711~~$6.523 billion in fiscal ~~2005~~2008 to ~~$7.363~~$9.148 billion in fiscal ~~2010,~~2013, an average increase per year of 6%8%. Annual revenue growth is driven by the opening of new stores and increases in same-store sales. We open new stores only after evaluating customer buying trends and market demand/needs, all of which could be adversely affected by continued job losses, wage cuts, small business failures and microeconomic conditions unique to the automotive industry. Same store sales are impacted both by customer demand levels and by the prices we are able to charge for our products, which can also be negatively impacted by continued recessionary pressures. We cannot provide any assurance that we will continue to open stores at historical rates or continue to achieve increases in same-store sales.

If we cannot profitably increase our market share in the commercial auto parts business, our sales growth may be limited.

Although we are one of the largest sellers of auto parts in the commercial market, to increase commercial sales we must compete against national and regional auto parts chains, independently owned parts stores, wholesalers and jobbers and auto dealers. Although we believe we compete effectively on the basis of customer service, merchandise quality, selection and availability, price, product warranty, distribution locations, and the strength of our AutoZone brand name, trademarks and service marks, some automotive aftermarket jobbers have been in business for substantially longer periods of time than we have, have developed long-term customer relationships and have large available inventories. If we are unable to profitably develop new commercial customers, our sales growth may be limited.

~~Deterioration in the global credit markets,~~
Significant changes in ~~our credit ratings and~~ macroeconomic factors could adversely affect our financial condition and results of operations.

Our short-term and long-term debt is rated investment grade by the major rating agencies. These investment-grade credit ratings have historically allowed us to take advantage of lower interest rates and other favorable terms on our short-term credit lines, in our senior debt offerings and in the commercial paper markets. To maintain our investment-grade ratings, we are required to meet certain financial performance ratios. An increase in our debt and/or a decline in our earnings could result in downgrades in our credit ratings. A downgrade in our credit ratings could ~~result in an increase in interest rates and more restrictive terms on certain of our senior debt and our commercial paper, could~~ limit our access to public debt markets, ~~could~~ limit the institutions willing to provide credit facilities to us, result in more restrictive financial and ~~could~~other covenants in our public and private debt and would likely significantly increase ~~the interest rates on such facilities from current levels.~~

our overall borrowing costs and adversely affect our earnings.
Moreover, significant deterioration in the financial condition of large financial institutions in calendar years 2008 and 2009 resulted in a severe loss of liquidity and availability of credit in global credit markets and in more stringent borrowing terms. During brief time intervals in the fourth quarter of calendar 2008 and the first quarter of calendar 2009, there was nolimited liquidity in the commercial paper markets, resulting in an absence of commercial paper buyers and extraordinarily high interest rates on commercial paper. We can provide no assurance that credit market events such as those that occurred in the fourth quarter of 2008 and the first quarter of 2009 will not occur again in the foreseeable future. Conditions and events in the global credit market could have a material adverse effect on our access to short-term debt and the terms and cost of that debt.

Macroeconomic conditions also impact both our customers and our suppliers. Job growth in the United States has stagnated and unemployment has remained at historically high levels during the past five years. If the United States government is unable to reach agreement on legislation addressing the United States’ current debt level and budget deficit, many economists have predicted another economic recession. Continued recessionary conditions could result in additional job losses and business failures, which could result in our loss of certain small business customers and curtailment of spending by our retail customers. In addition, continued distress in global credit markets, business failures and other recessionary conditions could have a material adverse effect on the ability of

our suppliers to obtain necessary short and long-term financing to meet our inventory demands. Moreover, rising energy prices could impact our merchandise distribution, commercial delivery, utility and product costs. All of these macroeconomic conditions could adversely affect our sales growth, margins and overhead, which could adversely affect our financial condition and operations.

Our business depends upon hiring and retaining qualified employees.

We believe that much of our brand value lies in the quality of ~~our over 63,000~~the more than 71,000 AutoZoners employed in our stores, distribution centers, store support centers, ALLDATA and ~~ALLDATA.~~AutoAnything. We cannot be assured that we can continue to hire and retain qualified employees at current wage rates. If we are unable to hire, properly train and/or retain qualified employees, we could experience higher employment costs, reduced sales, losses of customers and diminution of our brand, which could adversely affect our earnings. If we do not maintain competitive wages, our customer service could suffer due to a declining quality of our workforce or, alternatively, our earnings could decrease if we increase our wage rates.

Inability to acquire and provide quality merchandise could adversely affect our sales and results of operations.

We are dependent upon our vendors continuing to supply us with quality merchandise. If our merchandise offerings do not meet our customers’ expectations regarding quality and safety, we could experience lost sales, ~~experience~~ increased costs and ~~be exposed~~exposure to legal and reputational risk. All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety and quality standards. Events that give rise to actual, potential or perceived product safety concerns could expose us to government enforcement action or private litigation and result in costly product recalls and other liabilities. To the extent our suppliers are subject to added government regulation of their product design and/or manufacturing processes, the cost of the merchandise we purchase may rise. In addition, negative customer perceptions regarding the safety or quality of the products we sell could cause our customers to seek alternative sources for their needs, resulting in lost sales. In those circumstances, it may be difficult and costly for us to regain the confidence of our customers. Moreover, if any of our significant vendors ~~experiences~~experience financial difficulties or otherwise isare unable to deliver merchandise to us on a timely basis, or at all, we could have product shortages in our stores that could adversely affect customers’ perceptions of us and cause us to lose customers and sales.

~~Our largest stockholder, as a result of its voting ownership, may have the ability to exert substantial influence over actions to be taken or approved by our stockholders.~~

As of October 18, 2010, ESL Investments, Inc. and certain of its affiliates (together, “ESL”) beneficially owned approximately 34.7% of our outstanding common stock. As a result, ESL may have the ability to exert substantial influence over actions to be taken or approved by our stockholders, including the election of directors and potential change of control transactions. In the future, ESL may acquire or sell shares of common stock and thereby increase or decrease its ownership stake in us. Significant fluctuations in their level of ownership could have an impact on our share price.

In June 2008, we entered into an agreement with ESL (the “ESL Agreement”), in which ESL has agreed to vote shares of our common stock owned by ESL in excess of 37.5% in the same proportion as all non-ESL-owned shares are voted. Additionally, under the terms of the ESL Agreement, the Company added two directors in August 2008 that were identified by ESL. William C. Crowley, one of the two directors identified by ESL, is the President and Chief Operating Officer of ESL Investments, Inc.

~~Consolidation among our competitors may negatively impact our business.~~

Recently some of our competitors have merged. Consolidation among our competitors could enhance their financial position, provide them with the ability to achieve better purchasing terms allowing them to provide more competitive prices to customers for whom we compete, and allow them to achieve efficiencies in their mergers that allow for more effective use of advertising and marketing dollars and allow them to more effectively compete for customers. These consolidated competitors could take sales volume away from us in certain markets and could cause us to change our pricing with a negative impact on our margins or could cause us to spend more money to maintain customers or seek new customers, all of which could negatively impact our business.

Our ability to grow depends in part on new store openings, existing store remodels and expansions and effective utilization of our existing supply chain and hub network.

Our continued growth and success will depend in part on our ability to open and operate new stores and expand and remodel existing stores to meet customers’ needs on a timely and profitable basis. Accomplishing our new and existing store expansion goals will depend upon a number of factors, including the ability to partner with developers and landlords to obtain suitable sites for new and expanded stores at acceptable costs, the hiring and training of qualified personnel, particularly at the store management level, and the integration of new stores into existing operations. There can be no assurance we will be able to achieve our store expansion goals, manage our growth effectively, successfully integrate the planned new stores into our operations or operate our new, remodeled and expanded stores profitably.

In addition, we extensively utilize hub stores, our supply ~~chains~~chain and logistics management techniques to efficiently stock our stores. If we fail to effectively utilize our existing ~~distribution~~ hubs and/or supply chains, we could experience inappropriate inventory levels in our stores, which could adversely affect our sales volume and/or our margins.

Our failure to protect our reputation could have a material adverse effect on our brand name.

~~Our~~
We believe our continued strong sales growth is driven in significant part by our brand name. The value in our brand name and its continued effectiveness in driving our sales growth are dependent to a significant degree on our ability to maintain our reputation ~~is critical to our brand name. Our reputation could be jeopardized if we fail to maintain~~for safety, high ~~standards for merchandise safety,~~product quality, friendliness, service, trustworthy advice, integrity and ~~integrity.~~business ethics. Any negative publicity about these types of concerns may reduce demand for our merchandise. Failure to comply with ethical, social, product, labor and environmental standards ~~or related political considerations,~~ could also jeopardize our reputation and potentially lead to various adverse consumer actions. Failure to comply with ~~local~~applicable laws and regulations, to maintain an effective system of internal controls or to provide accurate and timely financial statement information could also hurt our reputation.
Our business involves the storage of personal information about our customers and AutoZoners. Failure to protect the security of our customers’, employees’ and company information could subject us to costly regulatory enforcement actions, expose us to litigation and our reputation could suffer. While we take significant steps to protect customer, employee and other confidential information, including maintaining compliance with payment card industry standards, our security measures may be breached in the future due to cyber attack, employee error or other acts, and unauthorized parties may obtain access to this data. To date, we have not experienced any significant breaches of information.
Damage to our reputation or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations and financial condition, as well as require additional resources to rebuild our reputation.

Business interruptions may negatively impact our store hours, operability of our computer and other systems, availability of merchandise and otherwise have a material negative effect on our sales and our business.

War or acts of terrorism, political unrest, hurricanes, windstorms, fires, earthquakes and other natural or other disasters or the threat of any of them, may result in certain of our stores being closed for a period of time or permanently or have a negative impact on our ability to obtain merchandise available for sale in our stores. Some of our merchandise is imported from other countries. If imported goods become difficult or impossible to bring into the United States, and if we cannot obtain such merchandise from other sources at similar costs, our sales and profit margins may be negatively affected.

In the event that commercial transportation is curtailed or substantially delayed, our business may be adversely impacted, as we may have difficulty shipping merchandise to our distribution centers and stores resulting in lost sales ~~canceled purchase orders~~ and/or a potential loss of customer loyalty.

Transportation issues could also cause us to cancel purchase orders if we are unable to receive merchandise in our distribution centers.
We rely extensively on our computer systems to manage inventory, process transactions and summarize results. Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security breaches and catastrophic events. If our systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to manage inventories or process transactions, which could result in lost sales, inability to process purchase orders and/or a potential loss of customer loyalty, which could adversely affect our results of operations.

~~Healthcare reform legislation could have a negative impact on our business.~~

The recently enacted Patient Protection and Affordable Care Act (the “Patient Act”) as well as other healthcare reform legislation being considered by Congress and state legislatures may have an impact on our business. While we are currently evaluating the potential effects of the Patient Act on our business, the impact could be extensive and will most likely increase our employee healthcare-related costs. While the significant costs of the recent healthcare legislation enacted will occur after 2013 due to provisions of the legislation being phased in over time, changes to our healthcare costs structure could have a significant, negative impact on our business.

Item 1B. Unresolved Staff Comments

~~None~~.

None.

Item 2. Properties

The following table reflects the square footage and number of leased and owned properties for our stores as of August ~~28, 2010:~~

No. of Stores Square Footage
Leased 2,319 14,540,910
Owned 2,308 15,486,198

Total 4,627 30,027,108

31, 2013:
   No. of Stores    Square Footage
Leased
   2,653       16,930,389
Owned
   2,548       17,145,139




Total
   5,201       34,075,528




We have approximately 4.0 million square feet in distribution centers servicing our stores, of which approximately 1.3 million square feet is leased and the remainder is owned. Our distribution centers are located in Arizona, California, Georgia, Illinois, Ohio, Pennsylvania, Tennessee, Texas, and Mexico. Our primary store support center is located in Memphis, Tennessee, and consists of approximately 260,000 square feet. We also have ~~two~~three additional store support centers located in Monterrey, ~~Mexico and~~Mexico; Chihuahua, Mexico and Sao Paulo, Brazil. The ALLDATA headquarters building in Elk Grove, California, and the AutoAnything headquarters space in San Diego, California are leased, and we also own or lease other properties that are not material in the aggregate.

Item 3. Legal Proceedings

In 2004, we acquired a store site in Mount Ephraim, New Jersey that had previously been the site 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 and entered into a Voluntary Remediation Agreement providing for the remediation 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 are ~~a defendant~~also investigating, and will be addressing, potential vapor intrusion impacts in downgradient residences and businesses. The New Jersey Department of Environmental Protection asserted, in a ~~lawsuit entitled “Coalition~~Directive and Notice to Insurers dated February 19, 2013 (“Directive”), that we are liable for the downgradient impacts under a ~~Level Playing Field, L.L.C., et al., v. AutoZone, Inc. et al.,” filed~~joint and severable liability theory, and we have contested any such assertions due to the existence of other entities/sources of contamination, some of which are also named in the ~~U.S. District Court for~~Directive, in the ~~Southern District~~area of the property. Pursuant to the Voluntary Remediation Agreement, upon completion of all remediation required by the agreement, we believe we are eligible to be reimbursed up to 75 percent of qualified remediation costs by the State of New ~~York in October 2004. The case was filed by more than 200 plaintiffs, which are principally automotive aftermarket warehouse distributors~~Jersey. We have asked the state for clarification that the agreement applies to off-site work, and ~~jobbers, against a number~~the state is considering the request. Although the aggregate amount of ~~defendants, including automotive aftermarket retailers and aftermarket automotive parts manufacturers. In~~additional costs that we may incur pursuant to the ~~amended complaint, the plaintiffs allege,~~~~inter alia~~,remediation cannot currently be ascertained, we do not currently believe that ~~some or all~~fulfillment of the automotive aftermarket retailer defendants have knowingly received, in violation of the Robinson-Patman Act (the “Act”), from various of the manufacturer defendants benefits such as volume discounts, rebates, early buy allowances and other allowances, fees, inventory without payment, sham advertising and promotional payments, a share in the manufacturers’ profits, benefits of pay on scan purchases, implementation of radio frequency identification technology, and excessive payments for services purportedly performed for the manufacturers. Additionally, a subset of plaintiffs alleges a claim of fraud against the automotive aftermarket retailer defendants based on discovery issues in a prior litigation involving similar claimsour obligations under the ~~Act. In the prior litigation, the discovery dispute, as well as the underlying claims, was decided~~agreement or otherwise will result in favor of AutoZone and the other automotive aftermarket retailer defendants who proceeded to trial, pursuant to a unanimous jury verdict which was affirmed by the Second Circuit Court of Appeals. In the current litigation, the plaintiffs seek an unspecified amount of damages (including statutory trebling), attorneys’ fees, and a permanent injunction prohibiting the aftermarket retailer defendants from inducing and/or knowingly receiving discriminatory prices from any of the aftermarket manufacturer defendants and from opening up any further stores to compete with the plaintiffs as long as the defendants allegedly continue to violate the Act.

In an order dated September 7, 2010 and issued on September 16, 2010, the court granted motions to dismiss all claims against AutoZone and its co-defendant competitors and suppliers. Based on the record in the prior litigation, the court dismissed with prejudice all overlapping claims – that is, those covering the same time periods covered by the prior litigation and brought by the judgment plaintiffs in the prior litigation. The court also dismissed with prejudice the plaintiffs’ attempt to revisit discovery disputes from the prior litigation. Further, with respect to the other claims under the Act, the court found that the factual statements contained in the complaint fall short of what would be necessary to support a plausible inference of unlawful price discrimination. Finally, the court held that the AutoZone pay-on-scan program is a difference in non-price termscosts that are ~~not governed by the Act. The court ordered the case closed, but also stated that “in an abundance~~material to our financial condition, results of caution the Court [was] defer[ring] decision on whether to grant leave to amend to allow plaintiff an opportunity to propose curative amendments.” Without moving for leave to amend their complaint for a third time, four plaintiffs filed a Third Amended and Supplemental Complaint (the “Third Amended Complaint”) on October 18, 2010. The Third Amended Complaint repeats and expands certain allegations from previous complaints, asserting two claims under the Act, but states that all other plaintiffs have withdrawn their claims, and that,~~inter alia~~~~, Chief Auto Parts, Inc. has been dismissed as a defendant. The court set no specific procedure for further response~~operations or ~~motion by the defendants. We anticipate that the defendants, including AutoZone, will request that the court reject the Third Amended Complaint and/or will seek to have it dismissed.~~

~~We believe this suit to be without merit and are vigorously defending against it. We are unable to estimate a loss or possible range of loss.~~

cash flow.
We are involved in various other legal proceedings incidental to the conduct of our ~~business. Although~~business, including several lawsuits containing class-action allegations in which the ~~amount of liability that may result from these other proceedings cannot be ascertained, we~~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, ~~they~~these matters will result in liabilities material to our financial condition, results of operations or cash flows.

Item 4. ~~Reserved~~Mine Safety Disclosures

15Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the New York Stock Exchange under the symbol “AZO.” On October ~~18, 2010,~~21, 2013, there were ~~3,182~~2,778 stockholders of record, which does not include the number of beneficial owners whose shares were represented by security position listings.

We currently do not pay a dividend on our common stock. Our ability to pay dividends is subject to limitations imposed by Nevada law. Any future payment of dividends ~~in the future~~ would be dependent upon our financial condition, capital requirements, earnings and cash ~~flow and other factors.~~

flow.
The following table sets forth the high and low sales prices per share of common stock, as reported by the New York Stock Exchange, for the periods indicated:

Price Range of Common Stock
High Low
Fiscal Year Ended August 28, 2010:
Fourth quarter $ 215.21 $ 177.66
Third quarter $ 187.94 $ 160.20
Second quarter $ 161.33 $ 146.17
First quarter $ 154.69 $ 135.13

Fiscal Year Ended August 29, 2009:
Fourth quarter $ 164.38 $ 141.00
Third quarter $ 169.99 $ 129.21
Second quarter $ 145.77 $ 92.52
First quarter $ 143.80 $ 84.66

   Price Range of Common Stock
   High    Low
Fiscal Year Ended August 31, 2013:

Fourth quarter
   $ 452.19       $ 401.93
Third quarter
   $ 413.28       $ 369.47
Second quarter
   $ 390.11       $ 341.98
First quarter
   $ 386.80       $ 351.27
Fiscal Year Ended August 25, 2012:

Fourth quarter
   $ 391.90       $ 353.38
Third quarter
   $ 399.10       $ 353.80
Second quarter
   $ 356.80       $ 313.11
First quarter
   $ 341.89       $ 303.00
During 1998, the Company announced a program permitting the Company to repurchase a portion of its outstanding shares not to exceed a dollar maximum established by the Company’s Board of Directors. The program was most recently amended on ~~September 28, 2010,~~June 11, 2013, to increase the repurchase authorization by $750 million to ~~$9.4~~raise the cumulative share repurchase authorization from $12.65 billion ~~from $8.9~~to $13.40 billion. ~~The program does not have an expiration date.~~

Shares of common stock repurchased by the Company during the quarter ended August ~~28, 2010,~~31, 2013, were as follows:

Total Number of Maximum Dollar
Total Shares Purchased Value that May
Number of Average as Part of Publicly Yet Be Purchased
Shares Price Paid Announced Plans Under the Plans
Period Purchased per Share or Programs or Programs
May 9, 2010, to June 5, 2010 143,300 $ 187.00 143,300 $ 724,016,859
June 6, 2010, to July 3, 2010 1,129,590 191.26 1,129,590 507,976,727
July 4, 2010, to July 31, 2010 700,401 201.69 700,401 366,710,411
August 1, 2010, to August 28, 2010 869,716 208.44 869,716 185,428,381

Total 2,843,007 $ 198.87 2,843,007 $ 185,428,381

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
May 5, 2013, to June 1, 2013
   23,900       $ 417.00       23,900       $ 268,442,619
June 2, 2013, to June 29, 2013
   397,712       415.79       397,712       853,076,687
June 30, 2013, to July 27, 2013
   400,901       431.55       400,901       680,067,382
July 28, 2013, to August 31, 2013
   487,000       434.55       487,000       468,441,939








Total
   1,309,513       $ 427.61       1,309,513       $ 468,441,939








The Company also repurchased, at fair value, an additional ~~30,617~~22,915 shares in fiscal ~~2010, 37,190~~2013, 24,113 shares in fiscal ~~2009,~~2012, and ~~39,235~~30,864 shares in fiscal ~~2008~~2011 from employees electing to sell their stock under the Company’s ~~Third~~Sixth Amended and Restated Employee Stock Purchase Plan (the “Employee Plan”), qualified under Section 423 of the Internal Revenue Code, under which all eligible employees may purchase AutoZone’s common stock at 85% of the lower of the market price of the common stock on the first day or last day of each calendar quarter through payroll deductions. Maximum permitted annual purchases are $15,000 per employee or 10 percent of compensation, whichever is less. Under the ~~plan, 26,620~~Employee Plan, 18,228 shares were sold to employees in fiscal ~~2010, 29,147~~2013, 19,403 shares were sold to employees in fiscal ~~2009,~~2012, and ~~36,147~~21,608 shares were sold to employees in fiscal ~~2008.~~2011. At August ~~28, 2010, 293,983~~31, 2013, 234,744 shares of common stock were reserved for future issuance under ~~this plan. Under~~ the Employee Plan.
Once executives have reached the maximum purchases under the Employee Plan, the Fifth Amended and Restated Executive Stock Purchase Plan (the “Executive Plan”) permits all eligible executives ~~are permitted~~ to purchase AutoZone’s common stock up to 25 percent of his or her annual salary and bonus. Purchases by executives under ~~this plan~~the Executive Plan were ~~1,480~~3,454 shares in fiscal ~~2010, 1,705~~2013, 3,937 shares in fiscal ~~2009,~~2012, and ~~1,793~~1,719 shares in fiscal ~~2008.~~2011. At August ~~28, 2010, 250,575~~31, 2013, 248,953 shares of common stock were reserved for future issuance under ~~this plan.~~

the Executive Plan.

Stock Performance Graph

~~This~~
The graph ~~shows, from the end of fiscal year 2005 to the end of fiscal year 2010,~~below presents changes in the value of AutoZone’s stock as compared to Standard & Poor’s 500 Composite Index (“S&P 500”).

and to Standard & Poor’s Retail Index (“S&P Retail Index”) for the five-year period beginning August 30, 2008 and ending August 31, 2013.

17

Item 6. Selected Financial Data

(in thousands, except per share data, same store sales and Fiscal Year Ended August
selected operating data) 2010 2009 2008⁽¹⁾ 2007 2006
Income Statement Data

Net sales $ 7,362,618 $ 6,816,824 $ 6,522,706 $ 6,169,804 $ 5,948,355
Cost of sales, including warehouse and delivery expenses 3,650,874 3,400,375 3,254,645 3,105,554 3,009,835

Gross profit 3,711,744 3,416,449 3,268,061 3,064,250 2,938,520
Operating, selling, general and administrative expenses 2,392,330 2,240,387 2,143,927 2,008,984 1,928,595

Operating profit 1,319,414 1,176,062 1,124,134 1,055,266 1,009,925
Interest expense, net 158,909 142,316 116,745 119,116 107,889

Income before income taxes 1,160,505 1,033,746 1,007,389 936,150 902,036
Income tax expense 422,194 376,697 365,783 340,478 332,761

Net income $ 738,311 $ 657,049 $ 641,606 $ 595,672 $ 569,275

Diluted earnings per share $ 14.97 $ 11.73 $ 10.04 $ 8.53 $ 7.50

Adjusted weighted average shares for diluted earnings per share 49,304 55,992 63,875 69,844 75,859

Same Store Sales

Increase in domestic comparable store net sales⁽²⁾
5.4 % 4.4 % 0.4 % 0.1 % 0.4 %

Balance Sheet Data

Current assets $ 2,611,821 $ 2,561,730 $ 2,586,301 $ 2,270,455 $ 2,118,927
Working (deficit) capital (452,139 ) (145,022 ) 66,981 (15,439 ) 64,359
Total assets 5,571,594 5,318,405 5,257,112 4,804,709 4,526,306
Current liabilities 3,063,960 2,706,752 2,519,320 2,285,895 2,054,568
Debt 2,908,486 2,726,900 2,250,000 1,935,618 1,857,157
Long-term capital leases 66,333 38,029 48,144 39,073 —
Stockholders’ (deficit) equity $ (738,765 ) $ (433,074 ) $ 229,687 $ 403,200 $ 469,528

Selected Operating Data

Number of stores at beginning of year 4,417 4,240 4,056 3,871 3,673
New stores 213 180 185 186 204
Closed stores 3 3 1 1 6

Net new stores 210 177 184 185 198

Relocated stores 3 9 14 18 18

Number of stores at end of year 4,627 4,417 4,240 4,056 3,871

Total store square footage (in thousands) 30,027 28,550 27,291 26,044 24,713
Average square footage per store 6,490 6,464 6,437 6,421 6,384
Increase in store square footage 5 % 5 % 5 % 5 % 6 %
Inventory per store (in thousands) $ 498 $ 500 $ 507 $ 495 $ 477
Average net sales per store (in thousands) $ 1,595 $ 1,541 $ 1,539 $ 1,525 $ 1,546
Net sales per store square foot $ 246 $ 239 $ 239 $ 238 $ 243
Total employees at end of year (in thousands) 63 60 57 55 53
Merchandise under pay-on-scan arrangements (in thousands) $ 634 $ 3,530 $ 6,732 $ 22,387 $ 92,142
Inventory turnover⁽³⁾
1.6 x 1.5 x 1.6 x 1.6 x 1.7 x
Accounts payable to inventory ratio 105.6 % 96.0 % 95.0 % 93.2 % 92.0 %
After-tax return on invested capital⁽⁴⁾
27.6 % 24.4 % 23.9 % 23.2 % 22.7 %
Adjusted debt to EBITDAR⁽⁵⁾
2.4 2.5 2.2 2.1 2.1
Net cash provided by operating activities (in thousands) $ 1,196,252 $ 923,808 $ 921,100 $ 845,194 $ 822,747
Cash flow before share repurchases and changes in debt (in thousands)⁽⁶⁾
$ 947,643 $ 673,347 $ 690,621 $ 678,522 $ 599,507

(in thousands, except per share data, same store sales and selected operating data)
Fiscal Year Ended August
2013⁽¹⁾ 2012 2011 2010 2009
Income Statement Data

Net sales
$ 9,147,530    $ 8,603,863    $ 8,072,973    $ 7,362,618    $ 6,816,824
Cost of sales, including warehouse and delivery expenses
4,406,595    4,171,827    3,953,510    3,650,874    3,400,375

Gross profit
4,740,935    4,432,036    4,119,463    3,711,744    3,416,449
Operating, selling, general and administrative expenses
2,967,837    2,803,145    2,624,660    2,392,330    2,240,387

Operating profit
1,773,098    1,628,891    1,494,803    1,319,414    1,176,062
Interest expense, net
185,415    175,905    170,557    158,909    142,316

Income before income taxes
1,587,683    1,452,986    1,324,246    1,160,505    1,033,746
Income tax expense
571,203    522,613    475,272    422,194    376,697

Net income
$ 1,016,480    $ 930,373    $ 848,974    $ 738,311    $ 657,049

Diluted earnings per share
$ 27.79    $ 23.48    $ 19.47    $ 14.97    $ 11.73

Adjusted weighted average shares for diluted earnings per share
36,581    39,625    43,603    49,304    55,992

Same Store Sales

Increase in domestic comparable store net sales⁽²⁾
0.0 % 3.9 % 6.4 % 5.4 % 4.4 %
Balance Sheet Data

Current assets
$ 3,278,013    $ 2,978,946    $ 2,792,425    $ 2,611,821    $ 2,561,730
Working (deficit)
(891,137 ) (676,646 ) (638,471 ) (452,139 ) (145,022 )
Total assets
6,892,089    6,265,639    5,869,602    5,571,594    5,318,405
Current liabilities
4,169,150    3,655,592    3,430,896    3,063,960    2,706,752
Debt
4,187,000    3,768,183    3,351,682    2,908,486    2,726,900
Long-term capital leases
73,925    72,414    61,360    66,333    38,029
Stockholders’ (deficit)
(1,687,319 ) (1,548,025 ) (1,254,232 ) (738,765 ) (433,074 )
Selected Operating Data

Number of stores at beginning of year
5,006    4,813    4,627    4,417    4,240
New stores
197    193    188    213    180
Closed stores
2    —      2    3    3

Net new stores
195    193    186    210    177

Relocated stores
11    10    10    3    9

Number of stores at end of year
5,201    5,006    4,813    4,627    4,417

Domestic commercial programs
3,421    3,053    2,659    2,424    2,303
Total store square footage (in thousands)
34,076    32,706    31,337    30,027    28,550
Average square footage per store
6,552    6,533    6,511    6,490    6,464
Increase in store square footage
4.2 % 4.4 % 4.4 % 5.2 % 4.6 %
Inventory per store (in thousands)
$ 550    $ 525    $ 512    $ 498    $ 500
Average net sales per store (in thousands)
$ 1,736    $ 1,716    $ 1,675    $ 1,595    $ 1,541
Net sales per store square foot
$ 265    $ 263    $ 258    $ 246    $ 239
Total employees at end of year (in thousands)
71    70    65    63    60
Inventory turnover⁽³⁾
1.6x    1.6x    1.6x    1.6x    1.5x
Accounts payable to inventory ratio
115.6 % 111.4 % 111.7 % 105.6 % 96.0 %
After-tax return on invested capital⁽⁴⁾
32.7 % 33.0 % 31.3 % 27.6 % 24.4 %
Adjusted debt to EBITDAR⁽⁵⁾
2.5    2.5    2.4    2.4    2.5
Net cash provided by operating activities (in thousands)
$ 1,415,011    $ 1,223,981    $ 1,291,538    $ 1,196,252    $ 923,808
Cash flow before share repurchases and changes in debt (in thousands)⁽⁶⁾
$ 1,007,761    $ 949,627    $ 1,023,927    $ 947,643    $ 673,347
Share repurchases (in thousands)
$ 1,387,315    $ 1,362,869    $ 1,466,802    $ 1,123,655    $ 1,300,002
Number of shares repurchased (in thousands)
3,511    3,795    5,598    6,376    9,313
(1) The fiscal year ended August ~~30, 2008~~31, 2013 consisted of 53 weeks.
(2) The domestic comparable sales increases are based on sales for all domestic stores open at least one year. Relocated stores are included in the same store sales computation based on the year the original store was opened. Closed store sales are included in the same store sales computation up to the week it closes, and excluded from the computation for all periods subsequent to closing. In addition, beginning in fiscal 2013, it also includes all sales through our AutoZone branded websites, including consumer direct ship-to-home sales. All prior period same store sales have been restated to be comparable. The effect of including sales from AutoZone branded websites was not material to any period.
(3) Inventory turnover is calculated as cost of sales divided by the average merchandise inventory balance over the trailing 5 quarters. The calculation includes cost of sales related to pay-on-scan sales, which were $2.5 million for the 52 weeks ended August 28, 2010, $5.8 million for the 52 weeks ended August 29, 2009, $19.2 million for the 53 weeks ended August 30, 2008, $85.4 million for the 52 weeks ended August 25, 2007, and $198.1 million for the 52 weeks ended August 26, 2006.
(4) After-tax return on invested capital is defined as after-tax operating profit (excluding rent charges) divided by average invested capital (which includes a factor to capitalize operating leases). See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
18


(5)		Adjusted debt to EBITDAR is defined as the sum of total debt, capital lease obligations and annual rents times six; divided by net income plus interest, taxes, depreciation, amortization, rent and share-based compensation expense. See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(6)

Cash flow before share repurchases and changes in debt is defined as the change in cash and cash equivalents less the change in debt plus treasury stock purchases. See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are the nation’s leading retailer, and a leading distributor, of automotive replacement parts and ~~accessories.~~accessories in the United States. We began operations in 1979 and at August ~~28, 2010,~~31, 2013, operated ~~4,389~~4,836 stores in the United States, including Puerto Rico; 362 in Mexico; and ~~Puerto Rico, and 238~~three in ~~Mexico.~~Brazil. Each of our stores carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products. At August ~~28, 2010,~~31, 2013, in ~~2,424~~3,421 of our domestic ~~stores and 173 of our Mexico~~ stores, we also have 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 select stores in Mexico, as well as in our stores in Brazil. We also sell the ALLDATA brand automotive diagnostic and repair software through www.alldata.com. Additionally, we sell automotive hard parts, maintenance items, accessories, and non-automotive products through www.autozone.com, and ~~as part of~~accessories and performance parts through www.autoanything.com, and our commercial ~~sales program,~~customers can make purchases through www.autozonepro.com. We do not derive revenue from automotive repair or installation services.

Executive Summary

We achieved a strong performance in fiscal ~~2010,~~2013, delivering record ~~earnings~~net income of ~~$738 million~~$1.016 billion, a 9.3% increase over the prior year, and sales growth of ~~$546~~$543.7 million, a 6.3% increase over the prior year. We completed the year with ~~strong~~ growth in all areas of our ~~commercial and retail businesses.~~business. We are ~~excited about~~pleased with the results of our retail business ~~opportunities~~ and ~~encouraged by~~ the increase in our commercial business, where we continue to build our internal sales force and continue to refine our parts assortment. ~~There are~~Over the past several years, various factors ~~occurring~~have occurred within the ~~current~~ economy that affect both our customers and our industry, including the impact of the recession, continued high unemployment, and other challenging economic conditions. Although we have seen a recent ~~recession, the credit crisis and higher unemployment. As~~increase in new vehicle sales, we believe our consumers’ cash flows ~~have decreased~~continue to decrease due to these factors, we believe consumers have become more likely to keep their current vehicles longer and perform repair and maintenance in order to keep those vehicles well maintained. Our belief is supported by industry data showing an increase in the ~~average age of vehicles on the road and recent declines in new car sales, which we believe have led to an increase in demand for the products that we sell.~~previously listed factors. Given the nature of these macroeconomic factors, we cannot predict whether or for how long these trends will continue, nor can we predict to what degree these trends will impact us in the future. ~~Our primary response to fluctuations~~

We believe other macroeconomic factors have adversely affected both our customers and our industry. During fiscal 2013, the average price per gallon of unleaded gasoline in the ~~demand for the products we sell is~~United States remained at a high level, $3.65 per gallon, compared to ~~adjust our advertising message, store staffing, and product assortment.~~$3.57 per gallon during fiscal 2012. We continue to believe ~~we are well positioned to help our customers save money and meet their needs in a challenging macro economic environment.~~

~~Also, we believe changes in~~ gas prices ~~impact~~will remain at overall high levels, thereby reducing discretionary spending for all consumers, and, in particular, our ~~customers’ behavior with respect to driving and maintaining their cars.~~customers. With approximately ~~ten~~11 billion gallons of unleaded gas consumed each month across the ~~United States,~~U.S., each $1 ~~dollar~~ decrease at the pump contributes approximately ~~$10~~$11 billion of additional spending capacity to consumers each month. Given the unpredictability of gas prices, we cannot predict whether gas prices will increase or decrease, ~~in the future,~~ nor can we predict how any future changes in gas prices will impact our sales in future periods.

An additional macroeconomic factor facing our customer is the reinstitution of payroll taxes back to historic levels. The reduction in our customers’ take home pay as a result of the recent increase in payroll taxes was effective at the beginning of the 2013 calendar year and, at this point, we cannot predict the impact this change has had or will have on our sales in future periods.

