Table of certain of our products as they use a higher percentage of their income to pay for gasoline and other energy costs and may drive their vehicles less, resulting in less wear and tear and lower demand for repairs and maintenance.Contents

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the weather. Milder weather conditions may lower the failure rates of automotive parts, while extended periods of rain and winter precipitation 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. Additionally, global warming trends and other significant climate changes can create more variability in the short term or lead to other weather conditions that could impact our business.
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technological advances. Advances in automotive technology, such as electric vehicles, and parts design can result in cars needing maintenance less frequently and parts lasting longer.

the economy. In periods of declining economic conditions, consumers may reduce their discretionary spending by deferring 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 vehicles instead of working on their own vehicles, or they may purchase new vehicles.

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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, ride sharing and other factors.

the weather. Milder weather conditions may lower the failure rates of automotive parts, while extended periods of rain and winter precipitation 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.

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

~~technological advances. Advances in automotive technology, such as electric vehicles, and parts design can result in cars needing maintenance less frequently and parts lasting longer.~~
~~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, ride sharing 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.~~
restrictions on access to telematics and diagnostic tools and repair information imposed by the original vehicle manufacturers or by governmental regulation. These restrictions may cause vehicle owners to rely on dealers to perform maintenance and repairs.

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restrictions on access to telematics and diagnostic tools and repair information imposed by the original vehicle manufacturers or by governmental regulation. These restrictions may cause vehicle owners to rely on dealers to perform maintenance and repairs.

These factors could result in a decline in the demand for our products, which could adversely affect our business 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 sales volumes are dependent on many factors, including name recognition, product availability, customer service, store location and price. Competitors are opening locations near our existing locations. AutoZone competes as a provider in both the DIY and DIFM auto parts and accessories markets.

Our competitors include national, regional and local auto parts chains, independently owned parts stores, online automotive parts stores or marketplaces, wholesale distributors, jobbers, repair shops, car washes and auto dealers, in addition to discount and mass merchandise stores, hardware stores, supermarkets, drugstores, convenience stores, home stores, and other 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 of our 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. Online and multi-channel retailers often focus on delivery services, offering customers faster, guaranteed delivery times andlow-price or free shipping. Some online businesses have lower operating costs than we do. In addition, because our business strategy is based on offering superior levels of customer service to complement the products we offer, our cost structure is higher than some of our competitors, which also puts pressure on our margins.

Consumers are embracing shopping online and through mobile commerce applications. With the increasing use of digital tools and social media, and our competitors’ increased focus on optimizing customers’ online experience, our customers are quickly able to compare prices, product assortment and feedback from other customers before purchasing our products either online, in the physical stores or through a combination of both offerings.
‌We believe that we compete effectively on the basis of merchandise availability as a result of investments in inventory available for immediate sale, the development of a robust hub and mega hub distribution network providing efficient access to obtain products requiredon-demand, options to order products online or by telephone and pick them up in stores and options for special orders directly from our vendors. We also offer hassle-free returns to our customers. In addition, we believe that customers value the personal interaction with a salesperson ~~that~~who is qualified to offer trustworthy advice and provide other free services such as parts testing.
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We also utilize promotions, advertising and our loyalty programs to drive customer traffic and compete more effectively, and we must regularly assess and adjust our efforts to address changes in the competitive marketplace. If we are unable to continue to manage readily-available inventory demand and competitive delivery options as well as develop successful competitive strategies, including the maintenance of effective promotions, advertising and loyalty ~~card~~ programs, 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 historic rate of sales growth.

We have increased our store count in the past five fiscal years, growing from ~~5,391~~5,814 stores at August ~~30, 2014,~~27, 2016, to ~~6,411~~6,767 stores at August ~~31, 2019, an average store increase per year~~28, 2021, a compounded annual growth rate of ~~4%.~~three percent. Additionally, we have increased annual revenues in the past five fiscal years from ~~$9.475~~$10.636 billion in fiscal ~~2014~~2016 to ~~$11.864~~$14.630 billion in fiscal ~~2019, an average increase per year~~2021, with a compounded annual growth rate of ~~5%.~~seven percent. Annual revenue growth is driven by the opening of new stores, the development of new commercial programs and increases in same store sales. See “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of 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 persistent unemployment, 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 economic pressures. ~~We cannot provide any assurance that~~

Additionally, the unprecedented levels of customer demand we ~~will continue to open stores at historical rates or continue to achieve~~have experienced for our products during the COVID-19 pandemic has resulted in significant increases in same store ~~sales.~~sales growth during fiscal 2020 and fiscal 2021. Therefore, we may not be able to sustain these growth trends if customer demand returns to pre-pandemic levels.
~~Consolidation among our competitors may negatively impact our business.~~
Historically some of our competitors have merged. Consolidation among our competitors could enhance their market share and financial position, provide them with the ability to achieve better purchasing terms and provide more competitive prices to customers for whom we compete, and allow them to utilize merger synergies and cost savings to increase advertising and marketing budgets to more effectively compete for customers. Consolidation by our competitors could also increase their access to local market parts assortment.
These consolidated competitors could take sales volume away from us in certain markets, could achieve greater market penetration, 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.
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, we must effectively compete against national and regional auto parts chains, independently owned parts stores, wholesalers and jobbers in order to increase our commercial market share. Although we believe we compete effectively in the commercial market 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 participants have been in business for substantially longer periods of time than we have, and as a result 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.
~~A downgrade in our credit ratings or a general disruption in the credit markets could make it more difficult for us to access funds, refinance our debt, obtain new funding or issue debt securities.~~
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. A change by the rating agencies in these 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 limit our access to public debt markets, limit the institutions willing to provide credit facilities to us, result in more restrictive financial and other covenants in our public and private debt and would likely significantly increase our overall borrowing costs and adversely affect our earnings.
Moreover, significant deterioration in the financial condition of large financial institutions during the Great Recession 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, there was limited liquidity in the commercial paper markets, resulting in an absence of commercial paper buyers and extraordinarily high interest rates. We can provide no assurance that such similar events that occurred during the Great Recession will not occur again in the foreseeable future. Conditions and events in the global credit markets could have a material adverse effect on our access to short-term and long-term debt and the terms and cost of that debt.
~~Significant changes in macroeconomicand geo-political factors~~ ~~could adversely affect our financial condition and results of operations.~~
Macroeconomic conditions impact both our customers and our suppliers. Job growth in the U.S. was stagnated and unemployment was at historically high levels during the Great Recession; however, in recent years, the unemployment rate has improved to~~below pre-recession levels.~~ Moreover, the U.S. government continues to operate under historically large deficits and debt burden. Continued distress in global credit markets, business failures, inflation, foreign exchange rate fluctuations,~~significant geo-political conflicts,~~ proposed or additional tariffs, continued volatility in energy prices and other factors continue to affect the global economy. Moreover, rising energy prices could impact our merchandise distribution, commercial delivery, utility and product costs. Over the short-term, such factors could positively impact our business. Over a longer period of time, these macroeconomic~~and geo-political conditions~~ ~~could adversely affect our sales growth, margins and overhead. These could adversely affect our financial condition and operations.~~

Our business depends upon hiring, training and retaining qualified employees.

We believe ~~that~~ much of our brand value lies in the quality of the approximately ~~96,000~~100,000 AutoZoners employed in our stores, distribution centers, store support centers and ALLDATA. Our workforce costs represent our largest operating expense, and our ability to meet our labor needs while controlling labor costs is subject to numerous external factors, including market pressures with respect to prevailing wage rates and unemployment levels. Our business is also subject to employment laws and regulations, including requirements related to minimum wage, benefits and ~~benefits.~~scheduling requirements. In addition, the implementation of potential regulatory changes relating to overtime exemptions and benefits for certain employees under federal and state laws could result in increased labor costs to our business and negatively impact our operating results.

We compete with other retail businesses for many of our associates in hourly positions, and these positions have historically had high turnover rates, which can lead to increased training and retention costs, particularly in a competitive labor market. We cannot be assured that we can continue to hire, train and retain qualified employees at current wage rates since we operate in a competitive labor market, and there is a risk of market increases in compensation.

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If we are unable to hire, properly train and retain qualified employees, we could experience higher employment costs, reduced sales, ~~regulatory noncompliance,~~ losses of customers and diminution of our brand or company culture, which could adversely affect our earnings. If we do not maintain competitive wages or benefit packages, 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. A violation or change in employment and labor laws (including changes in existing employment benefit programs such as health insurance) could have a material adverse effect on our results of operations, financial condition and cash flows.

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

We are dependent upon our domestic and international vendors continuing to supply us with quality merchandise at ~~favorable~~competitive prices and payment terms. If our merchandise offerings do not meet our customers’ expectations regarding quality, innovation and safety, we could experience lost sales, increased costs and 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.~~liabilities and lead to reputational harm and loss of customer confidence. 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 rebuild our reputation and regain the confidence of our customers. ~~Moreover,~~Furthermore, our vendors are impacted by global economic ~~conditions.~~conditions which in turn impact our ability to source merchandise at competitive prices. For example, the recent surges in consumer demand, shortages of raw materials and disruption to the global supply chain have negatively impacted costs and inventory availability and may continue to have a negative impact on future results and profitability. Credit market and other macroeconomic conditions could also have a material adverse effect on the ability of our global and domestic suppliers to finance and operate their ~~businesses, resulting in increased product costs and difficulties in meeting our inventory demands.~~ businesses.

If we experience transitions or changeover with any of our significant vendors, or if they experience financial difficulties or otherwise are 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.

Risks associated with products sourced outside the U.S.

We directly imported approximately ~~14%~~13% of our purchases in fiscal ~~2019,~~2021, but many of our domestic vendors directly import their products or components of their products. Changes to the price or flow of these goods for any reason, such as ~~political~~civil unrest or acts of war, currency fluctuations, disruptions in maritime lanes, port labor disputes, ~~and~~ economic conditions and instability in the countries in which foreign suppliers are located, the financial instability of suppliers, suppliers’ failure to meet our standards, issues with labor practices of our suppliers or labor problems they may experience (such as strikes, stoppages or slowdowns, which could also increase labor costs during and following the disruption), the availability and cost of raw materials to suppliers, increased import duties or tariffs, merchandise quality or safety issues, shipping and transport availability and cost, increases in wage rates and taxes, transport security, inflation and other factors relating to the suppliers and the countries in which they are located or from which they import, often are beyond our control and could adversely affect our operations and profitability. In addition, the foreign trade policies, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, import limitations on certain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade and port labor agreements are beyond our control. These and other factors, such as the COVID-19 pandemic, affecting our suppliers and our access to products could adversely affect our business and financial performance. As we or our domestic vendors increase our imports of merchandise from foreign vendors, the risks associated with these imports will also increase.

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Our ability to grow depends in part on new ~~location~~store openings, existing ~~location~~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 ~~locations~~stores and expand and remodel existing ~~locations~~stores to meet customers’ needs on a timely and profitable basis. Accomplishing our new and existing ~~location~~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 ~~locations~~stores at acceptable costs, the hiring and training of qualified personnel and the integration of new ~~locations~~stores into existing operations. There can be no assurance we will be able to achieve our ~~location~~store expansion goals, manage our growth effectively, successfully integrate the planned new ~~locations~~stores into our operations or operate our new, remodeled and expanded ~~locations~~stores profitably.

In addition, we extensively utilize our hub network, our supply chain and logistics management techniques to efficiently stock our ~~locations.~~stores. We have made, and plan to continue to make, significant investments in our supply chain to improve our ability to provide the best parts at the right price and to meet consumer product needs. If we fail to effectively utilize our existing hubs and/or supply chains or if our investments in our supply chain initiatives, including directly sourcing some products from outside the U.S., do not provide the anticipated benefits, we couldexperience sub-optimal inventory levels in our ~~locations~~stores or increases in our operating costs, 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 and profitability.~~

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 for safety, high product quality, friendliness, service, trustworthy advice, integrity and business ethics. Any negative publicity about these areas could damage our reputation and may result in reduced demand for our merchandise. The increasing use of technology also poses a risk as customers are able to quickly compare products and prices and use social media to provide feedback in a manner that is rapidly and broadly dispersed. Our reputation could be impacted if customers have a bad experience and share it over social media.

Failure to comply with ethical, social, product, labor, environmental and anti-corruption standards could also jeopardize our reputation and potentially lead to various adverse actions by consumer or environmental groups, employees or regulatory bodies. Failure to comply with 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. If we fail to comply with existing or future laws or regulations, we may be subject to governmental or judicial fines or sanctions, while incurring substantial legal fees and costs. In addition, our capital and operating expenses could increase due to implementation of and compliance with existing and future laws and regulations or remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations. The inability to pass through any increased expenses through higher prices would have an adverse effect on our results of operations.

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.

Our success in international operations is dependent on our ability to manage the unique challenges presented by international markets.

The various risks we face in our U.S. operations generally also exist when conducting operations in and sourcing products and materials from outside of the U.S., in addition to the unique costs, risks and difficulties of managing international operations. Our expansion into international markets may be adversely affected by local laws and customs, U.S. laws applicable to foreign operations, and political and socio-economic conditions.

Risks inherent in international operations also include potential adverse tax consequences, potential changes to trade policies and trade agreements, compliance with the Foreign Corrupt Practices Act and local anti-bribery and anti-corruption laws, greater difficulty in enforcing intellectual property rights, challenges to identify and gain access to local suppliers, and possibly misjudging the response of consumers in foreign countries to our product assortment and marketing strategy.

In addition, our operations in international markets are conducted primarily in the local currency of those countries. Since our Consolidated Financial Statements are denominated in U.S. dollars, amounts of assets, liabilities, net sales, and other revenues and expenses denominated in local currencies must be translated into U.S. dollars using exchange rates for the current period. As a result, foreign currency exchange rates and fluctuations in those rates may adversely impact our financial performance.

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Business interruptions may negatively impact our operating 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 or civil unrest, unusual weather conditions, including due to the impacts of climate change, hurricanes, tornadoes, windstorms, fires, earthquakes and floods, global health epidemics (such as COVID-19) and other natural or other disasters or the threat of any of them, may result in certain of our stores, distribution centers, store support centers or sourcing offices 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 U.S., 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 commercial transportation is curtailed or substantially delayed, our business may be adversely impacted, as we may have difficulty transporting merchandise to our distribution centers and stores resulting in lost sales 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.

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

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 for safety, high product quality, friendliness, service, trustworthy advice, integrity and business ethics. Any negative publicity about these or other areas involving our business, including our response or lack thereof to external events involving civil unrest, social justice, and political issues, whether or not based in fact, could damage our reputation and may result in reduced demand for our merchandise. The increasing use of technology also poses a risk as customers are able to quickly compare products and prices and use social media to provide feedback in a manner that is rapidly and broadly dispersed. Our reputation could be impacted if customers have a bad experience and share it over social media.

Cyber-security and Data Privacy Risks

‌We rely heavily on our information technology systems for our key business processes. Any failure or interruption in these systems could have a material adverse impact on our business.

We rely extensively on our information technology systems, some of which are managed or provided by third-party service providers, to manage inventory, communicate with customers, process transactions and summarize results. Our systems and the third-party systems we rely on are subject to damage or interruption from power outages, facility damage, physical theft, telecommunications failures, computer viruses, security breaches, malicious cyber-attacks, catastrophic events, and design or usage errors by our AutoZoners, contractors or third-party service providers. Although we and our third-party service providers work diligently to maintain our respective systems, we may not be successful in doing so.

If our systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, and we 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.

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We are in the process of developing and implementing various information systems, as well as modifying existing systems. These technological changes will require significant investment of human and financial resources, and we may experience significant delays, cost increases and other obstacles with these projects. Although we have invested significant resources during our planning, project management and training, implementation issues may arise which may disrupt our operations and negatively impact our business operations, financial condition and cash flows.

Failure to protect or effectively respond to a breach of the privacy and security of customers’, suppliers’, AutoZoners’ or Company information could damage our reputation, subject us to litigation and cause us to incur substantial costs.

Our business, like that of most retailers and distributors, involves the receipt, storage and transmission of personal information about our customers, suppliers and AutoZoners, some of which is entrusted to third-party service providers and vendors. Failure to protect the security of our customers’, suppliers’, ~~employees’~~AutoZoners’ and Company information could subject us to costly regulatory enforcement actions, expose us to litigation and impair our reputation, which may have a negative impact on our sales. We consider information security to be a top priority and undertake cyber-security planning and activities throughout the Company. Senior management and the Board of Directors are actively engaged in cyber-security risk management. While we and our third-party service providers and vendors take significant steps to protect customer, supplier, employee and other confidential information, including maintaining compliance with payment card industry standards and a security program that includes updating technology and security policies, employee training and monitoring and routine testing of our systems, these security measures may be breached in the future due to cyber-attack, employee error, system compromises, fraud, trickery, hacking or other intentional or unintentional acts, and unauthorized parties may obtain access to this data. We believe ~~that~~ our preventative actions provide adequate measures of protection against security breaches and generally reduce our cyber-security risks. However, our business or our third party providers, with which we share sensitive information, may not discover a security breach or loss of information for a significant period after the security breach occurs. Failure to effectively respond to system compromises may undermine our security measures. The methods used to obtain unauthorized access are constantly evolving and may be difficult to anticipate or detect for long periods of time. To date, we have not experienced a material breach of cyber-security; however, our computer systems have been, and will likely continue to be, subjected to unauthorized access or phishing attempts, computer viruses, malware, ransomware or other malicious codes. In particular, in connection with the COVID-19 pandemic, there has been a spike in cyber-security attacks as shelter in place orders and work from home measures have led businesses to increase reliance on virtual environments and communications systems, which have been subjected to increasing third-party vulnerabilities and security risks. As the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous and complex, compliance with these requirements could also result in significant additional costs. There can be no assurance that our security measures will prevent or limit the impact of a future incident. The cost to remediate damages to our systems suffered as a result of a cyber-attack could be significant.

We accept payments using a variety of methods, including cash, checks, credit, debit, electronic payments (such as PayPal, Apple Pay, etc.) and gift cards, and we may offer new payment options over time, which may have information security risk implications. As a retailer accepting debit and credit cards for payment, we are subject to various industry data protection standards and protocols, such as the American National Standards Institute encryption standards and payment network security operating guidelines and Payment Card Industry Data Security Standard. Even though we comply with these standards and protocols and other information security measures, we cannot be certain that the security measures we maintain to protect all of our information technology systems are able to prevent, contain or detect any cyber-attacks, cyber terrorism, or security breaches from known cyber-attacks or malware that may be developed in the future. We maintain insurance coverage that may protect us from certain cyber-attack claims; however, our insurance coverage may not be sufficient to cover significant losses in any particular situation.

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To the extent ~~that~~ any cyber-attack or intrusion in our or one of our third-party service provider’s information systems results in the loss, damage or misappropriation of information, we may be materially adversely affected by claims from customers, financial institutions, regulatory authorities, payment card networks and others. In certain circumstances, payment card association rules and obligations to which we are subject under our contracts with payment card processors make us liable to payment card issuers if information in connection with payment cards and payment card transactions ~~that~~ we hold is compromised, which liabilities could be substantial. In addition, the cost of complying with stricter and more complex data privacy, data collection and information security laws and standards could be significant to us.

We have invested in ~~information-technology~~information technology risk management and disaster recovery plans. Although these plans are in place, we must provide ongoing monitoring and consistently revise our plans as technologies change rapidly and our efforts to overcome security risks continue to become increasingly more complex and concentrated.

Indebtedness, Financial and Market Risks

We are self-insured for certain costs associated with our operations and an increase in our insurance claims and expenses may have a material negative impact on us.

We are self-insured up to certain limits for workers’ compensation, employee group medical, general liability, product liability, property and automobile. The types and amounts of insurance may vary from time to time based on our decisions with respect to risk retention and regulatory requirements. Our reserves are established using historical trends and, where appropriate, using a third party actuary to estimate costs to settle reported claims and claims incurred but not yet reported. Estimated costs are subject to a variety of assumptions and other factors including the severity, duration and frequency of claims, legal costs associated with claims, healthcare trends and projected inflation of related factors. Material increases in the number of insurance claims, changes to healthcare costs, accident frequency and severity, legal expenses and other factors could result in unfavorable difference between actual self-insurance costs and our reserve estimates. As a result, our self-insurance costs could increase which may adversely affect our business, results of operations, financial condition and cash flows.

A downgrade in our credit ratings or a general disruption in the credit markets could make it more difficult for us to access funds, refinance our debt, obtain new funding or issue debt securities.

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. A change by the rating agencies in these 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 limit our access to public debt markets, limit the institutions willing to provide credit facilities to us, result in more restrictive financial and other covenants in our public and private debt and would likely significantly increase our overall borrowing costs and adversely affect our earnings.

Moreover, significant deterioration in the financial condition of large financial institutions during the Great Recession resulted in a severe loss of liquidity and availability of credit in global credit markets and in more stringent borrowing terms. We can provide no assurance that such similar events that occurred during the Great Recession will not occur again in the foreseeable future. Conditions and events in the global credit markets could have a material adverse effect on our access to short-term and long-term debt and the terms and cost of that debt.

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Legal and Regulatory Risks

Our business, results of operations, financial condition and cash flows may be adversely affected by ~~environmental, tax and employment~~the adoption of new laws, changes to existing laws, increased enforcement activity or other governmental actions.

We are subject to ~~various laws~~numerous federal, state and ~~governmental regulations which may impact our business. We could be impacted by environmental~~local laws and regulations, ~~including initiatives~~many of which are complex, frequently revised and subject to ~~limit~~varying interpretations. These include laws governing employment and labor, wage and hour, environmental matters, proper handling and disposal of hazardous materials and waste, healthcare, data privacy, cybersecurity, the pricing and sale of goods, import and export compliance, transportation and logistics, consumer protection and advertising, among others. These laws may differ substantially in the areas where we operate. Although we have implemented policies and procedures to help ensure compliance with these laws, there can be no certainty that our employees and third parties with whom we do business will not take actions in violation of our policies or applicable laws. If we fail to comply with these laws, rules and regulations, or the manner in which they are interpreted or applied, we may be subject to governmental enforcement action or private litigation resulting in monetary penalties, reputational harm and increased costs of regulatory compliance. Any changes in regulations, the imposition of additional regulations, or the enactment of any new legislation could have an adverse impact, directly or indirectly, on our financial condition and results of operations. We may also be subject to investigations or audits by governmental authorities and regulatory agencies as a result of enforcing existing laws and regulations or changes in enforcement priorities, which can occur in the ordinary course of business or may result from increased scrutiny from a particular agency or toward a particular industry.

We may be adversely affected by legal, regulatory or market responses to global climate change.

Growing concern over climate change has led policy makers in the U.S. to consider the enactment of legislative and regulatory proposals that would impose mandatory requirements on greenhouse gas emissions. Such laws, if enacted, are likely to impact our business in a number of ways. For example, significant increases in fuel economy requirements, new federal or state restrictions on emissions of carbon dioxide or new federal or state incentive programs that may be imposed on vehicles and ~~bills related~~automobile fuels could adversely affect demand for vehicles, annual miles driven or the products we sell. We may not be able to ~~climate change. Although we are not certain~~accurately predict, prepare for and respond to new kinds of technological innovations with respect to electric vehicles and other technologies that ~~these initiatives will become~~minimize emissions. Compliance with any new or more stringent laws or regulations, ~~if the regulations become enacted, they~~or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers. Our inability to appropriately respond to such changes could adversely impact our ~~costs.~~

~~Our~~ business, is subject to changes in tax laws and regulations which could impact our overall tax liability. Governments may issue guidance or enact tax laws which could result in changes to our tax position and adversely impact ourfinancial condition, results of operations ~~financial condition and~~or cash flows.

Our business, financial condition, results of operations and cash flows may be affected by litigation.

We are involved in lawsuits, regulatory investigations, governmental and other legal ~~procedures,~~proceedings arising out of the ordinary course of business. ~~Legal action~~Such matters involve significant expense and divert management’s attention and resources from other matters. The damages sought against us in these proceedings may be material and may adversely affect our business, results of operations, financial condition and cash flows.

~~We rely heavily on our information technology systems for our key business processes. Any failure or interruption~~

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General Risks

Significant changes in ~~these systems could have a material adverse impact on our business.~~

~~We rely extensively on our information technology systems, some of which are managed or provided by third-party service providers, to manage inventory, communicate with customers, process transactions~~macroeconomic and summarize results. Our systems and the third-party systems we rely on are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security breaches, malicious cyber-attacks, catastrophic events, and design or usage errors by our AutoZoners, contractors or third-party service providers. Although we and our third-party service providers work diligently to maintain our respective systems, we may not be successful in doing so.

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, whichgeo-political factors could adversely affect our financial condition and results of operations.

~~Our business is~~

Macroeconomic conditions impact both our customers and our suppliers. Job growth in the ~~process~~U.S. was stagnated and unemployment was at historically high levels at the peak of ~~developing~~the COVID-19 pandemic. While the unemployment rate has improved, the rate has not returned to pre-pandemic levels. Moreover, the U.S. government continues to operate under historically large deficits and ~~implementing various information systems,~~debt burden. Continued distress in global credit markets, business failures, civil unrest, inflation, foreign exchange rate fluctuations, significant geo-political conflicts, proposed or additional tariffs, continued volatility in energy prices, the impact of a public health crisis or pandemic (such as well as modifying existing systems. These technological changes will require significant investment of human and financial resources, and our business may experience significant delays, costs increasesCOVID-19), constraints on the global supply chain and other ~~obstacles with these projects. Although we have invested significant resources during~~factors continue to affect the global economy. Moreover, rising energy prices could impact our ~~planning, project management~~merchandise distribution, commercial delivery, utility and ~~training, implementation issues may arise which may disrupt our operations and negatively~~product costs. It is unclear how such factors could impact our business ~~operations,~~in the short term. Over a longer period of time, these macroeconomic and geo-political conditions could adversely affect our sales growth, margins and overhead. These could adversely affect our financial condition and ~~cash flows.~~operations.