During fiscal 2013, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 84% of total sales, with failure related categories continuing to be our strongest performers. While

we have not experienced any fundamental shifts in our category sales mix as compared to previous years, we did experience a slight decline in sales of the maintenance category as a percentage of sales. We believe the slowdown in maintenance related products during fiscal 2013 was largely due to weather related impacts in various regions. Because of the unusually mild winter during fiscal 2012 across parts of the U.S., we saw a reduced benefit from sales of maintenance related products in fiscal 2013 compared to the prior fiscal year. However, sales in the maintenance category did improve in the last quarter of fiscal 2013 due to a more normalized winter in fiscal 2013 as compared to fiscal 2012.

Our primary response to fluctuations in the demand for the products we sell is to adjust our advertising message, store staffing, and product assortment. Specifically, during fiscal 2013, we have closely studied our hub distribution model and store inventory levels and assortment. As a result, we are performing certain strategic tests including adding additional inventory into our hub stores and increasing product availability in our stores. We continue to believe we are well positioned to help our customers save money and meet their needs in a challenging macroeconomic environment.

The two statistics we believe have the closest 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.

Miles Driven

We believe that as the number of miles driven increases, consumers’ vehicles are more likely to need service and maintenance, resulting in an increase in the need for automotive hard parts and maintenance items. ~~Prior to~~While over the ~~recession,~~long-term, we ~~had~~have seen a close correlation between ~~annual~~our net sales and the number of miles driven, we have also seen certain time frames of minimal correlation in sales performance and ~~our annual~~miles driven. During the periods of minimal correlation between net ~~sales; however, this correlation has not existed in~~sales and miles driven, we believe net sales have been positively impacted by other factors, including the ~~recent short-term recessionary period.~~number of seven year old or older vehicles on the road. Since the beginning of the fiscal year and through ~~July 2010~~June 2013 (latest publicly available information), miles driven ~~were relatively flat as~~decreased slightly compared to the ~~comparable prior year period. Throughout this~~same period and contrary to the correlation experienced prior to the recession, sales have grown at an increased rate, while miles driven have grown at a slower rate than what we have historically experienced. We believe that the impact of changes in other factors, primarily an increase in seven year old or older vehicles, more than offset the impact of miles driven. As the economy continues to recover, we believe that annual miles driven will return to pre-recession low single digit growth rates, and the correlation between annual miles driven and the annual sales growth of our industry should return.

last year.
Seven Year Old or Older Vehicles

Since 2008, new vehicle sales have been significantly lower than historical levels, which we believe contributed to an increasing number of seven year old or older vehicles on the road. We estimate vehicles are driven an average of approximately 12,500 miles each year. In seven years, the average miles driven equates to approximately 87,500 miles. Our experience is that at this point in a vehicle’s life, most vehicles are not covered by warranties and increased maintenance is needed to keep the vehicle operating. According to the latest data provided by the Automotive Aftermarket Industry Association, as of January 1, 2013, the ~~number~~average age of ~~seven year old or older~~ vehicles ~~increased by approximately 2.2% during~~on the ~~2009 calendar year~~road is 11.3 years as compared to 11.1 years as of January 1, 2012. Although the ~~2008 calendar year.~~average age of vehicles continues to increase, it is increasing at a decelerated rate primarily driven by the improvement in new car sales in recent years. However, in the near term, we expect the aging vehicle population to continue to increase, as consumers keep their cars longer in an effort to save money during this uncertain economy. As the number of seven year old or older vehicles on the road increases, we expect an increase in demand for the products ~~that~~ we sell. ~~In the near term, we expect this trend to continue, as consumers keep their cars longer in an effort to save money during this uncertain economy.~~

Results of Operations

Fiscal ~~2010~~2013 Compared with Fiscal ~~2009~~2012

For the fiscal year ended August ~~28, 2010,~~31, 2013, we reported net sales of ~~$7.363~~$9.148 billion compared with ~~$6.817~~$8.604 billion for the year ended August ~~29, 2009, an 8.0%~~25, 2012, a 6.3% increase from fiscal ~~2009.~~2012. This growth was driven primarily by sales from new stores of $222.3 million, the 53^rd week sales of $177.7 million, and sales from AutoAnything for a portion of the fiscal year.

At August 31, 2013, we operated 4,836 domestic stores, 362 stores in Mexico and three stores in Brazil, compared with 4,685 domestic stores, 321 stores in Mexico and none in Brazil at August 25, 2012. We reported a total auto parts (domestic, Mexico and Brazil) sales increase of 5.2% for fiscal 2013.

Gross profit for fiscal 2013 was $4.741 billion, or 51.8% of net sales, compared with $4.432 billion, or 51.5% of net sales for fiscal 2012. The improvement in gross margin was primarily driven by lower product acquisition costs, partially offset by the inclusion of AutoAnything (28 basis points).

Operating, selling, general and administrative expenses for fiscal 2013 increased to $2.968 billion, or 32.4% of net sales, from $2.803 billion, or 32.6% of net sales for fiscal 2012. Operating expenses, as a percentage of sales, improved due to lower incentive compensation (19 basis points), partially offset by lower sales growth rates.

Interest expense, net for fiscal 2013 was $185.4 million compared with $175.9 million during fiscal 2012. This increase was primarily due to higher average borrowing levels over the comparable prior year period; partially offset by a decline in borrowing rates. Average borrowings for fiscal 2013 were $3.927 billion, compared with $3.507 billion for fiscal 2012 and weighted average borrowing rates were 4.5% for fiscal 2013, compared to 4.7% for fiscal 2012.

Our effective income tax rate was 36.0% of pre-tax income for fiscal 2013 compared to 36.0% for fiscal 2012.

Net income for fiscal 2013 increased by 9.3% to $1.016 billion, and diluted earnings per share increased 18.3% to $27.79 from $23.48 in fiscal 2012. The impact of the fiscal 2013 stock repurchases on diluted earnings per share in fiscal 2013 was an increase of approximately $1.09.

Effective December 2012, we acquired certain assets and liabilities of AutoAnything, an online retailer of specialized automotive products for up to $150 million, including an initial cash payment of $115 million, up to a $5 million holdback payment for working capital true-ups, and contingent payments not to exceed $30 million. During the third quarter of fiscal 2013, we paid the holdback payment for working capital true-ups of $1.1 million. With this acquisition, we expect to bolster our online presence in the automotive accessory and performance markets. The results of operations from AutoAnything have been included in our Other business activities since the date of acquisition. The purchase price allocation resulted in goodwill of $83.4 million and intangible assets totaling $58.7 million. Goodwill generated from the acquisition is tax deductible and is primarily attributable to expected synergies and the assembled workforce. The contingent consideration is based on the achievement of certain performance metrics through calendar year 2014 with any earned payments due during the first calendar quarter of 2014 and 2015. The fair value of the contingent consideration as of the acquisition date was $22.7 million.

We performed our annual impairment testing in the fourth quarter of fiscal 2013 for the goodwill and indefinite-lived intangible asset related to the acquisition of AutoAnything. Based on an analysis of AutoAnything’s revised planned financial results compared to the initial projections, we determined it was more likely than not the goodwill attributed to AutoAnything was impaired. Accordingly, we performed a goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, including goodwill. Because the fair value of the reporting unit was lower than its carrying value, we recorded a goodwill impairment charge of $18.3 million during the fourth quarter of fiscal 2013. Based on our evaluation of the future discounted cash flows of AutoAnything’s trade name as compared to its carrying value, it was determined that AutoAnything’s trade name was also impaired. We recorded an impairment charge of $4.1 million during the fourth quarter of fiscal 2013 related to the trade name.

Based on the revised plan financial results, we also determined AutoAnything is not likely to achieve the operating income targets necessary to earn the contingent consideration. Therefore, we adjusted the fair value of the contingent consideration at August 31, 2013 to $0.2 million, resulting in a decrease to the contingent consideration liability of $23.3 million during the fourth quarter of fiscal 2013. The net impact of the impairment charges and the contingent consideration adjustment is a gain of $0.9 million. The net impact is included in Operating, selling, general and administrative expenses in our Other business activities.

Fiscal 2012 Compared with Fiscal 2011

For the fiscal year ended August 25, 2012, we reported net sales of $8.604 billion compared with $8.073 billion for the year ended August 27, 2011, a 6.6% increase from fiscal 2011. This growth was driven primarily by an increase in domestic same store sales of ~~5.4%~~3.9% and sales from new stores of ~~$203.4~~$214.2 million. The improvement in domestic same store sales was driven by ~~an improvement in transaction count trends, while increases in average~~higher transaction value, ~~remained generally consistent with our long-term trends. Higher~~partially offset by decreased transaction ~~value is attributable to product inflation due to both more complex, costly products and commodity price increases.~~

counts.
At August ~~28, 2010,~~25, 2012, we operated ~~4,389~~4,685 domestic stores and ~~238~~321 stores in Mexico, compared with ~~4,229~~4,534 domestic stores and ~~188~~279 stores in Mexico at August ~~29, 2009.~~27, 2011. We reported a ~~domestic retail~~total auto parts (domestic and Mexico operations) sales increase of ~~6.9% and a domestic commercial sales increase of 13.8%~~6.5% for fiscal ~~2010.~~

2012.
Gross profit for fiscal ~~2010~~2012 was ~~$3.712~~$4.432 billion, or ~~50.4%~~51.5% of net sales, compared with ~~$3.416~~$4.119 billion, or ~~50.1%~~51.0% of net sales for fiscal ~~2009.~~2011. The improvement in gross margin was primarily attributable to ~~leveraging distribution costs due to~~ higher ~~sales and operating efficiencies~~merchandise margins (19 basis points) and lower shrink expense (17 basis points).

Lower acquisition costs drove the higher merchandise margins for the year.
Operating, selling, general and administrative expenses for fiscal ~~2010~~2012 increased to ~~$2.392~~$2.803 billion, or 32.6% of net sales, from $2.625 billion, or 32.5% of net sales ~~from $2.240 billion, or 32.9% of net sales~~ for fiscal ~~2009.~~2011. The ~~reduction~~slight increase in operating expenses, as a percentage of sales, ~~reflected leverage~~was the result of ~~store operating expenses due to~~ higher ~~sales,~~self-insurance costs (42 basis points); partially offset by ~~higher pension expense (17~~lower incentive compensation (30 basis points) ~~and the continued investment in the hub store initiative (16 basis points)~~.

Interest expense, net for fiscal ~~2010~~2012 was ~~$158.9~~$175.9 million compared with ~~$142.3~~$170.6 million during fiscal ~~2009.~~2011. This increase was primarily due to higher average borrowing levels over the comparable prior year ~~period.~~period; partially offset by a decline in borrowing rates. Average borrowings for fiscal ~~2010~~2012 were ~~$2.752~~$3.507 billion, compared with ~~$2.460~~$3.103 billion for fiscal ~~2009~~2011 and weighted average borrowing rates were ~~5.3%~~4.7% for fiscal ~~2010,~~2012, compared to ~~5.4%~~5.1% for fiscal ~~2009.~~

2011.
Our effective income tax rate was ~~36.4%~~36.0% of pre-tax income for fiscal ~~2010~~2012 compared to ~~36.4%~~35.9% for fiscal ~~2009.~~

2011.
Net income for fiscal ~~2010~~2012 increased by ~~12.4%~~9.6% to ~~$738.3~~$930.4 million, and diluted earnings per share increased ~~27.6%~~20.6% to ~~$14.97~~$23.48 from ~~$11.73~~$19.47 in fiscal ~~2009.~~2011. The impact of the fiscal ~~2010~~2012 stock repurchases on diluted earnings per share in fiscal ~~2010~~2012 was an increase of approximately ~~$0.74.~~

$0.96.

~~Fiscal 2009 Compared with Fiscal 2008~~

For the year ended August 29, 2009, we reported net sales of $6.817 billion compared with $6.523 billion for the year ended August 30, 2008, a 4.5% increase from fiscal 2008. Excluding $125.9 million of sales from the 53^rdweek included in the prior year, total company net sales increased 6.6%. This growth was driven primarily by an increase in domestic same store sales of 4.4% and sales from new stores of $165.5 million. The improvement in same store sales was driven by an improvement in transaction count trends, while increases in average transaction value remained generally consistent with our long-term trends. Higher transaction value is attributable to product inflation due to both more complex, costly products and commodity price increases.

~~At August 29, 2009, we operated 4,229 domestic stores and 188 stores in Mexico, compared with 4,092 domestic stores and 148 stores in Mexico at August 30, 2008. Excluding the sales from the 53~~^rd~~week in the prior year, domestic retail sales increased 7.1% and domestic commercial sales increased 4.3%.~~

Gross profit for fiscal 2009 was $3.416 billion, or 50.1% of net sales, compared with $3.268 billion, or 50.1% of net sales, for fiscal 2008. Gross profit as a percent of net sales was positively impacted by favorable distribution costs from improved efficiencies and lower fuel costs. However, this favorability was largely offset by a shift in mix to lower margin products.

Operating, selling, general and administrative expenses for fiscal 2009 increased to $2.240 billion, or 32.9% of net sales, from $2.144 billion, or 32.9% of net sales for fiscal 2008. Leverage from increased sales was largely offset by expenses associated with our continued enhancements to our hub stores (17 basis points), an acceleration of our store maintenance program (9 basis points), and a continued expansion of our commercial sales force (7 basis points).

Interest expense, net for fiscal 2009 was $142.3 million compared with $116.7 million during fiscal 2008. This increase was due to higher average borrowing levels over the comparable prior year period and a higher percentage of fixed rate debt. Average borrowings for fiscal 2009 were $2.460 billion, compared with $2.024 billion for fiscal 2008 and weighted average borrowing rates were 5.4% for fiscal 2009, compared to 5.2% for fiscal 2008.

~~Our effective income tax rate was 36.4% of pre-tax income for fiscal 2009 compared to 36.3% for fiscal 2008.~~

Net income for fiscal 2009 increased by 2.4% to $657.0 million, and diluted earnings per share increased 16.8% to $11.73 from $10.04 in fiscal 2008. The impact of the fiscal 2009 stock repurchases on diluted earnings per share in fiscal 2009 was an increase of approximately $0.78. Excluding the additional week in the prior year, net income for the year increased 5.0% over the previous year, while diluted earnings per share increased 19.7%.

Seasonality and Quarterly Periods

Our business is somewhat seasonal in nature, with the highest sales typically occurring in the spring and summer months of February through September, in which average weekly per-store sales historically have been about 15% to 25% higher than in the slower months of December and January. During short periods of time, a store’s sales can be affected by weather conditions. Extremely hot or extremely cold weather may enhance sales by causing parts to ~~fail and spurring~~fail; thereby increasing sales of seasonal products. Mild or rainy weather tends to soften sales, as parts failure rates are lower in mild weather, with elective maintenance deferred during periods of rainy weather. Over the longer term, the effects of weather balance out, as we have stores throughout the United States, Puerto Rico, Mexico and ~~Mexico.~~

Brazil.
Each of the first three quarters of our fiscal year ~~consisted~~consists of 12 weeks, and the fourth quarter consisted of 17 weeks in 2013 and 16 weeks in ~~2010, 16 weeks in 2009,~~2012 and ~~17 weeks in 2008.~~2011. Because the fourth quarter contains ~~the~~ seasonally high sales volume and consists of 16 or 17 weeks, compared with 12 weeks for each of the first three quarters, our fourth quarter represents a disproportionate share of the annual net sales and net income. The fourth quarter of fiscal year ~~2010, containing 16 weeks,~~2013 represented ~~33.2%~~33.8% of annual sales and ~~36.4%~~36.5% of net income; the fourth quarter of fiscal ~~2009, containing 16 weeks,~~2012 represented ~~32.7%~~32.1% of annual sales and ~~35.9%~~34.8% of net income; and the fourth quarter of fiscal ~~2008, containing 17 weeks,~~2011 represented ~~33.9%~~32.7% of annual sales and ~~38.0%~~35.5% of net income.

Liquidity and Capital Resources

The primary source of our liquidity is our cash flows realized through the sale of automotive parts and ~~accessories.~~products. Net cash provided by operating activities was ~~$1,196.3 million~~$1.415 billion in fiscal ~~2010, $923.8 million~~2013, $1.224 billion in fiscal ~~2009,~~2012, and ~~$921.1 million~~$1.292 billion in fiscal ~~2008. The increase over prior~~2011. Cash flows from operations are favorable to last year ~~was primarily~~ due to ~~higher~~the change in inventories net ~~income~~ of ~~$81.3 million~~payables and improvements in accounts payable as our cash flows from operating activities continue to benefit from our inventory purchases being largely financed by our vendors. The increase in fiscal 2009 as compared to fiscal 2008 was due primarily to the growth in net income, timing of income tax payments and deductions, and improvements in our accounts payable to inventory ratio as our vendors finance a large portion of our inventory. Partially offsetting this increase were higher accounts receivable and the 53^rd ~~week of income in fiscal 2008.~~income. We had an accounts payable to inventory ratio of ~~106%~~115.6% at August ~~28, 2010, 96%~~31, 2013, 111.4% at August ~~29, 2009,~~25, 2012, and ~~95%~~111.7% at August ~~30, 2008.~~27, 2011. Our inventory increases are primarily attributable to ~~an increased number of stores and to a lesser extent,~~ our efforts to update product ~~assortment~~assortments in all of our stores and an increased number of stores. During fiscal 2013, we initiated a variety of strategic inventory tests focused on increasing inventory availability, which increased our inventory per store. Many of our vendors have supported our initiative to update our product ~~assortment~~assortments by providing extended payment terms. These extended payment terms have allowed us to continue ~~to grow~~our high accounts payable ~~at a faster rate than inventory.~~

to inventory ratio.
Our primary capital requirement has been the funding of our continued new-store development program. From the beginning of fiscal ~~2008~~2011 to August ~~28, 2010,~~31, 2013, we have opened 578 new stores. Net cash flows used in investing activities were ~~$307.4~~$527.3 million in fiscal ~~2010,~~2013, compared to ~~$263.7~~$374.8 million in fiscal ~~2009,~~2012, and ~~$243.2~~$319.0 million in
fiscal ~~2008.~~2011. We invested ~~$315.4~~$414.5 million in capital assets in fiscal ~~2010,~~2013, compared to ~~$272.2~~$378.1 million in ~~capital assets~~fiscal 2012, and $321.6 million in fiscal ~~2009, and $243.6 million in capital assets in fiscal 2008.~~2011. The increase in capital expenditures during this time was primarily attributable to the number and types of stores opened and increased investment in our existing stores. New store openings were ~~213~~197 for fiscal ~~2010, 180~~2013, 193 for fiscal ~~2009,~~2012, and ~~185~~188 for fiscal ~~2008.~~2011. Cash flows used in the acquisition of AutoAnything were $116.1 million during fiscal 2013. There were no acquisitions in fiscal 2012 or fiscal 2011. We invest a portion of our assets held by ~~the Company’s~~our wholly owned insurance captive in marketable securities. We ~~acquired $56.2~~purchased $44.5 million of marketable securities in fiscal ~~2010, $48.4~~2013, $45.7 million in fiscal ~~2009,~~2012, and ~~$54.3~~$43.8 million in fiscal ~~2008.~~2011. We had proceeds from the sale of marketable securities of ~~$52.6~~$37.9 million in fiscal ~~2010, $46.3~~2013, $42.4 million in fiscal ~~2009,~~2012, and ~~$50.7~~$43.1 million in fiscal ~~2008.~~2011. Capital asset disposals provided ~~$11.5~~proceeds of $9.8 million in fiscal ~~2010, $10.7~~2013, $6.6 million in fiscal ~~2009,~~2012, and ~~$4.0~~$3.3 million in fiscal ~~2008.~~

2011.
Net cash used in financing activities was ~~$883.5~~$847.0 million in fiscal ~~2010, $806.9~~2013, $843.4 million in fiscal ~~2009,~~2012, and ~~$522.7~~$973.8 million in fiscal ~~2008.~~2011. The net cash used in financing activities reflected purchases of treasury stock which totaled ~~$1.1~~$1.387 billion for fiscal ~~2010, $1.3~~2013, $1.363 billion for fiscal ~~2009,~~2012, and ~~$849.2 million~~$1.467 billion for fiscal ~~2008.~~2011. The treasury stock purchases in fiscal ~~2010, 2009~~2013, 2012 and ~~2008~~2011 were primarily funded by cash ~~flow~~flows from operations, and ~~at times,~~ by increases in debt levels. Proceeds from issuance of debt were ~~$26.2~~$800 million for fiscal ~~2010, $500.0~~2013, $500 million for fiscal ~~2009,~~2012, and ~~$750.0~~$500 million for fiscal ~~2008. There were no debt repayments for fiscal 2010; debt repayments were $300.7 million for fiscal 2009, and $229.8 million for fiscal 2008.~~2011. In fiscal ~~2009, we used~~2013 and fiscal 2012, the proceeds from the issuance of debt ~~to repay outstanding~~were used for the repayment of a portion of commercial paper ~~indebtedness, to prepay our $300 million term loan in August 2009~~borrowings and ~~for~~ general corporate purposes, including for working capital requirements, capital expenditures, store openings and stock repurchases. Proceeds from the issuance of debt ~~issuance~~ in fiscal ~~2008~~2013 were also used for the acquisition of AutoAnything. In fiscal 2013, we repaid our $200 million Senior Notes due in June 2013 and our $300 million Senior Notes due in October 2012 using commercial paper borrowings. There were no repayments of debt in fiscal 2012. In fiscal 2011, we used the proceeds from the issuance of debt to repay ~~outstanding~~our $199.3 million Senior Notes due in November 2010, to repay a portion of our commercial paper ~~indebtedness~~borrowings and for general corporate ~~purposes, including for working capital requirements, capital expenditures, store openings and stock repurchases. Net~~purposes. In 2013, we received proceeds from the issuance of commercial paper ~~were $155.4 million for fiscal 2010~~ and ~~$277.6 million for fiscal 2009. For fiscal 2008,~~short-term borrowings in the amount of $118.7 million. In 2012, net ~~repayments~~payments of commercial paper and short-term borrowings were ~~$206.7~~$81.3 million.

We In 2011, we received proceeds from the issuance of commercial paper and short-term borrowing in the amount of $141.5 million.
During fiscal 2014, we expect to invest in our business ~~consistent with historical rates during~~at an increased rate as compared to fiscal ~~2011, with our investment being~~2013. Our investments are expected to be directed primarily to our new-store development program and enhancements to existing stores and infrastructure. The amount of our investments in our new-store program is impacted by different factors, including such factors as whether the building and land are purchased (requiring higher investment) or leased (generally lower investment), located in the United States, Mexico or ~~Mexico,~~Brazil, or located in urban or rural areas. During fiscal ~~2010,~~2013, fiscal ~~2009,~~2012, and fiscal ~~2008,~~2011, our capital expenditures have increased by approximately ~~16%~~10%, ~~12%~~18% and 9%2%, respectively, as compared to the prior year. Our mix of store openings has moved away from build-to-suit leases (lower ~~cost)~~initial capital investment) to ground leases and land purchases (higher ~~cost)~~initial capital investment), resulting in increased capital expenditures ~~during~~per store over the previous three years, and we expect this trend to continue during the fiscal year ending August ~~27, 2011.~~

30, 2014.
In addition to the building and land costs, our new-store development program requires 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 receivables from us, allowing them to receive payment on our invoices at a discounted rate.

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 of our credit ratings and favorable experiences in the debt markets in the past.

Our cash balances are held in various locations around the world. Of the $142.2 million and $103.1 million of cash and cash equivalents at August 31, 2013, and August 25, 2012, respectively, $38.2 million and $7.8 million, respectively, were held outside of the U.S. and were generally utilized to support liquidity needs in our foreign operations. We intend to continue to permanently reinvest the cash held outside of the U.S. in our foreign operations.

For the fiscal year ended August ~~28, 2010,~~31, 2013, our after-tax return on invested capital (“ROIC”) was ~~27.6%~~32.7% as compared to ~~24.4%~~33.0% for the comparable prior year period. ROIC is calculated as after-tax operating profit (excluding rent charges) divided by average invested capital (which includes a factor to capitalize operating leases). The decrease in ROIC ~~increased~~is primarily due to ~~increased after-tax operating profit.~~the acquisition of AutoAnything. We use ROIC to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance.

Debt Facilities

In ~~July 2009,~~September 2011, we ~~terminated~~amended and restated our ~~$1.0 billion~~$800 million revolving credit facility, which was scheduled to expire in ~~fiscal 2010, and replaced it with an $800 million~~July 2012. The capacity under the revolving credit ~~facility.~~facility was increased to $1.0 billion. This credit facility is available to primarily support commercial paper borrowings, letters of credit and other short-term, unsecured bank loans. The capacity of the credit facility may be increased to ~~$1.0~~$1.250 billion prior to the maturity date at our election and subject to bank credit capacity and approval, may include up to $200 million in letters of credit, and may include up to ~~$100~~$175 million in capital leases each fiscal year. ~~As the available balance is reduced by commercial paper borrowings and certain outstanding letters of credit, we had $331.1 million in available capacity under this facility at August 28, 2010.~~ Under the revolving credit facility, we may borrow funds consisting of Eurodollar loans or base rate loans. Interest accrues on Eurodollar loans at a defined Eurodollar rate, defined as the London InterBank Offered Rate (“LIBOR”) plus the applicable percentage, ~~which could range from 150 basis points to 450 basis points,~~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 atas defined in the ~~prime rate.~~revolving credit facility. We also have the option to borrow funds under the terms of a swingline loan subfacility. The revolving credit facility expires in ~~July 2012.~~

September 2016.
The revolving credit facility agreement requires that our consolidated interest coverage ratio as of the last day of each quarter shall be no less than 2.50:1. This ratio is defined as the ratio of (i) consolidated earnings before interest, taxes and rents to (ii) consolidated interest expense plus consolidated rents. Our consolidated interest coverage ratio as of August ~~28, 2010~~31, 2013 was ~~4.27:~~4.68:1.

As of August 31, 2013, $637 million of commercial paper borrowings and $326.3 million of the 6.500% Senior Notes due January 2014 are classified as long-term in the Consolidated Balance Sheets as we have the ability and intent to refinance on a long-term basis through available capacity in our revolving credit facility. As of August 31, 2013, we had $963.3 million of availability under our $1.0 billion revolving credit facility, expiring in September 2016 that would allow us to replace these short-term obligations with long-term financing.

In ~~June 2010,~~addition to the revolving credit facility, we ~~entered into~~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 $100 million. ~~The letter of credit facility is in addition to the letters of credit that may be issued under the revolving credit facility.~~ As of August ~~28, 2010,~~31, 2013, we have ~~$100.0~~$99.4 million in letters of credit outstanding under the letter of credit facility, which expires in June ~~2013.~~

During August 2009, we elected to prepay, without penalty, the $300 million bank term loan entered in December 2004, and subsequently amended. The term loan facility provided for a term loan, which consisted of, at our election, base rate loans, Eurodollar loans or a combination thereof. The entire unpaid principal amount of the term loan would be due and payable in full on December 23, 2009, when the facility was scheduled to terminate. Interest accrued on base rate loans at a base rate per annum equal2016.
In addition to the ~~higher~~outstanding letters of credit issued under the ~~prime rate or the Federal Funds Rate plus 1/2~~committed facilities discussed above, we had $41.8 million in letters of ~~1%. We entered into~~credit outstanding as of August 31, 2013. These letters of credit have various maturity dates and were issued on an ~~interest rate swap agreement on December~~uncommitted basis.
On April 29, 2004, to effectively fix, based on current debt ratings, the interest rate of the term loan at 4.4%. The outstanding liability associated with the interest rate swap totaled $3.6 million, and was expensed in operating, selling, general and administrative expenses upon termination of the hedge in fiscal 2009.

~~On July 2, 2009,~~2013, we issued $500 million in ~~5.75%~~3.125% Senior Notes due ~~2015~~July 2023 under our shelf registration statement filed with the ~~Securities and Exchange Commission~~SEC on ~~July 29, 2008~~April 17, 2012 (the “Shelf Registration”). ~~Also, on August 4, 2008, we issued $500 million in 6.50% Senior Notes due 2014 and $250 million in 7.125% Senior Notes due 2018 under the Shelf Registration.~~ The Shelf Registration allows us to sell an indeterminate amount in debt securities to fund general corporate purposes, including repaying, redeeming or repurchasing outstanding debt and for working capital, capital expenditures, new store openings, stock repurchases and acquisitions. ~~In fiscal 2009,~~Proceeds from the ~~Company~~debt issuance on April 29, 2013, were used to repay a portion of the outstanding commercial paper borrowings and for general corporate purposes. We used commercial paper borrowings to repay the $200 million in 4.375% Senior Notes due June 2013.
On November 13, 2012, we issued $300 million in 2.875% Senior Notes due January 2023 under the Shelf Registration. Proceeds from the debt issuance on November 13, 2012, were used to repay a portion of the outstanding commercial paper borrowings, which were used to repay the $300 million in 5.875% Senior Notes due in October 2012, and for general corporate purposes.
On April 24, 2012, we issued $500 million in 3.700% Senior Notes due April 2022 under the Shelf Registration. Proceeds from the debt issuance on April 24, 2012, were used to repay a portion of the commercial paper borrowings and for general corporate purposes. On November 15, 2010, we issued $500 million in 4.000% Senior Notes due 2020 under a shelf registration statement filed with the Securities and Exchange Commission on July 29, 2008. We used the proceeds from the November 15, 2010 issuance of debt to repay ~~outstanding~~the principal due relating to the 4.750% Senior Notes that matured on November 15, 2010, to repay a portion of the commercial paper ~~indebtedness, to prepay our $300 million term loan in August 2009~~borrowings and for general corporate purposes. ~~Proceeds from the debt issuance in fiscal 2008 were used to repay outstanding commercial paper indebtedness and for general corporate purposes.~~

The ~~5.75%~~5.750% Senior Notes issued in July 2009 and the ~~6.50%~~6.500% and 7.125% Senior Notes issued during August 2008, (collectively, the “Notes”), are subject to an interest rate adjustment if the debt ratings assigned to the Notes are downgraded. ~~They~~The Notes, along with the 3.125% Senior Notes issued in April 2013, the 2.875% Senior Notes issued in November 2012, the 3.700% Senior Notes issued in April 2012 and the 4.000% Senior Notes issued in during November 2010, also contain a provision that repayment of the ~~Notes~~notes may be accelerated if we experience a change in control (as defined in the agreements). Our borrowings under our other senior notes contain minimal covenants, primarily restrictions on liens. Under our revolving credit facility, covenants include limitations on total indebtedness, restrictions on liens, a ~~minimum fixed charge coverage~~maximum debt to earnings ratio, and a change of control provision that may require acceleration of the repayment obligations under certain circumstances. These covenants are in addition to the consolidated interest coverage ratio discussed above. 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 August ~~28, 2010,~~31, 2013, we were in compliance with all covenants related to our borrowing arrangements and expect to remain in compliance with those covenants in the future.

~~Our~~
For the fiscal year ended August 31, 2013, our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“~~EBITDAR”~~EBITDAR��) ratio was ~~2.4:~~2.5:1 ~~and~~as compared to 2.5:1 as of ~~August 28, 2010 and August 29, 2009, respectively.~~the comparable prior year end. We calculate adjusted debt as the sum of total debt, capital lease obligations and rent times six; and we calculate EBITDAR by adding interest, taxes, depreciation, amortization, rent and share-based compensation expense to net income. 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.

Stock Repurchases

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. The program was amended in~~Directors (the “Board”). On June ~~2010~~11, 2013, the Board voted to increase the authorization by $750 million to raise the cumulative share repurchase authorization from $12.65 billion to ~~$8.9 billion from $8.4~~$13.40 billion. From January 1998 to August ~~28, 2010,~~31, 2013, we have repurchased a total of ~~121.7~~134.6 million shares at an aggregate cost of ~~$8.7~~$12.93 billion. We repurchased ~~6.4~~3.5 million shares of common stock at an aggregate cost of ~~$1.1~~$1.39 billion during fiscal ~~2010, 9.3~~2013, 3.8 million shares of common stock at an aggregate cost of ~~$1.3~~$1.36 billion during fiscal ~~2009,~~2012, and ~~6.8~~5.6 million shares of common stock at an aggregate cost of ~~$849.2 million~~$1.47 billion during fiscal ~~2008.~~2011. Considering cumulative repurchases as of August ~~28, 2010,~~31, 2013, we have ~~$185.4~~$468.4 million remaining under the Board of Director’s authorization to repurchase our common stock.

~~On September 28, 2010, the Board of Directors voted~~
Subsequent to ~~increase the authorization by $500 million to raise the cumulative share repurchase authorization from $8.9 billion to $9.4 billion. We~~August 31, 2013, we have repurchased ~~approximately 800 thousand~~355,150 shares of ~~our~~ common stock at an aggregate cost of ~~$185.9 million during fiscal 2011.~~

$149.8 million.

Financial Commitments

The following table shows our significant contractual obligations as of August ~~28, 2010:~~

Total Payment Due by Period
Contractual Less than Between Between Over
(in thousands) Obligations 1 year 1-3 years 4-5 years 5 years
Long-term debt⁽¹⁾
$ 2,882,300 $ 632,300 $ 500,000 $ 1,000,000 $ 750,000
Interest payments⁽²⁾
617,225 140,600 245,238 155,800 75,587
Operating leases⁽³⁾
1,740,047 196,291 357,943 284,836 900,977
Capital leases⁽⁴⁾
92,745 21,947 44,832 25,966 —
Self-insurance reserves⁽⁵⁾
158,384 60,955 43,045 22,688 31,696
Construction commitments 15,757 15,757 — — —

$ 5,506,458 $ 1,067,850 $ 1,191,058 $ 1,489,290 $ 1,758,260

31, 2013:
(in thousands)
   Total
Contractual
Obligations    Payment Due by Period
      Less than
1 year    Between
1-3 years    Between
3-5 years    Over
5 years
Long-term debt⁽¹⁾
   $ 4,013,267       $ 963,267       $ 1,000,000       $ 250,000       $ 1,800,000
Interest payments⁽²⁾
   786,075       155,963       228,050       161,125       240,937
Operating leases⁽³⁾
   1,957,222       228,747       424,989       358,057       945,429
Capital leases⁽⁴⁾
   109,223       32,246       55,306       21,671       —
Self-insurance reserves⁽⁵⁾
   197,268       66,133       57,358       28,490       45,287
Construction commitments
   21,027       21,027       —         —         —










   $ 7,084,082       $ 1,467,383       $ 1,765,703       $ 819,343       $ 3,031,653










(1) Long-term debt balances represent principal maturities, excluding interest.
(2) Represents obligations for interest payments on long-term debt.
(3) Operating lease obligations are inclusive of amounts accrued within deferred rent and closed store obligations reflected in our consolidated balance sheets.
(4) Capital lease obligations include related interest.
(5) ~~We retain a significant portion of the risks associated with workers’ compensation, employee health, general and product liability, property, and vehicle insurance. These amounts represent~~Self-insurance reserves reflect estimates based on actuarial calculations. Although these obligations do not have scheduled maturities, the timing of future payments are predictable based upon historical patterns. Accordingly, we reflect the net present value of these obligations in our consolidated balance sheets.
We have pension obligations reflected in our consolidated balance ~~sheet~~sheets that are not reflected in the table above due to the absence of scheduled maturities and the nature of the account. During fiscal 2013, we made contributions of $16.9 million to the pension plan. We expect to make contributions of approximately $4 million during fiscal 2014; however a change to the expected cash funding may be impacted by a change in interest rates or a change in the actual or expected return on plan assets.
As of August ~~28, 2010,~~31, 2013, our defined benefit obligation associated with our pension ~~liability~~plans is ~~$211.5~~$256.8 million and our pension assets are valued at ~~$117.2~~$208.1 million, resulting in a net pension obligation of $48.7 million. Amounts recorded in ~~accumulated~~Accumulated other comprehensive loss are ~~$94.3~~$83.6 million at August ~~28, 2010. These amounts~~31, 2013. The balance in Accumulated other comprehensive loss will be amortized into pension expense in the future, unless ~~they~~the losses are recovered in future periods through actuarial gains.
Additionally, our tax liability for uncertain tax positions, including interest and penalties, was ~~$46.5~~$35.4 million at August ~~28, 2010.~~31, 2013. Approximately ~~$28.4~~$2.2 million is classified as current liabilities and ~~$18.1~~$33.2 million is classified as long-term liabilities. We did not reflect these obligations in the table above as we are unable to make an estimate of the timing of payments due to uncertainties in the timing and amounts of the settlement of these tax positions.
Off-Balance Sheet Arrangements
The following table reflects outstanding letters of credit and surety bonds as of August ~~28, 2010:~~

Total
Other
(in thousands) Commitments
Standby letters of credit $ 107,554
Surety bonds 23,723

$ 131,277

31, 2013:
(in thousands)
   Total
Other
Commitments
Standby letters of credit
   $ 145,357
Surety bonds
   30,726


   $ 176,083


A substantial portion of the outstanding standby letters of credit (which are primarily renewed on an annual basis) and surety bonds are used to cover reimbursement obligations to our workers’ compensation carriers. There are no additional contingent liabilities associated with ~~them~~these instruments as the underlying liabilities are already reflected in our consolidated balance ~~sheet.~~sheets. The standby letters of credit and surety ~~bonds~~bond arrangements expire within one year, but have automatic renewal clauses.