Business interruptions may negatively impact our location 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, unusual weather conditions, hurricanes, tornadoes, windstorms, fires, earthquakes, floods and other natural or other disasters or the threat of any of them, may result in certain of our locations 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 locations. Some of our merchandise is imported from other countries. If imported goods become difficult or impossible to bring into the U.S., 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 transporting merchandise to our distribution centers and locations resulting in lost sales 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.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table reflects the square footage and number of leased and owned properties for our stores as of August ~~31, 2019:~~28, 2021:


	No. of	Store Square
	Stores	Footage⁽¹⁾
Leased	3,641	23,911,656
Owned	3,126	21,145,587
Total	6,767	45,057,243

   No. of
Stores    Store Square
Footage
Leased
   3,398    22,160,926
Owned
   3,013    20,365,525




Total
   6,411    42,526,451

(1)	Square footage excludes store support centers, regional offices, distribution centers and the areas that hold the local mega hub and hub expanded assortment.

We have approximately ~~5.7~~5.9 million square feet in distribution centers servicing our stores, of which approximately 1.8 million square feet is leased and the remainder is owned. Our 12 distribution centers are located in Arizona, California, Florida, Georgia, Illinois, Ohio, Pennsylvania, Tennessee, Texas, Washington and two in Mexico. Our primary store support center is located in Memphis, Tennessee, and consists of approximately 320,000 square feet. We also have three additional store support centers located in Monterrey, Mexico; Chihuahua, Mexico and Sao Paulo, Brazil. Our ~~Internal~~International Sourcing Office is located in Shanghai, China. The ALLDATA headquarters in Elk Grove, California is leased, and we also own or lease other properties ~~that~~which are not material in the aggregate.

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Item 3. Legal Proceedings

~~In 2004, we acquired~~Item 103 of Regulation S-K requires disclosure of certain environmental matters when a ~~store site in Mount Ephraim, New Jersey that had previously been the site of~~governmental authority is a ~~gasoline service station and contained evidence of groundwater contamination. Upon acquisition, we voluntarily reported the groundwater contamination issue~~party to the ~~New Jersey Department of Environmental Protection (“NJDEP”)~~proceedings 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 have also voluntarily investigated and addressed~~such proceedings involve potential vapor intrusion impacts in downgradient residences and businesses. The NJDEP has asserted, in a Directive and Notice to Insurers dated February 19, 2013 and again in an Amended Directive and Notice to Insurers dated January 13, 2014 (collectively the “Directives”),monetary sanctions that we reasonably believe will exceed an applied threshold of $1 million. Applying this threshold, there are ~~liable~~no environmental matters to disclose for the downgradient impacts under a joint and severable liability theory. By letter dated April 23, 2015, NJDEP has demanded payment from us, and other parties, in the amount of approximately $296 thousand for costs incurred by NJDEP in connection with contamination downgradient of the property. By letter dated January 29, 2016, we were informed that NJDEP has filed a lien against the property in connection with approximately $355 thousand in costs incurred by NJDEP in connection with contamination downgradient of the property. We have contested, and will continue to contest, any such assertions due to the existence of other entities/sources of contamination, some of which are named in the Directives and the April 23, 2015 Demand, in the area of the property.

Pursuant to the Voluntary Remediation Agreement, upon completion of all remediation required by the agreement, we believe we should be eligible to be reimbursed up to 75% of qualified remediation costs by the State of New Jersey. We have asked the state for clarification that the agreement applies to~~off-site~~ work. Although the aggregate amount of additional costs that we may incur pursuant to the remediation cannot currently be ascertained, we do not currently believe that fulfillment of our obligations under the agreement or otherwise will result in costs that are material to our financial condition, results of operations or cash flows.

In July 2014, we received a subpoena from the District Attorney of the County of Alameda, along with other environmental prosecutorial offices in the State of California, seeking documents and information related to the handling, storage and disposal of hazardous waste; a Complaint regarding the matter was subsequently filed by the District Attorney and the State Attorney General’s Office. The Company cooperated fully with the District Attorney and the State Attorney General’s Office to resolve the matter in fiscal 2019 without a finding of liability on the part of the Company. The amount the Company agreed to pay was within the amount previously accrued by the Company for the matter.

Arising out of an April 2016 letter from the California Air Resources Board (“CARB”), one of our formerly-owned subsidiaries was sued in March 2018 by CARB and the State of California seeking penalties, among other relief, for alleged violations of the California Health and Safety Code, Title 13 of the California Code of Regulations and the California Vehicle Code related to the sale and advertisement of certain aftermarket motor vehicle pollution control parts in the State of California. On February 26, 2018, we completed our transaction to sell substantially all the assets, net of assumed liabilities related to our AutoAnything operations. As part of the sale, we retained the liability related to this lawsuit. The Company cooperated fully with CARB and the State Attorney General’s Office to resolve the matter in fiscal 2019 without a finding of liability on the part of the Company. The amount the Company agreed to pay was within the amount previously accrued by the Company for the matter.period.

We are involved in various other legal proceedings incidental to the conduct of our business, including, but not limited to, several lawsuits containing class-action allegations in which the plaintiffs are current and former hourly and salaried employees who allege various wage and hour violations and unlawful termination practices. We do not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to our financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

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

~~Our~~The principal market on which our common stock is ~~listed on~~traded is the New York Stock Exchange under the symbol “AZO.” On October ~~21, 2019,~~18, 2021, there were ~~2,112~~1,936 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 would be dependent upon our financial condition, capital requirements, earnings and cash flow.

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 October ~~7, 2019,~~5, 2021, to increase the repurchase authorization by ~~$1.250~~$1.5 billion, bringing the total value of authorized share repurchases to ~~$23.2~~$27.65 billion.

Beginning in the first quarter of fiscal 2021, we restarted our share repurchases under our share repurchase program, which had been temporarily suspended during fiscal 2020 in response to the uncertainty surrounding the COVID-19 pandemic. We will continue to evaluate current and expected business conditions and adjust the level of share repurchases under our share repurchase program as we deem appropriate.

Shares of common stock repurchased by the Company during the quarter ended August ~~31, 2019,~~28, 2021 were as follows:

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, 2019, to June 1, 2019
   108,418    $ 1,014.58    108,418    $ 1,058,574,234
June 2, 2019, to June 29, 2019
   103,332    1,093.45    103,332    945,586,095
June 30, 2019, to July 27, 2019
   136,426    1,147.37    136,426    789,054,681
July 28, 2019, to August 31, 2019
   285,688    1,093.02    285,688    476,792,875








Total
   633,864    $ 1,091.37    633,864    $ 476,792,875


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 9, 2021 to June 5, 2021	119,391	$	1,463.82	119,391	$	1,142,800,316
June 6, 2021 to July 3, 2021	179,195		1,420.00	179,195		888,343,302
July 4, 2021 to July 31, 2021	164,072		1,580.00	164,072		629,109,159
August 1, 2021 to August 28, 2021	129,802		1,629.71	129,802		417,569,204
Total	592,460	$	1,519.09	592,460	$	417,569,204

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The Company also repurchased, at market value, an additional ~~17,201, 11,816~~7,611, 8,287 and ~~12,455~~17,201 shares in fiscal years ~~2019, 2018~~2021, 2020 and ~~2017,~~2019, respectively, from employees electing to sell their stock under the Company’s 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 Employee Plan, ~~11,011, 14,523~~8,479, 10,525 and ~~14,205~~11,011 shares were sold to employees in fiscal ~~2019, 2018~~2021, 2020 and ~~2017,~~2019, respectively. At August ~~31, 2019, 152,766~~28, 2021, 133,762 shares of common stock were reserved for future issuance under the Employee Plan.

Once executives have reached the maximum purchases under the Employee Plan, the Sixth 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 by executives under the Executive Plan were ~~1,483, 1,840~~997, 1,204 and ~~1,865~~1,483 shares in fiscal ~~2019, 2018~~2021, 2020 and ~~2017,~~2019, respectively. At August ~~31, 2019, 236,565~~28, 2021, 234,364 shares of common stock were reserved for future issuance under the Executive Plan.

Stock Performance Graph

The graph 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, 2014~~27, 2016 and ending August ~~31, 2019.~~28, 2021.

Chart, line chart

Description automatically generated

Item 6. ~~Selected Financial Data~~Reserved

Not required.

(in thousands, except per share data, same store sales and selected
operating data)
Fiscal Year Ended August
2019⁽¹⁾ 2018⁽²⁾ 2017 2016 2015
Income Statement Data

Net sales
$ 11,863,743 $ 11,221,077 $ 10,888,676 $ 10,635,676 $ 10,187,340
Cost of sales, including warehouse and delivery expenses
5,498,742 5,247,331 5,149,056 5,026,940 4,860,309

Gross profit
6,365,001 5,973,746 5,739,620 5,608,736 5,327,031
Operating, selling, general and administrative expenses
4,148,864 4,162,890 3,659,551 3,548,341 3,373,980

Operating profit
2,216,137 1,810,856 2,080,069 2,060,395 1,953,051
Interest expense, net
184,804 174,527 154,580 147,681 150,439

Income before income taxes
2,031,333 1,636,329 1,925,489 1,912,714 1,802,612
Income tax expense⁽³⁾
414,112 298,793 644,620 671,707 642,371

Net income⁽³⁾
$ 1,617,221 $ 1,337,536 $ 1,280,869 $ 1,241,007 $ 1,160,241

Diluted earnings per share⁽³⁾
$ 63.43 $ 48.77 $ 44.07 $ 40.70 $ 36.03

Weighted average shares for diluted earnings per share⁽³⁾
25,498 27,424 29,065 30,488 32,206

Same Store Sales

Increase in domestic comparable store net sales⁽⁴⁾
3.0 % 1.8 % 0.5 % 2.4 % 3.8 %
Balance Sheet Data

Current assets
$ 5,028,685 $ 4,635,869 $ 4,611,255 $ 4,239,573 $ 3,970,294
Working capital (deficit)
(483,456 ) (392,812 ) (155,046 ) (450,747 ) (742,579 )
Total assets
9,895,913 9,346,980 9,259,781 8,599,787 8,102,349
Current liabilities
5,512,141 5,028,681 4,766,301 4,690,320 4,712,873
Debt
5,206,344 5,005,930 5,081,238 4,924,119 4,624,876
Long-term capital leases
123,659 102,013 102,322 102,451 87,639
Stockholders’ (deficit)
(1,713,851 ) (1,520,355 ) (1,428,377 ) (1,787,538 ) (1,701,390 )
Selected Operating Data

Number of locations at beginning of year
6,202 6,029 5,814 5,609 5,391
Acquired locations⁽⁵⁾
—   —   —   —   17
Sold locations⁽⁶⁾
—   26 —   —   —
New locations
209 201 215 205 202
Closed locations
—   2 —   —   1

Net new locations
209 199 215 205 201

Relocated locations
2 7 5 6 5

Number of locations at end of year
6,411 6,202 6,029 5,814 5,609

AutoZone domestic commercial programs
4,893 4,741 4,592 4,390 4,141
Inventory per location (in thousands)
$ 674 $ 636 $ 644 $ 625 $ 610
Total AutoZone store square footage (in thousands)
42,526 41,066 39,684 38,198 36,815
Average square footage per AutoZone store
6,633 6,621 6,611 6,600 6,587
Increase in AutoZone store square footage
3.6 % 3.5 % 3.9 % 3.8 % 3.9 %
Average net sales per AutoZone store (in thousands)
$ 1,847 $ 1,778 $ 1,756 $ 1,773 $ 1,761
Net sales per AutoZone store average square foot
$ 279 $ 269 $ 266 $ 269 $ 268
Total employees at end of year (in thousands)
96 89 87 84 81
Inventory turnover⁽⁷⁾
1.3 x 1.3 x 1.4 x 1.4 x 1.4 x
Accounts payable to inventory ratio
112.6 % 111.8 % 107.4 % 112.8 % 112.9 %
After-tax return on invested capital⁽⁸⁾
35.7 % 32.1 % 29.9 % 31.3 % 31.2 %
Adjusted debt to EBITDAR⁽⁹⁾
2.5 2.5 2.6 2.5 2.5
Net cash provided by operating activities (in thousands)⁽³⁾
$ 2,128,513 $ 2,080,292 $ 1,570,612 $ 1,641,060 $ 1,573,018
Cash flow before share repurchases and changes in debt (in thousands)⁽¹⁰⁾
$ 1,758,672 $ 1,596,367 $ 1,017,585 $ 1,166,987 $ 1,018,440
Share repurchases (in thousands)
$ 2,004,896 $ 1,592,013 $ 1,071,649 $ 1,452,462 $ 1,271,416
Number of shares repurchased (in thousands)
2,182 2,398 1,495 1,903 2,010

~~(1)~~

~~The fiscal year ended August 31, 2019 consisted of 53 weeks.~~

~~(2)~~

~~Fiscal 2018 was negatively impacted by pension termination charges of $130.3 million(pre-tax)~~ ~~recognized in the fourth quarter and asset impairments of $193.2 million(pre-tax)~~ recognized in the second quarter of fiscal 2018. See “Note L – Pension and Savings Plans” and “Note M – Sale of Assets” of the Notes to Consolidated Financial Statements for more information. Fiscal 2018 also includes a benefit to net income related to the Tax Cuts and Jobs Act (“Tax Reform”). See “NoteD- ~~Income Taxes” of the Notes to Consolidated Financial Statements for more information.~~

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~~(3)~~

Fiscal 2019, 2018 and 2017 include excess tax benefits from stock option exercises of $46.0 million, $31.3 million and $31.2 million, respectively, related to the adoption of Accounting Standards Update (“ASU”)~~2016-09,~~ ~~Compensation – Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting. The Company adopted ASU2016-09~~ effective August 28, 2016 and applied the recognition of excess tax deficiencies and tax benefits in the income statement on a prospective basis. Income tax expense, net income and diluted earnings per share amounts presented for prior periods were not restated. The Company applied ASU~~2016-09~~ relating to the presentation of the excess tax benefits on the Consolidated Statements of Cash Flows retrospectively. Prior period amounts for net cash provided by operating activities for all years presented above were restated to conform to the current period presentation.

~~(4)~~

~~The domestic comparable sales increases are based on sales for all AutoZone domestic stores open at least one year. Same store sales are computed on a52-week~~ basis. 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. All sales through our www.autozone.com website, including consumer direct~~ship-to-home~~ ~~sales, are also included in the computation.~~

~~(5)~~

~~17 IMC branches were acquired on September 27, 2014.~~

~~(6)~~

~~26 IMC branches were sold on April 4, 2018. See “Note M – Sale of Assets” of the Notes to Consolidated Financial Statements for more information.~~

~~(7)~~

~~Inventory turnover is calculated as cost of sales divided by the average merchandise inventory balance over the trailing 5 quarters.~~

~~(8)~~

~~After-tax~~ ~~return on invested capital is defined asafter-tax~~ ~~operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating leases). For fiscal 2019,after-tax~~ ~~operating profit was adjusted for the impact of the revaluation of deferred tax liabilities, net of repatriation tax. For fiscal 2018,after-tax~~ ~~operating profit was adjusted for impairment charges, pension termination charges and the impact of the revaluation of deferred tax liabilities, net of repatriation tax. See Reconciliation ofNon-GAAP~~ ~~Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

~~(9)~~

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. For fiscal 2018, net income was adjusted for impairment charges and pension termination charges before tax impact. See Reconciliation of~~Non-GAAP~~ ~~Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

~~(10)~~

~~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 ofNon-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 leading retailer, and a leading distributor, of automotive replacement parts and accessories in the Americas. We began operations in 1979 and at August ~~31, 2019,~~28, 2021, operated ~~5,772~~6,051 stores in the U.S., ~~including Puerto Rico and Saint Thomas; 604~~664 stores in ~~Mexico;~~Mexico and 3552 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 andnon-automotive products. At August ~~31, 2019,~~28, 2021, in ~~4,893~~5,179 of our domestic stores, we also had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts. We also have commercial programs in all stores in Mexico and Brazil. We also sell the ALLDATA brand automotive diagnostic, repair and ~~repair~~shop management software through ~~www.alldata.com and www.alldatadiy.com.~~www.alldata.com. Additionally, we sell automotive hard parts, maintenance items, accessories andnon-automotive products through www.autozone.com, and our commercial customers can make purchases through www.autozonepro.com. We also provide product information on our Duralast branded products through www.duralastparts.com. We do not derive revenue from automotive repair or installation services.

COVID-19 Impact

COVID-19 continues to impact numerous aspects of our business. Our sales remain at record levels as we have experienced unprecedented customer demand for our products during the COVID-19 pandemic, as we believe that many of our customers have benefitted from pandemic-related government stimulus and benefits. Our main priority continues to be the health, safety and well-being of our customers and AutoZoners. We continue to invest in supplies for the protection of our employees and customers and increased the frequency of cleaning and disinfecting our stores. For fiscal 2021, we incurred approximately $43.0 million in pandemic related expenses, including Emergency Time-Off benefit enhancements for both full-time and part-time employees as compared to approximately $83.9 million in the comparable prior year period.

The long-term impact to our business remains unknown as we are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, the likelihood of additional variants and resurgences of the outbreak, actions that may be taken by governmental authorities in response to the disease, the timing, distribution, efficacy and public acceptance of vaccines, and unintended consequences of the foregoing. Furthermore, the continuing pandemic and related economic uncertainty may result in prolonged disruption and volatility to our business and magnify certain risks, including risks associated with sourcing quality merchandise domestically and outside the U.S.; our ability to promptly adjust inventory levels to meet fluctuations in customer demand; our ability to comply with complex and evolving laws and regulations related to customers’ and AutoZoners’ health and safety; our ability to open new store locations and expand or remodel existing stores; and our ability to hire and train qualified employees to address temporary or sustained labor shortages.

Executive Summary

For fiscal ~~2019,~~2021, we achieved record net income of ~~$1.617~~$2.170 billion, a ~~20.9%~~25.2% increase over the prior year, and sales growth of ~~$642.7 million,~~$1.998 billion, a ~~5.7%~~15.8% increase over the prior year.Domestic commercial sales increased 22.6%, which represents approximately 23% of our total sales. Both our retail sales and commercial sales grew this past year as we continue to experience unprecedented demand for our products during the COVID-19 pandemic and make progress on our initiatives ~~that are~~ aimed at improving our ability to say ~~yes~~“Yes” to our customers more frequently, drive traffic to our stores and accelerate our commercial growth.

Our business is impacted by various factors within the economy that affect both our consumer and our industry, including but not limited to fuel costs, wage rates, supply chain disruptions, hiring and other economic ~~conditions.~~conditions, including for fiscal 2021 and 2020, the effects of, and responses to, COVID-19. Given the nature of these macroeconomic factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.

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One macroeconomic factor affecting our customers and our industry during fiscal ~~2019~~2021 was gas prices. During fiscal ~~2019,~~2021, the average price per gallon of unleaded gasoline in the U.S. was ~~$2.63 per gallon,~~$2.62, compared to ~~$2.67 per gallon~~$2.32 during fiscal ~~2018.~~2020. We believe fluctuations in gas prices impact our customers’ level of disposable income. With approximately 1210 billion gallons of unleaded gas consumption each month across the U.S., each $1 decrease at the pump contributes approximately ~~$12~~$10 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, nor can we predict how any future changes in gas prices will impact our sales in future periods.

We have also experienced continued accelerated pressure on wages in the U.S. during fiscal ~~2019.~~2021. Some of this is attributed to regulatory changes in certain states and municipalities, while the larger portion is being driven by general market pressures ~~with lower unemployment rates~~ and some specific actions taken ~~in recent years~~recently by other retailers. The regulatory changes are ~~going~~expected to continue, as evidenced by the areas that have passed legislation to increase ~~their~~employees’ wages substantially over the next few years, but we are still assessing to what degree these changes will impact our earnings growth in future periods.

During fiscal ~~2019,~~2021, failure and maintenance related categories represented the largest portion of our sales mix, at approximately ~~85%~~83% of total sales, with failure related categories continuing to comprise our largest set of categories. While we have not experienced any fundamental shifts in our category sales mix as compared to previous years, in our domestic stores we ~~did experience~~continue to see a slight increase in mix of sales of the ~~failure~~discretionary category as compared to last year. We believe the improvement in this sales category ~~was driven by differences in regional weather patterns and improved merchandise assortments due~~resulted from the pandemic as many of our customers continue to ~~the products we~~ have ~~added over the last year. Our sales mix can be impacted by severe or unusual weather over a short term period. Over the long term, we believe the impact of the weather~~more time to work on ~~our sales mix is not significant.~~discretionary projects.

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. While over the long-term we have seen a close correlation between our net sales and the number of miles driven, we have also seen certain time frames of minimal correlation in sales performance and miles driven. During the periods of minimal correlation between net sales and miles driven, we believe net sales have been positively impacted by other factors, including macroeconomic factors and the number of seven year old or older vehicles on the road. Since the beginning of the fiscal year and through July ~~2019~~2021 (latest publicly available information), miles driven in the U.S. ~~increased~~decreased by ~~0.8%~~5.2% compared to the same period in the prior year. We believe this decrease is a result of the pandemic, but we are unable to predict if this decline will continue and are uncertain of the impact it will have to our business.

Seven Year Old or Older Vehicles

~~New vehicles~~According to the latest data provided by the U.S. Bureau of Economic Analysis, new light vehicle sales for the year ended August 2021 increased ~~0.2% during 2019~~11.5% as compared to the comparable prior ~~calendar year.~~year period. 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 Auto Care Association, as of January 1, ~~2019,~~2021, the average age of light vehicles on the road was ~~11.8~~12.1 years. ~~For the eighth consecutive year, the~~The average age of light vehicles has exceeded 11 ~~years.~~years since 2012.

We expect the aging vehicle population to continue to increase as consumers keep their cars longer in an effort to save money. Additionally, there is increased demand for used vehicles as a result of new vehicle inventory shortages during the COVID-19 pandemic. As the number of seven year old or older vehicles on the road increases, we expect an increase in demand for the products we sell.

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Results of Operations

The following table highlights selected financial information over the last 5 years:


	Fiscal Year Ended August
(in thousands, except per share data, same store sales and selected operating data)	2021⁽¹⁾			2020⁽¹⁾			2019⁽²⁾			2018⁽³⁾			2017

Income Statement Data
Net sales	$	14,629,585		$	12,631,967		$	11,863,743		$	11,221,077		$	10,888,676
Cost of sales, including warehouse and delivery expenses		6,911,800			5,861,214			5,498,742			5,247,331			5,149,056
Gross profit		7,717,785			6,770,753			6,365,001			5,973,746			5,739,620
Operating, selling, general and administrative expenses		4,773,258			4,353,074			4,148,864			4,162,890			3,659,551
Operating profit		2,944,527			2,417,679			2,216,137			1,810,856			2,080,069
Interest expense, net		195,337			201,165			184,804			174,527			154,580
Income before income taxes		2,749,190			2,216,514			2,031,333			1,636,329			1,925,489
Income tax expense⁽⁴⁾		578,876			483,542			414,112			298,793			644,620
Net income⁽⁴⁾	$	2,170,314		$	1,732,972		$	1,617,221		$	1,337,536		$	1,280,869
Diluted earnings per share⁽⁴⁾	$	95.19		$	71.93		$	63.43		$	48.77		$	44.07
Weighted average shares for diluted earnings per share⁽⁴⁾		22,799			24,093			25,498			27,424			29,065
Same Store Sales
Increase in domestic comparable store net sales⁽⁵⁾		13.6	%		7.4	%		3.0	%		1.8	%		0.5	%
Balance Sheet Data
Current assets	$	6,415,303		$	6,811,872		$	5,028,685		$	4,635,869		$	4,611,255
Operating lease right-of-use assets⁽⁶⁾		2,718,712			2,581,677			—			—			—
Working capital (deficit)		(954,451)			528,781			(483,456)			(392,812)			(155,046)
Total assets		14,516,199			14,423,872			9,895,913			9,346,980			9,259,781
Current liabilities		7,369,754			6,283,091			5,512,141			5,028,681			4,766,301
Debt		5,269,820			5,513,371			5,206,344			5,005,930			5,081,238
Finance lease liabilities, less current portion⁽⁶⁾		186,122			155,855			123,659			102,013			102,322
Operating lease liabilities, less current portion⁽⁶⁾		2,632,842			2,501,560			—			—			—
Stockholders’ deficit		(1,797,536)			(877,977)			(1,713,851)			(1,520,355)			(1,428,377)
Selected Operating Data
Number of locations at beginning of year		6,549			6,411			6,202			6,029			5,814
Sold locations⁽⁷⁾		—			—			—			26			—
New locations		219			138			209			201			215
Closed locations		1			—			—			2			—
Net new locations		218			138			209			199			215
Relocated locations		12			5			2			7			5
Number of locations at end of year		6,767			6,549			6,411			6,202			6,029
AutoZone domestic commercial programs		5,179			5,007			4,893			4,741			4,592
Inventory per location (in thousands)	$	686		$	683		$	674		$	636		$	644
Total AutoZone store square footage (in thousands)		45,057			43,502			42,526			41,066			39,684
Average square footage per AutoZone store		6,658			6,643			6,633			6,621			6,611
Increase in AutoZone store square footage		3.6	%		2.3	%		3.6	%		3.5	%		3.9	%
Average net sales per AutoZone store (in thousands)	$	2,160		$	1,914		$	1,847		$	1,778		$	1,756
Net sales per AutoZone store average square foot	$	325		$	288		$	279		$	269		$	266
Total employees at end of year (in thousands)		105			100			96			89			87
Inventory turnover⁽⁸⁾		1.5x			1.3x			1.3x			1.3x			1.4x
Accounts payable to inventory ratio		129.6	%		115.3	%		112.6	%		111.8	%		107.4	%
After-tax return on invested capital⁽⁹⁾		41.0	%		35.7	%		35.7	%		32.1	%		29.9	%
Adjusted debt to EBITDAR⁽¹⁰⁾		2.0			2.4			2.5			2.5			2.6
Net cash provided by operating activities (in thousands)⁽⁴⁾	$	3,518,543		$	2,720,108		$	2,128,513		$	2,080,292		$	1,570,612
Cash flow before share repurchases and changes in debt (in thousands)⁽¹¹⁾	$	3,048,841		$	2,185,418		$	1,758,672		$	1,596,367		$	1,017,585
Share repurchases (in thousands)⁽¹²⁾	$	3,378,321		$	930,903		$	2,004,896		$	1,592,013		$	1,071,649
Number of shares repurchased (in thousands)⁽¹²⁾		2,592			826			2,182			2,398			1,495