Reconciliation of Non-GAAP Financial Measures
“Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” include certain financial measures not derived in accordance with generally accepted accounting principles (“GAAP”). These non-GAAP financial measures provide additional information for determining our optimum capital structure and are used to assist management in evaluating performance and in making appropriate business decisions to maximize stockholders’ value.
25

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 the non-GAAP financial measures, as we believe they provide additional information that is useful to investors as it indicates more clearly our comparative year-to-year operating results. Furthermore, our management and Compensation Committee of the Board ~~of Directors~~ use the above-mentioned 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 of Non-GAAP Financial Measure: Cash Flow Before Share Repurchases and Changes in Debt

The following table reconciles net increase (decrease) in cash and cash equivalents to cash flow before share repurchases and changes in debt, which is presented in “Selected Financial Data”:

Fiscal Year Ended August
(in thousands) 2010 2009 2008 2007 2006
Net increase (decrease) in cash and cash equivalents $ 5,574 $ (149,755 ) $ 155,807 $ (4,904 ) $ 16,748
Less: Increase (decrease) in debt 181,586 476,900 314,382 78,461 (4,693 )
Less: Share repurchases (1,123,655 ) (1,300,002 ) (849,196 ) (761,887 ) (578,066 )

Cash flow before share repurchases and changes in debt $ 947,643 $ 673,347 $ 690,621 $ 678,522 $ 599,507

   Fiscal Year Ended August
(in thousands)
   2013    2012    2011 2010    2009
Net increase (decrease) in cash and cash equivalents
   $ 39,098       $ 5,487       $ (674 ) $ 5,574       $ (149,755 )
Less: Increase in debt
   418,652       418,729       442,201    181,586       476,900
Plus: Share repurchases
   1,387,315       1,362,869       1,466,802    1,123,655       1,300,002








Cash flow before share repurchases and changes in debt
   $ 1,007,761       $ 949,627       $ 1,023,927    $ 947,643       $ 673,347








Reconciliation of Non-GAAP Financial Measure: After-tax Return on Invested Capital

The following table ~~reconciles~~calculates the ~~percentages~~percentage of ROIC. ROIC is calculated as after-tax operating profit (excluding rent) divided by average invested capital (which includes a factor to capitalize operating leases). The ROIC percentages are presented in “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:

Fiscal Year Ended August
(in thousands, except percentages) 2010 2009 2008⁽¹⁾ 2007 2006
Net income $ 738,311 $ 657,049 $ 641,606 $ 595,672 $ 569,275
Adjustments:
Interest expense 158,909 142,316 116,745 119,116 107,889
Rent expense 195,632 181,308 165,121 152,523 143,888
Tax effect⁽²⁾
(128,983 ) (117,929 ) (102,345 ) (98,796 ) (92,880 )

After-tax return $ 963,869 $ 862,744 $ 821,127 $ 768,515 $ 728,172

Average debt⁽³⁾
$ 2,769,617 $ 2,468,351 $ 2,074,738 $ 1,888,989 $ 1,822,642
Average (deficit) equity⁽⁴⁾
(507,885 ) (75,162 ) 308,401 482,702 518,303
Rent x 6⁽⁵⁾
1,173,792 1,087,848 990,726 915,138 863,328
Average capital lease obligations⁽⁶⁾
62,220 58,901 60,763 27,093 —

Pre-tax invested capital $ 3,497,744 $ 3,539,938 $ 3,434,628 $ 3,313,922 $ 3,204,273

ROIC 27.6 % 24.4 % 23.9 % 23.2 % 22.7 %

   Fiscal Year Ended August
(in thousands, except percentages)
   2013⁽¹⁾ 2012 2011 2010 2009
Net income
   $ 1,016,480    $ 930,373    $ 848,974    $ 738,311    $ 657,049
Adjustments:

Interest expense
   185,415    175,905    170,557    158,909    142,316
Rent expense
   246,340    229,417    213,846    195,632    181,308
Tax effect⁽²⁾
   (155,432 ) (145,916 ) (137,962 ) (128,983 ) (117,929 )


After-tax return
   $ 1,292,803    $ 1,189,779    $ 1,095,415    $ 963,869    $ 862,744


Average debt⁽³⁾
   $ 3,951,360    $ 3,508,970    $ 3,121,880    $ 2,769,617    $ 2,468,351
Average (deficit)⁽⁴⁾
   (1,581,832 ) (1,372,342 ) (993,624 ) (507,885 ) (75,162 )
Rent × 6⁽⁵⁾
   1,478,040    1,376,502    1,283,076    1,173,792    1,087,848
Average capital lease obligations⁽⁶⁾
   102,729    96,027    84,966    62,220    58,901


Pre-tax invested capital
   $ 3,950,297    $ 3,609,157    $ 3,496,298    $ 3,497,744    $ 3,539,938


ROIC
   32.7 % 33.0 % 31.3 % 27.6 % 24.4 %


(1) The fiscal year ended August ~~30, 2008~~31, 2013 consisted of 53 weeks.
(2) The effective tax rate during fiscal 2013, 2012, 2011, 2010 ~~fiscal~~and 2009 ~~fiscal 2008, fiscal 2007 and fiscal 2006~~ was ~~36.4%~~36.0%, ~~36.4%~~36.0%, ~~36.3%~~35.9%, 36.4% and ~~36.9%~~36.4%, respectively.
(3) Average debt is equal to the average of our debt measured as of the previous five quarters.
(4) Average equity is equal to the average of our stockholders’ (deficit) ~~equity~~ measured as of the previous five quarters.
(5) Rent is multiplied by a factor of six to capitalize operating leases in the determination of pre-tax invested capital.
(6) Average capital lease obligations ~~relating to vehicle capital leases entered into at the beginning of fiscal 2007~~ is computed as the average of our capital lease obligations over the ~~trailing~~previous five quarters. ~~Rent expense associated with the vehicles prior to the conversion to capital leases is included in the rent for purposes of calculating return on invested capital.~~
Reconciliation of Non-GAAP Financial Measure: Fiscal 2013 Results Excluding Impact of 53^rd Week:
26

The following table summarizes the impact of the additional week to the 53 week fiscal year ended August 31, 2013.
(in thousands, except per share and percentages)
   Fiscal 2013
Results of
Operations    Percent of
Revenue Results of
Operations for
53^rd Week Fiscal 2013
Results of
Operations
Excluding
53^rd Week    Percent of
Revenue
Net sales
   $ 9,147,530       100.0 % $ (177,722 ) $ 8,969,808       100.0 %
Cost of sales
   4,406,595       48.2 % (85,281 ) 4,321,314       48.2 %






Gross profit
   4,740,935       51.8 % (92,441 ) 4,648,494       51.8 %
Operating expenses
   2,967,837       32.4 % (52,605 ) 2,915,232       32.5 %






Operating profit
   1,773,098       19.4 % (39,836 ) 1,733,262       19.3 %
Interest expense, net
   185,415       2.0 % (3,524 ) 181,891       2.0 %






Income before taxes
   1,587,683       17.4 % (36,312 ) 1,551,371       17.3 %
Income taxes
   571,203       6.2 % (12,883 ) 558,320       6.2 %






Net income
   $ 1,016,480       11.1 % $ (23,429 ) $ 993,051       11.1 %






Diluted earnings per share
   $ 27.79       $ (0.64 ) $ 27.15





Reconciliation of Non-GAAP Financial Measure: Adjusted Debt to EBITDAR
The following table ~~reconciles~~calculates the ratio of adjusted debt to EBITDAR. Adjusted debt to EBITDAR is calculated as the sum of total debt, capital lease obligations and annual rents times six; divided by net income plus interest, taxes, depreciation, amortization, rent and share-based compensation expense. The adjusted debt to EBITDAR ratios are presented in “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:

Fiscal Year Ended August
(in thousands, except ratios) 2010 2009 2008⁽¹⁾ 2007 2006
Net income $ 738,311 $ 657,049 $ 641,606 $ 595,672 $ 569,275
Add: Interest expense 158,909 142,316 116,745 119,116 107,889
Income tax expense 422,194 376,697 365,783 340,478 332,761

EBIT 1,319,414 1,176,062 1,124,134 1,055,266 1,009,925
Add: Depreciation expense 192,084 180,433 169,509 159,411 139,465
Rent expense 195,632 181,308 165,121 152,523 143,888
Option expense 19,120 19,135 18,388 18,462 17,370

EBITDAR $ 1,726,250 $ 1,556,938 $ 1,477,152 $ 1,385,662 $ 1,310,648

Debt $ 2,908,486 $ 2,726,900 $ 2,250,000 $ 1,935,618 $ 1,857,157
Capital lease obligations 88,280 54,764 64,061 55,088 —
Rent x 6 1,173,792 1,087,848 990,726 915,138 863,328

Adjusted debt $ 4,170,558 $ 3,869,512 $ 3,304,787 $ 2,905,844 $ 2,720,485

Adjusted debt to EDITDAR 2.4 2.5 2.2 2.1 2.1

   Fiscal Year Ended August
(in thousands, except ratios)
   2013⁽¹⁾    2012    2011    2010    2009
Net income
   $ 1,016,480       $ 930,373       $ 848,974       $ 738,311       $ 657,049
Add: Interest expense
   185,415       175,905       170,557       158,909       142,316
Income tax expense
   571,203       522,613       475,272       422,194       376,697










EBIT
   1,773,098       1,628,891       1,494,803       1,319,414       1,176,062
Add: Depreciation expense
   227,251       211,831       196,209       192,084       180,433
Rent expense
   246,340       229,417       213,846       195,632       181,308
Share-based expense
   37,307       33,363       26,625       19,120       19,135










EBITDAR
   $ 2,283,996       $ 2,103,502       $ 1,931,483       $ 1,726,250       $ 1,556,938










Debt
   $ 4,187,000       $ 3,768,183       $ 3,351,682       $ 2,908,486       $ 2,726,900
Capital lease obligations
   106,171       102,256       86,656       88,280       54,764
Rent × 6
   1,478,040       1,376,502       1,283,076       1,173,792       1,087,848










Adjusted debt
   $ 5,771,211       $ 5,246,941       $ 4,721,414       $ 4,170,558       $ 3,869,512










Adjusted debt to EBITDAR
   2.5       2.5       2.4       2.4       2.5










(1) The fiscal year ended August ~~30, 2008~~31, 2013 consisted of 53 weeks.
~~Reconciliation of Non-GAAP Financial Measure: Fiscal 2008 Results Excluding Impact of 53~~^rd ~~Week~~
~~The following table summarizes the favorable impact~~
Recent Accounting Pronouncements
See Note A of the ~~additional week included in the 53-week fiscal year ended August 30, 2008:~~

Fiscal 2008
Results of Results of
Fiscal 2008 Operations Operations
(in thousands, except per share data Results of Percent of for Excluding Percent of
and percentages) Operations Revenue 53^rd Week 53^rd Week Revenue
Net sales $ 6,522,706 100.0 % $ (125,894 ) $ 6,396,812 100.0 %
Cost of sales 3,254,645 49.9 % (62,700 ) 3,191,945 49.9 %

Gross profit 3,268,061 50.1 % (63,194 ) 3,204,867 50.1 %
Operating expenses 2,143,927 32.9 % (36,087 ) 2,107,840 32.9 %

Operating profit 1,124,134 17.2 % (27,107 ) 1,097,027 17.2 %
Interest expense, net 116,745 1.8 % (2,340 ) 114,405 1.8 %

Income before income taxes 1,007,389 15.4 % (24,767 ) 982,622 15.4 %
Income taxes 365,783 5.6 % (8,967 ) 356,816 5.6 %

Net income $ 641,606 9.8 % $ (15,800 ) $ 625,806 9.8 %

Diluted earnings per share $ 10.04 $ (0.24 ) $ 9.80

~~Recent Accounting Pronouncements~~
~~In October 2009, the~~Notes to Consolidated Financial ~~Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13,~~~~Revenue Arrangements with Multiple Deliverables~~~~, which amends Accounting Standards Codification (“ASC”) Topic 605 (formerly Emerging Issues Task Force Issue No. 00-21,~~~~Revenue Arrangements with Multiple Deliverables~~~~). This ASU addresses the~~Statements for a discussion on recent accounting for multiple-deliverable revenue arrangements to enable vendors to account for deliverables separately rather than as a combined unit. This ASU will be effective prospectively for revenue arrangements entered into commencing with our first fiscal quarter beginning August 29, 2010. We do not expect the provisions of ASU 2009-13 to have a material effect on the consolidated financial statements.
pronouncements.
27
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. In the ~~Notes~~notes to ~~Consolidated Financial Statements,~~our consolidated financial statements, we describe our significant accounting policies used in preparing the consolidated financial statements. Our policies are evaluated on an ongoing basis and 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 senior management has identified the critical accounting policies for the areas that are materially impacted by estimates and assumptions and have discussed such policies with the Audit Committee of our ~~Board of Directors.~~Board. The following items in our consolidated financial statements represent our critical accounting policies that require significant estimation or judgment by management:
Inventory Reserves and Cost of Sales
LIFO
We state our inventories at the lower of cost or market using the last-in, first-out (“LIFO”) method for domestic merchandise and the first-in, first out (“FIFO”) method for Mexico inventories. Due to price deflation on our merchandise purchases, our domestic inventory balances are effectively maintained under the FIFO method. We do not write up inventory for favorable LIFO adjustments, and due to price deflation, LIFO costs of our domestic inventories exceed replacement costs by ~~$247.3~~$283.7 million at August ~~28, 2010,~~31, 2013, calculated using the dollar value method.
Inventory Obsolescence and Shrinkage
Our inventory, primarily hard parts, maintenance items, accessories and non-automotive products, is used on vehicles that have rather long lives; and therefore, the risk of obsolescence is minimal and the majority of excess inventory has historically been returned to our vendors for credit. In the isolated instances where less than full credit will be received for such returns and where we anticipate that items will be sold at retail prices that are less than recorded costs, we record a charge (less than $20 million in each of the last three years) through cost of sales for the difference. These charges are based on management’s judgment, including estimates and assumptions regarding marketability of products and the market value of inventory to be sold in future periods.
Historically, we have not encountered material exposure to inventory obsolescence or excess inventory, nor have we experienced material changes to our estimates. However, we may be exposed to material losses should our vendors alter their policy with regard to accepting excess inventory returns.
Additionally, we reduce inventory for projected losses related to shrinkage, which is estimated based on historical losses and current inventory loss trends resulting from previous physical inventories. Shrinkage may occur due to theft, loss or inaccurate records for the receipt of goods, among other things. Throughout the year, we take physical inventory counts of our stores and distribution centers to verify these estimates. We make assumptions regarding upcoming physical inventory counts that may differ from actual results. Over the last three years, there has been less than a 2550 basis point fluctuation in our shrinkage rate.
Each quarter, we evaluate the accrued shrinkage in light of the actual shrink results. To the extent our actual physical inventory count results differ from our estimates, we may experience material adjustments to our financial statements. Historically, we have not experienced material adjustments to our shrinkage estimates and do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use.
A 10% difference in our inventory reserves as of August ~~28, 2010,~~31, 2013, would have affected net income by approximately $5$6 million in fiscal ~~2010.~~
2013.
Vendor Allowances
We receive various payments and allowances from our vendors through a variety of programs and arrangements, including allowances for warranties, advertising and general promotion of vendor products. Vendor allowances are treated as a reduction of inventory, unless they are provided as a reimbursement of specific, incremental, identifiable costs incurred by the Company in selling the vendor’s products. Approximately ~~85%~~87% of the vendor funds received are recorded as a reduction of the cost of inventories and recognized as a reduction to cost of sales as these inventories are sold.
28
Based on our vendor agreements, a significant portion of vendor funding we receive is based on our inventory purchases. Therefore, we record receivables for funding earned but not yet received as we purchase inventory. During the year, we regularly review the receivables from vendors to ensure vendors are able to meet their obligations. We generally have not recorded a reserve against these receivables as we have legal right of offset with our vendors for payments owed them. Historically, we have had ~~minimal~~ write-offs ~~(less~~less than ~~$100~~$500 thousand in ~~any~~each of the last three ~~years).~~
years.
Goodwill and Intangibles
We evaluate goodwill and indefinite-lived intangibles for impairment annually in the fourth quarter of each fiscal year or whenever events or changes in circumstances indicate the carrying values exceeds the current fair value. We evaluate the likelihood of impairment by considering qualitative factors, such as macroeconomic, industry, market, or any other factors that could impact the reporting unit’s fair value. If these factors indicate impairment, we perform a quantitative assessment to determine if the carrying value exceeds the fair value. Goodwill is evaluated at the reporting unit level and involves valuation methods including forecasting future financial performance, estimates of discount rates, and other factors. If the carrying value of the reporting unit’s goodwill exceeds the fair value, we recognize an impairment loss.
Indefinite-lived intangibles are evaluated by comparing the carrying amount of the asset to the future discounted cash flows that the asset is expected to generate. If the carrying value of the indefinite-lived intangible asset
exceeds the fair value based on the future discounted cash flows, we recognize an impairment loss. These impairment analyses require a significant amount of subjective judgment by management, and as a result these estimates are uncertain and our actual results may be different from our estimates.
The carrying value of goodwill at August 31, 2013 and August 25, 2012 was $367.8 million and $302.6 million, respectively. During fiscal fourth quarter of 2013, we recorded an $18.3 million goodwill impairment charge in our Other business activities related to the goodwill of AutoAnything and a $4.1 million impairment charge to AutoAnything’s trade name. The $4.1 million impairment charge resulted in a remaining carrying value of $24.6 million at August 31, 2013. No indefinite-lived intangible amounts were recorded at August 25, 2012. We also determined AutoAnything is not likely to achieve the operating income targets necessary to earn the contingent consideration. Therefore, these impairment charges were offset by an adjustment of $23.3 million to the contingent consideration liability to reflect its fair value at August 31, 2013. No impairment charges were recognized in our Other business activities in previous fiscal years. No impairment charges were recognized in the Auto Parts Stores reporting segment during fiscal 2013 or in previous fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to evaluate goodwill or indefinite-lived intangibles.
Self-Insurance Reserves
We retain a significant portion of the risks associated with workers’ compensation, employee health, general and products liability, property and vehicle ~~insurance losses;~~liability; and we obtain third party insurance to limit the exposure related to certain of these risks. Our self-insurance reserve estimates totaled ~~$156~~$190.2 million ~~$158~~at August 31, 2013, and $175.8 million ~~and $145 million as of the end of fiscal years 2010, 2009, and 2008, respectively. These changes are~~at August 25, 2012. This change is primarily reflective of our growing operations, including inflation, increases in health care costs, the number of vehicles and the number of hours worked, as well as our historical claims experience and changes in our discount rate.
The assumptions made by management in estimating our self-insurance reserves include consideration of historical cost experience, judgments about the present and expected levels of cost per claim and retention levels. We utilize various methods, including analyses of historical trends and actuarial methods, to estimate the cost to settle reported claims, and claims incurred but not yet reported. The actuarial methods develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet date. When estimating these liabilities, we consider factors, such as the severity, duration and frequency of claims, legal costs associated with claims, healthcare trends, and projected inflation of related factors. In recent history, ~~we have experienced improvements in frequency and duration of claims; however, medical and wage inflation have partially offset these trends. Throughout this time,~~ our methods for determining our exposure have remained consistent, and ~~these~~our historical trends have been appropriately factored into our reserve estimates.
As we obtain additional information and refine our methods regarding the assumptions and estimates we use to recognize liabilities incurred, we will adjust our reserves accordingly.
Management believes that the various assumptions developed and actuarial methods used to determine our ~~self- insurance~~self-insurance reserves are reasonable and provide meaningful data and information that management uses to make its best estimate of our exposure to these risks. Arriving at these estimates, however, requires a significant amount of subjective judgment by management, and as a result these estimates are uncertain and our actual exposure may be different from our estimates. For example, changes in our assumptions about health care costs, the severity of accidents and the incidence of illness, the average size of claims and other factors could cause actual claim costs to vary materially from our assumptions and estimates, causing our reserves to be overstated or understated. For instance, a 10% change in our self-insurance liability would have affected net income by approximately ~~$10~~$12 million for fiscal ~~2010.~~
As we obtain additional information and refine our methods regarding the assumptions and estimates we use to recognize liabilities incurred, we will adjust our reserves accordingly. In recent years, we have experienced favorable claims development, particularly related to workers’ compensation, and have adjusted our estimates as necessary. We attribute this success to programs, such as return to work and projects aimed at accelerating claims closure. The programs have matured and proven to be successful and are therefore considered in our current and future assumptions regarding claims costs.
2013.
Our liabilities for workers’ compensation, certain general and product liability, property and vehicle claims do not have scheduled maturities; however, the timing of future payments is predictable based on historical patterns and is relied upon in determining the current portion of these liabilities. Accordingly, we reflect the net present value of the obligations we determine to be long-term using the risk-free interest rate as of the balance sheet date. If the discount rate used to calculate the present value of these reserves changed by 50 basis points, net income would have ~~changed~~been affected by approximately $2 million for fiscal ~~2010.~~2013. Our liability for health benefits is classified as current, as the historical average duration of claims is approximately six weeks.
29
Income Taxes
Our income tax returns are audited by state, federal and foreign tax authorities, and we are typically engaged in various tax examinations at any given time. Tax contingencies often arise due to uncertainty or differing interpretations of the application of tax rules throughout the various jurisdictions in which we operate. The
contingencies are influenced by items such as tax audits, changes in tax laws, litigation, appeals and prior experience with similar tax positions. We regularly review our tax reserves for these items and assess the adequacy of the amount we have recorded. As of August ~~28, 2010,~~31, 2013, we had approximately ~~$46.5~~$35.4 million reserved for uncertain tax positions.
We evaluate potential exposures associated with our various tax filings ~~in accordance with ASC Topic 740 (formerly Financial Accounting Standards Board Interpretation No. 48,~~~~Accounting for Uncertainty in Income Taxes~~) by estimating a liability for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.
We believe our estimates to be reasonable and have not experienced material adjustments to our reserves in the previous three years; however, actual results could differ from our estimates, and we may be exposed to gains or losses that could be material. Specifically, management has used judgment and made assumptions to estimate the likely outcome of uncertain tax positions. Additionally, to the extent we prevail in matters for which a liability has been established, or must pay in excess of recognized reserves, our effective tax rate in any particular period could be materially affected.
Pension Obligation
Prior to January 1, 2003, substantially all full-time employees were covered by a qualified defined benefit pension plan. The benefits under the plan were based on years of service and the employee’s highest consecutive five-year average compensation. On January 1, 2003, the plan was frozen. Accordingly, pension plan participants will earn no new benefits under the plan formula and no new participants will join the pension plan. On January 1, 2003, our supplemental, unqualified defined benefit pension plan for certain highly compensated employees was also frozen. Accordingly, plan participants will earn no new benefits under the plan formula and no new participants will join the pension plan. As the plan benefits are frozen, the annual pension expense and recorded liabilities are not impacted by increases in future compensation levels, but are impacted by the use of two key assumptions in the calculation of these balances:
Expected long-term rate of return on plan assets:We For the fiscal year ended August 31, 2013, we have assumed ~~an 8%~~a 7.5% long-term rate of return on our plan assets. This estimate is a judgmental matter in which management considers the composition of our asset portfolio, our historical long-term investment performance and current market conditions. We review the expected long-term rate of return on an annual basis, and revise it accordingly. Additionally, we monitor the mix of investments in our portfolio to ensure alignment with our long-term strategy to manage pension cost and reduce volatility in our assets. At August ~~28, 2010,~~31, 2013, our plan assets totaled ~~$117~~$208 million in our qualified plan. Our assets are generally valued using the net asset values, which are determined by valuing investments at the closing price or last trade reported on the major market on which the individual securities are traded. We have no assets in our nonqualified plan. A 50 basis point change in our expected long term rate of return would impact annual pension ~~expense/income~~expense by approximately ~~$600 thousand~~$1 million for the qualified plan.
Discount rate used to determine benefit obligations:This rate is highly sensitive and is adjusted annually based on the interest rate for long-term, high-quality, corporate bonds as of the measurement date using yields for maturities that are in line with the duration of our pension liabilities. This same discount rate is also used to determine pension expense for the following plan year. For fiscal ~~2010,~~2013, we assumed a discount rate of ~~5.25%~~5.2%. A decrease in the discount rate increases our projected benefit obligation and pension expense. A 50 basis point change in the discount rate at August ~~28, 2010~~31, 2013 would impact annual pension expense/income by approximately ~~$2.2~~$2 million for the qualified plan and ~~$40~~$30 thousand for the nonqualified plan.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from, among other things, changes in interest rates, foreign exchange rates and fuel prices. From time to time, we use various ~~financial~~derivative instruments to reduce interest rate and fuel price risks. To date, based upon our current level of foreign operations, no derivative instruments have been utilized to reduce foreign exchange rate risk. All of our hedging activities are governed by guidelines that are authorized by ~~our Board of Directors.~~the Board. Further, we do not buy or sell ~~financial~~derivative instruments for trading purposes.
30
Interest Rate Risk
Our financial market risk results primarily from changes in interest rates. At times, we reduce our exposure to changes in interest rates by entering into various interest rate hedge instruments such as interest rate swap contracts, treasury lock agreements and forward-starting interest rate swaps.
We have historically utilized interest rate swaps to convert variable rate debt to fixed rate debt and to lock in fixed rates on future debt issuances. We reflect the current fair value of all interest rate hedge instruments as a component of either other current assets or accrued expenses and other. Our interest rate hedge instruments are designated as cash flow hedges.
Unrealized gains and losses on interest rate hedges are deferred in stockholders’ deficit as a component of ~~accumulated~~Accumulated other comprehensive loss. These deferred gains and losses are recognized in income as a decrease or increase to interest expense in the period in which the related cash flows being hedged are recognized in expense. However, to the extent that the change in value of an interest rate hedge instrument does not perfectly offset the change in the value of the cash flow being hedged, that ineffective portion is immediately recognized in earnings.
~~At August 28, 2010,~~
During the fourth quarter of fiscal 2012, we ~~held forward starting interest~~entered into two treasury rate ~~swaps~~locks, each with a ~~total~~ notional amount of ~~$300~~$100 million. These agreements ~~which expire in November of 2010, are~~were cash flow hedges used to hedge the exposure to variability in future cash flows resulting from changes in variable interest rates ~~relating~~related to ~~anticipated~~the $300 million Senior Note debt ~~transactions. It is expected that upon settlement~~issuance in November 2012. The fixed rates of the ~~agreements,~~hedges were 2.07% and 1.92% and were benchmarked based on the ~~realized gain or~~10-year U.S. treasury notes. These locks expired on November 1, 2012 and resulted in a loss ~~will be~~of $5.1 million, which has been deferred in ~~accumulated~~Accumulated other comprehensive loss and will be reclassified to ~~interest~~Interest expense over the life of the underlying debt. The hedges remained highly effective until they expired, and no ineffectiveness was recognized in earnings.
During the third quarter of fiscal ~~2009,~~2012, we ~~terminated an~~entered into two treasury rate locks. These agreements were designated as cash flow hedges and were used to hedge the exposure to variability in future cash flows resulting from changes in variable interest ~~rate swap~~rates related to athe $500 million Senior Note debt issuance in April 2012. The treasury rate locks had notional amounts of $300 million ~~term loan that~~and $100 million with associated fixed rates of 2.09% and 2.07% respectively. The locks were benchmarked based on the 10-year U.S. treasury notes. These locks expired on April 20, 2012 and resulted in a loss of $2.8 million, which has been deferred in Accumulated other comprehensive loss and will be reclassified to Interest expense over the life of the underlying debt. The hedges remained highly effective until they expired, and no ineffectiveness was ~~prepaid. As a result, at August 29, 2009, we had no outstanding interest rate swaps.~~
recognized in earnings.
The fair value of our debt was estimated at ~~$3.182~~$4.259 billion as of August ~~28, 2010,~~31, 2013, and ~~$2.853~~$4.055 billion as of August ~~29, 2009,~~25, 2012, based on the quoted market prices for the same or similar debt issues or on the current rates available to us for debt having the same remaining maturities. Such fair value is greater than the carrying value of debt by ~~$273.5~~$72.2 million and ~~$126.5~~$286.6 million at August ~~28, 2010~~31, 2013 and August ~~29, 2009,~~25, 2012, respectively. We had ~~$459.2~~$637.0 million of variable rate debt outstanding at August ~~28, 2010,~~31, 2013, and ~~$277.6~~$518.2 million of variable rate debt outstanding at August ~~29, 2009.~~25, 2012. In fiscal ~~2010,~~2013, at this borrowing level for variable rate debt, a one percentage point increase in interest rates would have had an unfavorable impact on our pre-tax earnings and cash flows of ~~$4.6~~approximately $6 million. The primary interest rate exposure on variable rate debt is based on LIBOR. We had outstanding fixed rate debt of ~~$2.449~~$3.550 billion at August ~~28, 2010,~~31, 2013, and $3.250 billion at August ~~29, 2009.~~25, 2012. A one percentage point increase in interest rates would reduce the fair value of our fixed rate debt by ~~$94.2~~approximately $128.4 million at August ~~28, 2010.~~
31, 2013.
Fuel Price Risk
~~Fuel~~
From time to time, we utilize fuel swap contracts ~~that we utilize have not previously been designated as hedging instruments and thus do not qualify for hedge accounting treatment, although~~in order to lower fuel cost volatility in our operating results. Historically, the instruments were executed to economically hedge a portion of our diesel and unleaded fuel
exposure. However, we have not designated the fuel swap contracts as hedging instruments; and therefore, the contracts have not qualified for hedge accounting treatment. We did not enter into any fuel swap contracts during ~~the 2010~~ fiscal ~~year. During~~2013, fiscal year 2009, we entered into fuel swaps to economically hedge a portion of our unleaded fuel exposure. As of August 29, 2009, we had an outstanding liability of less than one hundred thousand dollars associated with our unleaded fuel swap which had no significant impact on our results of operations.
2012 or fiscal 2011.
Foreign Currency Risk
Foreign currency exposures arising from transactions include firm commitments and anticipated transactions denominated in a currency other than ~~an entity’s~~our entities’ functional ~~currency.~~currencies. To minimize our risk, we generally enter into transactions denominated in ~~their~~the respective functional currencies. Foreign currency exposures arising from transactions denominated in currencies other than the functional currency are not material.
~~Our~~
We are exposed to euros, Canadian dollars, and Brazilian reals, but our primary foreign currency exposure arises from Mexican peso-denominated revenues and profits and their translation into U.S. dollars.
We ~~generally~~ view our investments in ~~the~~ Mexican subsidiaries as long-term. As a result, we generally do not hedge these net investments. The net ~~investment~~asset exposure in the Mexican subsidiaries translated into U.S. dollars using the year-end exchange rates was ~~$254.6~~$378.7 million at August ~~28, 2010~~31, 2013 and ~~$215.4~~$315.7 million at August ~~29, 2009.~~25, 2012. The year-end exchange rates with respect to the Mexican peso decreased by approximately 1.1% with respect to the U.S. dollar during fiscal 2013 and decreased by approximately 6.2% during fiscal 2012. The potential loss in value of our net ~~investment~~assets in the Mexican subsidiaries resulting from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates at August ~~28, 2010~~31, 2013 and August ~~29, 2009,~~25, 2012, amounted to ~~$23.1~~approximately $34 million and ~~$19.6~~approximately $29 million, respectively. Any changes in our net ~~investment~~assets in the Mexican subsidiaries relating to foreign currency exchange rates would be reflected in the foreign currency translation component of ~~accumulated~~Accumulated other comprehensive loss, unless the Mexican subsidiaries are sold or otherwise disposed.
~~During fiscal 2010,~~ A hypothetical 10 percent adverse change in average exchange rates with respect to the Mexican peso increased by approximately 1.4% with respect to the U.S. dollar. Exchange rates with respect to the Mexican peso decreased by approximately 30% with respect to the U.S. dollar during fiscal 2009.
would not have a material impact on our results of operations.
31
Item 8. Financial Statements and Supplementary Data

Index
Management’s Report on Internal Control Over Financial Reporting
33
~~Reports of Independent Registered Public Accounting Firm~~
34
~~Consolidated Statements of Income~~
   36
Certifications
   36
~~Consolidated Balance Sheets~~Reports of Independent Registered Public Accounting Firm
   37
Consolidated Statements of ~~Cash Flows~~Income
38
~~Consolidated Statements of Stockholders’ (Deficit) Equity~~
   39
Consolidated Statements of Comprehensive Income
   39
~~Notes to~~ Consolidated ~~Financial Statements~~Balance Sheets
   40
Consolidated Statements of Cash Flows
   41
~~Quarterly Summary (unaudited)~~Consolidated Statements of Stockholders’ Deficit
   6242
Notes to Consolidated Financial Statements
43
32
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting includes, among other things, defined policies and procedures for conducting and governing our business, sophisticated information systems for processing transactions and properly trained staff. Mechanisms are in place to monitor the effectiveness of our internal control over financial reporting, including regular testing performed by the Company’s internal audit team, which is comprised of ~~both Deloitte & Touche LLP professionals and~~ Company personnel. Actions are taken to correct deficiencies as they are identified. Our procedures for financial reporting include the active involvement of senior management, our Audit Committee and a staff of highly qualified financial and legal professionals.
Management, with the participation of our principal executive and financial officers, assessed our internal control over financial reporting as of August ~~28, 2010,~~31, 2013, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway ~~Commission.~~
Commission 1992 framework.
Based on this assessment, management has concluded that our internal control over financial reporting was effective as of August ~~28, 2010.~~
31, 2013.
Our independent registered public accounting firm, Ernst & Young LLP, audited the effectiveness of our internal control over financial reporting. Ernst & Young ~~LLP has issued its~~LLP’s attestation report ~~concurring with management’s assessment, which~~on the Company’s internal control over financial reporting as of August 31, 2013 is included in this Annual Report on Form 10-K.
/s/ WILLIAM C. RHODES, III
William C. Rhodes, III
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ WILLIAM T. GILES
William T. Giles
Chief Financial Officer and Executive
Vice President – Finance, Information
Technology and ALLDATA
(Principal Financial Officer)
Certifications
Compliance with NYSE Corporate Governance Listing Standards
On January ~~4, 2010,~~2, 2013, the Company submitted to the New York Stock Exchange the Annual CEO Certification required pursuant to Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.
Rule ~~13a-~~~~14(a)~~13a-14(a) Certifications of Principal Executive Officer and Principal Financial Officer
The Company has filed, as exhibits to its Annual Report on Form 10-K for the fiscal year ended August ~~28, 2010,~~31, 2013, the certifications of its Principal Executive Officer and Principal Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2004.~~
2002.
33
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of AutoZone, Inc.
We have audited AutoZone, Inc.’s internal control over financial reporting as of August ~~28, 2010,~~31, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 1992 framework (the “COSO criteria”). AutoZone, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on AutoZone, Inc.’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, AutoZone, Inc. maintained, in all material respects, effective internal control over financial reporting as of August ~~28, 2010,~~31, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of AutoZone, Inc. as of August ~~28, 2010~~31, 2013 and August ~~29, 2009~~25, 2012, and the related consolidated statements of income, comprehensive income, stockholders’ ~~(deficit) equity,~~deficit, and cash flows for each of the three years in the period ended August ~~28, 2010~~31, 2013 of AutoZone, Inc. and our report dated October ~~25, 2010~~28, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
~~/s/ Ernst & Young LLP~~
Memphis, Tennessee
October ~~25, 2010~~
28, 2013
34
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of AutoZone, Inc.
We have audited the accompanying consolidated balance sheets of AutoZone, Inc. as of August ~~28, 2010~~31, 2013 and August ~~29, 2009~~25, 2012, and the related consolidated statements of income, comprehensive income, stockholders’ ~~(deficit) equity,~~deficit, and cash flows for each of the three years in the period ended August ~~28, 2010.~~31, 2013. These financial statements are the responsibility of AutoZone, Inc.’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AutoZone, Inc. as of August ~~28, 2010~~31, 2013 and August ~~29, 2009,~~25, 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August ~~28, 2010,~~31, 2013, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AutoZone, Inc.’s internal control over financial reporting as of August ~~28, 2010,~~31, 2013, based on criteria established in Internal ~~Control~~ Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 1992 framework and our report dated October ~~25, 2010~~28, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
~~/s/ Ernst & Young LLP~~
Memphis, Tennessee
October ~~25, 2010~~
28, 2013
35
Consolidated Statements of Income

Year Ended
August 28, August 29, August 30,
2010 2009 2008
(in thousands, except per share data) (52 weeks) (52 weeks) (53 weeks)

Net sales $ 7,362,618 $ 6,816,824 $ 6,522,706
Cost of sales, including warehouse and delivery expenses 3,650,874 3,400,375 3,254,645

Gross profit 3,711,744 3,416,449 3,268,061
Operating, selling, general and administrative expenses 2,392,330 2,240,387 2,143,927

Operating profit 1,319,414 1,176,062 1,124,134
Interest expense, net 158,909 142,316 116,745

Income before income taxes 1,160,505 1,033,746 1,007,389
Income tax expense 422,194 376,697 365,783

Net income $ 738,311 $ 657,049 $ 641,606

Weighted average shares for basic earnings per share 48,488 55,282 63,295
Effect of dilutive stock equivalents 816 710 580

Adjusted weighted average shares for diluted earnings per share 49,304 55,992 63,875

Basic earnings per share $ 15.23 $ 11.89 $ 10.14

Diluted earnings per share $ 14.97 $ 11.73 $ 10.04

   Year Ended
(in thousands, except per share data)
   August 31,
2013
(53 weeks)    August 25,
2012
(52 weeks)    August 27,
2011
(52 weeks)
Net sales
   $ 9,147,530       $ 8,603,863       $ 8,072,973
Cost of sales, including warehouse and delivery expenses
   4,406,595       4,171,827       3,953,510






Gross profit
   4,740,935       4,432,036       4,119,463
Operating, selling, general and administrative expenses
   2,967,837       2,803,145       2,624,660






Operating profit
   1,773,098       1,628,891       1,494,803
Interest expense, net
   185,415       175,905       170,557






Income before income taxes
   1,587,683       1,452,986       1,324,246
Income tax expense
   571,203       522,613       475,272






Net income
   $ 1,016,480       $ 930,373       $ 848,974






Weighted average shares for basic earnings per share
   35,943       38,696       42,632
Effect of dilutive stock equivalents
   638       929       971






Adjusted weighted average shares for diluted earnings per share
   36,581       39,625       43,603
Basic earnings per share
   $ 28.28       $ 24.04       $ 19.91






Diluted earnings per share
   $ 27.79       $ 23.48       $ 19.47






See Notes to Consolidated Financial Statements.

36
Consolidated Statements of Comprehensive Income
   Year Ended
(in thousands)
   August 31,
2013
(53 weeks) August 25,
2012
(52 weeks) August 27,
2011
(52 weeks)
Net income
   $ 1,016,480    $ 930,373    $ 848,974
Other comprehensive income (loss):

Pension liability adjustments, net of taxes⁽¹⁾
   43,106    (17,262 ) (17,346 )
Foreign currency translation adjustments
   (12,216 ) (13,866 ) 8,347
Unrealized loss on marketable securities, net of taxes⁽²⁾
   (376 ) (128 ) (171 )
Net derivative activity, net of taxes⁽³⁾
   711    (1,066 ) (4,053 )


Total other comprehensive income (loss)
   31,225    (32,322 ) (13,223 )


Comprehensive income
   $ 1,047,705    $ 898,051    $ 835,751


~~Consolidated Balance Sheets~~

August 28, August 29,
(in thousands) 2010 2009

Assets

Current assets:
Cash and cash equivalents $ 98,280 $ 92,706
Accounts receivable 125,802 126,514
Merchandise inventories 2,304,579 2,207,497
Other current assets 83,160 135,013

Total current assets 2,611,821 2,561,730

Property and equipment:
Land 690,098 656,516
Buildings and improvements 2,013,301 1,900,610
Equipment 923,595 887,521
Leasehold improvements 247,748 219,606
Construction in progress 192,519 145,161

4,067,261 3,809,414
Less: Accumulated depreciation and amortization 1,547,315 1,455,057

2,519,946 2,354,357

Goodwill 302,645 302,645
Deferred income taxes 46,223 59,067
Other long-term assets 90,959 40,606

439,827 402,318

$ 5,571,594 $ 5,318,405

Liabilities and Stockholders’ Deficit

Current liabilities:
Accounts payable $ 2,433,050 $ 2,118,746
Accrued expenses and other 432,368 381,271
Income taxes payable 25,385 35,145
Deferred income taxes 146,971 171,590
Short-term borrowings 26,186 —

Total current liabilities 3,063,960 2,706,752

Long-term debt 2,882,300 2,726,900
Other long-term liabilities 364,099 317,827

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; 50,061 shares issued and 45,107 shares outstanding in 2010 and 57,881 shares issued and 50,801 shares outstanding in 2009 501 579
Additional paid-in capital 557,955 549,326
Retained (deficit) earnings (245,344 ) 136,935
Accumulated other comprehensive loss (106,468 ) (92,035 )
Treasury stock, at cost (945,409 ) (1,027,879 )

Total stockholders’ deficit (738,765 ) (433,074 )

$ 5,571,594 $ 5,318,405

(1) Pension liability adjustments are presented net of taxes of $27,972 in 2013, $29,744 in 2012, and $3,998 in 2011
(2) Unrealized losses on marketable securities are presented net of taxes of $202 in 2013, $69 in 2012 and $91 in 2011
(3) Net derivative activities are presented net of taxes of $440 in 2013, $4,800 in 2012, and $0 in 2011
See Notes to Consolidated Financial Statements.
Consolidated Balance Sheets

(in thousands)
   August 31,
2013 August 25,
2012
Assets

Current assets:

Cash and cash equivalents
   $ 142,191    $ 103,093
Accounts receivable
   171,638    161,375
Merchandise inventories
   2,861,014    2,627,983
Other current assets
   101,443    85,649
Deferred income taxes
   1,727    846


Total current assets
   3,278,013    2,978,946
Property and equipment:

Land
   862,565    800,175
Buildings and improvements
   2,607,751    2,400,895
Equipment
   1,122,821    1,016,835
Leasehold improvements
   341,182    314,559
Construction in progress
   124,206    127,297


   5,058,525    4,659,761
Less: Accumulated depreciation and amortization
   1,987,164    1,803,833


   3,071,361    2,855,928
Goodwill
   367,829    302,645
Deferred income taxes
   4,069    33,796
Other long-term assets
   170,817    94,324


   542,715    430,765


   $ 6,892,089    $ 6,265,639


Liabilities and Stockholders’ Deficit

Current liabilities:

Accounts payable
   $ 3,307,535    $ 2,926,740
Accrued expenses and other
   467,831    478,085
Income taxes payable
   17,129    17,053
Deferred income taxes
   202,922    183,833
Short-term borrowings
   173,733    49,881


Total current liabilities
   4,169,150    3,655,592
Long-term debt
   4,013,267    3,718,302
Other long-term liabilities
   396,991    439,770
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; 36,768 shares issued and 34,293 shares outstanding in 2013 and 39,869 shares issued and 37,028 shares outstanding in 2012
   368    399
Additional paid-in capital
   814,457    689,890
Retained deficit
   (1,378,936 ) (1,033,197 )
Accumulated other comprehensive loss
   (120,788 ) (152,013 )
Treasury stock, at cost
   (1,002,420 ) (1,053,104 )


Total stockholders’ deficit
   (1,687,319 ) (1,548,025 )


   $ 6,892,089    $ 6,265,639


37
~~Consolidated Statements of Cash Flows~~

Year Ended
August 28, August 29, August 30,
2010 2009 2008
(in thousands) (52 weeks) (52 weeks) (53 weeks)

Cash flows from operating activities:
Net income $ 738,311 $ 657,049 $ 641,606
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment 192,084 180,433 169,509
Amortization of debt origination fees 6,495 3,644 1,837
Income tax benefit from exercise of stock options (22,251 ) (8,407 ) (10,142 )
Deferred income taxes (9,023 ) 46,318 67,474
Share-based compensation expense 19,120 19,135 18,388
Changes in operating assets and liabilities:
Accounts receivable 782 (56,823 ) (11,145 )
Merchandise inventories (96,077 ) (76,337 ) (137,841 )
Accounts payable and accrued expenses 349,122 137,158 175,733
Income taxes payable 12,474 32,264 (3,861 )
Other, net 5,215 (10,626 ) 9,542

Net cash provided by operating activities 1,196,252 923,808 921,100

Cash flows from investing activities:
Capital expenditures (315,400 ) (272,247 ) (243,594 )
Purchase of marketable securities (56,156 ) (48,444 ) (54,282 )
Proceeds from sale of marketable securities 52,620 46,306 50,712
Disposal of capital assets 11,489 10,663 4,014

Net cash used in investing activities (307,447 ) (263,722 ) (243,150 )

Cash flows from financing activities:
Net proceeds from (repayments of ) commercial paper 155,400 277,600 (206,700 )
Proceeds from issuance of debt 26,186 500,000 750,000
Repayment of debt — (300,700 ) (229,827 )
Net proceeds from sale of common stock 52,922 39,855 27,065
Purchase of treasury stock (1,123,655 ) (1,300,002 ) (849,196 )
Income tax benefit from exercise of stock options 22,251 8,407 10,142
Payments of capital lease obligations (16,597 ) (17,040 ) (15,880 )
Other — (15,016 ) (8,286 )

Net cash used in financing activities (883,493 ) (806,896 ) (522,682 )

Effect of exchange rate changes on cash 262 (2,945 ) 539

Net increase (decrease) in cash and cash equivalents 5,574 (149,755 ) 155,807
Cash and cash equivalents at beginning of year 92,706 242,461 86,654

Cash and cash equivalents at end of year $ 98,280 $ 92,706 $ 242,461

Supplemental cash flow information:
Interest paid, net of interest cost capitalized $ 150,745 $ 132,905 $ 107,477

Income taxes paid $ 420,575 $ 299,021 $ 313,875

Assets acquired through capital lease $ 75,881 $ 16,880 $ 61,572

See Notes to Consolidated Financial Statements.
38
Consolidated Statements of ~~Stockholders’ (Deficit) Equity~~Cash Flows

Accumulated
Common Additional Retained Other
Shares Common Paid-in (Deficit) Comprehensive Treasury
(in thousands) Issued Stock Capital Earnings Loss Stock Total
Balance at August 25, 2007 71,250 $ 713 $ 545,404 $ 546,049 $ (9,550 ) $ (679,416 ) $ 403,200
Net income 641,606 641,606
Pension liability adjustments, net of taxes of ($1,145) (1,817 ) (1,817 )
Foreign currency translation adjustment 13,965 13,965
Unrealized gain adjustment on marketable securities, net of taxes of $142 263 263
Net losses on outstanding derivatives, net of taxes of ($3,715) (6,398 ) (6,398 )
Reclassification of net gain on derivatives into earnings (598 ) (598 )

Comprehensive income 647,021
Cumulative effect of adopting ASC Topic 740 (26,933 ) (26,933 )
Purchase of 6,802 shares of treasury stock (849,196 ) (849,196 )
Retirement of treasury stock (8,100 ) (81 ) (63,990 ) (954,623 ) 1,018,694 —
Sale of common stock under stock option and stock purchase plans 450 4 27,061 27,065
Share-based compensation expense 18,388 18,388
Income tax benefit from exercise of stock options 10,142 10,142

Balance at August 30, 2008 63,600 636 537,005 206,099 (4,135 ) (509,918 ) 229,687
Net income 657,049 657,049
Pension liability adjustments, net of taxes of ($29,481) (46,956 ) (46,956 )
Foreign currency translation adjustment (43,655 ) (43,655 )
Unrealized gain adjustment on marketable securities net of taxes of $306 568 568
Reclassification of net loss on termination of swap into earnings, net of taxes of $1,601 2,744 2,744
Reclassification of net gain on derivatives into earnings (612 ) (612 )

Comprehensive income 569,138
Cumulative effect of adopting ASC Topic 715 measurement date, net of taxes of $198 300 11 311
Purchase of 9,313 shares of treasury stock (1,300,002 ) (1,300,002 )
Issuance of 3 shares of common stock 395 395
Retirement of treasury shares (6,223 ) (62 ) (55,071 ) (726,513 ) 781,646 —
Sale of common stock under stock option and stock purchase plans 504 5 39,850 39,855
Share-based compensation expense 19,135 19,135
Income tax benefit from exercise of stock options 8,407 8,407

Balance at August 29, 2009 57,881 579 549,326 136,935 (92,035 ) (1,027,879 ) (433,074 )
Net income 738,311 738,311
Pension liability adjustments, net of taxes of ($5,504) (8,133 ) (8,133 )
Foreign currency translation adjustment 705 705
Unrealized loss adjustment on marketable securities, net of taxes of ($56) (104 ) (104 )
Net losses on outstanding derivatives, net of taxes of ($3,700) (6,278 ) (6,278 )
Reclassification of net gain on derivatives into earnings (612 ) (612 )

Comprehensive income 723,889
Purchase of 6,376 shares of treasury stock (1,123,655 ) (1,123,655 )
Retirement of treasury shares (8,504 ) (85 ) (85,657 ) (1,120,289 ) 1,206,031 —
Sale of common stock under stock options and stock purchase plan 684 7 52,915 52,922
Share-based compensation expense 19,120 19,120
Income tax benefit from exercise of stock options 22,251 22,251
Other (301 ) (11 ) 94 (218 )

Balance at August 28, 2010 50,061 $ 501 $ 557,955 $ (245,344 ) $ (106,468 ) $ (945,409 ) $ (738,765 )

   Year Ended
(in thousands)
   August 31,
2013
(53 weeks) August 25,
2012
(52 weeks) August 27,
2011
(52 weeks)
Cash flows from operating activities:

Net income
   $ 1,016,480    $ 930,373    $ 848,974
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property and equipment
   227,251    211,831    196,209
Amortization of debt origination fees
   8,239    8,066    8,962
Income tax benefit from exercise of stock options
   (66,752 ) (63,041 ) (34,945 )
Deferred income taxes
   19,704    25,557    44,667
Share-based compensation expense
   37,307    33,363    26,625
Changes in operating assets and liabilities:

Accounts receivable
   (8,196 ) (21,276 ) (14,605 )
Merchandise inventories
   (232,846 ) (167,914 ) (155,421 )
Accounts payable and accrued expenses
   356,935    197,406    342,826
Income taxes payable
   61,003    56,754    34,319
Other, net
   (4,114 ) 12,862    (6,073 )


Net cash provided by operating activities
   1,415,011    1,223,981    1,291,538
Cash flows from investing activities:

Capital expenditures
   (414,451 ) (378,054 ) (321,604 )
Acquisition of business
   (116,084 ) —      —
Purchase of marketable securities
   (44,469 ) (45,665 ) (43,772 )
Proceeds from sale of marketable securities
   37,944    42,385    43,081
Proceeds from disposal of capital assets
   9,765    6,573    3,301


Net cash used in investing activities
   (527,295 ) (374,761 ) (318,994 )
Cash flows from financing activities:

Net proceeds (payments) of commercial paper
   123,600    (54,200 ) 134,600
Net (payments) proceeds from short-term borrowings
   (4,948 ) (27,071 ) 6,901
Proceeds from issuance of debt
   800,000    500,000    500,000
Repayment of debt
   (500,000 ) —      (199,300 )
Net proceeds from sale of common stock
   97,154    75,343    55,846
Purchase of treasury stock
   (1,387,315 ) (1,362,869 ) (1,466,802 )
Income tax benefit from exercise of stock options
   66,752    63,041    34,945
Payments of capital lease obligations
   (27,545 ) (26,750 ) (22,781 )
Other
   (14,720 ) (10,927 ) (17,180 )


Net cash used in financing activities
   (847,022 ) (843,433 ) (973,771 )
Effect of exchange rate changes on cash
   (1,596 ) (300 ) 553


Net increase (decrease) in cash and cash equivalents
   39,098    5,487    (674 )
Cash and cash equivalents at beginning of year
   103,093    97,606    98,280


Cash and cash equivalents at end of year
   $ 142,191    $ 103,093    $ 97,606


Supplemental cash flow information:

Interest paid, net of interest cost capitalized
   $ 174,037    $ 161,797    $ 155,531


Income taxes paid
   $ 498,587    $ 443,666    $ 405,654


Assets acquired through capital lease
   $ 71,117    $ 74,726    $ 32,301


See Notes to Consolidated Financial Statements.
Consolidated Statements of Stockholders’ Deficit

(in thousands)
   Common
Shares
Issued Common
Stock Additional
Paid-in
Capital Retained
(Deficit)
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Balance at August 28, 2010
   50,061    $ 501    $ 557,955    $ (245,344 ) $ (106,468 ) $ (945,409 ) $ (738,765 )
Net income
   848,974    848,974
Total other comprehensive loss
   (13,223 ) (13,223 )
Purchase of 5,598 shares of treasury stock
   (1,466,802 ) (1,466,802 )
Retirement of treasury shares
   (6,577 ) (66 ) (82,150 ) (1,247,627 ) 1,329,843    —
Sale of common stock under stock options and stock purchase plans
   600    6    55,840    55,846
Share-based compensation expense
   24,794    24,794
Income tax benefit from exercise of stock options
   34,945    34,945
Other
   (1 ) (1 )


Balance at August 27, 2011
   44,084    441    591,384    (643,998 ) (119,691 ) (1,082,368 ) (1,254,232 )
Net income
   930,373    930,373
Total other comprehensive loss
   (32,322 ) (32,322 )
Purchase of 3,795 shares of treasury stock
   (1,362,869 ) (1,362,869 )
Retirement of treasury shares
   (4,929 ) (49 ) (72,512 ) (1,319,572 ) 1,392,133    —
Sale of common stock under stock options and stock purchase plans
   714    7    75,336    75,343
Share-based compensation expense
   32,641    32,641
Income tax benefit from exercise of stock options
   63,041    63,041


Balance at August 25, 2012
   39,869    399    689,890    (1,033,197 ) (152,013 ) (1,053,104 ) (1,548,025 )
Net income
   1,016,480    1,016,480
Total other comprehensive income
   31,225    31,225
Purchase of 3,511 shares of treasury stock
   (1,387,315 ) (1,387,315 )
Retirement of treasury shares
   (3,876 ) (39 ) (75,743 ) (1,362,218 ) 1,438,000    —
Sale of common stock under stock options and stock purchase plans
   775    8    97,146    97,154
Share-based compensation expense
   36,412    36,412
Income tax benefit from exercise of stock options
   66,752    66,752
Other
   (1 ) (1 ) (2 )


Balance at August 31, 2013
   36,768    $ 368    $ 814,457    $ (1,378,936 ) $ (120,788 ) $ (1,002,420 ) $ (1,687,319 )


39See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements

Note A —– Significant Accounting Policies
Business:AutoZone, Inc. and its wholly owned subsidiaries (“AutoZone” or the “Company”) isare principally a retailer and distributor of automotive parts and accessories. At the end of fiscal ~~2010,~~2013, the Company operated ~~4,389 domestic~~4,836 stores in the United States (“U.S.”) ~~and~~, including Puerto ~~Rico, and 238~~Rico; 362 stores in ~~Mexico.~~Mexico; and three stores in Brazil. Each 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 and non-automotive products. In ~~2,424~~3,421 of the domestic stores, select stores in Mexico, and ~~173 of~~ the ~~Mexico~~ stores in Brazil, at the end of fiscal ~~2010,~~2013, the Company 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. The Company also sells the ALLDATA brand automotive diagnostic and repair software through www.alldata.com. Additionally, the Company sells automotive hard parts, maintenance items, accessories, and non-automotive products through www.autozone.com, and ~~as part of our~~accessories and performance parts through www.autoanything.com, and its commercial ~~sales program,~~customers can make purchases through www.autozonepro.com.
The Company does not derive revenue from automotive repair or installation services.
Fiscal Year:The Company’s fiscal year consists of 52 or 53 weeks ending on the last Saturday in August. ~~Accordingly, fiscal 2010 represented 52 weeks ended on August 28, 2010, fiscal 2009 represented 52 weeks ended on August 29, 2009, and fiscal 2008~~Fiscal 2013 represented 53 weeks ~~ended on August 30, 2008.~~
and fiscal 2012 and 2011 represented 52 weeks.
Basis of Presentation:The consolidated financial statements include the accounts of AutoZone, Inc. and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates:Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities to prepare these financial statements. Actual results could differ from those estimates.
Cash and Cash Equivalents:Cash equivalents consist of investments with original maturities of 90 days or less at the date of purchase. Cash equivalents include proceeds due from credit and debit card transactions with settlement terms of less than 5 days. Credit and debit card receivables included within cash and cash equivalents were ~~$29.6~~$39.8 million at August ~~28, 2010~~31, 2013 and ~~$24.3~~$34.0 million at August ~~29, 2009.~~
~~Marketable Securities:~~25, 2012.
Cash balances are held in various locations around the world. Of the $142.2 million and $103.1 million of cash and cash equivalents at August 31, 2013, and August 25, 2012, respectively, $38.2 million and $7.8 million, respectively, were held outside of the U.S. and were generally utilized to support liquidity needs in foreign operations. The Company ~~invests a portion of its assets~~intends to continue to permanently reinvest the cash held by the Company’s wholly owned insurance captive in marketable debt securities and classifies them as available-for-sale. The Company includes these securities within the other current assets and other long-term assets captions in the accompanying Consolidated Balance Sheets and records the amounts at fair market value, which is determined using quoted market prices at the endoutside of the ~~reporting period. A discussion of marketable securities is included~~U.S. in ~~“Note E — Fair Value Measurements” and “Note F — Marketable Securities”.~~
its foreign operations.
Accounts Receivable:Accounts receivable consists of receivables from commercial customers and vendors, and are presented net of an allowance for uncollectible accounts. AutoZone routinely grants credit to certain of its commercial customers. The risk of credit loss in its trade receivables is substantially mitigated by the Company’s credit evaluation process, short collection terms and sales to a large number of customers, as well as the low ~~revenue~~dollar value per transaction for most of its sales. Allowances for potential credit losses are determined based on historical experience and current evaluation of the composition of accounts receivable. Historically, credit losses have been within management’s expectations and the allowances for uncollectible accounts were ~~$1.4~~$2.9 million at August ~~28, 2010,~~31, 2013, and ~~$2.5~~$2.4 million at August ~~29, 2009.~~
Historically, certain receivables were sold to a third party at a discount for cash with limited recourse. At August 30, 2008, the Company had $55.4 million outstanding under this program. During the second quarter of fiscal 2009, AutoZone terminated its agreement to sell receivables to a third party.
25, 2012.
Merchandise Inventories:Inventories are stated at the lower of cost or market using the last-in, first-out method for domestic inventories and the first-in, first out (“FIFO”) method for Mexico inventories. Included in inventory are related purchasing, storage and handling costs. Due to price deflation on the Company’s merchandise purchases, the Company’s domestic inventory balances are effectively maintained under the FIFO method. The Company’s policy is not to write up inventory in excess of replacement cost. The cumulative balance of this unrecorded adjustment, which will be reduced upon experiencing price inflation on our merchandise purchases, was ~~$247.3~~$283.7 million at August ~~28, 2010,~~31, 2013, and ~~$223.0~~$270.4 million at August ~~29, 2009.~~
25, 2012.
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Marketable Securities:The Company invests a portion of its assets held by the Company’s wholly owned insurance captive in marketable debt securities and classifies them as available-for-sale. The Company includes these securities within the Other current assets and Other long-term assets captions in the accompanying Consolidated Balance Sheets and records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period. A discussion of marketable securities is included in “Note E – Fair Value Measurements” and “Note F – Marketable Securities.”
Property and Equipment:Property and equipment is stated at cost. Depreciation and amortization are computed principally using the straight-line method over the following estimated useful lives: buildings, 40 to 50 years; building improvements, 5 to 15 years; equipment, 3 to 10 years; and leasehold improvements, over the shorter of the asset’s estimated useful life or the remaining lease term, which includes any reasonably assured renewal periods. Depreciation and amortization include amortization of assets under capital lease.
Impairment of Long-Lived Assets:The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When such an event occurs, the Company compares the sum of the undiscounted expected future cash flows of the asset (asset group) with the carrying amounts of the asset. If the undiscounted expected future cash flows are less than the carrying value of the assets, the Company measures the amount of impairment loss as the amount by which the carrying amount of the assets exceeds the fair value of the assets. NoThere were no material impairment losses ~~were~~ recorded in the three years ended August ~~28, 2010.~~
31, 2013.
Goodwill:The cost in excess of fair value of identifiable net assets of businesses acquired is recorded as goodwill. Goodwill has not been amortized since fiscal 2001, but an analysis is performed at least annually to compare the fair value of the reporting unit to the carrying amount to determine if any impairment exists. The Company performs its annual impairment assessment in the fourth quarter of each fiscal year, unless circumstances dictate more frequent assessments. NoRefer to “Note N – Goodwill and Intangibles” for additional disclosures regarding the Company’s goodwill and impairment ~~losses were recorded~~assessment.
Intangible Assets:Intangible assets consist of assets from the acquisition of AutoAnything, and include technology, noncompete agreements, customer relationships and trade name. Intangible assets are amortized over periods ranging from 5 to 10 years. Non-amortizing intangibles are reviewed at least annually for impairment by comparing the carrying amount to fair value. The Company performs its annual impairment assessment in the ~~three years ended August 28, 2010.~~fourth quarter of each fiscal year, unless circumstances dictate more frequent assessments. Refer to “Note N – Goodwill ~~was $302.6 million as of August 28, 2010,~~ and ~~August 29, 2009.~~
Intangibles” for additional disclosures regarding the Company’s intangible assets and impairment assessment.
Derivative Instruments and Hedging Activities:AutoZone is exposed to market risk from, among other things, changes in interest rates, foreign exchange rates and fuel prices. From time to time, the Company uses various ~~financial~~derivative instruments to reduce such risks. To date, based upon the Company’s current level of foreign operations, no derivative instruments have been utilized to reduce foreign exchange rate risk. All of the Company’s hedging activities are governed by guidelines that are authorized by AutoZone’s Board of ~~Directors.~~Directors (the “Board”). Further, the Company does not buy or sell ~~financial~~derivative instruments for trading purposes.
AutoZone’s financial market risk results primarily from changes in interest rates. At times, AutoZone reduces its exposure to changes in interest rates by entering into various interest rate hedge instruments such as interest rate swap contracts, treasury lock agreements and forward-starting interest rate swaps. All of the Company’s interest rate hedge instruments are designated as cash flow hedges. Refer to “Note H —– Derivative Financial Instruments” for additional disclosures regarding the Company’s derivative instruments and hedging activities. Cash flows related to these instruments designated as qualifying hedges are reflected in the accompanying ~~consolidated statements~~Consolidated Statements of ~~cash flows~~Cash Flows in the same categories as the cash flows from the items being hedged. Accordingly, cash flows relating to the settlement of interest rate derivatives hedging the forecasted issuance of debt have been reflected upon settlement as a component of financing cash flows. The resulting gain or loss from such settlement is deferred to Accumulated other comprehensive loss and reclassified to interest expense over the term of the underlying debt. This reclassification of the deferred gains and losses impacts the interest expense recognized on the underlying debt that was hedged and is therefore reflected as a component of operating cash flows in periods subsequent to settlement. The periodic settlement of interest rate derivatives hedging outstanding variable rate debt is recorded as an adjustment to interest expense and is therefore reflected as a component of operating cash flows.
Foreign Currency:The Company accounts for its Mexican and Brazilian operations using the Mexican peso and the Brazilian real as the functional ~~currency~~currencies and converts its financial statements from ~~Mexican pesos~~these currencies to U.S. dollars. The cumulative loss on currency translation is recorded as a component of ~~accumulated~~Accumulated other comprehensive loss and approximated ~~$44.7~~$62.5 million at August ~~28, 2010,~~31, 2013, and ~~$45.5~~$50.3 million at August ~~29, 2009.~~
25, 2012.
Self-Insurance Reserves:The Company retains a significant portion of the risks associated with workers’ compensation, employee health, general, products liability, property and vehicle insurance. Through various methods, which include analyses of historical trends and utilization of actuaries, the Company estimates the costs of these risks. The costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported. Estimates are based on calculations that consider historical lag and claim development factors. The long-term portions of these liabilities are recorded at ~~our~~the Company’s estimate of their net present value.
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Deferred Rent:The Company recognizes rent expense on a straight-line basis over the course of the lease term, which includes any reasonably assured renewal periods, beginning on the date the Company takes physical possession of the property (see “Note ~~M —~~O – Leases”). Differences between this calculated expense and cash payments are recorded as a liability ~~in accrued~~within the Accrued expenses and other and ~~other~~Other long-term liabilities captions in the accompanying Consolidated Balance ~~Sheets.~~Sheets, based on the terms of the lease. Deferred rent approximated ~~$67.6~~$96.5 million as of August ~~28, 2010,~~31, 2013, and ~~$59.2~~$86.9 million as of August ~~29, 2009.~~
25, 2012.
Financial Instruments: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 I —– Financing,” marketable securities is included in “Note F —– Marketable Securities,” and derivatives is included in “Note H —– Derivative Financial Instruments.”
Income Taxes:The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Our effective tax rate is based on income by tax jurisdiction, statutory rates, and tax saving initiatives available to usthe Company in the various jurisdictions in which we operate.
The Company recognizes liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires usthe Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company must determine the probability of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis or when new information becomes available to management. These reevaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, expirations due to statutes, and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to the tax accrual.
The Company classifies interest related to income tax liabilities, ~~as income tax expense,~~ and if applicable, penalties, ~~are recognized~~ as a component of ~~income~~Income tax expense. The income tax liabilities and accrued interest and penalties that are ~~due~~expected to be payable within one year of the balance sheet date are presented ~~as accrued~~within the Accrued expenses and other caption in the accompanying Consolidated Balance Sheets. The remaining portion of the income tax liabilities and accrued interest and penalties are presented ~~as other~~within the Other long-term liabilities caption in the accompanying Consolidated Balance Sheets because payment of cash is not anticipated within one year of the balance sheet date.
Refer to “Note D – Income Taxes” for additional disclosures regarding the Company’s income taxes.
Sales and Use Taxes:Governmental authorities assess sales and use taxes on the sale of goods and services. The Company excludes taxes collected from customers in its reported sales results; such amounts are ~~reflected as accrued~~included within the Accrued expenses and other caption until remitted to the taxing authorities.
Dividends:The Company currently does not pay a dividend on its common stock. The ability to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, any future payment of dividends would be dependent upon the Company’s financial condition, capital requirements, earnings and cash flow.
Revenue Recognition:The Company recognizes sales at the time the sale is made and the product is delivered to the customer. Revenue from sales are presented net of allowances for estimated sales returns, which are based on historical return rates.
A portion of the Company’s transactions include the sale of auto parts that contain a core component. The core component represents the recyclable portion of the auto part. Customers are not charged for the core component of the new part if a used core is returned at the point of sale of the new part; otherwise the Company charges customers a specified amount for the core component. The Company refunds that same amount upon the customer returning a used core to the store at a later date. The Company does not recognize sales or cost of sales for the core component of these transactions when a used part is returned or expected to be returned from the customer.
Vendor Allowances and Advertising Costs:The Company receives various payments and allowances from its vendors through a variety of programs and arrangements. Monies received from vendors include rebates, allowances and promotional funds. The amounts to be received are subject to the terms of the vendor agreements, which generally do not state an expiration date, but are subject to ongoing negotiations that may be impacted in the future based on changes in market conditions, vendor marketing strategies and changes in the profitability or sell-through of the related merchandise.
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Rebates and other miscellaneous incentives are earned based on purchases or product sales and are accrued ratably over the purchase or sale of the related product. These monies are generally recorded as a reduction of merchandise inventories and are recognized as a reduction to cost of sales as the related inventories are sold.
For arrangements that provide for reimbursement of specific, incremental, identifiable costs incurred by the Company in selling the vendors’ products, the vendor funds are recorded as a reduction to Operating, selling, general and administrative expenses in the period in which the specific costs were incurred.
The Company expenses advertising costs as incurred. Advertising expense, net of vendor promotional funds, was ~~$65.5~~$83.7 million in fiscal ~~2010, $72.1~~2013, $74.7 million in fiscal ~~2009,~~2012, and ~~$86.2~~$71.5 million in fiscal ~~2008.~~2011. Vendor promotional funds, which reduced advertising expense, amounted to ~~$19.6~~$24.4 million in fiscal ~~2010, $9.7~~2013, $19.7 million in fiscal ~~2009,~~2012, and ~~$2.9~~$23.2 million in fiscal ~~2008.~~
2011.
Cost of Sales and Operating, Selling, General and Administrative Expenses:The following illustrates the primary costs classified in each major expense category:
Cost of Sales
Total cost of merchandise sold, including:
Freight expenses associated with moving merchandise inventories from the Company’s vendors to the distribution ~~centers and to the retail stores~~centers;
Vendor allowances that are not reimbursements for specific, incremental and identifiable costs
Costs associated with operating the Company’s supply chain, including payroll and benefit costs, warehouse occupancy costs, transportation costs and ~~depreciation~~depreciation; and
Inventory shrinkage
Operating, Selling, General and Administrative Expenses
Payroll and benefit costs for store and store support employees;
Occupancy costs of store and store support facilities;
Depreciation and amortization related to retail and store support assets;
Transportation costs associated with commercial and hub deliveries;
Advertising;
Self insurance costs; and
Other administrative costs, such as credit card transaction fees, supplies, and travel and lodging
Warranty Costs:The Company or the vendors supplying its products provides the Company’s customers limited warranties on certain products that range from 30 days to lifetime. In most cases, the Company’s vendors are primarily responsible for warranty claims. Warranty costs relating to merchandise sold under warranty not covered by vendors are estimated and recorded as warranty obligations at the time of sale based on each product’s historical return rate. These obligations, which are often funded by vendor allowances, are recorded ~~as a component of accrued expenses.~~within the Accrued expenses and other caption in the Consolidated Balance Sheets. For vendor allowances that are in excess of the related estimated warranty expense for the vendor’s products, the excess is recorded in inventory and recognized as a reduction to cost of sales as the related inventory is sold.
Shipping and Handling Costs:The Company does not generally charge customers separately for shipping and handling. Substantially all the costs the Company incurs to ship products to our stores are included in cost of sales.
Pre-opening Expenses:Pre-opening expenses, which consist primarily of payroll and occupancy costs, are expensed as incurred.
Earnings per Share:Basic earnings per share is based on the weighted average outstanding common shares. Diluted earnings per share is based on the weighted average outstanding common shares adjusted for the effect of common stock equivalents, which are primarily stock options. There were no8,600 stock options excluded from the diluted earnings per share computation ~~because they~~that would have been anti-dilutive atas of August ~~28, 2010.~~31, 2013. There were ~~approximately~~ 30,000 ~~shares~~options excluded atfor the year ended August ~~29, 2009,~~25, 2012, and ~~approximately 31,000 shares~~no options excluded atfor the year ended August ~~30, 2008.~~
27, 2011.
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Share-Based Payments:Share-based payments include stock option grants and certain other transactions under the Company’s stock plans. The Company recognizes compensation expense for its share-based payments based on the fair value of the awards. See “Note B —– Share-Based Payments” for further discussion.
~~Recent~~Risk and Uncertainties: In fiscal 2013, one class of similar products accounted for 10 percent of the Company’s total revenues, and no vendor supplied more than 10 percent of the Company’s total purchases.
Recently Adopted Accounting Pronouncements:In ~~October 2009,~~August 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2009-13,~~2011-08,~~Revenue Arrangements with Multiple Deliverables~~Intangibles – Goodwill and Other,, which amends Accounting Standards Codification (“ASC”) Topic ~~605 (formerly Emerging Issues Task Force Issue No. 00-21,~~350,~~Revenue Arrangements with Multiple Deliverables~~Intangibles – Goodwill and Other). ~~This~~The purpose of ASU ~~addresses~~2011-08 is to simplify how an entity tests goodwill for impairment. Entities will assess qualitative factors to determine whether it is more likely than not that a reporting unit’s fair value is less than its carrying value. In instances where the ~~accounting~~fair value is determined to be less than the carrying value, entities will perform the two-step quantitative goodwill impairment test. The Company adopted this standard effective August 31, 2013, and it had no impact on the consolidated financial statements.
Recently Issued Accounting Pronouncements: In July 2012, the FASB issued ASU 2012-02,Testing Indefinite-Lived Intangible Assets for ~~multiple-deliverable revenue arrangements~~Impairment.The purpose of ASU 2012-02 is to ~~enable vendors~~simplify how an entity tests for impairment of indefinite-lived intangible assets. Entities will assess qualitative factors to ~~account for deliverables separately rather~~determine whether it is more likely than asnot that a ~~combined unit. This ASU~~long-lived intangible asset’s fair value is less than its carrying value. In instances where the fair value is determined to be less than the carrying value, entities will ~~be effective prospectively for revenue arrangements entered into commencing with~~perform the ~~Company’s first fiscal quarter beginning August 29, 2010.~~two-step quantitative goodwill impairment test. The Company does not expect the ~~provisions~~provision of ASU ~~2009-13~~2012-02 to have a material ~~effect~~impact on its consolidated financial statements. This update will be effective for the Company at the beginning of its fiscal 2014 year.
In February 2013, the FASB issued ASU 2013-02,Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. The Company does not expect the provision of ASU 2013-02 to have a material impact on its consolidated financial statements.
This update will be effective for the Company at the beginning of its fiscal 2014 year.
In July 2013, the FASB issued ASU 2013-11,Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under ASU 2013-11, an entity is required to disclose a liability related to an unrecognized tax benefit as an offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or tax credit carryforward if certain criteria are met. In situations of a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the financial statements as a liability and will not be combined with deferred tax assets. The Company does not expect the provision of ASU 2013-11 to have a material impact on its consolidated financial statements. This update will be effective for the Company at the beginning of its fiscal 2015 year.
Note B —– Share-Based Payments
Total share-based compensation expense (a component of ~~operating,~~Operating, selling, general and administrative expenses) was ~~$19.1 million related to stock options and share purchase plans for fiscal 2010, $19.1~~$37.3 million for fiscal ~~2009, and $18.4~~2013, $33.4 million for fiscal ~~2008.~~2012, and $26.6 million for fiscal 2011. As of August ~~28, 2010,~~31, 2013, share-based compensation expense for unvested awards not yet recognized in earnings is ~~$16.9~~$25.9 million and will be recognized over a weighted average period of 2.5 years. Tax deductions in excess of recognized compensation cost are classified as a financing cash inflow.
On December 15, 2010, the Company’s stockholders approved the 2011 Equity Incentive Award Plan (the “2011 Plan”), allowing the Company to provide equity-based compensation to non-employee directors and employees for their service to AutoZone or its subsidiaries or affiliates. Under the 2011 Plan, participants may receive equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, deferred stock, stock payments, performance share awards and other incentive awards structured by the Board and the Compensation Committee of the Board. Prior to the Company’s adoption of the 2011 Plan, equity-based compensation was provided to employees under the 2006 Stock Option Plan and to non-employee directors under the 2003 Director Compensation Plan (the “2003 Comp Plan”) and the 2003 Director Stock Option Plan (the “2003 Option Plan”).
The Company grants options to purchase common stock to certain of its employees ~~and directors~~ under ~~various plans~~its plan at prices equal to the market value of the stock on the date of grant. Options have a term of 10 years or 10 years and one day from grant date. ~~Director options generally vest three years from grant date.~~ Employee options generally vest in equal annual installments on the first, second, third and fourth anniversaries of the grant ~~date. Employees~~date and ~~directors~~ generally have 30 or 90 days after the service relationship ends, or one year after death, to exercise all vested options. The fair value of each option grant is separately estimated for each vesting date. 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.
In addition to the 2011 Plan, on December 15, 2010, the Company adopted the 2011 Director Compensation Program (the “2011 Program”), which states that non-employee directors will receive their compensation in awards of restricted stock units under the 2011 Plan. Under the 2011 Program, restricted stock units are granted the first day of each calendar quarter. The number of restricted stock units granted each quarter is determined by dividing one-fourth of the amount of the annual retainer by the fair market value of the shares of common stock as of the grant date. The restricted stock units are fully vested on the date they are issued and are paid in shares of the Company’s common stock subsequent to the non-employee director ceasing to be a member of the Board.
The 2011 Program replaced the 2003 Comp Plan and the 2003 Option Plan. Under the 2003 Comp Plan, non-employee directors could receive no more than one-half of their director fees immediately in cash, and the remainder of the fees was required to be taken in common stock or stock appreciation rights. The director had the option to elect to receive up to 100% of the fees in stock or defer all or part of the fees in units with value equivalent to the value of shares of common stock as of the grant date. At August 31, 2013, the Company has $7.6 million accrued related to 17,990 outstanding units issued under the 2003 Comp Plan and prior plans, and there was $6.7 million accrued related to 18,241 outstanding units issued as of August 25, 2012. No additional shares of stock or units will be issued in future years under the 2003 Comp Plan.
Under the 2003 Option Plan, each non-employee director received an option grant on January 1 of each year, and each new non-employee director received an option to purchase 3,000 shares upon election to the Board, plus a portion of the annual directors’ option grant prorated for the portion of the year actually served. These stock option grants were made at the fair market value as of the grant date and generally vested three years from the grant date. There were 51,000 and 104,679 outstanding options under the 2003 Option Plan as of August 31, 2013 and August 25, 2012, respectively. No additional shares of stock or units will be issued in future years under the 2003 Option Plan.
The Company has estimated the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense.
The following table presents the weighted average for key assumptions used in determining the fair value of options granted and the related share-based compensation expense:

Year Ended
August 28, August 29, August 30,
2010 2009 2008

Expected price volatility 31 % 28 % 24 %
Risk-free interest rates 1.8 % 2.4 % 4.1 %
Weighted average expected lives in years 4.3 4.1 4.0
Forfeiture rate 10 % 10 % 10 %
Dividend yield 0 % 0 % 0 %

   Year Ended
   August 31,
2013 August 25,
2012 August 27,
2011
Expected price volatility
   29 % 28 % 31 %
Risk-free interest rates
   0.5 % 0.7 % 1.0 %
Weighted average expected lives (in years)
   5.2    5.4    4.3
Forfeiture rate
   10 % 10 % 10 %
Dividend yield
   0 % 0 % 0 %
The following methodologies were applied in developing the assumptions used in determining the fair value of options granted:
Expected price volatility—– This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. The Company uses actual historical changes in the market value of ~~our~~its stock to calculate the volatility assumption as it is management’s belief that this is the best indicator of future volatility. ~~We calculate~~The Company calculates daily market value changes from the date of grant over a past period representative of the expected life of the options to determine volatility. An increase in the expected volatility will increase compensation expense.
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Risk-free interest rate—– This is the U.S. Treasury rate for the week of the grant having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.
Expected lives—– This is the period of time over which the options granted are expected to remain outstanding and is based on historical experience. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Options granted have a maximum term of ten years or ten years and one day. An increase in the expected life will increase compensation expense.
Forfeiture rate—– This is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. This estimate is based on historical experience at the time of valuation and reduces expense ratably over the vesting period. An increase in the forfeiture rate will decrease compensation expense. This estimate is evaluated periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.
Dividend yield—– The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. An increase in the dividend yield will decrease compensation expense.
The weighted average grant date fair value of options granted was ~~$40.75~~$98.58 during fiscal ~~2010, $34.06~~2013, $94.71 during fiscal ~~2009,~~2012, and ~~$30.28~~$58.57 during fiscal ~~2008.~~2011. The intrinsic value of options exercised was ~~$65~~$194.6 million in fiscal ~~2010, $29~~2013, $176.5 million in fiscal ~~2009,~~2012, and ~~$29~~$100.0 million in fiscal ~~2008.~~2011. The total fair value of options vested was ~~$21~~$37.3 million in fiscal ~~2010, $16~~2013, $32.6 million in fiscal ~~2009~~2012, and ~~$18~~$20.7 million in fiscal ~~2008.~~
2011.
The Company generally issues new shares when options are exercised. The following table summarizes information about stock option activity for the year ended August ~~28, 2010:~~

Weighted-
Average
Weighted Remaining
Average Contractual Aggregate
Number Exercise Term Intrinsic Value
of Shares Price ( in years) (in thousands)

Outstanding — August 29, 2009 3,095,352 $ 98.73
Granted 496,580 143.49
Exercised (683,548 ) 79.08
Canceled (34,178 ) 116.49

Outstanding — August 28, 2010 2,874,206 110.93 6.48 $ 298,115

Exercisable 1,509,720 94.12 5.08 181,970

Expected to vest 1,228,037 129.53 8.03 104,531

Available for future grants 3,194,942

Under the AutoZone, Inc. 2003 Director Compensation Plan, a non-employee director may receive no more than one-half of their director fees immediately in cash, and the remainder of the fees must be taken in common stock. The director may elect to receive up to 100% of the fees in stock or defer all or part of the fees in units (“Director Units”) with value equivalent to the value of shares of common stock as of the grant date. At August 28, 2010, the Company has $4.1 million accrued related to 19,228 Director Units issued under the current and prior plans with 76,415 shares of common stock reserved for future issuance under the current plan. At August 29, 2009, the Company has $2.6 million accrued related to 17,506 Director Units issued under the current and prior plans.
Under the AutoZone, Inc. 2003 Director Stock Option Plan (the “Director Stock Option Plan”), each non-employee director receives an option grant on January 1 of each year, and each new non-employee director receives an option to purchase 3,000 shares upon election to the Board of Directors, plus a portion of the annual directors’ option grant prorated for the portion of the year actually served in office. Under the Director Compensation Program, each non-employee director may choose between two pay options, and the number of stock options a director receives under the Director Stock Option Plan depends on which pay option the director
31, 2013:

   Number
of Shares Weighted
Average
Exercise
Price    Weighted-
Average
Remaining
Contractual
Term
(in years)    Aggregate
Intrinsic
Value
(in thousands)
Outstanding – August 25, 2012
   2,262,679    $ 173.01
Granted
   364,160    371.76
Exercised
   (773,942 ) 128.68
Cancelled
   (56,909 ) 282.28



Outstanding – August 31, 2013
   1,795,988    228.95       6.56       $ 343,015



Exercisable
   899,079    152.35       5.05       240,584



Expected to vest
   896,909    305.74       8.07       92,187



Available for future grants
   2,085,615



45
chooses. Directors who elect to be paid only the base retainer receive, on January 1 during their first two years of services as a director, an option to purchase 3,000 shares of AutoZone common stock. After the first two years, such directors receive, on January 1 of each year, an option to purchase 1,500 shares of common stock, and each such director who owns common stock or Director Units worth at least five times the base retainer receive an additional option to purchase 1,500 shares. Directors electing to be paid a supplemental retainer in addition to the base retainer receive, on January 1 during their first two years of service as a director, an option to purchase 2,000 shares of AutoZone common stock. After the first two years, such directors receive an option to purchase 500 shares of common stock, and each such director who owns common stock or Director Units worth at least five times the base retainer receive an additional option to purchase 1,500 shares. These stock option grants are made at the fair market value as of the grant date. At August 28, 2010, there are 137,016 outstanding options with 210,484 shares of common stock reserved for future issuance under this plan.
The Company recognized ~~$1.0~~$1.5 million in expense related to the discount on the selling of shares to employees and executives under various share purchase plans in fiscal ~~2010, $0.9~~2013, $1.5 million in fiscal ~~2009~~2012 and ~~$0.7~~$1.4 million in fiscal ~~2008.~~2011. The ~~employee stock purchase plan,~~Sixth Amended and Restated AutoZone, Inc. Employee Stock Purchase Plan (the “Employee Plan”), which is qualified under Section 423 of the Internal Revenue Code, permits all eligible employees to purchase AutoZone’s common stock at 85% of the lower of the market price of the common stock on the first day or last day of each calendar quarter through payroll deductions. Maximum permitted annual purchases are $15,000 per employee or 10 percent of compensation, whichever is less. Under the ~~plan, 26,620~~Employee Plan, 18,228 shares were sold to employees in fiscal ~~2010, 29,147~~2013, 19,403 shares were sold to employees in fiscal ~~2009,~~2012, and ~~36,147~~21,608 shares were sold to employees in fiscal ~~2008.~~2011. The Company repurchased ~~30,617~~22,915 shares at fair value in fiscal ~~2010, 37,190~~2013, 24,113 shares at fair value in fiscal ~~2009,~~2012, and ~~39,235~~30,864 shares at fair value in fiscal ~~2008~~2011 from employees electing to sell their stock. Issuances of shares under the ~~employee stock purchase plans~~Employee Plan are netted against repurchases and such repurchases are not included in share repurchases disclosed in “Note K —– Stock Repurchase Program.” At August ~~28, 2010, 293,983~~31, 2013, 234,744 shares of common stock were reserved for future issuance under ~~this plan.~~ the Employee Plan.
Once executives have reached the maximum purchases under the ~~employee stock purchase plan,~~Employee Plan, the Fifth Amended and Restated Executive Stock Purchase Plan (the “Executive Plan”) permits all eligible executives to purchase AutoZone’s common stock up to 25 percent of his or her annual salary and bonus. Purchases under ~~this plan~~the Executive Plan were ~~1,483~~3,454 shares in fiscal ~~2010, 1,705~~2013, 3,937 shares in fiscal ~~2009,~~2012, and ~~1,793~~1,719 shares in fiscal ~~2008.~~2011. At August ~~28, 2010, 258,056~~31, 2013, 248,953 shares of common stock were reserved for future issuance under ~~this plan.~~
the Executive Plan.
Note C —– Accrued Expenses and Other
Accrued expenses and other consisted of the following:

August 28, August 29,
(in thousands) 2010 2009

Medical and casualty insurance claims (current portion) $ 60,955 $ 65,024
Accrued compensation, related payroll taxes and benefits 134,830 121,192
Property, sales, and other taxes 102,364 92,065
Accrued interest 31,091 32,448
Accrued gift cards 22,013 16,337
Accrued sales and warranty returns 14,679 12,432
Capital lease obligations 21,947 16,735
Other 44,489 25,038

$ 432,368 $ 381,271

(in thousands)
   August 31,
2013    August 25,
2012
Medical and casualty insurance claims (current portion)
   $ 66,133       $ 63,484
Accrued compensation, related payroll taxes and benefits
   137,165       151,669
Property, sales, and other taxes
   90,944       97,542
Accrued interest
   40,442       39,220
Accrued gift cards
   32,160       29,060
Accrued sales and warranty returns
   14,171       17,276
Capital lease obligations
   32,246       29,842
Other
   54,570       49,992




   $ 467,831       $ 478,085




The Company retains a significant portion of the insurance risks associated with workers’ compensation, employee health, general, products liability, property and vehicle insurance. A portion of these self-insured losses
is managed through a wholly owned insurance captive. The Company maintains certain levels for stop-loss coverage for each self-insured plan in order to limit its liability for large claims. The limits are per claim and are $1.5 million for workers’ compensation and property, $0.5 million for employee health, and $1.0 million for general, products liability, and vehicle.
46
Note D —– Income Taxes
The components of income from continuing operations before income taxes are as follows:

   Year Ended
(in thousands)
   August 31,
2013    August 25,
2012    August 27,
2011
Domestic
   $ 1,486,386       $ 1,373,142       $ 1,255,127
International
   101,297       79,844       69,119






   $ 1,587,683       $ 1,452,986       $ 1,324,246






The provision for income tax expense consisted of the following:

Year Ended
August 28, August 29, August 30,
(in thousands) 2010 2009 2008

Current:
Federal $ 397,062 $ 303,929 $ 285,516
State 34,155 26,450 20,516

431,217 330,379 306,032

Deferred:
Federal (3,831 ) 46,809 51,997
State (5,192 ) (491 ) 7,754

(9,023 ) 46,318 59,751

Income tax expense $ 422,194 $ 376,697 $ 365,783

   Year Ended
(in thousands)
   August 31,
2013 August 25,
2012 August 27,
2011
Current:

Federal
   $ 466,803    $ 424,895    $ 364,117
State
   46,494    47,386    39,473
International
   38,202    24,775    27,015


   551,499    497,056    430,605
Deferred:

Federal
   16,816    33,679    57,625
State
   3,139    (2,822 ) (5,031 )
International
   (251 ) (5,300 ) (7,927 )


   19,704    25,557    44,667


Income tax expense
   $ 571,203    $ 522,613    $ 475,272


A reconciliation of the provision for income taxes to the amount computed by applying the federal statutory tax rate of 35% to income before income taxes is as follows:

Year Ended
August 28, August 29, August 30,
(in thousands) 2010 2009 2008

Federal tax at statutory U.S. income tax rate 35.0 % 35.0 % 35.0 %
State income taxes, net 1.6 % 1.6 % 1.8 %
Other (0.2 %) (0.2 %) (0.5 %)

Effective tax rate 36.4 % 36.4 % 36.3 %

   Year Ended
(in thousands)
   August 31,
2013 August 25,
2012 August 27,
2011
Federal tax at statutory U.S. income tax rate
   35.0 % 35.0 % 35.0 %
State income taxes, net
   2.0 % 2.0 % 1.7 %
Other
   (1.0 %) (1.0 %) (0.8 %)


Effective tax rate
   36.0 % 36.0 % 35.9 %


Significant components of the Company’s deferred tax assets and liabilities were as follows:

August 28, August 29,
(in thousands) 2010 2009
Deferred tax assets:
Domestic net operating loss and credit carryforwards $ 25,781 $ 23,119
Foreign net operating loss and credit carryforwards — 1,369
Insurance reserves 20,400 14,769
Accrued benefits 50,991 32,976
Pension 34,965 26,273
Other 34,764 35,836

Total deferred tax assets 166,901 134,342
Less: Valuation allowances (7,085 ) (7,116 )

159,816 127,226

Deferred tax liabilities:
Property and equipment (35,714 ) (36,472 )
Inventory (205,000 ) (192,715 )
Other (19,850 ) (14,840 )

(260,564 ) (244,027 )

Net deferred tax liability $ (100,748 ) $ (116,801 )

(in thousands)
   August 31,
2013 August 25,
2012
Deferred tax assets:

Net operating loss and credit carryforwards
   $ 41,785    $ 36,605
Insurance reserves
   16,237    18,185
Accrued benefits
   67,350    63,320
Pension
   18,004    43,904
Other
   45,597    41,658


Total deferred tax assets
   188,973    203,672
Less: Valuation allowances
   (11,593 ) (9,532 )


   177,380    194,140
Deferred tax liabilities:

Property and equipment
   (84,512 ) (67,480 )
Inventory
   (262,653 ) (244,414 )
Other
   (27,341 ) (31,437 )


Total deferred tax liabilities
   (374,506 ) (343,331 )


Net deferred tax liability
   $ (197,126 ) $ (149,191 )


Deferred taxes are not provided for temporary differences of approximately ~~$91.1~~$260.0 million at August ~~28, 2010,~~31, 2013, and ~~$47.1~~$195.8 million ofat August ~~29, 2009,~~25, 2012, representing earnings of non-U.S. subsidiaries that are intended to be permanently reinvested. Computation of the potential deferred tax liability associated with these undistributed earnings and other basis differences is not practicable.
47
At August ~~28, 2010,~~31, 2013 and August ~~29, 2009,~~25, 2012, the Company had deferred tax assets of ~~$8.2~~$8.7 million and ~~$8.4~~$12.3 million, respectively, from ~~federal tax~~net operating ~~losses~~loss (“~~NOLs”~~NOL”) ~~of $23.4~~carryforwards available to reduce future taxable income totaling approximately $75.5 million and ~~$24.0 million, and deferred tax assets of $1.6 million and $1.3 million from state tax NOLs of $35.5 million and $24.6~~$76.6 million, respectively. ~~At August 28, 2010, the Company had no deferred tax assets from Non-U.S. NOLs. At August 29, 2009, the Company had deferred tax assets of $1.3 million from Non-U.S.~~Certain NOLs of $3.3 million. The federal and state NOLs expire between fiscal 2011 and fiscal 2025. At August 28, 2010 and August 29, 2009, the Company had a valuation allowance of $6.8 million and $6.8 million, respectively, for certain federal and state NOLs resulting primarily from annual statutory usage limitations. At August 28, 2010 and August 29, 2009, the Company had deferred tax assets of $16.0 million and $13.5 million, respectively, for federal, state, and Non-U.S. income tax credit carryforwards. Certain tax credit carryforwards have no expiration date and others will expire, if not utilized, in various years from fiscal ~~2011~~2014 through ~~fiscal 2030.~~2032. At August ~~28, 2010~~31, 2013 and August ~~29, 2009,~~25, 2012, the Company had deferred tax assets for income tax credit carryforwards of $33.1 million and $24.3 million, respectively. Certain income tax credit carryforwards have no expiration and others will expire, if not utilized, in various years from fiscal 2014 through 2027.
At August 31, 2013 and August 25, 2012, the Company had a valuation allowance of ~~$0.3~~$11.6 million and ~~$0.3~~$9.5 million, respectively, on deferred tax assets associated with NOL and tax credit carryforwards for ~~credits subject to such expiration periods, respectively.~~
~~ASC Topic 740 (formerly FASB Statement No. 109,~~~~Accounting for Income Taxes~~~~, and FASB Interpretation No. 48,~~~~Accounting for Uncertain Tax Positions — an Interpretation of FASB Statement No. 109~~~~) prescribes a recognition threshold~~which management has determined it is more likely than not that athe deferred tax ~~position is required to meet before being recognized~~asset will not be realized. The $2.1 million net increase in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. The adoption of portions of ASC Topic 740 resulted in a decrease to the beginning balance of retained earnings of $26.9 millionvaluation allowance during fiscal ~~2008. Including this cumulative effect amount,~~2013 related to increases from certain NOLs and tax credits arising in fiscal 2013 and decreases due to NOL expirations. Management believes it is more likely than not that the ~~liability recorded for total unrecognized~~remaining deferred tax ~~benefits upon adoption at August 26, 2007, was $49.2 million.~~
assets will be fully realized.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

August 28, August 29,
(in thousands) 2010 2009

Beginning balance $ 44,192 $ 40,759
Additions based on tax positions related to the current year 16,802 5,511
Additions for tax positions of prior years 2,125 9,567
Reductions for tax positions of prior years (6,390 ) (5,679 )
Reductions due to settlements (16,354 ) (2,519 )
Reductions due to statue of limitations (1,821 ) (3,447 )

Ending balance $ 38,554 $ 44,192

(in thousands)
   August 31,
2013 August 25,
2012
Beginning balance
   $ 27,715    $ 29,906
Additions based on tax positions related to the current year
   7,015    6,869
Additions for tax positions of prior years
   2,758    44
Reductions for tax positions of prior years
   (470 ) (1,687 )
Reductions due to settlements
   (3,019 ) (4,586 )
Reductions due to statute of limitations
   (3,356 ) (2,831 )


Ending balance
   $ 30,643    $ 27,715


Included in the August ~~28, 2010,~~31, 2013 balance is ~~$16.7~~$20.1 million of unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate.
The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. The Company had ~~$7.9~~$4.7 million and ~~$12.4~~$4.1 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at August ~~28, 2010~~31, 2013 and August ~~29, 2009,~~25, 2012, respectively.
The ~~major jurisdictions where the~~ Company files U.S. federal, U.S. state and local, and international income tax returns. The U.S. Internal Revenue Service has completed exams on U.S. federal income tax returns ~~are the U.S.~~for years 2009 and ~~Mexico.~~prior. With few exceptions, ~~tax returns filed for tax years 2006 through 2009 remain open and~~the Company is no longer subject to ~~examination~~state and local or non-U.S. examinations by ~~the relevant~~ tax ~~authorities.~~authorities for years before 2009. The Company is typically engaged in various tax examinations at any given time, both by U.S. federal, state and ~~state~~local, and international taxing ~~jurisdictions and Mexican tax authorities.~~jurisdictions. As of August ~~28, 2010,~~31, 2013, the Company estimates that the amount of unrecognized tax benefits could be reduced by approximately ~~$23.1~~$1.5 million over the next twelve months as a result of tax audit ~~closings, settlements, and the expiration of statutes to examine such returns in various jurisdictions.~~settlements. While the Company believes that it ~~has~~is adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be determined at this time and could result in final settlements that differ from current estimates.
48
Note E —– Fair Value Measurements
~~Effective August 31, 2008, the~~
The Company has adopted ASC Topic 820, ~~(formerly FASB Statement No. 157,~~Fair Value ~~Measurements)~~Measurement, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosure requirements about fair value measurements. This standard 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. ASC Topic 820 establishes a framework for measuring fair value by creating a hierarchy of valuation inputs used to measure fair value, and although it does not require additional fair value measurements, it applies to other accounting pronouncements that require or permit fair value measurements.
The hierarchy prioritizes the inputs into three broad levels:

Level 1 inputs— unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.

Level 2 inputs— inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates.

Level 3 inputs— unobservable inputs for the asset or liability.
Financial Assets & Liabilities Measured at Fair Value on a Recurring Basis
The Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

August 28, 2010
(in thousands) Level 1 Level 2 Level 3 Fair Value

Other current assets $ 11,307 $ 4,996 $ — $ 16,303
Other long-term assets 47,725 8,673 — 56,398
Accrued expenses and other — 9,979 — 9,979

$ 59,032 $ 23,648 $ — $ 82,680

August 29, 2009
(in thousands) Level 1 Level 2 Level 3 Fair Value

Other current assets $ 11,915 $ — $ — $ 11,915
Other long-term assets 58,123 — — 58,123

$ 70,038 $ — $ — $ 70,038

   August 31, 2013
(in thousands)
   Level 1    Level 2    Level 3 Fair Value
Other current assets
   $ 16,386       $ 24       $ —      $ 16,410
Other long-term assets
   49,011       16,740       —      65,751






   $ 65,397       $ 16,764       $ —      $ 82,161






Contingent consideration
   $ —         $ —         $ (242 ) $ (242 )






   August 25, 2012
(in thousands)
   Level 1    Level 2 Level 3    Fair Value
Other current assets
   $ 22,515       $ —      $ —         $ 22,515
Other long-term assets
   40,424       13,275    —         53,699






   $ 62,939       $ 13,275    $ —         $ 76,214






Accrued expenses and other
   $ —         $ (4,915 ) $ —         $ (4,915 )






At August ~~28, 2010,~~31, 2013, the fair value measurement amounts for assets and liabilities recorded in the accompanying Consolidated Balance Sheet consisted of short-term marketable securities of ~~$16.3~~$16.4 million, which are included within ~~other~~Other current assets and long-term marketable securities of ~~$56.4~~$65.8 million, which are included in ~~other~~Other long-term ~~assets, and cash flow hedging instruments of $10.0 million, which are included within accrued expenses and other.~~assets. The Company’s marketable 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. ~~Reference “Note H — Derivative Financial Instruments” for further information~~A discussion on how the Company’s cash flow hedges are ~~valued.~~
~~The fair value of the Company’s debt~~valued is ~~disclosed~~included in “Note ~~I — Financing” and~~H – Derivative Financial Instruments,” while the fair value of the Company’s pension plan assets are disclosed in “Note L —– Pension and Savings ~~Plans”.~~
Plans.”
Effective December 19, 2012, the Company acquired certain assets and liabilities of AutoAnything, an online retailer of specialized automotive products for up to $150 million, including an initial cash payment of $115 million, a $5 million holdback payment for working capital true-ups, and contingent payments totaling up to $30 million. The contingent consideration is based on the performance of AutoAnything, and is not subject to continued employment by the selling stockholders. Based on specific operating income targets for each year, the sellers can receive up to $10 million in the first year, and up to $30 million in the second year, with contingent consideration not exceeding $30 million in the aggregate. The estimated fair value of the performance-based contingent consideration of $22.7 million was included as part of the purchase price allocation at the time of acquisition. The Company determined the fair value of the contingent consideration based on a probability-weighted discounted cash flow analysis. The fair value remeasurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in the fair value hierarchy. In each period, the Company reassesses its current estimates of performance relative to the stated targets and adjusts the liability to fair value.
During the fourth quarter of fiscal 2013, the Company determined AutoAnything is not likely to achieve the operating income targets necessary to earn the contingent consideration. Therefore, the contingent consideration was adjusted to reflect the fair value at August 31, 2013 of $0.2 million, resulting in a decrease to the contingent consideration liability of $23.3 million during the fourth quarter of fiscal 2013. As of August 31, 2013, the contingent liability is reflected as a current liability of $0.1 million in Accrued expenses and other and a non-current liability of $0.1 million in Other long-term liabilities in the accompanying Consolidated Balance Sheet. A discussion of the acquisition is included in “Note M – Acquisition.”
The change in the fair value of the contingent consideration liability is summarized as follows:

(in thousands)
   Fiscal Year
Ended
August 31, 2013
Fair value – beginning of period
   $ —
Fair value of contingent consideration issued during the period
   (22,678 )
Change in fair value
   22,436


Fair value – end of period
   $ (242 )


49
Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis
Non-financial assets are required to be measured at fair value on a non-recurring basis in certain circumstances, including the event of impairment. The assets could include assets acquired in an acquisition as well as property, plant and equipment that are determined to be impaired. During the fourth quarter of fiscal 2013, the Company recorded a goodwill impairment charge of $18.3 million related to the acquisition of AutoAnything and an impairment charge of $4.1 million of AutoAnything’s trade name in order to record these assets at fair value. The fair value remeasurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as defined in the fair value hierarchy. See “Note N – Goodwill and Intangibles” for further discussion. During fiscal 2013 and fiscal 2012, the Company did not have any other significant non-financial assets measured at fair value on a non-recurring basis in periods subsequent to initial recognition.
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. The fair value of the Company’s debt is disclosed in “Note I – Financing.”
Note F —– Marketable Securities
The Company’s basis for determining the cost of a security sold is the “Specific Identification Model”. Unrealized gains (losses) on marketable securities are recorded in ~~accumulated~~Accumulated other comprehensive loss. The Company’s available-for-sale marketable securities consisted of the following:

August 28, 2010
Amortized Gross Gross
Cost Unrealized Unrealized
(in thousands) Basis Gains Losses Fair Value

Corporate securities $ 28,707 $ 490 $ (1 ) $ 29,196
Government bonds 24,560 283 — 24,843
Mortgage-backed securities 8,603 192 — 8,795
Asset-backed securities and other 9,831 47 (11 ) 9,867

$ 71,701 $ 1,012 $ (12 ) $ 72,701

August 29, 2009
Amortized Gross Gross
Cost Unrealized Unrealized
(in thousands) Basis Gains Losses Fair Value

Corporate securities $ 28,302 $ 654 $ (5 ) $ 28,951
Government bonds 18,199 283 — 18,482
Mortgage-backed securities 14,772 366 (119 ) 15,019
Asset-backed securities and other 7,589 207 (210 ) 7,586

$ 68,862 $ 1,510 $ (334 ) $ 70,038

   August 31, 2013
(in thousands)
   Amortized
Cost
Basis    Gross
Unrealized
Gains    Gross
Unrealized
Losses Fair Value
Corporate securities
   $ 27,803       $ 148       $ (67 ) $ 27,884
Government bonds
   21,372       18       (67 ) 21,323
Mortgage-backed securities
   7,198       24       (138 ) 7,084
Asset-backed securities and other
   25,825       50       (5 ) 25,870






   $ 82,198       $ 240       $ (277 ) $ 82,161






   August 25, 2012
(in thousands)
   Amortized
Cost
Basis    Gross
Unrealized
Gains    Gross
Unrealized
Losses Fair Value
Corporate securities
   $ 26,215       $ 307       $ —      $ 26,522
Government bonds
   20,790       117       (1 ) 20,906
Mortgage-backed securities
   4,369       17       (19 ) 4,367
Asset-backed securities and other
   24,299       120       —      24,419






   $ 75,673       $ 561       $ (20 ) $ 76,214






The debt securities held at August ~~28, 2010,~~31, 2013, had effective maturities ranging from less than one year to approximately 3 years. The Company did not realize any material gains or losses on its sale of marketable securities during fiscal ~~2010.~~
2013, fiscal 2012, or fiscal 2011.
The Company holds ~~two~~45 securities that are in an unrealized loss position of approximately ~~$12~~$277 thousand at August ~~28, 2010.~~31, 2013. 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. In evaluating whether 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 ~~our~~its intent and ability to hold the investments until maturity or until recovery of fair value.