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(1) ~~Fiscal 2019 Compared with Fiscal 2018~~The 52 weeks ended August 28, 2021 and August 29, 2020 were negatively impacted by pandemic related expenses, including Emergency Time-Off of approximately $43.0 million (pre-tax) and $83.9 million (pre-tax), respectively.

~~For the~~

(2) The fiscal year ended August 31, 2019 ~~we reported net sales~~consisted of ~~$11.864 billion compared with $11.221 billion for~~53 weeks.

(3) Fiscal 2018 was negatively impacted by pension termination charges of $130.3 million (pre-tax) recognized in the ~~year ended August 25, 2018, a 5.7% increase from~~fourth quarter and asset impairments of $193.2 million (pre-tax) recognized in the second quarter of fiscal 2018. ~~This growth was driven primarily by~~Fiscal 2019 and 2018 also includes a benefit to net income related to the Tax Cuts and Jobs Act of $6.3 million and $132.1 million, net of repatriation tax, respectively.

(4) Fiscal 2021, 2020, 2019, 2018 and 2017 include excess tax benefits from stock option exercises of $56.4 million, $20.9 million, $46.0 million, $31.3 million and $31.2 million, respectively.

(5) The domestic comparable sales ~~of $410.5 million from new~~increases are based on sales for all AutoZone domestic stores ~~the additional 53~~^rd ~~week sales of $238.6 million and a domestic same store sales increase of 3.0% partially offset by the impact of the sale of two businesses in the prior~~open at least one year. Same store sales are computed on a52-week basis. 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. All sales through our www.autozone.com website, including consumer direct ship-to-home sales, are also included in the computation.

(6) The Company adopted ASU 2016-02, Leases (Topic 842), beginning with its first quarter ended November 23, 2019 which resulted in the Company recognizing a right-of-use asset (“ROU asset”) and a corresponding lease liability on the balance sheet.

(7) 26 IMC branches were sold on April 4, 2018.

(8) Inventory turnover is calculated as cost of sales divided by the average merchandise inventory balance over the trailing 5 quarters.

(9) After-tax return on invested capital is defined as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize leases). For fiscal 2019, after-tax operating profit was adjusted for the impact of the average revaluation of deferred tax liabilities, net of repatriation tax. For fiscal 2018, after-tax operating profit was adjusted for impairment charges, pension termination charges and the impact of the revaluation of deferred tax liabilities, net of repatriation tax. See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(10) Adjusted debt to EBITDAR is defined as the sum of total debt, finance lease obligations and annual rents times six; divided by net income plus interest, taxes, depreciation, amortization, rent and share-based compensation expense. For fiscal 2018, net income was adjusted for impairment charges and pension termination charges before tax impact. See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(11) 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.

(12) During the third quarter of fiscal 2020, the Company temporarily suspended share repurchases under the share repurchase program in response to COVID-19 which was restarted beginning in the first quarter of fiscal 2021.

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Fiscal 2021 Compared with Fiscal 2020

For the fiscal year ended August 28, 2021, we reported net sales of $14.630 billion compared with $12.632 billion for the year ended August 29, 2020, a 15.8% increase from fiscal 2020. This growth was driven primarily by a domestic same store sales increase of 13.6% and net sales of $215.8 million from new stores. Domestic commercial sales increased ~~$348.6~~$617.7 million, or ~~15.7%~~22.6%, over domestic commercial sales for fiscal ~~2018 which benefited $51.3 million from the additional week of sales.~~2020.

At August ~~31, 2019,~~28, 2021, we operated ~~5,772~~6,051 domestic stores, ~~604~~664 in Mexico and 3552 in Brazil, compared with ~~5,618~~5,885 domestic stores, ~~564~~621 in Mexico and 2043 in Brazil at August ~~25, 2018.~~29, 2020. We reported a total auto parts segment (domestic, Mexico ~~Brazil~~ and ~~IMC through April 4, 2018)~~Brazil) sales increase of ~~6.3%~~15.9% for fiscal ~~2019.~~2021.

Gross profit for fiscal ~~2019~~2021 was ~~$6.365~~$7.718 billion, or ~~53.7%~~52.8% of net sales, ~~a 41~~an 85 basis point ~~increase~~decrease compared with ~~$5.974~~$6.771 billion, or ~~53.2%~~53.6% of net sales for fiscal ~~2018.~~2020. The ~~increase~~decrease in gross margin was primarily ~~attributable~~driven by the initiatives to ~~the favorable impact of the sale of two businesses completed~~accelerate growth in ~~the prior year (+37 basis points).~~our commercial business.

Operating, selling, general and administrative expenses for fiscal ~~2019 decreased~~2021 increased to ~~$4.149~~$4.773 billion, or ~~35.0%~~32.6% of net sales, from ~~$4.163~~$4.353 billion, or ~~37.1%~~34.5% of net sales for fiscal ~~2018.~~2020. The ~~decrease~~reduction in operating expenses as a percentage of sales was ~~primarily due to last year’s impairment charges of $193.2 million~~driven by strong sales growth and a decrease in pandemic related ~~to the sale of two businesses and pension plan termination charges of $130.3 million, partially offset by increased domestic store payroll(-66~~ ~~basis points) in 2019. See “Note L – Pension and Savings Plan” and “Note M – Sale of Assets” in the Notes to Consolidated Financial Statements.~~expenses.

Interest expense, net for fiscal ~~2019~~2021 was ~~$184.8~~$195.3 million compared with ~~$174.5~~$201.2 million during fiscal ~~2018. This increase was primarily due to higher debt levels and an additional week of interest incurred due to the 53~~^rd ~~week.~~2020. Average borrowings for fiscal ~~2019~~2021 were ~~$5.097~~$5.401 billion, compared with ~~$4.997~~$5.393 billion for fiscal ~~2018, and weighted~~2020. Weighted average borrowing rates were ~~3.2%~~3.28% and 3.26% for fiscal ~~2019~~2021 and ~~fiscal 2018.~~2020, respectively.

Our effective income tax rate was ~~20.4%~~21.1% ofpre-tax income for fiscal ~~2019~~2021 compared to ~~18.3%~~21.8% for fiscal ~~2018.~~2020. The ~~higher~~decrease in the tax rate ~~resulted~~was primarily attributable to an increased benefit from ~~net impacts~~stock options exercised during fiscal 2021 compared to fiscal 2020. The benefit of ~~the enactment of Tax Reform~~stock options exercised for fiscal 2021 was $56.4 million compared to $20.9 million for fiscal 2020 (see “Note D -– Income Taxes” in the Notes to Consolidated Financial Statements).

Net income for fiscal ~~2019~~2021 increased by ~~20.9%~~25.2% to ~~$1.617~~$2.170 billion, and diluted earnings per share increased ~~30.1%~~32.3% to ~~$63.43~~$95.19 from ~~$48.77~~$71.93 in fiscal ~~2018.~~2020. The impact on the fiscal ~~2019~~2021 diluted earnings per share from stock repurchases was an increase of ~~$1.83.~~$5.13.

Fiscal ~~2018~~2020 Compared with Fiscal ~~2017~~2019

A discussion of changes in our results of operations from fiscal ~~2017~~2019 to fiscal ~~2018~~2020 has been omitted from this Annual Report on Form10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form10-K for the fiscal year ended August ~~25, 2018,~~29, 2020, filed with the SEC on October ~~24, 2018,~~26, 2020, which is available free of charge on the SECs website at www.sec.gov and at www.autozone.com, by clicking “Investor Relations” located at the bottom of the page.

Quarterly Periods

Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consisted of 16 weeks in 2021 and 2020 and 17 weeks in ~~2019 and 16 weeks in 2018 and 2017.~~2019. Because the fourth quarter contains 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~~our annual net sales and net income. The fourth quarter of fiscal year 2021 represented 33.6% of annual sales and 36.2% of net income; the fourth quarter of fiscal year 2020 represented 36.0% of annual sales and 42.7% of net income; and the fourth quarter of fiscal year 2019 represented 33.6% of annual sales and 35.0% of net ~~income; and the fourth quarter~~income.

Table of ~~fiscal year 2018 represented 31.7% of annual sales and 29.9% of net income; and the fourth quarter of fiscal year 2017 represented 32.3% of annual sales and 33.9% of net income.~~Contents

~~Income Taxes~~

On December 22, 2017, the U.S. government enacted Tax Reform into law. Tax Reform significantly revises the U.S. federal corporate income tax by, among other things, lowering the statutory federal corporate rate from 35% to 21%, eliminating certain deductions, imposing a mandatory~~one-time~~ transition tax on accumulated earnings of foreign subsidiaries, and changing how foreign earnings are subject to U.S. federal tax. Also in December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when the registrant does not have the necessary information available, prepared and analyzed in reasonable detail to complete the accounting for certain income tax effects of Tax Reform.

During the year ended August 25, 2018, we recorded provisional tax benefit of $131.5 million related to Tax Reform, comprised of a $157.3 million remeasurement of our net Deferred Tax Asset (“DTA”), offset by $25.8 million of transition tax. During the year ended August 31, 2019, the Company completed its analysis of Tax Reform and recorded adjustments to the previously-recorded provisional amounts, resulting in an $8.8 million tax benefit, primarily related to transition tax on accumulated earnings of foreign subsidiaries.

~~Beginning with the year ending August 31, 2019, we are subject to a new tax on global intangiblelow-taxed~~ income (“GILTI”) that is imposed on foreign earnings. We have made the election to record this tax as a period cost, thus we have not adjusted the deferred tax assets or liabilities of our foreign subsidiaries for the new tax. Net impacts for GILTI were immaterial and are included in the provision for income taxes for the year ending August 31, 2019.

Liquidity and Capital Resources

The primary source of our liquidity is our cash flows realized through the sale of automotive parts, products, and accessories. Unprecedented customer demand from the impact of the COVID-19 pandemic and continued progress on our initiatives improved our operating performance for the fiscal year, which drove a substantial increase in cash flows from operations. We believe that our cash generated from operating activities, available cash reserves and available credit, supplemented with our long-term borrowings will provide ample liquidity to fund our operations while allowing us to make strategic investments to support long-term growth initiatives and return excess cash to shareholders in the form of share repurchases. As of August 28, 2021, we held $1.171 billion of cash and cash equivalents, as well as $1.998 billion in undrawn capacity on our revolving credit facility. We believe our sources of liquidity will continue to be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due and fund our share repurchases over the short-term and long-term. In addition, we believe we have the ability to obtain alternative sources of financing, if necessary.

Net cash provided by operating activities was $3.519 billion in 2021, $2.720 billion in 2020 and $2.129 billion in ~~2019, $2.080 billion in 2018 and $1.571 in 2017.~~2019. Cash flows from operations are favorable compared to last year primarily due to ~~the timing of payment of~~favorable changes in accounts payable, driven by higher sustained inventory purchase volume in fiscal 2021 as compared to fiscal 2020, and growth in net income ~~partially~~ due to accelerated sales growth as a result of the ~~additional week of sales in the current year.~~pandemic.

Our ~~primary capital requirement has been the funding of our continuednew-location~~ ~~development program and the building of new distribution centers. Net~~net cash flows used in investing activities were $601.8 million in fiscal 2021, $497.9 million in fiscal 2020 and $491.8 million in fiscal ~~2019,~~2019. The increase in net cash used in investing activities in fiscal 2021, compared to ~~$521.9 million~~fiscal 2020, was due to an increase in ~~fiscal 2018 and $553.6 million in fiscal 2017.~~capital expenditures. We invested ~~$496.1~~$621.8 million in capital assets in fiscal ~~2019, compared to $521.8~~2021, $457.7 million in fiscal ~~2018~~2020 and ~~$553.8~~$496.1 million in fiscal ~~2017. We had new location openings of 209 for fiscal 2019, 201 for fiscal 2018 and 215 for fiscal 2017.~~2019. The ~~decrease~~increase in capital expenditures from fiscal ~~2018~~2020 to fiscal ~~2019~~2021 was ~~attributable to one distribution center opening in~~primarily driven by increased store openings. We had 218 net new store openings for fiscal ~~2018~~2021, 138 for fiscal 2020 and ~~none constructed in~~209 for fiscal 2019. ~~We opened two distribution centers in fiscal 2017.~~ We invest a portion of our assets held by our wholly owned insurance captive in marketable debt securities. We purchased ~~$55.5~~$63.7 million in marketable debt securities in fiscal ~~2019, $104.5~~2021, $90.9 million in fiscal ~~2018~~2020 and ~~$85.7~~$55.5 million in fiscal ~~2017.~~2019. We had proceeds from the sale of marketable debt securities of $95.4 million in fiscal 2021, $84.2 million in fiscal 2020 and $53.1 million in fiscal ~~2019, $69.6 million in fiscal 2018 and $83.0 million in fiscal 2017.~~2019.

Net cash used in financing activities was $3.5 billion in fiscal 2021, $643.6 million in fiscal 2020 and $1.674 billion in ~~2019, $1.632 billion in 2018 and $914.3 million in 2017.~~fiscal 2019. The net cash used in financing activities reflected purchases of treasury stock, which totaled $3.378 billion for fiscal 2021, $930.9 million for fiscal 2020 and $2.005 billion for fiscal ~~2019, $1.592 billion~~2019. The increase in purchases of treasury stock for fiscal ~~2018 and $1.072 billion for~~2021 in comparison to fiscal ~~2017.~~2020 was due to resuming our share repurchase program which was temporarily suspended in fiscal 2020 due to the COVID-19 pandemic. The treasury stock purchases in fiscal ~~2019, 2018~~2021, 2020 and ~~2017~~2019 were primarily funded by cash flows from operations. ~~The Company issued $750~~During the year ended August 28, 2021, we repaid our $250 million of2.500% Senior Notes due April 2021, which were callable at par in March 2021. We did not issue any new debt in fiscal ~~2019 compared to none~~2021, and issued $1.850 billion and $750 million in fiscal ~~2018~~2020 and ~~$600~~2019, respectively. In fiscal 2020, the proceeds from the issuance of debt were used for general corporate purposes, repayment of our outstanding commercial paper and repayment of our $500 million ~~for fiscal 2017.~~Senior Notes due in November 2020 which were callable at par in August 2020. In fiscal 2019, the proceeds from the issuance of debt were used to repay a portion of our outstanding commercial paper borrowings, ~~and~~ our $250 million Senior Notes due in April 2019 and for ~~other~~ general corporate purposes. ~~In fiscal 2018, we used~~

We did not have any commercial paper ~~borrowings to repay our $250 million Senior Notes due in August 2018. In~~or short term borrowing activity during fiscal 2017, the proceeds from the issuance of debt were used for the repayment of a portion of our outstanding commercial paper borrowings, which were used to repay the $400 million Senior Notes due in January 2017.

~~In fiscal 2019, we made net~~2021. Net repayments of commercial paper and short term borrowings ~~in the amount of~~were $1.030 billion and $295.3 ~~million. Net proceeds from the issuance of commercial paper~~million for 2020 and ~~short-term borrowings for fiscal 2018 were $170.2 million and net repayments of commercial paper and short-term borrowings for fiscal 2017 were $42.4 million.~~2019, respectively.

During fiscal ~~2020,~~2022, we expect to increase the investment in our business as compared to fiscal ~~2019.~~2021. Our investments are expected to be directed primarily to ~~new locations,~~expansion of our store base and supply chain ~~infrastructure, enhancements~~ to ~~existing locations~~fuel the growth of our domestic and ~~investments in technology.~~Mexico businesses, which includes new stores, including mega hubs, as well as distribution center expansions and remodels. The amount of investments in our new ~~locations~~stores is impacted by different factors, including ~~such factors as~~ whether the building and land are purchased (requiring higher investment) or leased (generally lower investment), and whether such buildings are located in the ~~United States,~~U.S., Mexico or Brazil, or located in urban or rural areas.

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During fiscal ~~2019 and 2018, our capital expenditures decreased by approximately 5% and 6%, respectively, compared to the prior year period. In fiscal 2017,~~2021 our capital expenditures increased by approximately ~~13% as~~36%, compared to a decrease of 8% and 5%, for fiscal 2020 and 2019 respectively. Fiscal 2021 capital expenditures increased significantly due to delays in capital spending for the ~~prior year.~~third and fourth quarter of fiscal 2020 related to COVID-19.

In addition to ~~the~~ building and land costs, our new ~~locations~~stores require working capital, predominantly for inventories. Historically, we have negotiated extended payment terms from suppliers, reducing the working capital required and resulting in a high accounts payable to inventory ratio. We plan to continue leveraging our inventory purchases; however, our ability to do so may be limited by our vendors’ capacity to factor their receivables from us. Certain vendors participate in ~~financing~~ arrangements with financial institutions whereby they factor their AutoZone receivables, ~~from us,~~ allowing them to receive early payment from the financial institution on our invoices at a discounted rate. ~~In recent years,~~The terms of these agreements are between the vendor and the financial institution. Upon request from the vendor, we ~~initiated a variety~~confirm to the vendor’s financial institution the balances owed to the vendor, the due date and agree to waive any right of ~~strategic tests focused on increasing inventory availability,~~offset to the confirmed balances. A downgrade in our credit or changes in the financial markets may limit the financial institutions’ willingness to participate in these arrangements, which ~~increased our inventory per location. Many of our vendors have supported our initiative~~may result in the vendor wanting to ~~update our product assortments by providing extended~~renegotiate payment terms. ~~These extended~~A reduction in payment terms would increase the working capital required to fund future inventory investments. Extended payment terms from our vendors have allowed us to continue our high accounts payable to inventory ratio. We had an accounts payable to inventory ratio of ~~112.6%~~129.6% at August ~~31, 2019~~28, 2021 and ~~111.8%~~115.3% at August ~~25, 2018.~~29, 2020. The increase from fiscal ~~2018 to fiscal 2019~~2020 was primarily due to ~~more~~increased accounts payable purchases with favorable vendor ~~terms.~~terms and higher inventory turns.

Depending on the timing and magnitude of our future investments (either in the form of leased or purchased properties or acquisitions), we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures, working capital requirements and stock repurchases. The balance may be funded through new borrowings. We anticipate ~~that~~ we will be able to obtain such financing in view 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. As of August ~~31, 2019,~~28, 2021, and August ~~25, 2018,~~29, 2020, cash and cash equivalents of ~~$49.9~~$80.4 million and ~~$98.8~~$62.4 million, respectively, were held outside of the U.S. and were generally utilized to support the liquidity needs in our foreign operations.

For the fiscal year ended August ~~31, 2019,~~28, 2021, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was ~~35.7%~~41.0% as compared to ~~32.1%~~35.7% for the comparable prior year period. Adjusted ROIC is calculated asafter-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating leases). ~~For fiscal 2019,after-tax~~ ~~operating profit was adjusted for the Tax Reform’s impact on the revaluation of deferred tax liabilities, net of the repatriation tax. For fiscal 2018,after-tax~~ operating profit was adjusted for impairment charges, pension termination charges and Tax Reform’s impact on the revaluation of deferred tax liabilities, net of the repatriation tax. The increase in ROIC in fiscal 2019 is primarily due to the increase in net income due to the additional week of operations. We use adjusted ROIC to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance. Refer to the “Reconciliation ofNon-GAAP Financial Measures” section for further details of our calculation.

Debt Facilities

We entered into a Master Extension, New Commitment and Amendment Agreement dated as of November 18, 2017 (the “Extension Amendment”) to the Third Amended and Restated Credit Agreement dated as of November 18, 2016, as amended, modified, extended or restated from time to time (the “Revolving Credit Agreement”). Under the Extension Amendment: (i) our borrowing capacity under the Revolving Credit Agreement was increased from $1.6 billion to $2.0 billion; (ii) ~~our option to increase the borrowing capacity under the Revolving Credit Agreement was “refreshed” and the amount of such option remained at $400 million; (iii)~~ the maximum borrowing under the Revolving Credit Agreement may, at our option, subject to lenders approval, be increased from $2.0 billion to $2.4 billion; ~~(iv)~~(iii) the termination date of the Revolving Credit Agreement was extended from November 18, 2021 until November 18, 2022; and ~~(v)~~(iv) we have the option to make one additional written request of the lenders to extend the termination date then in effect for an additional year. Under the Revolving Credit Agreement, we may borrow funds consisting of Eurodollar loans, base rate loans or a combination of both.

Interest accrues on Eurodollar loans at a defined Eurodollar rate, defined as LIBOR plus the applicable percentage, as defined in the Revolving Credit Agreement, depending upon our senior, unsecured,~~(non-credit~~ (non-credit enhanced) long-term debt ratings. Interest accrues on base rate loans as defined in the Revolving Credit Agreement.

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As of August ~~31, 2019,~~28, 2021, we had ~~$3.3~~no outstanding borrowings and $1.7 million of outstanding letters of credit under the Revolving Credit Agreement. We intend to amend and restate our Revolving Credit Agreement and anticipate closing the agreement during the first quarter of fiscal year 2022.

Under our Revolving Credit Agreement, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances.

The Revolving Credit Agreement requires that our consolidated interest coverage ratio as of the last day of each quarter shall be no less than 2.5:1. 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 ~~31, 2019~~28, 2021 was ~~5.7:~~6.9:1.

On April 3, 2020, we entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) to supplement our existing Revolving Credit Agreement. The 364-Day Credit Agreement provided for loans in the aggregate principal amount of up to $750 million. The 364-Day Credit Agreement had a termination date of, and any amounts borrowed under the 364-Day Credit Agreement were due and payable on April 2, 2021. Revolving loans under the 364-Day Credit Agreement could be base rate loans, Eurodollar loans, or a combination of both at our election.

Effective February 2021, we terminated the 364-Day Credit Agreement. There were no borrowings outstanding under the 364-Day Credit Agreement. We entered into the 364-Day Agreement to augment our access to liquidity due to the macroeconomic conditions existing at the time, and we determined the additional access to liquidity was no longer necessary.

As of August ~~31, 2019, our $1.030 billion of commercial paper borrowings~~28, 2021, the $500 million 3.700% Senior Notes due April 2022 were classified as long-term in the Consolidated Balance Sheets as we ~~have~~had the ability and intent to refinance them on a long-term basis through available capacity in our revolving credit ~~facilities.~~facility. As of August ~~31, 2019,~~28, 2021, we had ~~$1.997~~$1.998 billion of availability under our $2.0 billion ~~revolving credit facility,~~Revolving Credit Agreement, which would allow us to replace these short-term obligations with a long-term financing ~~facilities.~~facility.

On March 15, 2021, we repaid the $250 million 2.500% Senior Notes due April 2021 which were callable at par in March 2021.

On August 14, 2020, we issued $600 million in 1.650% Senior Notes due January 2031 under our automatic shelf registration statement on Form S-3, filed with the SEC on April 4, 2019 (File No. 333-230719) (the “2019 Shelf Registration Statement”). The 2019 Shelf Registration Statement 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. Proceeds from the debt issuance were used for general corporate purposes, including the repayment of the $500 million in 4.000% Senior Notes due in November 2020 that were callable at par in August 2020.

On March 30, 2020, we issued $500 million in 3.625% Senior Notes due April 2025 and $750 million in 4.000% Senior Notes due April 2030 under the 2019 Shelf Registration Statement. Proceeds from the debt issuance were used to repay a portion of the outstanding commercial paper borrowings and for other general corporate purposes.

On April 18, 2019, we issued $300 million in 3.125% Senior Notes due April 2024 and $450 million in 3.750% Senior Notes due April 2029 under the 2019 Shelf Registration Statement. Proceeds from the debt issuance were used to repay a portion of our outstanding commercial paper borrowings, the $250 million in 1.625% Senior Notes due in April 2019 and for other general corporate purposes.