Note G —– 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 qualify as cash flow hedges and unrealized gains (losses) on available-for-sale securities.
50
Changes in ~~accumulated~~Accumulated other comprehensive loss, net of tax, consisted of the following:

Unrealized
Loss (Gain) Net Loss Reclassification
Pension Foreign on (Gain) on of Net Gains on Accumulated
Liability Currency Marketable Outstanding Derivatives into Other
Adjustments, Translation Securities, Derivatives, Earnings, net of Comprehensive
(in thousands) net of taxes Adjustments net of taxes net of taxes taxes Loss
Balance at August 30, 2008 $ 4,270 $ 1,798 $ (186 ) $ 2,744 $ (4,491 ) $ 4,135
Fiscal 2009 activity 46,945 43,655 (568 ) (2,744 ) 612 87,900

Balance at August 29, 2009 51,215 45,453 (754 ) — (3,879 ) 92,035
Fiscal 2010 activity 8,144 (705 ) 104 6,278 612 14,433

Balance at August 28, 2010 $ 59,359 $ 44,748 $ (650 ) $ 6,278 $ (3,267 ) $ 106,468

(in thousands)
   Pension
Liability Foreign
Currency⁽¹⁾ Unrealized
Gain on
Securities Derivatives Total
Balance at August 27, 2011
   $ (76,705 ) $ (36,401 ) $ 479    $ (7,064 ) $ (119,691 )
Fiscal 2012 activity
   (17,262 ) (13,866 ) (128 ) (1,066 ) (32,322 )


Balance at August 25, 2012
   (93,967 ) (50,267 ) 351    (8,130 ) (152,013 )
Fiscal 2013 activity
   43,106    (12,216 ) (376 ) 711    31,225


Balance at August 31, 2013
   $ (50,861 ) $ (62,483 ) $ (25 ) $ (7,419 ) $ (120,788 )


(1) Foreign currency is not shown net of tax as earnings of non-U.S. subsidiaries are intended to be permanently reinvested.
The fiscal ~~2009~~2013 pension adjustment of ~~$46.9~~$43.1 million reflects actuarial ~~losses~~gains not yet reflected in ~~the~~ periodic pension cost ~~caused~~ primarily driven by the significant losses on pension assets in fiscal 2009. The foreign currency translation adjustment of $43.7 million during fiscal 2009 was attributable to the weakening of the Mexican Peso against the US Dollar, which as ofa higher discount rate at August ~~29, 2009, had decreased by approximately 30% when compared to August 30, 2008.~~
31, 2013.
Note H —– Derivative Financial Instruments
~~Cash Flow Hedges~~
The Company periodically uses derivatives to hedge exposures to interest rates. The Company does not hold or issue financial instruments for trading purposes. For transactions that meet the hedge accounting criteria, the Company formally designates and documents the instrument as a hedge at inception and quarterly thereafter assesses the hedges to ensure they are effective in offsetting changes in the cash flows of the underlying exposures. Derivatives are recorded in the Company’s Consolidated Balance Sheet at fair value, determined using available market information or other appropriate valuation methodologies. In accordance with ASC Topic 815, ~~(formerly FASB Statement No. 133,~~~~Accounting for Derivative Instruments~~Derivatives and Hedging ~~Activities~~~~and FASB Statement No. 161,~~~~Disclosures about Derivative Instruments and Hedging Activities~~), the effective portion of a financial instrument’s change in fair value is recorded in ~~accumulated~~Accumulated other comprehensive loss for derivatives that ~~quality~~qualify as cash flow hedges and any ineffective portion of an instrument’s change in fair value is recognized in earnings.
~~At August 28, 2010,~~
During the fourth quarter of fiscal 2012, the Company ~~held~~entered into two ~~forward starting swaps,~~treasury rate locks, each with a notional amount of ~~$150~~$100 million. These agreements ~~which expire in November 2010, are~~were cash flow hedges used to hedge the exposure to variability in future cash flows resulting from changes in variable interest rates ~~relating~~related to ~~anticipated~~the $300 million Senior Note debt ~~transactions.~~issuance in November 2012. The fixed rates of the hedges ~~are 3.15%~~were 2.07% and ~~3.13%~~1.92% and ~~are~~were benchmarked based on the ~~3-month London InterBank Offered Rate (“LIBOR”). It is expected that upon settlement~~10-year U.S. treasury notes. These locks expired on November 1, 2012 and resulted in a loss of ~~the agreements, the realized gain or loss will be~~$5.1 million, which has been deferred in ~~accumulated~~Accumulated other comprehensive loss and will be reclassified to ~~interest~~Interest expense over the life of the underlying debt.
The hedges remained highly effective until they expired, and no ineffectiveness was recognized in earnings.
During the third quarter of fiscal 2012, the Company entered into two treasury rate locks. These agreements were designated as cash flow hedges and were used to hedge the exposure to variability in future cash flows resulting from changes in variable interest rates related to the $500 million Senior Note debt issuance in April 2012. The treasury rate locks had notional amounts of $300 million and $100 million with associated fixed rates of 2.09% and 2.07% respectively. The locks were benchmarked based on the 10-year U.S. treasury notes. These locks
expired on April 20, 2012 and resulted in a loss of $2.8 million, which has been deferred in Accumulated other comprehensive loss and will be reclassified to Interest expense over the life of the underlying debt. The hedges remained highly effective until they expired, and no ineffectiveness was recognized in earnings.
At August ~~28, 2010,~~31, 2013, the Company had $6.3 million, net of tax, recorded in accumulated other comprehensive loss related to net unrealized losses associated with these derivatives. For the fiscal year ended August 28, 2010, the Company’s forward starting swaps were determined to be highly effective, and no ineffective portion was recognized in earnings. The fair values of the interest rate hedge instruments at August 28, 2010 was a liability of $10.0 million recorded within the accrued expenses and other caption in the accompanying Consolidated Balance Sheet.
During 2009, the Company was party to an interest rate swap agreement related to its $300 million term floating rate loan, which bore interest based on the three month LIBOR and matured in December 2009. Under this agreement, which was accounted for as a cash flow hedge, the interest rate on the term loan was effectively fixed for its entire term at 4.4% and effectiveness was measured each reporting period. During August 2009, the Company elected to prepay, without penalty, the entire $300 million term loan. The outstanding liability associated with the interest rate swap totaled $3.6 million, and was immediately expensed in earnings upon termination. The Company recognized $5.9 million as increases to interest expense during 2009 related to payments associated with the interest rate swap agreement prior to its termination.
51
~~At August 28, 2010, the Company had $3.3~~$11.8 million recorded in ~~accumulated~~Accumulated other comprehensive loss related to net realized ~~gains~~losses associated with terminated interest rate swap and treasury rate lock derivatives which were designated as ~~hedges.~~hedging instruments. Net ~~gains~~losses are amortized into ~~earnings~~Interest expense over the remaining life of the associated debt. ~~For~~During the fiscal ~~years~~year ended August ~~28, 2010, and August 29, 2009,~~31, 2013, the Company reclassified ~~$612 thousand~~$1.3 million of net ~~gains~~losses from ~~accumulated~~Accumulated other comprehensive loss to ~~interest expense in each year.~~
~~Derivatives not designated as Hedging Instruments~~
Interest expense. In the fiscal year ended August 25, 2012, the Company reclassified $1.9 million of net losses from Accumulated other comprehensive loss to Interest expense. The Company ~~is dependent upon diesel fuel~~expects to ~~operate its vehicles used in~~reclassify $182 thousand of net losses from Accumulated other comprehensive loss to Interest expense over the Company’s distribution network to deliver parts to its stores and unleaded fuel for delivery of parts from its stores to its commercial customers or other stores. Fuel is not a material component of the Company’s operating costs; however, the Company attempts to secure fuel at the lowest possible cost and to reduce volatility in its operating costs. Because unleaded and diesel fuel include transportation costs and taxes, there are limited opportunities to hedge this exposure directly.
The Company had no fuel hedges during fiscal 2010. During fiscal year 2009, the Company used a derivative financial instrument based on the Reformulated Gasoline Blendstock for Oxygen Blending index to economically hedge the commodity cost associated with its unleaded fuel. The fuel swap did not qualify for hedge accounting treatment and was executed to economically hedge a portion of unleaded fuel purchases. The notional amount of the contract was 2.5 million gallons and terminated August 31, 2009. The loss on the fuel contract for fiscal 2009 was $2.3 million.
next 12 months.
Note I —– Financing
The Company’s ~~long-term~~ debt consisted of the following:

August 28, August 29,
(in thousands) 2010 2009

4.75% Senior Notes due November 2010, effective interest rate of 4.17% $ 199,300 $ 199,300
5.875% Senior Notes due October 2012, effective interest rate of 6.33% 300,000 300,000
4.375% Senior Notes due June 2013, effective interest rate of 5.65% 200,000 200,000
6.5% Senior Notes due January 2014, effective interest rate of 6.63% 500,000 500,000
5.75% Senior Notes due January 2015, effective interest rate of 5.89% 500,000 500,000
5.5% Senior Notes due November 2015, effective interest rate of 4.86% 300,000 300,000
6.95% Senior Notes due June 2016, effective interest rate of 7.09% 200,000 200,000
7.125% Senior Notes due August 2018, effective interest rate of 7.28% 250,000 250,000
Commercial paper, weighted average interest rate of 0.4% at August 28, 2010, and 0.5% at August 29, 2009 433,000 277,600

$ 2,882,300 $ 2,726,900

(in thousands)
   August 31,
2013    August 25,
2012
5.875% Senior Notes due October 2012, effective interest rate of 6.33%
   $ —         $ 300,000
4.375% Senior Notes due June 2013, effective interest rate of 5.65%
   —         200,000
6.500% Senior Notes due January 2014, effective interest rate of 6.63%
   500,000       500,000
5.750% Senior Notes due January 2015, effective interest rate of 5.89%
   500,000       500,000
5.500% Senior Notes due November 2015, effective interest rate of 4.86%
   300,000       300,000
6.950% Senior Notes due June 2016, effective interest rate of 7.09%
   200,000       200,000
7.125% Senior Notes due August 2018, effective interest rate of 7.28%
   250,000       250,000
4.000% Senior Notes due November 2020, effective interest rate of 4.43%
   500,000       500,000
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       —
3.125% Senior Notes due July 2023, effective interest rate of 3.26%
   500,000       —
Commercial paper, weighted average interest rate of 0.29% and 0.42% at August 31, 2013 and August 25, 2012, respectively
   637,000       513,402
Unsecured, peso denominated borrowings, weighted average interest rate of 4.57% at August 25, 2012
   —         4,781




Total debt
   4,187,000       3,768,183
Less: Short-term borrowings
   173,733       49,881




Long-term debt
   $ 4,013,267       $ 3,718,302




As of August ~~28, 2010, the~~31, 2013, $637 million of commercial paper borrowings and $326.3 million of the ~~4.75%~~6.500% Senior Notes due ~~November 2010 mature in the next twelve months but~~January 2014 are classified as long-term in the ~~Company’s~~accompanying Consolidated Balance Sheets as the Company has the ability and intent to refinance ~~them~~ on a long-term ~~basis. Specifically, excluding the effect~~basis through available capacity in its revolving credit facility. As of ~~commercial paper borrowings,~~August 31, 2013, the Company had ~~$792.4~~$963.3 million of availability under its ~~$800 million~~$1.0 billion revolving credit facility, expiring in ~~July 2012~~September 2016 that would allow it to replace these short-term obligations with long-term financing.
In ~~addition to the long-term debt discussed above,~~September 2011, the Company ~~had $26.2~~amended and restated its $800 million of short-term borrowings that are scheduled to mature in the next twelve months as of August 28, 2010. The short-term borrowings are unsecured, peso denominated borrowings and accrue interest at 5.69% as of August 28, 2010.
52
~~In July 2009, the Company terminated its $1.0 billion~~ revolving credit facility, which was scheduled to expire in ~~fiscal 2010, and replaced it with an $800 million~~July 2012. The capacity under the revolving credit ~~facility.~~facility was increased to $1.0 billion. This credit facility is available to primarily support commercial paper borrowings, letters of credit and other short-term, unsecured bank loans. ~~This~~The capacity of the credit facility ~~expires in July 2012,~~ may be increased to ~~$1.0~~$1.250 billion prior to the maturity date at ~~AutoZone’s~~the Company’s election and subject to bank credit capacity and approval, may include up to $200 million in letters of credit, and may include up to ~~$100~~$175 million in capital leases each fiscal year. After reducing the available balance by commercial paper borrowings and certain outstanding letters of credit, the Company had $331.1 million in available capacity under this facility at August 28, 2010. Under the revolving credit facility, the Company may borrow funds consisting of Eurodollar loans or base rate loans. Interest accrues on Eurodollar loans at a defined Eurodollar rate, ~~(defined~~defined as ~~LIBOR)~~LIBOR plus the applicable percentage, ~~which could range from 150 basis points to 450 basis points,~~as defined in the revolving credit facility, depending upon the Company’s senior, unsecured, (non-credit enhanced) long-term debt ~~rating of the Company.~~rating. Interest accrues on base rate loans atas defined in the ~~prime rate.~~credit facility. The Company also has the option to borrow funds under the terms of a swingline loan subfacility. The revolving credit facility expires in ~~2012.~~
September 2016.
The revolving credit facility agreement requires that the Company’s consolidated interest coverage ratio as of the last day of each quarter shall be no less than 2.50:1. This ratio is defined as the ratio of (i) consolidated earnings before interest, taxes and rents to (ii) consolidated interest expense plus consolidated rents. The Company’s consolidated interest coverage ratio as of August ~~28, 2010~~31, 2013 was ~~4.27:~~4.68:1.
In ~~June 2010,~~addition to the revolving credit facility, the Company ~~entered into~~also maintains a letter of credit facility that allows ~~the Company~~it to request the participating bank to issue letters of credit on ~~the Company’s~~its behalf up to an aggregate amount of $100 million. ~~The letter of credit facility is in addition to the letters of credit that may be issued under the revolving credit facility.~~ As of August ~~28, 2010,~~31, 2013, the Company has ~~$100.0~~$99.4 million in letters of credit outstanding under the letter of credit facility, which expires in June ~~2013.~~
~~During August 2009,~~2016.
In addition to the outstanding letters of credit issued under the committed facilities discussed above, the Company ~~elected to prepay, without penalty, a $300~~had $41.8 million ~~bank term loan entered~~ in ~~December 2004,~~letters of credit outstanding as of August 31, 2013. These letters of credit have various maturity dates and subsequently amended. The term loan facility provided for a term loan, which consisted of, at the Company’s election, base rate loans, Eurodollar loans or a combination thereof. The entire unpaid principal amount of the term loan would be due and payable in fullwere issued on December 23, 2009, when the facility was scheduled to terminate. Interest accrued on base rate loans at a base rate per annum equal to the higher of the prime rate or the Federal Funds Rate plus 1/2 of 1%. The Company entered into an ~~interest rate swap agreement on December~~uncommitted basis.
On April 29, 2004, to effectively fix, based on current debt ratings, the interest rate of the term loan at 4.4%. The outstanding liability associated with the interest rate swap totaled $3.6 million, and was expensed in operating, selling, general and administrative expenses upon termination of the hedge in fiscal 2009.
~~On July 2, 2009,~~2013, the Company issued $500 million in ~~5.75%~~3.125% Senior Notes due ~~2015~~July 2023 under ~~the Company’s~~its shelf registration statement filed with the ~~Securities and Exchange Commission~~SEC on ~~July 29, 2008~~April 17, 2012 (the “Shelf Registration”). ~~In addition, on August 4, 2008, the Company issued $500 million in 6.50% Senior Notes due 2014 and $250 million in 7.125% Senior Notes due 2018 under the Shelf Registration.~~ The Shelf Registration allows the Company to sell an indeterminate amount in debt securities to fund general corporate purposes, including repaying, redeeming or repurchasing outstanding debt and for working capital, capital expenditures, new store openings, stock repurchases and acquisitions. ~~In fiscal 2009,~~Proceeds from the debt issuance on April 29, 2013, were used to repay a portion of the outstanding commercial paper borrowings and for general corporate purposes. The Company used commercial paper borrowings to repay the $200 million in 4.375% Senior Notes due June 2013.
On November 13, 2012, the Company issued $300 million in 2.875% Senior Notes due January 2023 under its Shelf Registration. Proceeds from the debt issuance on November 13, 2012, were used to repay a portion of the outstanding commercial paper borrowings, which were used to repay the $300 million in 5.875% Senior Notes due in October 2012, and for general corporate purposes.
On April 24, 2012, the Company issued $500 million in 3.700% Senior Notes due April 2022 under its Shelf Registration. The Company used the proceeds from the issuance of debt to repay ~~outstanding~~a portion of the commercial paper ~~indebtedness, to prepay our $300 million term loan in August 2009~~borrowings and for general corporate purposes. ~~Proceeds from the debt issuance in fiscal 2008 were used to repay outstanding commercial paper indebtedness and for general corporate purposes.~~
The ~~5.75%~~5.750% Senior Notes issued in July 2009 and the ~~6.50%~~6.500% and 7.125% Senior Notes issued during August 2008, (collectively, the “Notes”), are subject to an interest rate adjustment if the debt ratings assigned to the Notes are downgraded. ~~They~~The Notes, along with the 3.125% Senior Notes issued in April 2013, the 2.875% Senior Notes issued in November 2012, the 3.700% Senior Notes issued in April 2012 and the 4.000% Senior Notes issued in during November 2010, also contain a provision that repayment of the ~~Notes~~notes may be accelerated if ~~AutoZone~~the Company experiences a change in control (as defined in the agreements). The Company’s borrowings under ~~the Company’s~~its other senior notes ~~arrangements~~ contain minimal covenants, primarily restrictions on liens. Under the ~~Company’s~~ revolving credit facility, covenants include limitations on total indebtedness, restrictions on liens, a ~~minimum coverage~~maximum debt to earnings ratio, and a change of control provision that may require acceleration of the repayment obligations under certain circumstances. These covenants are in addition to the consolidated interest coverage ratio discussed above. All of the repayment obligations under the ~~Company’s~~ borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs.
53
As of August ~~28, 2010,~~31, 2013, the Company was in compliance with all covenants related to its borrowing arrangements. All of the Company’s debt is unsecured. Scheduled maturities of long-term debt are as follows:

Scheduled
(in thousands) Maturities

2011 $ 632,300
2012 —
2013 500,000
2014 500,000
2015 500,000
Thereafter 750,000

$ 2,882,300

(in thousands)
   Scheduled
Maturities
2014
   $ 963,267
2015
   500,000
2016
   500,000
2017
   —
2018
   250,000
Thereafter
   1,800,000


   $ 4,013,267


The fair value of the Company’s debt was estimated at ~~$3.182~~$4.259 billion as of August ~~28, 2010,~~31, 2013, and ~~$2.853~~$4.055 billion as of August ~~29, 2009,~~25, 2012, 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 ~~remaining maturities.~~terms (Level 2). Such fair value is greater than the carrying value of debt by ~~$273.5 million and $126.5~~$72.2 million at August ~~28, 2010~~31, 2013 and $286.6 million at August ~~29, 2009, respectively.~~
25, 2012.
Note J —– Interest Expense
Net interest expense consisted of the following:

Year Ended
August 28, August 29, August 30,
(in thousands) 2010 2009 2008

Interest expense $ 162,628 $ 147,504 $ 121,843
Interest income (2,626 ) (3,887 ) (3,785 )
Capitalized interest (1,093 ) (1,301 ) (1,313 )

$ 158,909 $ 142,316 $ 116,745

   Year Ended
(in thousands)
   August 31,
2013 August 25,
2012 August 27,
2011
Interest expense
   $ 188,324    $ 178,547    $ 173,674
Interest income
   (1,606 ) (1,397 ) (2,058 )
Capitalized interest
   (1,303 ) (1,245 ) (1,059 )


   $ 185,415    $ 175,905    $ 170,557


Note K —– Stock Repurchase Program
During 1998, the Company announced a program permitting the Company to repurchase a portion of its outstanding shares not to exceed a dollar maximum established by the ~~Company’s Board of Directors.~~Board. The program was last amended on June ~~15, 2010~~11, 2013 to increase the repurchase authorization to ~~$8.9~~$13.40 billion from ~~$8.4~~$12.65 billion. From January 1998 to August ~~28, 2010,~~31, 2013, the Company has repurchased a total of ~~121.7~~134.6 million shares at an aggregate cost of ~~$8.7~~$12.93 billion.
The ~~following table summarizes our~~Company’s share repurchase activity ~~for~~consisted of the ~~following~~following:
   Year Ended
(in thousands)
   August 31,
2013    August 25,
2012    August 27,
2011
Amount
   $ 1,387,315       $ 1,362,869       $ 1,466,802
Shares
   3,511       3,795       5,598
During the fiscal ~~years:~~

Year Ended
August 28, August 29, August 30,
(in thousands) 2010 2009 2008

Amount $ 1,123,655 $ 1,300,002 $ 849,196
Shares 6,376 9,313 6,802
~~On September 28, 2010,~~year 2013, the ~~Board~~Company retired 3.9 million shares of ~~Directors voted to increase~~treasury stock which had previously been repurchased under the ~~authorization by $500 million to raise the cumulative~~Company’s share repurchase ~~authorization from $8.9 billion to $9.4 billion. From August 29, 2010 to October 25, 2010,~~program. The retirement increased Retained deficit by $1,362.2 million and decreased Additional paid-in capital by $75.7 million. During the comparable prior year period, the Company retired 4.9 million shares of treasury stock, which increased Retained deficit by $1,319.6 million and decreased Additional paid-in capital by $72.5 million.
Subsequent to August 31, 2013, the Company has repurchased ~~approximately 800 thousand~~355,150 shares ~~for $185.9~~of common stock at an aggregate cost of $149.8 million.
54
Note L —– Pension and Savings Plans
Prior to January 1, 2003, substantially all full-time employees were covered by a defined benefit pension plan. The benefits under the plan were based on years of service and the employee’s highest consecutive five-year average compensation. On January 1, 2003, the plan was frozen. Accordingly, pension plan participants will earn no new benefits under the plan formula and no new participants will join the pension plan.
On January 1, 2003, the Company’s supplemental defined benefit pension plan for certain highly compensated employees was also frozen. Accordingly, plan participants will earn no new benefits under the plan formula and no new participants will join the pension plan.
~~ASC Topic 715 (formerly SFAS No. 158,~~~~Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)~~) requires plan sponsors of defined benefit pension and other postretirement benefit plans to recognize the funded status of their postretirement benefit plans in the statement of financial position, measure the fair value of plan assets and benefit obligations as of the date of the fiscal year-end statement of financial position, and provide additional disclosures. The Company adopted the recognition and disclosure provisions of ASC Topic 715 on August 25, 2007 and adopted the measurement provisions of the standard on August 31, 2008.
The Company has recognized the unfunded status of the defined pension plans in its Consolidated Balance Sheets, which represents the difference between the fair value of pension plan assets and the projected benefit obligations of its defined benefit pension plans. The net unrecognized actuarial losses and unrecognized prior service costs are recorded in ~~accumulated~~Accumulated other comprehensive loss. These amounts will be subsequently recognized as net periodic pension expense pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension expense in the same periods will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic pension expense on the same basis as the amounts previously recognized in ~~accumulated~~Accumulated other comprehensive loss.
The Company’s investment strategy for pension plan assets is to utilize a diversified mix of domestic and international equity and fixed income portfolios to earn a long-term investment return that meets the Company’s pension plan obligations. The pension plan assets are invested primarily in listed securities, and the pension plans hold only a minimal investment in AutoZone common stock that is entirely at the discretion of third-party pension fund investment managers. The Company’s largest holding classes, ~~U.S. equities and~~ fixed income bonds and U.S. equities, are ~~each~~ invested with ~~multiple managers, each holding~~a fund manager that holds diversified ~~portfolios with complementary styles and holdings.~~portfolios. Accordingly, the Company does not have any significant concentrations of risk in particular securities, issuers, sectors, industries or geographic regions. Alternative investment strategies, ~~including private real estate,~~ are in the process of being liquidated and constitute less than ~~10%~~1% of the pension plan assets. The Company’s investment managers are prohibited from using derivatives for speculative purposes and are not permitted to use derivatives to leverage a portfolio.
~~Following~~
The following is a description of the valuation methodologies used for the Company’s investments measured at fair value:
U.S., international, emerging, and high yield equities —–These investments are commingled funds and are valued using the net asset values, which are determined by valuing investments at the closing price or last trade reported on the major market on which the individual securities are traded. These investments are subject to annual audits.
Alternative investments —–This category represents a hedge fund of funds made up of 179 different hedge fund managers diversified over 94 different hedge strategies. The fair value of the hedge fund of funds is determined using valuations provided by the third party administrator for each of the underlying funds.
~~Real estate —~~The valuation of these investments requires significant judgment due to the absence of quoted market prices, the inherent lack of liquidity and the long-term nature of such assets. These investments are valued based upon recommendations of our investment manager incorporating factors such as contributions and distributions, market transactions, and market comparables.
55
Fixed income securities —–The fair values of corporate, U.S. government securities and other fixed income securities are estimated by using bid evaluation pricing models or quoted prices of securities with similar characteristics.
Cash and cash equivalents —–These investments include cash equivalents valued using exchange rates provided by an industry pricing vendor and commingled funds valued using the net asset value. These investments also include cash.
The fair values of investments by level and asset category and the weighted-average asset allocations of the Company’s pension plans at the measurement date are presented in the following table:

August 28, 2010
Fair Asset Allocation Fair Value Hierarchy
(in thousands) Value Actual Target Level 1 Level 2 Level 3

U.S. equities $ 33,445 28.5 % 35.0 % $ 33,445 $ — $ —
International equities 24,049 20.5 25.0 24,049 — —
Emerging equities 10,431 8.9 10.0 10,431 — —
High yield equities 10,604 9.0 10.0 10,604 — —
Alternative investments 4,348 3.7 — — — 4,348
Real estate 7,348 6.3 — — — 7,348
Fixed income securities 22,131 18.9 20.0 22,131 — —
Cash and cash equivalents 4,887 4.2 — 4,887 — —

$ 117,243 100.0 % 100.0 % $ 105,547 $ — $ 11,696

August 29, 2009
Fair Asset Allocation Fair Value Hierarchy
(in thousands) Value Actual Target Level 1 Level 2 Level 3

U.S. equities $ 20,321 17.6 % 22.5 % $ 20,321 $ — $ —
International equities 41,959 36.4 28.0 28,678 13,281 —
Emerging equities 6,765 5.9 6.0 6,765 — —
High yield equities — — — — — —
Alternative investments 27,314 23.7 30.5 — — 27,314
Real estate 9,457 8.2 11.0 — — 9,457
Fixed income securities — — — — — —
Cash and cash equivalents 9,497 8.2 2.0 9,497 — —

$ 115,313 100.0 % 100.0 % $ 65,261 $ 13,281 $ 36,771

August 31, 2013

   Fair
Value    Asset Allocation Fair Value Hierarchy
(in thousands)
      Actual Target Level 1    Level 2    Level 3
U.S. equities
   $ 57,931       27.9 % 30.0 % $ —         $ 57,931       $ —
International equities
   38,145       18.3    20.0    —         38,145       —
Emerging equities
   19,030       9.1    10.0    —         19,030       —
High yield equities
   19,858       9.5    10.0    —         19,858       —
Alternative investments
   1,226       0.6    —      —         —         1,226
Fixed income securities
   59,500       28.6    30.0    —         59,500       —
Cash and cash equivalents
   12,430       6.0    —      —         12,430       —








   $ 208,120       100.0 % 100.0 % $ —         $ 206,894       $ 1,226








August 25, 2012

   Fair
Value    Asset Allocation Fair Value Hierarchy
(in thousands)
      Actual Target Level 1    Level 2    Level 3
U.S. equities
   $ 51,101       28.2 % 30.0 % $ —         $ 51,101       $ —
International equities
   31,767       17.5    20.0    —         31,767       —
Emerging equities
   16,471       9.1    10.0    —         16,471       —
High yield equities
   17,378       9.6    10.0    —         17,378       —
Alternative investments
   2,404       1.3    —      —         —         2,404
Fixed income securities
   47,667       26.3    30.0    —         47,667       —
Cash and cash equivalents
   14,621       8.0    —      —         14,621       —








   $ 181,409       100.0 % 100.0 % $ —         $ 179,005       $ 2,404








The asset allocations in the charts above include $11.0 million and $8.7 million in cash contributions made prior to the balance sheet date of August 31, 2013, and August 25, 2012, respectively. Subsequent to August 31, 2013, and August 25, 2012, these cash contributions were allocated to the pension plan investments in accordance with the targeted asset allocation.
In August 2011, the Company’s Investment Committee approved a revised asset allocation target for the investments held by the pension plan. Based on the revised asset allocation target, the expected long-term rate of return on plan assets changed from 8.0% in fiscal 2011 to 7.5% for the years ending August 25, 2012, and August 31, 2013.
The change in fair value of Level 3 assets that use significant unobservable inputs is presented in the following table:

Level 3
(in thousands) Assets

Beginning balance — August 29, 2009 $ 36,771
Actual return on plan assets:
Assets held at August 28, 2010 367
Assets sold during the year 1,446
Sales and settlements (26,888 )

Ending balance — August 28, 2010 $ 11,696

56
(in thousands)
   Level 3
Assets
Beginning balance – August 25, 2012
   $ 2,404
Actual return on plan assets:

Assets held at August 31, 2013
   60
Assets sold during the year
   72
Sales and settlements
   (1,310 )


Ending balance – August 31, 2013
   $ 1,226


The following table sets forth the plans’ funded status and amounts recognized in the Company’s Consolidated Balance Sheets:

August 28, August 29,
(in thousands) 2010 2009

Change in Projected Benefit Obligation:

Projected benefit obligation at beginning of year $ 185,590 $ 156,674
Interest cost 11,315 10,647
Actuarial losses 18,986 23,637
Benefits paid (4,355 ) (5,368 )

Benefit obligations at end of year $ 211,536 $ 185,590

Change in Plan Assets:

Fair value of plan assets at beginning of year $ 115,313 $ 160,898
Actual return on plan assets 6,273 (40,235 )
Employer contributions 12 18
Benefits paid (4,355 ) (5,368 )

Fair value of plan assets at end of year $ 117,243 $ 115,313

Amount Recognized in the Statement of Financial Position:

Current liabilities $ (12 ) $ (17 )
Long-term liabilities (94,281 ) (70,260 )

Net amount recognized $ (94,293 ) $ (70,277 )

Amount Recognized in Accumulated Other Comprehensive Loss and not yet reflected in Net Periodic Benefit Cost:

Net actuarial loss $ (94,293 ) $ (70,277 )

Accumulated other comprehensive loss $ (94,293 ) $ (70,277 )

Amount Recognized in Accumulated Other Comprehensive Loss and not yet reflected in Net Periodic Benefit Cost and expected to be amortized in next year’s Net Periodic Benefit Cost:

Net actuarial loss $ (10,252 ) $ (8,354 )

Amount recognized $ (10,252 ) $ (8,354 )

(in thousands)
   August 31,
2013 August 25,
2012
Change in Projected Benefit Obligation:

Projected benefit obligation at beginning of year
   $ 305,206    $ 241,645
Interest cost
   11,746    12,214
Actuarial (gains) losses
   (53,756 ) 56,749
Benefits paid
   (6,416 ) (5,402 )


Benefit obligations at end of year
   $ 256,780    $ 305,206


Change in Plan Assets:

Fair value of plan assets at beginning of year
   $ 181,409    $ 156,883
Actual return on plan assets
   16,218    14,505
Employer contributions
   16,909    15,423
Benefits paid
   (6,416 ) (5,402 )


Fair value of plan assets at end of year
   $ 208,120    $ 181,409


Amount Recognized in the Statement of Financial Position:

Current liabilities
   $ (124 ) $ (30 )
Long-term liabilities
   (48,536 ) (123,767 )


Net amount recognized
   $ (48,660 ) $ (123,797 )


Amount Recognized in Accumulated Other Comprehensive Loss and not yet reflected in Net Periodic Benefit Cost:

Net actuarial loss
   $ (83,601 ) $ (154,678 )


Accumulated other comprehensive loss
   $ (83,601 ) $ (154,678 )


Amount Recognized in Accumulated Other Comprehensive Loss and not yet reflected in Net Periodic Benefit Cost and expected to be amortized in next year’s Net Periodic Benefit Cost:

Net actuarial loss
   $ (6,879 ) $ (14,721 )


Amount recognized
   $ (6,879 ) $ (14,721 )


Net periodic benefit expense ~~(income)~~ consisted of the following:

Year Ended
August 28, August 29, August 30,
(in thousands) 2010 2009 2008

Interest cost $ 11,315 $ 10,647 $ 9,962
Expected return on plan assets (9,045 ) (12,683 ) (13,036 )
Amortization of prior service cost — 60 99
Recognized net actuarial losses 8,135 73 97

Net periodic benefit expense (income) $ 10,405 $ (1,903 ) $ (2,878 )

   Year Ended
(in thousands)
   August 31,
2013 August 25,
2012 August 27,
2011
Interest cost
   $ 11,746    $ 12,214    $ 11,135
Expected return on plan assets
   (13,617 ) (11,718 ) (9,326 )
Amortization of prior service cost
   —      —      —
Recognized net actuarial losses
   14,721    9,795    9,405


Net periodic benefit expense
   $ 12,850    $ 10,291    $ 11,214


The actuarial assumptions used in determining the projected benefit obligation include the following:

Year Ended
August 28, August 29, August 30,
2010 2009 2008

Weighted average discount rate 5.25 % 6.24 % 6.90 %

Expected long-term rate of return on plan assets 8.00 % 8.00 % 8.00 %

   Year Ended
   August 31,
2013 August 25,
2012 August 27,
2011
Weighted average discount rate
   5.19 % 3.90 % 5.13 %
Expected long-term rate of return on plan assets
   7.50 % 7.50 % 8.00 %
57
As the plan benefits are frozen, increases in future compensation levels no longer impact the calculation and there is no service cost. The discount rate is determined as of the measurement date and is based on the calculated yield of a portfolio of high-grade corporate bonds with cash flows that generally match the Company’s expected benefit payments in future years. The expected long-term rate of return on plan assets is based on the historical relationships between the investment classes and the capital markets, updated for current conditions.
The Company makes annual contributions in amounts at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974. The Company contributed ~~approximately $12 thousand to the plans in fiscal 2010, $18 thousand to the plans in fiscal 2009 and $1.3~~$16.9 million to the plans in fiscal ~~2008.~~2013, $15.4 million to the plans in fiscal 2012 and $34.1 million to the plans in fiscal 2011. The Company expects to contribute approximately $3$4 million to the ~~plan~~plans in fiscal ~~2011;~~2014; however, a change to the expected cash funding may be impacted by a change in interest rates or a change in the actual or expected return on plan assets.
Based on current assumptions about future events, benefit payments are expected to be paid as follows for each of the following fiscal years. Actual benefit payments may vary significantly from the following estimates:

Benefit
(in thousands) Payments

2011 $ 5,907
2012 6,581
2013 7,281
2014 7,910
2015 8,544
2016 – 2020 52,047
(in thousands)
   Benefit
Payments
2014
   $ 9,125
2015
   9,205
2016
   9,912
2017
   10,604
2018
   11,193
2019 – 2023
   65,396
The Company has a 401(k) plan that covers all domestic employees who meet the plan’s participation requirements. The plan features include Company matching contributions, immediate 100% vesting of Company contributions and a savings option up to 25% of qualified earnings. The Company makes matching contributions, per pay period, up to a specified percentage of employees’ contributions as approved by the ~~Board of Directors.~~Board. The Company made matching contributions to employee accounts in connection with the 401(k) plan of ~~$11.7~~$14.1 million in fiscal ~~2010, $11.0~~2013, $14.4 million in fiscal ~~2009~~2012 and ~~$10.8~~$13.3 million in fiscal ~~2008.~~
2011.
Note M —– Acquisition
Effective December 19, 2012, the Company acquired certain assets and liabilities of AutoAnything, an online retailer of specialized automotive products for up to $150 million, including an initial cash payment of $115 million, up to a $5 million holdback payment for working capital true-ups, and contingent payments not to exceed $30 million. During the third quarter of fiscal 2013, the Company paid the holdback payment for working capital true-ups of $1.1 million. With this acquisition, the Company expects to bolster its online presence in the automotive accessory and performance markets. The results of operations from AutoAnything have been included in the Company’s Other business activities since the date of acquisition. Pro forma results of operations related to the acquisition of AutoAnything are not presented as AutoAnything’s results are not material to the Company’s results of operations. The purchase price allocation resulted in goodwill of $83.4 million and intangible assets totaling $58.7 million. Goodwill generated from the acquisition is tax deductible and is primarily attributable to expected synergies and the assembled workforce. The contingent consideration is based on the achievement of certain performance metrics through calendar year 2014 with any earned payments due during the first calendar quarter of 2014 and 2015. The fair value of the contingent consideration as of the acquisition date was $22.7 million.
During the fourth quarter of fiscal 2013, the Company determined AutoAnything is not likely to achieve the operating income targets necessary to earn the contingent consideration. Therefore, the contingent consideration was adjusted to reflect the fair value at August 31, 2013, of $0.2 million, resulting in a decrease in the contingent consideration liability of $23.3 million during the fourth quarter of fiscal 2013. See “Note E – Fair Value Measurements” for further discussion.
Note N – 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, 2012
   $ 302,645       $ —      $ 302,645
Goodwill added through acquisition⁽¹⁾
   —         83,440    83,440
Goodwill adjustments⁽²⁾
   —         (18,256 ) (18,256 )




Net balance as of August 31, 2013
   $ 302,645       $ 65,184    $ 367,829




(1) See Note M for discussion of the acquisition completed during the second quarter of fiscal 2013
(2) Total accumulated goodwill impairment as of August 31, 2013 is $18.3 million
The Company performed its annual impairment testing in the fourth quarter of fiscal 2013 for the recorded goodwill and indefinite-lived intangible asset related to the acquisition of AutoAnything. Based on an analysis of AutoAnything’s revised planned financial results compared to the initial projections, the Company determined it was more likely than not that the goodwill attributed to AutoAnything was impaired. Accordingly, the Company performed a goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, including goodwill. The Company uses the discounted cash flow methodology to determine fair value as it is considered to be the most reliable indicator of the fair values of the business. Because the fair value of the reporting unit was lower than its carrying value, the Company recorded a goodwill impairment charge of $18.3 million during the fourth quarter of fiscal 2013.
The carrying amounts of intangible assets, which all relate to the AutoAnything acquisition, are included in Other long-term assets as follows:
(in thousands)
   Estimated
Useful
Life    Gross
Carrying
Amount    Accumulated
Amortization Impairment Net
Carrying
Amount
Technology
   5 years       $ 9,700       $ (1,365 ) $ —      $ 8,335
Noncompete agreement
   5 years       1,300       (183 ) —      1,117
Customer relationships
   10 years       19,000       (1,336 ) —      17,664
Trade name
   Indefinite       28,700       —      (4,100 ) 24,600




      $ 58,700       $ (2,884 ) $ (4,100 ) $ 51,716




As part of its annual impairment test, the Company evaluated the AutoAnything trade name for impairment. Based on the Company’s evaluation of the future discounted cash flows of AutoAnything’s trade name as compared to its carrying value, it was determined that AutoAnything’s trade name was impaired. The Company recorded an impairment charge of $4.1 million during the fourth quarter of fiscal 2013 related to the trade name.
Amortization expense of intangible assets for the year ended August 31, 2013, was $2.9 million.
Total future amortization expense for intangible assets that have finite lives, based on the existing intangible assets and their current estimated useful lives as of August 31, 2013, is estimated as follows:
(in thousands)
   Total
2014
   $ 4,100
2015
   4,100
2016
   4,100
2017
   4,100
2018
   2,553
Thereafter
   8,163


   $ 27,116


Note O – Leases
The Company leases some of its retail stores, distribution centers, facilities, land and equipment, including vehicles. ~~Most~~Other than vehicle leases, most of ~~these~~the leases are operating leases, ~~and~~which include renewal options made at the Company’s election, ~~and some include~~ options to purchase and provisions for percentage rent based on sales. Rental expense was ~~$195.6~~$246.3 million in fiscal ~~2010, $181.3~~2013, $229.4 million in fiscal ~~2009,~~2012, and ~~$165.1~~$213.8 million in fiscal ~~2008.~~2011. Percentage rentals were insignificant.
The Company has a fleet of vehicles used for delivery to its commercial customers and stores and travel for members of field management. The majority of these vehicles are held under capital lease. At August ~~28, 2010,~~31, 2013, the Company had capital lease assets of ~~$85.8~~$107.5 million, net of accumulated amortization of ~~$20.4~~$44.8 million, and capital lease obligations of ~~$88.3~~$106.2 million, of which ~~$21.9~~$32.2 million is classified as ~~accrued~~Accrued expenses and other as it represents the current portion of these obligations. At August ~~29, 2009,~~25, 2012, the Company had capital lease assets of ~~$53.9~~$104.2 million, net of accumulated amortization of ~~$25.4~~$36.4 million, and capital lease obligations of ~~$54.8~~$102.3 million, of which ~~$16.7~~$29.8 million was classified as ~~accrued~~Accrued expenses and other.
The Company records rent for all operating leases on a straight-line basis over the lease term, including any reasonably assured renewal periods and the period of time prior to the lease term that the Company is in possession of the leased space for the purpose of installing leasehold improvements. Differences between recorded rent expense and cash payments are recorded as a liability in ~~accrued~~Accrued expenses and other and ~~other~~Other long-term liabilities in the accompanying Consolidated Balance ~~Sheets.~~Sheets, based on the terms of the lease. The deferred rent approximated ~~$67.6~~$96.5 million on August ~~28, 2010,~~31, 2013, and ~~$59.5~~$86.9 million on August ~~29, 2009.~~
25, 2012.
58
Future minimum annual rental commitments under non-cancelable operating leases and capital leases were as follows at the end of fiscal ~~2010:~~

Operating Capital
(in thousands) Leases Leases

2011 $ 196,291 $ 21,947
2012 187,085 24,013
2013 170,858 20,819
2014 151,287 16,971
2015 133,549 8,995
Thereafter 900,977 —

Total minimum payments required $ 1,740,047 92,745

Less: Interest (4,465 )

Present value of minimum capital lease payments $ 88,280

2013:
(in thousands)
   Operating
Leases    Capital
Leases
2014
   $ 228,747       $ 32,246
2015
   220,877       30,943
2016
   204,112       24,363
2017
   187,312       16,388
2018
   170,745       5,283
Thereafter
   945,429       —




Total minimum payments required
   $ 1,957,222       109,223



Less: Interest
      (3,052 )


Present value of minimum capital lease payments
      $ 106,171


In connection with the Company’s December 2001 sale of the TruckPro business, the Company subleased some properties to the purchaser for an initial term of not less than 20 years. The Company’s remaining aggregate rental obligation at August ~~28, 2010~~31, 2013 of ~~$20.5~~$15.6 million is included in the above table, but the obligation is entirely offset by the sublease rental agreement.

Note ~~N —~~P – Commitments and Contingencies
Construction commitments, primarily for new stores, totaled approximately ~~$15.8~~$21.0 million at August ~~28, 2010.~~
31, 2013.
The Company had ~~$107.6~~$145.4 million in outstanding standby letters of credit and ~~$23.7~~$30.7 million in surety bonds as of August ~~28, 2010,~~31, 2013, which all have expiration periods of less than one year. A substantial portion of the outstanding standby letters of credit (which are primarily renewed on an annual basis) and surety bonds are used to cover reimbursement obligations to our workers’ compensation carriers. There are no additional contingent liabilities associated with these instruments as the underlying liabilities are already reflected in the consolidated balance sheet. The standby letters of credit and surety bonds arrangements have automatic renewal clauses.

Note ~~O —~~Q – Litigation
~~AutoZone, Inc. is~~
In 2004, the Company acquired a ~~defendant~~store site in Mount Ephraim, New Jersey that had previously been the site of a ~~lawsuit entitled “Coalition for~~gasoline service station and contained evidence of groundwater contamination. Upon acquisition, the Company voluntarily reported the groundwater contamination issue to the New Jersey Department of Environmental Protection and entered into a ~~Level Playing Field, L.L.C., et al., v. AutoZone, Inc. et al.,” filed in the U.S. District Court~~Voluntary Remediation Agreement providing for the Southern District of New York in October 2004. The case was filed by more than 200 plaintiffs, which are principally automotive aftermarket warehouse distributors and jobbers, against a number of defendants, including automotive aftermarket retailers and aftermarket automotive parts manufacturers. In the amended complaint, the plaintiffs allege,~~inter alia~~~~, that some or all~~remediation of the ~~automotive aftermarket retailer defendants have knowingly received, in violation~~contamination associated with the property. The Company has conducted and paid for (at an immaterial cost to the Company) remediation of the Robinson-Patman Act (the “Act”), from various of the manufacturer defendants benefits such as volume discounts, rebates, early buy allowances and other allowances, fees, inventory without payment, sham advertising and promotional payments, a share in the manufacturers’ profits, benefits of pay on scan purchases, implementation of radio frequency identification technology, and excessive payments for services purportedly performed for the manufacturers. Additionally, a subset of plaintiffs alleges a claim of fraud against the automotive aftermarket retailer defendants based on discovery issues in a prior litigation involving similar claims under the Act. In the prior litigation, the discovery dispute, as well as the underlying claims, was decided in favor of AutoZone and the other automotive aftermarket retailer defendants who proceeded to trial, pursuant to a unanimous jury verdict which was affirmed by the Second Circuit Court of Appeals. In the current litigation, plaintiffs seek an unspecified amount of damages (including statutory trebling), attorneys’ fees, and a permanent injunction prohibiting the aftermarket retailer defendants from inducing and/or knowingly receiving discriminatory prices from any of the aftermarket manufacturer defendants and from opening up any further stores to compete with plaintiffs as long as defendants allegedly continue to violate the Act.
59
~~In an order dated September 7, 2010 and issued on September 16, 2010, the court granted motions to dismiss all claims against AutoZone and its co-defendant competitors and suppliers. Based~~contamination on the record in the prior litigation, the court dismissed with prejudice all overlapping claims – that is, those covering the same time periods covered by the prior litigation and brought by the judgment plaintiffs in the prior litigation. The court also dismissed with prejudice the plaintiffs’ attempt to revisit discovery disputes from the prior litigation. Further, with respect to the other claims under the Act, the Court found that the factual statements contained in the complaint fall short of what would be necessary to support a plausible inference of unlawful price discrimination.  Finally, the court held that the AutoZone pay-on-scan program is a difference in non-price terms that are not governed by the Act. The court ordered the case closed, but also stated that “in an abundance of caution the Court [was] defer[ring] decision on whether to grant leave to amend to allow plaintiff an opportunity to propose curative amendments.” Without moving for leave to amend their complaint for a third time, four plaintiffs filed a Third Amended and Supplemental Complaint (the “Third Amended Complaint”) on October 18, 2010. The Third Amended Complaint repeats and expands certain allegations from previous complaints, asserting two claims under the Act, but states that all other plaintiffs have withdrawn their claims, and that,~~inter alia~~, Chief Auto Parts, Inc. has been dismissed as a defendant. The court set no specific procedure for further response or motion by the defendants. The Company anticipates that the defendants, including AutoZone, will request that the court reject the Third Amended Complaint and/or will seek to have it dismissed.
~~The Company believes this suit to be without merit and is vigorously defending against it.~~property. The Company is ~~unable~~also investigating, and will be addressing, potential vapor intrusion impacts in downgradient residences and businesses. The New Jersey Department of Environmental Protection has asserted, in a Directive and Notice to ~~estimate~~Insurers dated February 19, 2013 (“Directive”), that the Company is liable for the downgradient impacts under a ~~loss or possible range~~joint and severable liability theory, and the Company has contested any such assertions due to the existence of ~~loss.~~
other entities/sources of contamination, some of which are named in the Directive, in the area of the property. Pursuant to the Voluntary Remediation Agreement, upon completion of all remediation required by the agreement, the Company believes it should be eligible to be reimbursed up to 75 percent of qualified remediation costs by the State of New Jersey. The Company has asked the state for clarification that the agreement applies to off-site work, and the state is considering the request. Although the aggregate amount of additional costs that the Company may incur pursuant to the remediation cannot currently ~~and from time~~be ascertained, the Company does not currently believe that fulfillment of its obligations under the agreement or otherwise will result in costs that are material to ~~time,~~its financial condition, results of operations or cash flow.
The Company is involved in various other legal proceedings incidental to the conduct of its ~~business. Although~~business, including several lawsuits containing class-action allegations in which the ~~amount of liability that may result from these other proceedings cannot be ascertained, the~~plaintiffs are current and former hourly and salaried employees who allege various wage and hour violations and unlawful termination practices. The Company does not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to the Company’s financial condition, results of operations or cash flows.

Note ~~P —~~R – Segment Reporting
~~The~~
Three of the Company’s ~~two~~ operating segments (Domestic Auto Parts, Mexico and ~~Mexico) have been~~Brazil) are aggregated as one reportable segment: Auto Parts 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 A.
The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s ~~4,627~~5,201 stores in the United States, ~~including~~ Puerto Rico, Mexico and ~~Mexico.~~Brazil. Each 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 and non-automotive products.
The ~~“Other”~~Other category reflects business activities of three operating segments that are not separately reportable ~~including~~due to the materiality of these operating segments. The operating segments include ALLDATA, which produces, sells and maintains diagnostic and repair information software used in the automotive repair ~~industry, and e-Commerce,~~industry; E-commerce, which includes direct sales to customers through ~~www.autozone.com.~~
www.autozone.com; and AutoAnything, which includes direct sales to customers through www.autoanything.com.
The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. During fiscal 2009, the Company reassessed and revised its reportable segment to exclude ALLDATA and e-Commerce from the newly designated Auto Parts Stores reporting segment. Previously, these immaterial business activities had been combined with Auto Parts Stores.
60
The following table shows segment results for the following fiscal years:

Year Ended
August 28, August 29, August 30,
(in thousands) 2010 2009 2008

Net Sales:

Auto Parts Stores $ 7,213,753 $ 6,671,939 $ 6,383,697
Other 148,865 144,885 139,009

Total $ 7,362,618 $ 6,816,824 $ 6,522,706

Segment Profit:

Auto Parts Stores $ 3,591,464 $ 3,296,777 $ 3,153,703
Other 120,280 119,672 114,358

Gross profit 3,711,744 3,416,449 3,268,061
Operating, selling, general and administrative expenses (2,392,330 ) (2,240,387 ) (2,143,927 )
Interest expense, net (158,909 ) (142,316 ) (116,745 )

Income before income taxes $ 1,160,505 $ 1,033,746 $ 1,007,389

Segment Assets:

Auto Parts Stores $ 5,531,955 $ 5,279,454 $ 5,239,782
Other 39,639 38,951 17,330

Total $ 5,571,594 $ 5,318,405 $ 5,257,112

Capital Expenditures:

Auto Parts Stores $ 307,725 $ 260,448 $ 238,631
Other 7,675 11,799 4,963

Total $ 315,400 $ 272,247 $ 243,594

Sales by Product Grouping:

Failure $ 3,145,528 $ 2,816,126 $ 2,707,296
Maintenance items 2,792,610 2,655,113 2,462,923
Discretionary 1,275,615 1,200,700 1,213,478

Auto Parts Stores net sales $ 7,213,753 $ 6,671,939 $ 6,383,697

61
   Year Ended
(in thousands)
   August 31,
2013 August 25,
2012 August 27,
2011
Net Sales:

Auto Parts Stores
   $ 8,858,723    $ 8,422,559    $ 7,906,692
Other
   288,807    181,304    166,281


Total
   $ 9,147,530    $ 8,603,863    $ 8,072,973


Segment Profit:

Auto Parts Stores
   $ 4,568,190    $ 4,292,474    $ 3,989,852
Other
   172,745    139,562    129,611


Gross profit
   4,740,935    4,432,036    4,119,463
Operating, selling, general and administrative expenses
   (2,967,837 ) (2,803,145 ) (2,624,660 )
Interest expense, net
   (185,415 ) (175,905 ) (170,557 )


Income before income taxes
   $ 1,587,683    $ 1,452,986    $ 1,324,246


Segment Assets:

Auto Parts Stores
   $ 6,719,885    $ 6,214,688    $ 5,827,285
Other
   172,204    50,951    42,317


Total
   $ 6,892,089    $ 6,265,639    $ 5,869,602


Capital Expenditures:

Auto Parts Stores
   $ 402,028    $ 364,361    $ 316,074
Other
   12,423    13,693    5,530


Total
   $ 414,451    $ 378,054    $ 321,604


Auto Parts Stores Sales by Product Grouping:

Failure
   $ 4,214,642    $ 3,793,963    $ 3,530,497
Maintenance items
   3,224,229    3,196,807    3,051,672
Discretionary
   1,419,852    1,431,789    1,324,523


Auto Parts Stores net sales
   $ 8,858,723    $ 8,422,559    $ 7,906,692


Note S – Quarterly Summary⁽¹⁾⁽¹⁾
(Unaudited)

Sixteen
Twelve Weeks Ended Weeks Ended
November 21, February 13, May 8, August 28,
(in thousands, except per share data) 2009 2010 2010 2010⁽²⁾

Net sales $ 1,589,244 $ 1,506,225 $ 1,821,990 $ 2,445,159
Gross profit 799,924 753,736 923,121 1,234,963
Operating profit 260,428 230,381 355,865 472,740
Income before income taxes 224,088 194,072 319,032 423,313
Net income 143,300 123,333 202,745 268,933
Basic earnings per share 2.86 2.49 4.19 5.77
Diluted earnings per share 2.82 2.46 4.12 5.66

Sixteen
Twelve Weeks Ended Weeks Ended
November 22, February 14, May 9, August 29,
(in thousands, except per share data) 2008 2009 2009 2009⁽²⁾

Net sales $ 1,478,292 $ 1,447,877 $ 1,658,160 $ 2,232,494
Gross profit 741,191 719,298 832,907 1,123,053
Operating profit 238,539 214,696 305,232 417,596
Income before income taxes 207,373 182,789 273,750 369,834
Net income 131,371 115,864 173,689 236,126
Basic earnings per share 2.25 2.05 3.18 4.49
Diluted earnings per share 2.23 2.03 3.13 4.43
   Twelve Weeks Ended    Seventeen
Weeks Ended
(in thousands, except per share data)
   November 17,
2012    February 9,
2013    May 4,
2013    August 31,
2013⁽²⁾
Net sales
   $ 1,991,040       $ 1,855,198       $ 2,205,878       $ 3,095,414
Gross profit
   1,031,866       961,981       1,142,713       1,604,376
Operating profit
   363,276       317,571       456,030       636,220
Income before income taxes
   322,172       276,248       413,939       575,324
Net income
   203,452       176,247       265,583       371,199
Basic earnings per share
   5.52       4.86       7.39       10.59
Diluted earnings per share
   5.41       4.78       7.27       10.42
   Twelve Weeks Ended    Sixteen
Weeks Ended
(in thousands, except per share data)
   November 19,
2011    February 11,
2012    May 5,
2012    August 25,
2012⁽²⁾
Net sales
   $ 1,924,341       $ 1,804,069       $ 2,111,866       $ 2,763,585
Gross profit
   983,627       926,215       1,089,799       1,432,394
Operating profit
   340,934       300,651       427,250       560,056
Income before income taxes
   301,840       261,728       387,507       501,911
Net income
   191,125       166,930       248,586       323,733
Basic earnings per share
   4.79       4.25       6.43       8.65
Diluted earnings per share
   4.68       4.15       6.28       8.46
(1) The sum of quarterly amounts may not equal the annual amounts reported due to ~~rounding and due to~~rounding. In addition, the earnings per share amounts ~~being~~are computed independently for each quarter while the full year is based on the annual weighted average shares outstanding.
(2) The fourth quarter for fiscal ~~2010 and~~2013 is based on a 17-week period while fiscal ~~2009 are~~2012 is based on a 16-week period. All other quarters presented are based on a 12-week period.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
As of August ~~28, 2010,~~31, 2013, an evaluation was performed under the supervision and with the participation of AutoZone’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended. Based on that evaluation, our management, including the Chief Executive Officer and the Chief Financial Officer, concluded that our disclosure controls and procedures were effective. During our fiscal fourth quarter ended August ~~28, 2010,~~31, 2013, there were no changes in our internal controls that have materially affected or are reasonably likely to materially affect internal controls over financial reporting.
Item 9B. Other Information
Not applicable.
62
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information set forth in Part I of this document in the section entitled “Executive Officers of the Registrant,” is incorporated herein by reference in response to this item. Additionally, the information contained in AutoZone, Inc.’s Proxy Statement dated October ~~25, 2010,~~28, 2013, in the sections entitled “Proposal 1 —– Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” is incorporated herein by reference in response to this item.
The Company has adopted a Code of Ethical Conduct for Financial Executives that applies to its chief executive officer, chief financial officer, chief accounting officer and persons performing similar functions. The Company has filed a copy of this Code of Ethical Conduct as Exhibit 14.1 to this Form 10-K. The Company has also made the Code of Ethical Conduct available on its investor relations website at http://www.autozoneinc.com.
Item 11. Executive Compensation
The information contained in AutoZone, Inc.’s Proxy Statement dated October ~~25, 2010,~~28, 2013, in the section entitled “Executive Compensation,” is incorporated herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information contained in AutoZone, Inc.’s Proxy Statement dated October ~~25, 2010,~~28, 2013, in the sections entitled “Security Ownership of ~~Management”~~Management and Board of Directors” and “Security Ownership of Certain Beneficial Owners,” is incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Not applicable.
Item 14. Principal Accounting Fees and Services
The information contained in AutoZone, Inc.’s Proxy Statement dated October ~~25, 2010,~~28, 2013, in the section entitled “Proposal ~~3 —~~2 – Ratification of Independent Registered Public Accounting Firm,” is incorporated herein by reference in response to this item.
63
PART IV
Item 15. Exhibits, Financial Statement Schedules
The following information required under this item is filed as part of this ~~report~~
report.
(a) Financial Statements
The following financial statements, related notes and reports of independent registered public accounting firm are filed with this Annual Report on Form 10-K in Part II, Item 8:
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the fiscal years ended August ~~28, 2010,~~
31, 2013, August ~~29, 2009,~~25, 2012, and August ~~30, 2008~~
27, 2011
Consolidated Statements of Comprehensive Income for the fiscal years ended August 31, 2013, August 25, 2012, and August 27, 2011
Consolidated Balance Sheets as of August ~~28, 2010,~~31, 2013, and August ~~29, 2009~~
25, 2012
Consolidated Statements of Cash Flows for the fiscal years ended August ~~28,~~
~~2010,~~31, 2013, August ~~29, 2009,~~25, 2012, and August ~~30, 2008~~
27, 2011
Consolidated Statements of Stockholders’ ~~(Deficit) Equity~~Deficit for the fiscal years ended August ~~28, 2010,~~31, 2013, August ~~29, 2009,~~25, 2012, and August ~~30, 2008~~
27, 2011
Notes to Consolidated Financial Statements
(b) Exhibits
The Exhibit Index following this document’s signature pages is incorporated herein by reference in response to this item.

(c) Financial Statement Schedules
Schedules are omitted because the information is not required or because the information required is included in the financial statements or notes thereto.
64
SIGNATURES
~~SIGNATURES~~
Pursuant to the requirements of Section 13 or 15(d) 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:
~~By:~~
/s/ ~~William~~WILLIAM C. ~~Rhodes,~~RHODES, III
William C. Rhodes, III
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Dated: October ~~25, 2010~~
28, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE

TITLE

DATE
~~SIGNATURE~~
/s/ WILLIAM C. RHODES, III
   ~~TITLE~~ ~~DATE~~
~~/s/ William C. Rhodes, III~~
~~William C. Rhodes, III~~
Chairman, President and Chief Executive Officer
~~(Principal~~(Principal Executive Officer)
October ~~25, 2010~~28, 2013
William C. Rhodes, III
/s/ WILLIAM T. GILES
William T. Giles
~~William T. Giles~~

Chief Financial Officer and Executive Vice
President —– Finance, Information Technology and
~~Store Development~~
~~(Principal~~ ALLDATA (Principal Financial Officer)
October ~~25, 2010~~28, 2013
/s/ CHARLIE PLEAS, III

~~/s/ Charlie Pleas, III~~
~~Charlie Pleas, III~~
Senior Vice President and Controller
~~(Principal~~(Principal Accounting Officer)
October ~~25, 2010~~28, 2013
Charlie Pleas, III
/s/ ~~William C. Crowley~~
~~William C. Crowley~~DOUGLAS H. BROOKS

Director
October ~~25, 2010~~28, 2013
Douglas H. Brooks
/s/ ~~Sue~~SUE E. ~~Gove~~
~~Sue E. Gove~~GOVE

Director
October ~~25, 2010~~28, 2013
Sue E. Gove
/s/ EARL G. GRAVES, JR.
Director
October 28, 2013
Earl G. Graves, Jr.
~~Earl G. Graves, Jr.~~
/s/ LINDA A. GOODSPEED
Director
October ~~25, 2010~~28, 2013
Linda A. Goodspeed
/s/ ~~Robert R. Grusky~~
~~Robert R. Grusky~~ENDERSON GUIMARAES

Director
October ~~25, 2010~~28, 2013
Enderson Guimaraes
/s/ J.R. ~~Hyde,~~HYDE, III
~~J.R. Hyde, III~~

Director
October ~~25, 2010~~28, 2013
J.R. Hyde, III
/s/ ~~W. Andrew McKenna~~
~~W. Andrew McKenna~~D. BRYAN JORDAN

Director
October ~~25, 2010~~28, 2013
D. Bryan Jordan
/s/ W. ANDREW MCKENNA
Director
October 28, 2013
W. Andrew McKenna
/s/ GEORGE R. MRKONIC, JR.
Director
October 28, 2013
George R. Mrkonic, Jr.
~~George R. Mrkonic, Jr.~~
/s/ LUIS P. NIETO
Director
October ~~25, 2010~~28, 2013
Luis P. Nieto
~~/s/ Luis P. Nieto~~
~~Luis P. Nieto~~
~~Director~~ ~~October 25, 2010~~
~~/s/ Theodore W. Ullyot~~
~~Theodore W. Ullyot~~
~~Director~~ ~~October 25, 2010~~
65
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on Form 10-K:
     3.1    Restated Articles of Incorporation of AutoZone, Inc. Incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended February 13, 1999.
     3.2
~~Fourth~~Fifth Amended and Restated By-laws of AutoZone, Inc. Incorporated by reference to Exhibit ~~99.2~~3.1 to the~~Form 8-K~~ ~~dated September 28, 2007.~~
~~4.1~~ ~~Senior Indenture, dated as of July 22, 1998, between AutoZone, Inc. and the First National Bank of Chicago. Incorporated by reference to Exhibit 4.1 to the Form 8-K dated July 17, 1998.~~
~~4.2~~ ~~Fourth Amended and Restated AutoZone, Inc. Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.1 to the~~ Current Report on Form 8-K dated September 28, ~~2007.~~2011.

~~4.3~~ 4.1    Indenture dated as of August 8, 2003, between AutoZone, Inc. and Bank One Trust Company, N.A. Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (No. 333-107828) filed August 11, 2003.
     ~~4.4~~ Terms Agreement dated October 16, 2002, by and among AutoZone, Inc., J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several underwriters named therein. Incorporated by reference to Exhibit 1.2 to the Form 8-K dated October 18, 2002.
~~4.5~~ ~~Form of 5.875% Note due 2012. Incorporated by reference to Exhibit 4.1 to the Form 8-K dated October 18, 2002.~~
~~4.6~~ 4.2    Terms Agreement dated May 29, 2003, by and among AutoZone, Inc., Citigroup Global Markets Inc. and SunTrust Capital Markets, Inc., as representatives of the several underwriters named therein. Incorporated by reference to Exhibit 1.2 to the Current Report on Form 8-K dated May 29, 2003.
     ~~4.7~~ ~~Form of 4.375% Note due 2013. Incorporated by reference to Exhibit 4.1 to the Form 8-K dated May 29, 2003.~~
~~4.8~~ Terms Agreement dated November 3, 2003, by and among AutoZone, Inc., Banc of America Securities LLC and Wachovia Capital Markets, LLC, as representatives of the several underwriters named therein. Incorporated by reference to Exhibit 1.2 to the Form 8-K dated November 3, 2003.
~~4.9~~ ~~Form of 4.75% Note due 2010. Incorporated by reference to Exhibit 4.1 to the Form 8-K dated November 3, 2003.~~
~~4.10~~ 4.3    Form of 5.5% Note due 2015. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K dated November 3, 2003.
     ~~4.11~~ 4.4    Terms Agreement dated June 8, 2006, by and among AutoZone, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc., as representatives of the several underwriters named therein. Incorporated by reference to Exhibit 1.2 to the Current Report on Form 8-K dated June 13, 2006.
     ~~4.12~~ 4.5    Form of 6.95% Senior Note due 2016. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated June 13, 2006.
     ~~4.13~~ 4.6    Officers’ Certificate dated August 4, 2008, pursuant to Section 3.2 of the Indenture dated August 11, 2003, setting forth the terms of the 6.5% Senior Notes due 2014. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated August 4, 2008.
     ~~4.14~~ 4.7    Form of 6.5% Senior Note due 2014. Incorporated by reference from the Current Report on Form 8-K dated August 4, ~~2008~~2008.

~~4.15~~ 4.8    Officers’ Certificate dated August 4, 2008, pursuant to Section 3.2 of the Indenture dated August 11, 2003, setting forth the terms of the 7.125% Senior Notes due 2018. Incorporated by reference to Exhibit 4.2 to the Current Report on Form8-K dated August 4, 2008.
66
     ~~4.16~~ 4.9    Form of 7.125% Senior Note due 2018. Incorporated by reference from the Form 8-K dated August 4, ~~2008~~2008.