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All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned are downgraded (as defined in the agreements). Further, the Senior Notes contain a provision that repayment may be accelerated if we experience a change in control (as defined in the agreements). Our borrowings under our Senior Notes contain minimal covenants, primarily restrictions on liens, sale and leaseback transactions and consolidations, mergers and the sale of assets. All of the repayment obligations under our borrowing arrangements may be accelerated and come due prior to the applicable scheduled payment date if covenants are breached or an event of default occurs. Interest is paid on a semi-annual basis.

As of August 28, 2021, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.

We also maintain a letter of credit facility that allows us to request the participating bank to issue letters of credit on our behalf up to an aggregate amount of $25 million. The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement. In fiscal 2019, we amended our existing letter of credit facility to decrease the amount that can be requested in letters of credit from $75 million to $25 million effective June 2019. This amendment also extended the maturity date from June 2019 to June 2022. As of August ~~31, 2019,~~28, 2021, we had ~~$25.0~~$23.9 million in letters of credit outstanding under the letter of credit ~~facility.~~facility which expires in June 2022.

In addition to the outstanding letters of credit issued under the committed ~~facilities~~facility discussed above, we had ~~$72.9~~$136.8 million in letters of credit outstanding as of August ~~31, 2019.~~28, 2021. These letters of credit have various maturity dates and were issued on an uncommitted basis.

~~On April 18, 2019, we issued $300 million in 3.125% Senior Notes due April 2024 and $450 million in 3.750% Senior Notes due April 2029 under our automatic shelf registration statement on FormS-3,~~ ~~filed with the SEC on April 4, 2019 (FileNo. 333-230719)~~ (the “2019 Shelf Registration”). Proceeds from the debt issuance were used to repay a portion of our outstanding commercial paper borrowings, the $250 million in 1.625% Senior Notes due in April 2019 and for other general corporate purposes.

On April 18, 2017, we issued $600 million in 3.750% Senior Notes due June 2027 under our shelf registration statement filed with the SEC on April 15, 2015 (the “2015 Shelf Registration”). Proceeds from the debt issuance were used for general corporate purposes.

The senior notes contain a provision that repayment of the senior notes may be accelerated if we experience a change in control (as defined in the agreements). Our borrowings under our senior notes contain minimal covenants, primarily restrictions on liens, sale and leaseback transactions and consolidations, mergers and the sale of assets. Under our revolving credit facility, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances. All of the repayment obligations under our borrowing arrangements may be accelerated and come due prior to the applicable scheduled payment date if covenants are breached or an event of default occurs.

~~As of August 31, 2019, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.~~

For the fiscal ~~years~~year ended August ~~31, 2019 and August 26, 2018,~~28, 2021, our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was ~~2.5:1.~~2.0:1 as compared to 2.4:1 as of the comparable prior year end. We calculate adjusted debt as the sum of total debt, ~~capital~~finance lease ~~obligations~~liabilities and rent times six; and we calculate adjusted EBITDAR by adding interest, taxes, depreciation, amortization, rent and share-based compensation expense to net income. ~~For fiscal 2018, net income was adjusted to exclude impairment charges and pension termination charges before tax impact as these charges are not reflective of ongoing operations.~~ We target our debt levels to a specified ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings and believe this is important information for the management of our debt levels.

ToManagement expects the ratio of adjusted debt to EBITDAR to return to pre-pandemic levels in the future, increasing debt levels. Once the target ratio is achieved, to the extent adjusted EBITDAR ~~continues to grow in future years,~~increases, we expect our debt levels to increase; conversely, if adjusted EBITDAR ~~declines,~~decreases, we would expect our debt levels to decrease. Refer to the “Reconciliation ofNon-GAAP Financial Measures” section for further details of our calculation.

Stock Repurchases

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 “Board”). On ~~September 26, 2018,~~December 15, 2020, the Board voted to increase the authorization by ~~$1.25~~$1.5 billion. On March ~~20, 2019,~~23, 2021, the Board voted to increase the repurchase authorization by ~~$1.0 billion. This~~an additional $1.5 billion,which raised the total value of shares authorized to be repurchased to ~~$21.9~~$26.15 billion.From January 1998 to August ~~31, 2019,~~28, 2021, we have repurchased a total of ~~146.9~~150.3 million shares at an aggregate cost of ~~$21.423~~$25.732 billion. We repurchased 2.6 million shares of common stock at an aggregate cost of $3.378 billion during fiscal 2021, 826 thousand shares of common stock at an aggregate cost of $930.9 million during fiscal 2020 and 2.2 million shares of common stock at an aggregate cost of $2.005 billion during fiscal ~~2019, 2.4 million shares~~2019. The increase in purchases of ~~common~~treasury stock ~~at an aggregate cost~~for fiscal 2021 compared to fiscal 2020 was due to the temporary suspension of ~~$1.592 billion~~the share repurchase program during fiscal ~~2018 and 1.5 million shares~~2020 in order to preserve cash as a result of ~~common stock at an aggregate cost~~the uncertainty related to the pandemic. Purchases under the program resumed beginning in the first quarter of ~~$1.072 billion during~~ fiscal ~~2017.~~2021. Considering cumulative repurchases as of August ~~31, 2019,~~28, 2021, we had ~~$476.8~~$417.6 million remaining under the Board’s authorization to repurchase our common stock. We will continue to evaluate current and expected business conditions and adjust the level of share repurchases under our share repurchase program as we deem appropriate.

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For the fiscal year ended August ~~31, 2019,~~28, 2021, cash flow before share repurchases and changes in debt was ~~$1.759~~$3.049 billion as compared to ~~$1.596~~$2.185 billion during the comparable prior year period. Cash flow before share repurchases and changes in debt is calculated as the net increase or decrease in cash and cash equivalents less net increases or decreases in debt (excluding deferred financing costs) plus share repurchases. We use cash flow before share repurchases and changes in debt to calculate the cash flows remaining and ~~available in an effort to increase shareholder value in the form of share repurchases.~~available. We believe this is important information regarding our allocation of available capital where we prioritize investments in the business and utilize the remaining funds to repurchase shares, while maintaining debt levels that support our investment grade credit ratings. ~~If we allowed these funds to accumulate on our balance sheet instead of repurchasing our shares, we believe our earnings per share and stock price would be negatively impacted.~~ Refer to the “Reconciliation ofNon-GAAP Financial Measures” section for further details of our calculation.

On October ~~7, 2019,~~5, 2021, the Board voted to authorize the repurchase of an additional ~~$1.25~~$1.5 billion of our common stock in connection with our ongoing share repurchase program. Since the inception of the repurchase program in 1998, the Board has authorized ~~$23.2~~$27.65 billion in share repurchases.Subsequent to August ~~31, 2019,~~28, 2021 and through October 18, 2021, we have repurchased ~~259,384~~220,022 shares of common stock at an aggregate cost of ~~$284.6~~$362.8 million. Considering the cumulative repurchases and the increase in authorization subsequent to August ~~31, 2019,~~28, 2021 and through October 18, 2021, we have ~~$1.44~~$1.555 billion remaining under the Board’s authorization to repurchase its common stock.

Financial Commitments

The following table shows our significant contractual obligations as of August ~~31, 2019:~~28, 2021:


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

Debt⁽¹⁾	$	5,300,000	$	500,000	$	1,100,000	$	1,300,000	$	2,400,000
Interest payments⁽²⁾		911,863		175,025		284,488		214,675		237,675
Operating leases⁽³⁾		3,682,998		323,245		672,142		573,073		2,114,538
Finance leases⁽³⁾		304,499		91,228		106,969		57,922		48,380
Self-insurance reserves⁽⁴⁾		259,585		95,263		87,953		37,188		39,181
Construction commitments		48,217		48,217		—		—		—
	$	10,507,162	$	1,232,978	$	2,251,552	$	2,182,858	$	4,839,774

(in thousands)
   Total
Contractual
Obligations    Payment Due by Period
   Less than
1 year    Between
1-3 years    Between
3-5 years    Over
5 years
Debt⁽¹⁾
   $ 5,230,000    $ 1,030,000    $ 1,250,000    $ 1,100,000    $ 1,850,000
Interest payments⁽²⁾
   751,813    143,250    250,250    168,438    189,875
Operating leases⁽³⁾
   2,197,092    315,424    583,343    474,081    824,244
Capital leases⁽⁴⁾
   182,720    56,246    90,773    35,701    —
Self-insurance reserves⁽⁵⁾
   242,991    89,250    77,508    34,393    41,840
Construction commitments
   37,969    37,969    —      —      —










   $ 8,642,585 �� $ 1,672,139    $ 2,251,874    $ 1,812,613    $ 2,905,959

(1)

Debt balances represent principal maturities, excluding interest, discounts, and debt issuance costs.

(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~~finance lease obligations include related ~~interest.~~interest in accordance with ASU 2016-02, Leases (Topic 842).

~~(5)~~(4)

Self-insurance reserves reflect estimates based on actuarial ~~calculations.~~calculations and are presented net of insurance receivables. 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.

Our tax liability for uncertain tax positions, including interest and penalties, was ~~$20.5~~$31.8 million at August ~~31, 2019.~~28, 2021. Approximately ~~$1.8~~$3.0 million is classified as current liabilities and ~~$18.7~~$28.8 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 of the long-term liabilities due to uncertainties in the timing and amounts of the settlement of these tax positions.

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Off-Balance Sheet Arrangements

The following table reflects outstanding letters of credit and surety bonds as of August ~~31, 2019:~~28, 2021:


	Total
	Other
(in thousands)	Commitments

Standby letters of credit	$	162,393
Surety bonds		35,362
	$	197,755

(in thousands)
   Total
Other
Commitments
Standby letters of credit
   $ 101,172
Surety bonds
   36,685


   $ 137,857

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 our Consolidated Balance Sheets. The standby letters of credit and surety bond arrangements expire within one year but have automatic renewal clauses.

Reconciliation ofNon-GAAP Financial Measures

“~~Selected Financial Data” and “Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~include~~includes certain financial measures not derived in accordance with generally accepted accounting principles (“GAAP”). Thesenon-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.

Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. However, we have presented thenon-GAAP financial measures, as we believe they provide additional information that is useful to investors as it indicates more clearly our comparativeyear-to-year operating results. Furthermore, our management and Compensation Committee of the Board use the above-mentionednon-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.

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Reconciliation ofNon-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” and~~ “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:


	Fiscal Year Ended August
(in thousands)	2021		2020		2019		2018		2017

Net cash provided by/(used in):
Operating activities	$	3,518,543	$	2,720,108	$	2,128,513	$	2,080,292	$	1,570,612
Investing activities		(601,778)		(497,875)		(491,846)		(521,860)		(553,599)
Financing activities		(3,500,417)		(643,636)		(1,674,088)		(1,632,154)		(914,329)
Effect of exchange rate changes on cash		4,172		(4,082)		(4,103)		(1,724)		852
Net increase/(decrease) in cash and cash equivalents		(579,480)		1,574,515		(41,524)		(75,446)		103,536
Less: increase/(decrease) in debt, excluding deferred financing costs		(250,000)		320,000		204,700		(79,800)		157,600
Plus: Share repurchases		3,378,321		930,903⁽¹⁾		2,004,896		1,592,013		1,071,649
Cash flow before share repurchases and changes in debt	$	3,048,841	$	2,185,418	$	1,758,672	$	1,596,367	$	1,017,585

   Fiscal Year Ended August
(in thousands)
   2019 2018 2017 2016 2015
Net cash provided by/(used in):

Operating activities⁽¹⁾
   $ 2,128,513 $ 2,080,292 $ 1,570,612 $ 1,641,060 $ 1,573,018
Investing activities
   (491,846 ) (521,860 ) (553,599 ) (505,835 ) (567,911 )
Financing activities⁽¹⁾
   (1,674,088 ) (1,632,154 ) (914,329 ) (1,116,528 ) (944,597 )
Effect of exchange rate changes on cash
   (4,103 ) (1,724 ) 852 (4,272 ) (9,686 )


Net (decrease)/increase in cash and cash equivalents
   (41,524 ) (75,446 ) 103,536 14,425 50,824
Less: (Decrease)/increase in debt, excluding deferred financing costs
   204,700 (79,800 ) 157,600 299,900 303,800
Plus: Share repurchases
   2,004,896 1,592,013 1,071,649 1,452,462 1,271,416


Cash flow before share repurchases and changes in debt
   $ 1,758,672 $ 1,596,367 $ 1,017,585 $ 1,166,987 $ 1,018,440

(1)

~~The~~During the third quarter of fiscal 2020, the Company ~~adopted~~temporarily suspended share repurchases under the ~~provisions of ASU2016-09,~~ ~~Compensation – Stock Compensation (Topic 718): Improvement~~share repurchase program in response to ~~Employee Share-based Payment Accounting, as of August 28, 2016. We have applied ASU2016-09~~ relating to the presentation of the excess tax benefits on the Consolidated Statements of Cash Flows retrospectively. Prior period amounts for net cash provided by operating and financing activities for fiscal 2015 presented above were restated to conform to the current period presentation.COVID-19.