~~4.17~~ 4.10    Officers’ Certificate dated July 2, 2009, pursuant to Section 3.2 of the Indenture dated August 11, 2003, setting forth the terms of the 5.75% Notes due 2015. Incorporated by reference to 4.1 to the Current Report on Form 8-K dated July 2, 2009.
     ~~4.18~~ 4.11    Form of 5.75% Senior Note due 2015. Incorporated by reference from the Form 8-K dated July 2, ~~2009~~2009.
    4.12    Officers’ Certificate dated November 15, 2010, pursuant to Section 3.2 of the Indenture dated August 8, 2003, setting forth the terms of the 4.000% Notes due 2020. Incorporated by reference to 4.1 to the Current Report on Form 8-K dated November 15, 2010.
    4.13    Form of 4.000% Senior Note due 2020. Incorporated by reference from the Form 8-K dated November 15, 2010.
    4.14 Officers’ Certificate dated April 24, 2012, pursuant to section 3.2 of the indenture dated August 8, 2003, setting forth the terms of the 3.700% Senior Notes due 2022. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated April 24, 2012.
    4.15 Form of 3.700% Senior Notes due 2022. Incorporated by reference from the Form 8-K dated April 24, 2012.
    4.16 Officers’ Certificate dated November 13, 2012, pursuant to section 3.2 of the indenture dated August 8, 2003, setting forth the terms of the 2.875% Senior Notes due 2023. Incorporated by reference to Exhibit 4.1 to the Current Report onForm 8-K dated November 13, 2012.
    4.17 Form of 2.875% Senior Notes due 2023. Incorporated by reference from the Form 8-K dated November 13, 2012.
    4.18 Officers’ Certificate dated April 29, 2013, pursuant to section 3.2 of the indenture dated August 8, 2003, setting forth the terms of the 3.125% Senior Notes due 2023. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated April 29, 2013.
    4.19 Form of 3.125% Senior Notes due 2023. Incorporated by reference to Exhibit 4.1 to the Form 8-K dated April 29, 2013.
*10.1    Fourth Amended and Restated Director Stock Option Plan. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended May 4, 2002.
*10.2    Second Amended and Restated 1998 Director Compensation Plan. Incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K for the fiscal year ended August 26, 2000.
*10.3    Third Amended and Restated 1996 Stock Option Plan. Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K for the fiscal year ended August 30, 2003.
*10.4    Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.2 to the Quarterly Report onForm 10-Q for the quarter ended November 23, 2002.
*10.5    Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended November 23, 2002.
*10.6    AutoZone, Inc. 2003 Director Stock Option Plan. Incorporated by reference to Appendix C to the definitive proxy statement dated November 1, 2002, for the ~~annual meeting~~Annual Meeting of ~~stockholders~~Stockholders held December 12, 2002.
*10.7    AutoZone, Inc. 2003 Director Compensation Plan. Incorporated by reference to Appendix D to the definitive proxy statement dated November 1, 2002, for the ~~annual meeting~~Annual Meeting of ~~stockholders~~Stockholders held December 12, 2002.
*10.8    ~~Amended and Restated~~Third Amendment to the AutoZone, Inc. Executive Deferred Compensation ~~Plan. Incorporated~~Plan incorporated by reference to Exhibit 10.1 to the Form ~~10-Q for the quarter ended February 15, 2003.~~8-K dated December 12, 2012.
*10.9 AutoZone, Inc. 2005 Executive Incentive Compensation Plan. Incorporated by reference to Exhibit A to the Company’s Proxy Statement dated October 27, 2004, for the Annual Meeting of Stockholders held December 16, 2004.
~~10.10~~ Credit Agreement dated as of July 9, 2009, among AutoZone, Inc., as Borrower, The Several Lenders From Time To Time Party Hereto, and Bank of America, N.A., as Administrative Agent and Swingline Lender, and JPMorgan Chase Bank, N.A., as Syndication Agent, and Banc of America Securities, LLC and J.P. Morgan Securities, as Joint Lead Arrangers, and Banc of America Securities, LLC, J.P. Morgan Securities, Inc., Suntrust Robinson Humphrey, Inc., and Wachovia Capital Markets, LLC, as Joint Book Runners, and Suntrust Bank, Wells Fargo Bank, N.A., Regions Bank, and US Bank National Association, as Documentation Agents. Incorporated by reference to Exhibit 10.10 to the Form 10-K/A for the fiscal year ended August 29, 2009.
*10.11    AutoZone, Inc. 2006 Stock Option Plan. Incorporated by reference to Appendix A to the definitive proxy statement dated October 25, 2006, for the ~~annual meeting~~Annual Meeting of ~~stockholders~~Stockholders held December 13, 2006.
*~~10.12~~ 10.10    Form of Stock Option Agreement. Incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K for the fiscal year ended August 25, 2007.
*~~10.13~~ 10.11    AutoZone, Inc. ~~Fourth~~Fifth Amended and Restated Executive Stock Purchase Plan. Incorporated by reference to ~~Appendix B~~Exhibit 10.11 to the ~~definitive proxy statement~~Annual Report on Form 10-K dated October ~~25, 2006, for the annual meeting of stockholders held December 13, 2006.~~22, 2012.
*~~10.14~~ ~~AutoZone, Inc. Director Compensation Program. Incorporated by reference to Exhibit 99.1 to the Form 8-K dated February 15, 2008.~~
67
*10.15 10.12    Amended and Restated AutoZone, Inc. 2003 Director Compensation Plan. Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K dated January 4, 2008.
*~~10.16~~ 10.13    Amended and Restated AutoZone, Inc. 2003 Director Stock Option Plan. Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K dated January 4, 2008.
*~~10.17~~ 10.14    AutoZone, Inc. Enhanced Severance Pay Plan. Incorporated by reference to Exhibit 99.1 to the Current Report onForm 8-K dated February 15, 2008.
*~~10.18~~ 10.15    Form of non-compete and non-solicitation agreement signed by each of the following executive officers: ~~Jon A. Bascom, Timothy W. Briggs,~~ Mark A. Finestone, William T. Giles, William W. Graves, ~~Lisa R. Kranc,~~Ronald B. Griffin, Thomas B. Newbern, Charlie Pleas, III, Larry M. Roesel, Albert Saltiel, and ~~James~~Mike A. ~~Shea;~~Womack; and by AutoZone, Inc., with an effective date of February 14, 2008, for each. Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K dated February 15, 2008.
*~~10.19~~ 10.16    Form of non-compete and non-solicitation agreement approved by AutoZone’s Compensation Committee for execution by non-executive officers. Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K dated February 15, 2008.
*~~10.20~~ 10.17    Agreement dated February 14, 2008, between AutoZone, Inc. and William C. Rhodes, III. Incorporated by reference to Exhibit ~~99.3~~99.4 to the Current Report on Form 8-K dated February 15, 2008.
*~~10.21~~ 10.18    Form of non-compete and non-solicitation agreement signed by each of the following officers: Rebecca W. Ballou, ~~Dan Barzel,~~ Craig Blackwell, Brian L. Campbell, Philip B. Daniele, III, Robert A. Durkin, Bill Edwards, Joseph Espinosa, Preston B. Frazer, Stephany L. Goodnight, David Goudge, James C. Griffith, William R. Hackney, Rodney Halsell, ~~Diana H. Hull,~~David Klein, Trevor Klein, Jeffery Lagges, Grantland E. McGee, Jr., Mitchell Major, Ann A. Morgan, J. Scott Murphy, Jeffrey H. Nix, Raymond A. Pohlman, Elizabeth Rabun, Juan A. Santiago, Joe L. Sellers, Jr., Brett Shanaman, Jamey Traywick, Doug Wines, Solomon Woldeslassie, Kristen C. Wright, and ~~Solomon Woldeslassie.~~Larry Yeske; and by AutoZone, Inc. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 2008.
~~10.22~~ ~~Agreement, dated as of June 25, 2008 between AutoZone, Inc. and ESL Investments, Inc. Incorporated by reference to Exhibit 10.1 to the Form 8-K dated June 26, 2008.~~
*~~10.23~~ 10.19    Second Amended and Restated Employment and Non-Compete Agreement between AutoZone, Inc. and Harry L. Goldsmith dated December 29, 2008. Incorporated by reference to Exhibit 10.1 to the Current Report onForm 8-K dated December 30, 2008.
*~~10.24~~ 10.20    Amended and Restated Employment and Non-Compete Agreement between AutoZone, Inc. and Robert D. Olsen dated December 29, 2008. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K dated December 30, 2008.
*~~10.25~~ 10.21    First Amendment to Amended and Restated Employment Agreement between AutoZone, Inc. and Robert D. Olsen dated September 29, 2009. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated September 30, 2009.
*~~10.26~~ 10.22    AutoZone, Inc. 2010 Executive Incentive Compensation Plan, incorporated by reference to Exhibit A to the definitive proxy statement dated October 26, 2009, for the Annual Meeting of Stockholders held December 16, 2009.
*10.23    AutoZone, Inc. 2011 Equity Incentive Award Plan, incorporated by reference to Exhibit A to the definitive proxy statement dated October 25, 2010, for the Annual Meeting of Stockholders held December 15, 2010.
*10.24    Form of Stock Option Agreement under the 2006 Stock Option Plan, effective September 2010. Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q dated December 16, 2010.
*10.25 Form of Stock Option Agreement under the 2006 Stock Option Plan for certain executive officers, effective September 2010. Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q dated December 16, 2010.
*10.26 Form of Letter Agreement dated as of December 14, 2010, amending certain Stock Option Agreements of executive officers. Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q dated December 16, 2010.
*10.27 AutoZone, Inc. 2011 Director Compensation Program. Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q dated December 16, 2010.
*10.28 Performance-Based Restricted Stock Units Award Agreement dated December 15, 2010, between AutoZone, Inc. and William C. Rhodes, III, incorporated by reference to Exhibit 10.2 to the Form 8-K dated December 15, 2010.
*10.29 Form of Stock Option Agreement under the 2011 Equity Incentive Award Plan. Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q dated March 17, 2011.
*10.30 Form of Stock Option Agreement under the 2011 Equity Incentive Award Plan for certain executive officers. Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q dated March 17, 2011.
*10.31 First Amended and Restated AutoZone, Inc. Enhanced Severance Pay Plan. Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q dated March 17, 2011.
*10.32 Form of Stock Option Agreement under the 2011 Equity Incentive Award Plan for officers effective September 27, 2011. Incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K for the fiscal year ended August 27, 2011.
*10.33 Form of Stock Option Agreement under the 2011 Equity Incentive Award Plan for certain executive officers effective September 27, 2011. Incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K for the fiscal year ended August 27, 2011.
   ~~12.1~~10.34    Amended and Restated Credit Agreement dated as of September, 13, 2011 among AutoZone, Inc. as Borrower, the several Lenders from time to time party thereto, and Bank of America, N.A. as Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A. as Syndication Agent, arranged by Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC as Joint Lead Arrangers and Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC, SunTrust Robinson Humphrey, Inc., U.S. Bank National Association, Wells Fargo Securities, LLC and Barclays Capital as Joint Book Runners. Incorporated by reference to Exhibit 10.39 to the Annual Report on Form 10-K for the fiscal year ended August 27, 2011.
*10.35 Sixth Amended and Restated AutoZone, Inc. Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K for the fiscal year ended August 27, 2011.
*10.36 Second Amended AutoZone, Inc. Executive Deferred Compensation Plan. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated December 14, 2011.
*10.37 Offer letter dated May 23, 2012, to Mike A. Womack. Incorporated by reference to Exhibit 10.38 of Annual Report on Form 10-K dated October 22, 2012.
*10.38 Offer letter dated April 26, 2012, to Ronald B. Griffin. Incorporated by reference to Exhibit 10.39 of Annual Report on Form 10-K dated October 22, 2012.
*10.39 Amended Non-Compete Agreement between AutoZone, Inc. and Jon A. Bascom dated May 25, 2012. Incorporated by reference to Exhibit 10.39 of Annual Report on Form 10-K dated October 22, 2012.
*10.40 Offer letter dated February 7, 2013, to Albert Saltiel. Incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q dated June 12, 2013.
  12.1    Computation of Ratio of Earnings to Fixed Charges.
   14.1    Code of Ethical Conduct. Incorporated by reference to Exhibit 14.1 of the Annual Report on Form 10-K for the fiscal year ended August 30, 2003.
   21.1    Subsidiaries of the Registrant.
68
   23.1    Consent of Ernst & Young LLP.
   31.1    Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   31.2    Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   32.1    Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   32.2    Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**101.INS    XBRL Instance Document
**101.SCH    XBRL Taxonomy Extension Schema Document
**101.CAL    XBRL Taxonomy Extension Calculation Document
**101.LAB    XBRL Taxonomy Extension Labels Document
**101.PRE    XBRL Taxonomy Extension Presentation Document
**101.DEF    XBRL Taxonomy Extension Definition Document
* Management contract or compensatory plan or arrangement.
** ~~In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Annual Report on Form 10-K shall be deemed “furnished” and not “filed.”~~

6978


123 South Front Street, Memphis, Tennessee		38103
(Address of principal executive offices)		(Zip Code)


PART I			4
Item 1.
~~Item 1.~~ Business		4

Introduction		4

Marketing and Merchandising Strategy		5

Commercial		6

Store Operations		6

~~Store Development~~		7

~~Purchasing and Supply Chain~~Store Development		8

~~Competition~~Purchasing and Supply Chain		8

~~Trademarks and Patents~~Competition		8

~~Employees~~Trademarks and Patents		8

~~AutoZone Website~~		8

~~Executive Officers of the Registrant~~		9
	Employees		9
	~~Item 1A. Risk Factors~~AutoZone Websites		109
	Executive Officers of the Registrant		9
Item 1A.	Risk Factors		11
Item 1B.	Unresolved Staff Comments		14
Item 2.
~~Item 2.~~ Properties		14

~~Item 3. Legal Proceedings~~		15
Item 3.
~~Item 4. Reserved~~Legal Proceedings		15
Item 4.	Mine Safety Disclosures		15

PART II			16
Item 5.
~~Item 5.~~ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		16
Item 6.
~~Item 6.~~ Selected Financial Data		18
Item 7.
~~Item 7.~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 7A.
~~Item 7A.~~ Quantitative and Qualitative Disclosures About Market Risk		3033
Item 8.
~~Item 8.~~ Financial Statements and Supplementary Data		3235
Item 9.
~~Item 9.~~ Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		6269
Item 9A.	Controls and Procedures		69
Item ~~9A. Controls and Procedures~~9B.	Other Information		6269

PART III			70
Item ~~9B. Other Information~~ 10.		62

~~PART III~~		63

~~Item 10.~~ Directors, Executive Officers and Corporate Governance		6370
Item 11.	Executive Compensation		70
Item ~~11. Executive Compensation~~ 12.		63

~~Item 12.~~ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		6370
Item 13.
~~Item 13.~~ Certain Relationships and Related Transactions, and Director Independence		6370
Item 14.
~~Item 14.~~ Principal Accounting Fees and Services		6370

PART IV			71
~~PART IV~~ Item 15.		64

~~Item 15.~~ Exhibits and Financial Statement Schedules		6471

~~Exhibit 12.1~~
~~Exhibit 21.1~~
~~Exhibit 23.1~~
~~Exhibit 31.1~~
~~Exhibit 31.2~~
~~Exhibit 32.1~~
~~Exhibit 32.2~~
~~EX-101 INSTANCE DOCUMENT~~
~~EX-101 SCHEMA DOCUMENT~~
~~EX-101 CALCULATION LINKBASE DOCUMENT~~
~~EX-101 LABELS LINKBASE DOCUMENT~~
~~EX-101 PRESENTATION LINKBASE DOCUMENT~~
~~EX-101 DEFINITION LINKBASE DOCUMENT~~


	Store Count
Alabama		99103
~~Arizona~~ Alaska		~~120~~6
~~Arkansas~~ Arizona		59124
~~California~~ Arkansas		~~463~~61
~~Colorado~~ California		66521
Colorado		72
Connecticut		40
Delaware		13
Florida		255
Georgia		184
Idaho		23
Illinois		228
Indiana		148
Iowa		24
Kansas		41
Kentucky		87
Louisiana		115
Maine		7
Maryland		51
Massachusetts		77
Michigan		166
Minnesota		39
Mississippi		87
Missouri		105
Montana		10
Nebraska		15
Nevada		61
New Hampshire		21
New Jersey		74
New Mexico		62
New York		149
North Carolina		192
North Dakota		1
Ohio		241
Oklahoma		67
Oregon		38
Pennsylvania		142
Puerto Rico		34
Rhode Island		15
South Carolina		84
South Dakota		5
Tennessee		158
Texas		557
Utah		45
Vermont		2
Virginia		107
Washington		75
Washington, DC		5
West Virginia		35
~~Delaware~~ Wisconsin		1258
~~Florida~~		~~217~~
~~Georgia~~		~~175~~
~~Idaho~~		19
~~Illinois~~		~~214~~
~~Indiana~~		~~141~~
~~Iowa~~		23
~~Kansas~~		38
~~Kentucky~~		80
~~Louisiana~~		~~109~~
~~Maine~~ Wyoming		6
~~Maryland~~
Total Domestic		444,836
~~Massachusetts~~ Mexico		70362
~~Michigan~~ Brazil		~~149~~3
~~Minnesota~~
Total		275,201
~~Mississippi~~		85
~~Missouri~~		~~100~~
~~Montana~~		1
~~Nebraska~~		14
~~Nevada~~		50
~~New Hampshire~~		17
~~New Jersey~~		68
~~New Mexico~~		61
~~New York~~		~~123~~
~~North Carolina~~		~~172~~
~~North Dakota~~		1
~~Ohio~~		~~229~~
~~Oklahoma~~		67
~~Oregon~~		28
~~Pennsylvania~~		~~114~~
~~Puerto Rico~~		25
~~Rhode Island~~		15
~~South Carolina~~		77


	~~Store Count~~
~~South Dakota~~		2
~~Tennessee~~		~~153~~
~~Texas~~		~~540~~
~~Utah~~		39
~~Vermont~~		1
~~Virginia~~		95
~~Washington~~		62
~~Washington, DC~~		6
~~West Virginia~~		23
~~Wisconsin~~		50
~~Wyoming~~		5

~~Domestic Total~~		~~4,389~~
~~Mexico~~		~~238~~

~~Total~~		~~4,627~~


þ	x	Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934


o	¨	Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934


Failure	Maintenance	Discretionary
~~Failure~~ A/C Compressors Batteries & Accessories Belts & Hoses Carburetors Chassis Clutches CV Axles Engines Fuel Pumps Fuses Ignition Lighting Mufflers Radiators Thermostats Starters & Alternators Water Pumps	~~Maintenance~~	~~Discretionary~~
~~A/C Compressors~~	Antifreeze & Windshield Washer Fluid	~~Air Fresheners~~
~~Batteries & Accessories~~	Brake Drums, Rotors, Shoes & Pads	~~Cell Phone Accessories~~
~~Belts & Hoses~~	Chemicals, including Brake & Power	~~Drinks & Snacks~~
~~Carburetors~~	Steering Fluid, Oil & Fuel Additives	~~Floor Mats & Seat Covers~~
~~Chassis~~	Oil & Transmission Fluid	~~Mirrors~~
~~Clutches~~	Oil, Air, Fuel & Transmission Filters	~~Performance Products~~
~~CV Axles~~	Oxygen Sensors	~~Protectants & Cleaners~~
~~Engines~~	Paint & Accessories	~~Seat Covers~~
~~Fuel Pumps~~	Refrigerant & Accessories	~~Sealants & Adhesives~~
~~Fuses~~	Shock Absorbers & Struts	~~Steering Wheel Covers~~
~~Ignition~~	Spark Plugs & Wires Windshield Wipers	Air Fresheners Cell Phone Accessories Drinks & Snacks Floor Mats & Seat Covers Interior and Exterior Accessories Mirrors Performance Products Protectants & Cleaners Sealants & Adhesives Steering Wheel Covers Stereos & Radios
~~Lighting~~	~~Windshield Wipers~~	Tools
~~Mufflers~~		Wash & Wax
~~Starters & Alternators~~
~~Water Pumps~~
~~Radiators~~
~~Thermostats~~


	Fiscal Year
	2010		2009		2008		2007		2006
Beginning stores		4,417		4,240		4,056		3,871		3,673
New stores		213		180		185		186		204
Closed stores		3		3		1		1		6

Net new stores		210		177		184		185		198

Relocated stores		3		9		14		18		18

Ending stores		4,627		4,417		4,240		4,056		3,871


	Fiscal Year
	2013		2012		2011		2010		2009
Beginning stores		5,006		4,813		4,627		4,417		4,240
New stores		197		193		188		213		180
Closed stores		2		—		2		3		3

Net new stores		195		193		186		210		177

Relocated stores		11		10		10		3		9

Ending stores		5,201		5,006		4,813		4,627		4,417


	No. of Stores		Square Footage
Leased		2,319		14,540,910
Owned		2,308		15,486,198

Total		4,627		30,027,108


	Price Range of Common Stock
	High		Low
Fiscal Year Ended August 28, 2010:
Fourth quarter	$	215.21	$	177.66
Third quarter	$	187.94	$	160.20
Second quarter	$	161.33	$	146.17
First quarter	$	154.69	$	135.13

Fiscal Year Ended August 29, 2009:
Fourth quarter	$	164.38	$	141.00
Third quarter	$	169.99	$	129.21
Second quarter	$	145.77	$	92.52
First quarter	$	143.80	$	84.66


	Price Range of Common Stock
	High		Low
Fiscal Year Ended August 31, 2013:
Fourth quarter	$	452.19	$	401.93
Third quarter	$	413.28	$	369.47
Second quarter	$	390.11	$	341.98
First quarter	$	386.80	$	351.27

Fiscal Year Ended August 25, 2012:
Fourth quarter	$	391.90	$	353.38
Third quarter	$	399.10	$	353.80
Second quarter	$	356.80	$	313.11
First quarter	$	341.89	$	303.00


					Total Number of		Maximum Dollar
	Total				Shares Purchased		Value that May
	Number of		Average		as Part of Publicly		Yet Be Purchased
	Shares		Price Paid		Announced Plans		Under the Plans
Period	Purchased		per Share		or Programs		or Programs
May 9, 2010, to June 5, 2010		143,300	$	187.00		143,300	$	724,016,859
June 6, 2010, to July 3, 2010		1,129,590		191.26		1,129,590		507,976,727
July 4, 2010, to July 31, 2010		700,401		201.69		700,401		366,710,411
August 1, 2010, to August 28, 2010		869,716		208.44		869,716		185,428,381

Total		2,843,007	$	198.87		2,843,007	$	185,428,381


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
May 5, 2013, to June 1, 2013		23,900	$	417.00		23,900	$	268,442,619
June 2, 2013, to June 29, 2013		397,712		415.79		397,712		853,076,687
June 30, 2013, to July 27, 2013		400,901		431.55		400,901		680,067,382
July 28, 2013, to August 31, 2013		487,000		434.55		487,000		468,441,939

Total		1,309,513	$	427.61		1,309,513	$	468,441,939


(in thousands, except per share data, same store sales and	Fiscal Year Ended August
selected operating data)	2010			2009			2008⁽¹⁾			2007			2006
Income Statement Data
Net sales	$	7,362,618		$	6,816,824		$	6,522,706		$	6,169,804		$	5,948,355
Cost of sales, including warehouse and delivery expenses		3,650,874			3,400,375			3,254,645			3,105,554			3,009,835

Gross profit		3,711,744			3,416,449			3,268,061			3,064,250			2,938,520
Operating, selling, general and administrative expenses		2,392,330			2,240,387			2,143,927			2,008,984			1,928,595

Operating profit		1,319,414			1,176,062			1,124,134			1,055,266			1,009,925
Interest expense, net		158,909			142,316			116,745			119,116			107,889

Income before income taxes		1,160,505			1,033,746			1,007,389			936,150			902,036
Income tax expense		422,194			376,697			365,783			340,478			332,761

Net income	$	738,311		$	657,049		$	641,606		$	595,672		$	569,275


Diluted earnings per share	$	14.97		$	11.73		$	10.04		$	8.53		$	7.50


Adjusted weighted average shares for diluted earnings per share		49,304			55,992			63,875			69,844			75,859


Same Store Sales
Increase in domestic comparable store net sales⁽²⁾		5.4	%		4.4	%		0.4	%		0.1	%		0.4	%

Balance Sheet Data
Current assets	$	2,611,821		$	2,561,730		$	2,586,301		$	2,270,455		$	2,118,927
Working (deficit) capital		(452,139	)		(145,022	)		66,981			(15,439	)		64,359
Total assets		5,571,594			5,318,405			5,257,112			4,804,709			4,526,306
Current liabilities		3,063,960			2,706,752			2,519,320			2,285,895			2,054,568
Debt		2,908,486			2,726,900			2,250,000			1,935,618			1,857,157
Long-term capital leases		66,333			38,029			48,144			39,073			—
Stockholders’ (deficit) equity	$	(738,765	)	$	(433,074	)	$	229,687		$	403,200		$	469,528

Selected Operating Data
Number of stores at beginning of year		4,417			4,240			4,056			3,871			3,673
New stores		213			180			185			186			204
Closed stores		3			3			1			1			6

Net new stores		210			177			184			185			198

Relocated stores		3			9			14			18			18

Number of stores at end of year		4,627			4,417			4,240			4,056			3,871


Total store square footage (in thousands)		30,027			28,550			27,291			26,044			24,713
Average square footage per store		6,490			6,464			6,437			6,421			6,384
Increase in store square footage		5	%		5	%		5	%		5	%		6	%
Inventory per store (in thousands)	$	498		$	500		$	507		$	495		$	477
Average net sales per store (in thousands)	$	1,595		$	1,541		$	1,539		$	1,525		$	1,546
Net sales per store square foot	$	246		$	239		$	239		$	238		$	243
Total employees at end of year (in thousands)		63			60			57			55			53
Merchandise under pay-on-scan arrangements (in thousands)	$	634		$	3,530		$	6,732		$	22,387		$	92,142
Inventory turnover⁽³⁾		1.6	x		1.5	x		1.6	x		1.6	x		1.7	x
Accounts payable to inventory ratio		105.6	%		96.0	%		95.0	%		93.2	%		92.0	%
After-tax return on invested capital⁽⁴⁾		27.6	%		24.4	%		23.9	%		23.2	%		22.7	%
Adjusted debt to EBITDAR⁽⁵⁾		2.4			2.5			2.2			2.1			2.1
Net cash provided by operating activities (in thousands)	$	1,196,252		$	923,808		$	921,100		$	845,194		$	822,747
Cash flow before share repurchases and changes in debt (in thousands)⁽⁶⁾	$	947,643		$	673,347		$	690,621		$	678,522		$	599,507


(in thousands, except per share data, same store sales and selected operating data)	Fiscal Year Ended August
	2013⁽¹⁾			2012			2011			2010			2009
Income Statement Data
Net sales	$	9,147,530		$	8,603,863		$	8,072,973		$	7,362,618		$	6,816,824
Cost of sales, including warehouse and delivery expenses		4,406,595			4,171,827			3,953,510			3,650,874			3,400,375

Gross profit		4,740,935			4,432,036			4,119,463			3,711,744			3,416,449
Operating, selling, general and administrative expenses		2,967,837			2,803,145			2,624,660			2,392,330			2,240,387

Operating profit		1,773,098			1,628,891			1,494,803			1,319,414			1,176,062
Interest expense, net		185,415			175,905			170,557			158,909			142,316

Income before income taxes		1,587,683			1,452,986			1,324,246			1,160,505			1,033,746
Income tax expense		571,203			522,613			475,272			422,194			376,697

Net income	$	1,016,480		$	930,373		$	848,974		$	738,311		$	657,049

Diluted earnings per share	$	27.79		$	23.48		$	19.47		$	14.97		$	11.73

Adjusted weighted average shares for diluted earnings per share		36,581			39,625			43,603			49,304			55,992


Same Store Sales
Increase in domestic comparable store net sales⁽²⁾		0.0	%		3.9	%		6.4	%		5.4	%		4.4	%

Balance Sheet Data
Current assets	$	3,278,013		$	2,978,946		$	2,792,425		$	2,611,821		$	2,561,730
Working (deficit)		(891,137	)		(676,646	)		(638,471	)		(452,139	)		(145,022	)
Total assets		6,892,089			6,265,639			5,869,602			5,571,594			5,318,405
Current liabilities		4,169,150			3,655,592			3,430,896			3,063,960			2,706,752
Debt		4,187,000			3,768,183			3,351,682			2,908,486			2,726,900
Long-term capital leases		73,925			72,414			61,360			66,333			38,029
Stockholders’ (deficit)		(1,687,319	)		(1,548,025	)		(1,254,232	)		(738,765	)		(433,074	)

Selected Operating Data
Number of stores at beginning of year		5,006			4,813			4,627			4,417			4,240
New stores		197			193			188			213			180
Closed stores		2			—			2			3			3

Net new stores		195			193			186			210			177

Relocated stores		11			10			10			3			9

Number of stores at end of year		5,201			5,006			4,813			4,627			4,417

Domestic commercial programs		3,421			3,053			2,659			2,424			2,303
Total store square footage (in thousands)		34,076			32,706			31,337			30,027			28,550
Average square footage per store		6,552			6,533			6,511			6,490			6,464
Increase in store square footage		4.2	%		4.4	%		4.4	%		5.2	%		4.6	%
Inventory per store (in thousands)	$	550		$	525		$	512		$	498		$	500
Average net sales per store (in thousands)	$	1,736		$	1,716		$	1,675		$	1,595		$	1,541
Net sales per store square foot	$	265		$	263		$	258		$	246		$	239
Total employees at end of year (in thousands)		71			70			65			63			60
Inventory turnover⁽³⁾		1.6x			1.6x			1.6x			1.6x			1.5x
Accounts payable to inventory ratio		115.6	%		111.4	%		111.7	%		105.6	%		96.0	%
After-tax return on invested capital⁽⁴⁾		32.7	%		33.0	%		31.3	%		27.6	%		24.4	%
Adjusted debt to EBITDAR⁽⁵⁾		2.5			2.5			2.4			2.4			2.5
Net cash provided by operating activities (in thousands)	$	1,415,011		$	1,223,981		$	1,291,538		$	1,196,252		$	923,808
Cash flow before share repurchases and changes in debt (in thousands)⁽⁶⁾	$	1,007,761		$	949,627		$	1,023,927		$	947,643		$	673,347
Share repurchases (in thousands)	$	1,387,315		$	1,362,869		$	1,466,802		$	1,123,655		$	1,300,002
Number of shares repurchased (in thousands)		3,511			3,795			5,598			6,376			9,313


(1)		The fiscal year ended August ~~30, 2008~~31, 2013 consisted of 53 weeks.

(2)		The domestic comparable sales increases are based on sales for all domestic stores open at least one year. Relocated stores are included in the same store sales computation based on the year the original store was opened. Closed store sales are included in the same store sales computation up to the week it closes, and excluded from the computation for all periods subsequent to closing. In addition, beginning in fiscal 2013, it also includes all sales through our AutoZone branded websites, including consumer direct ship-to-home sales. All prior period same store sales have been restated to be comparable. The effect of including sales from AutoZone branded websites was not material to any period.

(3)		Inventory turnover is calculated as cost of sales divided by the average merchandise inventory balance over the trailing 5 quarters. The calculation includes cost of sales related to pay-on-scan sales, which were $2.5 million for the 52 weeks ended August 28, 2010, $5.8 million for the 52 weeks ended August 29, 2009, $19.2 million for the 53 weeks ended August 30, 2008, $85.4 million for the 52 weeks ended August 25, 2007, and $198.1 million for the 52 weeks ended August 26, 2006.


	Total		Payment Due by Period
	Contractual		Less than		Between		Between		Over
(in thousands)	Obligations		1 year		1-3 years		4-5 years		5 years
Long-term debt⁽¹⁾	$	2,882,300	$	632,300	$	500,000	$	1,000,000	$	750,000
Interest payments⁽²⁾		617,225		140,600		245,238		155,800		75,587
Operating leases⁽³⁾		1,740,047		196,291		357,943		284,836		900,977
Capital leases⁽⁴⁾		92,745		21,947		44,832		25,966		—
Self-insurance reserves⁽⁵⁾		158,384		60,955		43,045		22,688		31,696
Construction commitments		15,757		15,757		—		—		—

	$	5,506,458	$	1,067,850	$	1,191,058	$	1,489,290	$	1,758,260


(in thousands)	Total Contractual Obligations		Payment Due by Period
(in thousands)	Total Contractual Obligations		Less than 1 year		Between 1-3 years		Between 3-5 years		Over 5 years

Long-term debt⁽¹⁾	$	4,013,267	$	963,267	$	1,000,000	$	250,000	$	1,800,000
Interest payments⁽²⁾		786,075		155,963		228,050		161,125		240,937
Operating leases⁽³⁾		1,957,222		228,747		424,989		358,057		945,429
Capital leases⁽⁴⁾		109,223		32,246		55,306		21,671		—
Self-insurance reserves⁽⁵⁾		197,268		66,133		57,358		28,490		45,287
Construction commitments		21,027		21,027		—		—		—

	$	7,084,082	$	1,467,383	$	1,765,703	$	819,343	$	3,031,653


(1)		Long-term debt balances represent principal maturities, excluding interest.

(2)		Represents obligations for interest payments on long-term debt.

(3)		Operating lease obligations are inclusive of amounts accrued within deferred rent and closed store obligations reflected in our consolidated balance sheets.


	Total
	Other
(in thousands)	Commitments
Standby letters of credit	$	107,554
Surety bonds		23,723

	$	131,277


(in thousands)	Total Other Commitments

Standby letters of credit	$	145,357
Surety bonds		30,726

	$	176,083


	Fiscal Year Ended August
(in thousands, except percentages)	2010			2009			2008⁽¹⁾			2007			2006
Net income	$	738,311		$	657,049		$	641,606		$	595,672		$	569,275
Adjustments:
Interest expense		158,909			142,316			116,745			119,116			107,889
Rent expense		195,632			181,308			165,121			152,523			143,888
Tax effect⁽²⁾		(128,983	)		(117,929	)		(102,345	)		(98,796	)		(92,880	)

After-tax return	$	963,869		$	862,744		$	821,127		$	768,515		$	728,172


Average debt⁽³⁾	$	2,769,617		$	2,468,351		$	2,074,738		$	1,888,989		$	1,822,642
Average (deficit) equity⁽⁴⁾		(507,885	)		(75,162	)		308,401			482,702			518,303
Rent x 6⁽⁵⁾		1,173,792			1,087,848			990,726			915,138			863,328
Average capital lease obligations⁽⁶⁾		62,220			58,901			60,763			27,093			—

Pre-tax invested capital	$	3,497,744		$	3,539,938		$	3,434,628		$	3,313,922		$	3,204,273


ROIC		27.6	%		24.4	%		23.9	%		23.2	%		22.7	%

(2)		The effective tax rate during fiscal 2013, 2012, 2011, 2010 ~~fiscal~~and 2009 ~~fiscal 2008, fiscal 2007 and fiscal 2006~~ was ~~36.4%~~36.0%, ~~36.4%~~36.0%, ~~36.3%~~35.9%, 36.4% and ~~36.9%~~36.4%, respectively.

(3)		Average debt is equal to the average of our debt measured as of the previous five quarters.

(4)		Average equity is equal to the average of our stockholders’ (deficit) ~~equity~~ measured as of the previous five quarters.

(5)		Rent is multiplied by a factor of six to capitalize operating leases in the determination of pre-tax invested capital.


(in thousands, except per share and percentages)	Fiscal 2013 Results of Operations		Percent of Revenue			Results of Operations for 53^rd Week			Fiscal 2013 Results of Operations Excluding 53^rd Week		Percent of Revenue

Net sales	$	9,147,530		100.0	%	$	(177,722	)	$	8,969,808		100.0	%
Cost of sales		4,406,595		48.2	%		(85,281	)		4,321,314		48.2	%

Gross profit		4,740,935		51.8	%		(92,441	)		4,648,494		51.8	%
Operating expenses		2,967,837		32.4	%		(52,605	)		2,915,232		32.5	%

Operating profit		1,773,098		19.4	%		(39,836	)		1,733,262		19.3	%
Interest expense, net		185,415		2.0	%		(3,524	)		181,891		2.0	%

Income before taxes		1,587,683		17.4	%		(36,312	)		1,551,371		17.3	%
Income taxes		571,203		6.2	%		(12,883	)		558,320		6.2	%

Net income	$	1,016,480		11.1	%	$	(23,429	)	$	993,051		11.1	%

Diluted earnings per share	$	27.79				$	(0.64	)	$	27.15


	Fiscal Year Ended August
(in thousands, except ratios)	2010		2009		2008⁽¹⁾		2007		2006
Net income	$	738,311	$	657,049	$	641,606	$	595,672	$	569,275
Add: Interest expense		158,909		142,316		116,745		119,116		107,889
Income tax expense		422,194		376,697		365,783		340,478		332,761

EBIT		1,319,414		1,176,062		1,124,134		1,055,266		1,009,925
Add: Depreciation expense		192,084		180,433		169,509		159,411		139,465
Rent expense		195,632		181,308		165,121		152,523		143,888
Option expense		19,120		19,135		18,388		18,462		17,370

EBITDAR	$	1,726,250	$	1,556,938	$	1,477,152	$	1,385,662	$	1,310,648


Debt	$	2,908,486	$	2,726,900	$	2,250,000	$	1,935,618	$	1,857,157
Capital lease obligations		88,280		54,764		64,061		55,088		—
Rent x 6		1,173,792		1,087,848		990,726		915,138		863,328

Adjusted debt	$	4,170,558	$	3,869,512	$	3,304,787	$	2,905,844	$	2,720,485


Adjusted debt to EDITDAR		2.4		2.5		2.2		2.1		2.1


	Fiscal Year Ended August
(in thousands, except ratios)	2013⁽¹⁾		2012		2011		2010		2009

Net income	$	1,016,480	$	930,373	$	848,974	$	738,311	$	657,049
Add: Interest expense		185,415		175,905		170,557		158,909		142,316
Income tax expense		571,203		522,613		475,272		422,194		376,697

EBIT		1,773,098		1,628,891		1,494,803		1,319,414		1,176,062
Add: Depreciation expense		227,251		211,831		196,209		192,084		180,433
Rent expense		246,340		229,417		213,846		195,632		181,308
Share-based expense		37,307		33,363		26,625		19,120		19,135

EBITDAR	$	2,283,996	$	2,103,502	$	1,931,483	$	1,726,250	$	1,556,938

Debt	$	4,187,000	$	3,768,183	$	3,351,682	$	2,908,486	$	2,726,900
Capital lease obligations		106,171		102,256		86,656		88,280		54,764
Rent × 6		1,478,040		1,376,502		1,283,076		1,173,792		1,087,848

Adjusted debt	$	5,771,211	$	5,246,941	$	4,721,414	$	4,170,558	$	3,869,512

Adjusted debt to EBITDAR		2.5		2.5		2.4		2.4		2.5

Large accelerated filerþ

Accelerated filero

Non-accelerated filero

Smaller reporting companyo

~~(Do not check if a smaller reporting company)~~