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Reconciliation ofNon-GAAP Financial Measure: Adjusted After-tax ROIC

The following table calculates the percentage of ROIC. ROIC is calculated asafter-tax operating profit (excluding rent) divided by 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 percentage)	2021			2020			2019⁽¹⁾			2018⁽²⁾			2017

Net income	$	2,170,314		$	1,732,972		$	1,617,221		$	1,337,536		$	1,280,869
Adjustments:
Impairment before tax		—			—			—			193,162			—
Pension termination charges before tax		—			—			—			130,263			—
Interest expense		195,337			201,165			184,804			174,527			154,580
Rent expense⁽³⁾		345,380			329,783			332,726			315,580			302,928
Tax effect⁽⁴⁾		(114,091)			(115,747)			(105,576)			(211,806)			(153,265)
Deferred tax liabilities, net of repatriation tax⁽⁵⁾		—			—			(6,340)			(132,113)			—
Adjusted after-tax return	$	2,596,940		$	2,148,173		$	2,022,835		$	1,807,149		$	1,585,112

Average debt⁽⁶⁾	$	5,416,471		$	5,375,356		$	5,126,286		$	5,013,678		$	5,061,502
Average stockholders’ deficit⁽⁶⁾		(1,397,892)			(1,542,355)			(1,615,339)			(1,433,196)			(1,730,559)
Add: Rent x 6⁽³⁾⁽⁷⁾		2,072,280			1,978,696			1,996,358			1,893,480			1,817,568
Average finance lease liabilities⁽⁶⁾		237,267			203,998			162,591			156,198			150,066
Invested capital	$	6,328,126		$	6,015,695		$	5,669,896		$	5,630,160		$	5,298,577

Adjusted after-tax ROIC		41.0	%		35.7	%		35.7	%		32.1	%		29.9	%

   Fiscal Year Ended August
(in thousands, except percentages)
   2019⁽¹⁾ 2018⁽²⁾ 2017 2016 2015
Net income
   $ 1,617,221 $ 1,337,536 $ 1,280,869 $ 1,241,007 $ 1,160,241
Adjustments:

Impairment before tax
   —   193,162 —   —   —
Pension termination charges before tax
   —   130,263 —   —   —
Interest expense
   184,804 174,527 154,580 147,681 150,439
Rent expense
   332,726 315,580 302,928 280,490 269,458
Tax effect⁽³⁾
   (105,576 ) (211,806 ) (153,265 ) (150,288 ) (149,483 )
Deferred tax liabilities, net of repatriation tax⁽⁴⁾
   (6,340 ) (132,113 ) —   —   —


After-tax return
   $ 2,022,835 $ 1,807,149 $ 1,585,112 $ 1,518,890 $ 1,430,655


Average debt⁽⁵⁾
   $ 5,126,286 $ 5,013,678 $ 5,061,502 $ 4,820,402 $ 4,458,114
Average stockholders’ (deficit)⁽⁵⁾
   (1,615,339 ) (1,433,196 ) (1,730,559 ) (1,774,329 ) (1,619,596 )
Rent x 6⁽⁶⁾
   1,996,358 1,893,480 1,817,568 1,682,940 1,616,748
Average capital lease obligations⁽⁵⁾
   162,591 156,198 150,066 131,008 126,096


Invested capital
   $ 5,669,896 $ 5,630,160 $ 5,298,577 $ 4,860,021 $ 4,581,362


ROIC
   35.7 % 32.1 % 29.9 % 31.3 % 31.2 %

Reconciliation of Non-GAAP Financial Measure: Adjusted Debt to EBITDAR

The following table calculates the ratio of adjusted debt to EBITDAR. Adjusted debt to EBITDAR is calculated as the sum of total debt, financing lease liabilities 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:





	Fiscal Year Ended August
(in thousands, except ratio)	2021		2020		2019⁽¹⁾		2018⁽²⁾		2017

Net income	$	2,170,314	$	1,732,972	$	1,617,221	$	1,337,536	$	1,280,869
Add: Impairment before tax		—		—		—		193,162		—
Pension termination charges before tax		—		—		—		130,263		—
Add: Interest expense		195,337		201,165		184,804		174,527		154,580
Income tax expense		578,876		483,542		414,112		298,793		644,620
Adjusted EBIT		2,944,527		2,417,679		2,216,137		2,134,281		2,080,069
Add: Depreciation and amortization expense		407,683		397,466		369,957		345,084		323,051
Rent expense⁽³⁾		345,380		329,783		332,726		315,580		302,928
Share-based expense		56,112		44,835		43,255		43,674		38,244
Adjusted EBITDAR	$	3,753,702	$	3,189,763	$	2,962,075	$	2,838,619	$	2,744,292

Debt	$	5,269,820	$	5,513,371	$	5,206,344	$	5,005,930	$	5,081,238
Financing lease liabilities		276,054		223,353		179,905		154,303		150,456
Add: Rent x 6⁽³⁾⁽⁷⁾		2,072,280		1,978,696		1,996,358		1,893,480		1,817,568
Adjusted debt	$	7,618,154	$	7,715,420	$	7,382,607	$	7,053,713	$	7,049,262
Adjusted debt to EBITDAR		2.0		2.4		2.5		2.5		2.6

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(1)

The fiscal year ended August 31, 2019 consisted of 53 weeks.

(2)

For fiscal 2018,after-tax operating profit was adjusted for impairment charges and pension settlement charges.

(3)

~~(3)~~Effective September 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), the new lease accounting standard that required the Company to recognize operating lease assets and liabilities in the balance sheet. The table below outlines the calculation of rent expense and reconciles rent expense to total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the 52 weeks ended, August 28, 2021 and August 29, 2020.


	For the year ended
(in thousands)	August 28,2021		August 29,2020

Total lease cost, per ASC 842, for the trailing four quarters	$	427,443	$	415,505
Less: Finance lease interest and amortization		(56,334)		(60,275)
Less: Variable operating lease components, related to insurance and common area maintenance		(25,729)		(25,447)
Rent expense for the trailing four quarters	$	345,380	$	329,783

(4)

For fiscal 2021, 2020, and 2019, the effective tax rate was 21.1%, 21.8%, and 20.4%., respectively. The effective tax rate during fiscal 2018 was 24.2% for impairment, 28.1% for pension termination and 26.2% for interest and rent expense. For fiscal 2017, ~~2016, and 2015~~ the effective tax rate was 33.5%~~, 35.1% and 35.6%, respectively.~~.

~~(4)~~(5)

For fiscal 2019 and fiscal 2018 ~~and 2019,~~after-tax operating profit was adjusted for the impact of the revaluation of deferred tax liabilities, net of repatriation tax.

~~(5)~~(6)

All averages are computed based on trailing five quarters.

~~(6)~~(7)

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

~~Reconciliation ofNon-GAAP~~ ~~Financial Measure: Adjusted Debt to EBITDAR~~

The following table 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 compensationexpense. 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)
   2019⁽¹⁾    2018⁽²⁾    2017    2016    2015
Net income
   $ 1,617,221    $ 1,337,536    $ 1,280,869    $ 1,241,007    $ 1,160,241
Add: Impairment before tax
   —      193,162    —      —      —
Pension termination charges before tax
   —      130,263    —      —      —
Interest expense
   184,804    174,527    154,580    147,681    150,439
Income tax expense
   414,112    298,793    644,620    671,707    642,371










EBIT
   2,216,137    2,134,281    2,080,069    2,060,395    1,953,051
Add: Depreciation and amortization expense
   369,957    345,084    323,051    297,397    269,919
Rent expense
   332,726    315,580    302,928    280,490    269,458
Share-based expense
   43,255    43,674    38,244    39,825    40,995










EBITDAR
   $ 2,962,075    $ 2,838,619    $ 2,744,292    $ 2,678,107    $ 2,533,423










Debt
   $ 5,206,344    $ 5,005,930    $ 5,081,238    $ 4,924,119    $ 4,624,876
Capital lease obligations
   179,905    154,303    150,456    147,285    128,167
Rent x 6
   1,996,358    1,893,480    1,817,568    1,682,940    1,616,748










Adjusted debt
   $ 7,382,607    $ 7,053,713    $ 7,049,262    $ 6,754,344    $ 6,369,791










Adjusted debt to EBITDAR
   2.5    2.5    2.6    2.5    2.5

~~(1)~~

~~The fiscal year ended August 31, 2019 consisted of 53 weeks.~~

~~(2)~~

~~For fiscal 2018, net income was adjusted to exclude impairment charges and pension termination charges before tax.~~

Recent Accounting Pronouncements

See Note A of the Notes to Consolidated Financial Statements for a discussion on recent accounting pronouncements.

Critical Accounting Policies and Estimates

Preparation of our Consolidated Financial Statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the financial statements, reported amounts of revenues and expenses during the reporting period and related disclosures of contingent liabilities. In the Notes to 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. The following items in our Consolidated Financial Statements represent our critical accounting policies that require significant estimation or judgment by management:

Self-Insurance Reserves

We retain a significant portion of the risks associated with workers’ compensation, general, ~~products~~product liability, property and vehicle liability; and we obtain third party insurance to limit the exposure related to certain of these risks. Our self-insurance reserve estimates totaled ~~$207.0~~$284.0 million at August ~~31, 2019,~~28, 2021, and ~~$203.1~~$288.6 million at August ~~25, 2018. This change is primarily reflective~~29, 2020. Where estimates are possible, losses covered by insurance are recognized on a gross basis with a corresponding insurance receivable.

Table of ~~our growing operations, including inflation, increases in healthcare costs, the number of vehicles and the number of hours worked, as well as our historical claims experience.~~Contents

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 use of a specialist, 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, our methods for determining our exposure have remained consistent, and 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 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 healthcare 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 ~~$16.3~~$19.1 million for fiscal ~~2019.~~2021.

Our liabilities for workers’ compensation, 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 25 basis points, net income would have been affected by approximately ~~$1.3~~$1.4 million for fiscal ~~2019. Our liability for health benefits is classified as current, as the historical average duration of claims is approximately six weeks.~~2021.

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 ~~31, 2019,~~28, 2021, we had approximately ~~$20.5~~$31.8 million reserved for uncertain tax positions.

We evaluate exposures associated with our various tax filings by estimating a liability for uncertain tax positions based on atwo-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.

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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 the cost 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 ~~87%~~85% of the vendor funds received ~~are~~during fiscal 2021 were recorded as a reduction of the cost of inventories and recognized as a reduction to cost of sales as these inventories are sold.

Based on our vendor agreements, a significant portion of vendor funding we receive is earned as we purchase inventory. 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 not experienced significant losses and typically have a legal right of offset with our vendors for payments owed them. Historically, we have had write-offs less than $1 million in each of the last three years.

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 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 the Board. Further, we do not buy or sell derivative instruments for trading purposes.

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. As of August 28, 2021 and August 29, 2020 no such interest rate swaps were outstanding.

Unrealized gains and losses on interest rate hedges are deferred in stockholders’ deficit as a component of 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.

The fair value of our debt was estimated at ~~$5.419~~$5.683 billion as of August ~~31, 2019,~~28, 2021, and ~~$4.948~~$6.081 billion as of August ~~25, 2018,~~29, 2020, 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 ~~$212.7~~$413.1 million and $567.5 million at August ~~31, 2019,~~28, 2021 and August 29, 2020, respectively, which reflects its face amount, adjusted for any unamortized debt issuance costs and discounts. ~~At August 25, 2018, the fair value was less than the carrying value of debt by $57.5 million.~~

We had ~~$1.030 billion of~~no variable rate debt outstanding at August ~~31, 2019,~~28, 2021 and ~~$1.325 billion of variable rate debt outstanding at~~ August ~~25, 2018. In fiscal 2019, at this borrowing level for variable rate debt, a one percentage point increase in interest rates would have had an unfavorable impact on ourpre-tax~~ ~~earnings and cash flows of approximately $10.3 million. The primary interest rate exposure on variable rate debt is based on LIBOR.~~29, 2020.

We had outstanding fixed rate debt of ~~$4.176~~$5.270 billion, net of unamortized debt issuance costs of ~~$23.7~~$30.2 million, at August ~~31, 2019,~~28, 2021, and ~~$3.681~~$5.513 billion, net of unamortized debt issuance costs of ~~$19.4~~$36.6 million, at August ~~25, 2018.~~29, 2020. A one percentage point increase in interest rates would have reduced the fair value of our fixed rate debt by approximately ~~$190.3~~$258.3 million at August ~~31, 2019.~~28, 2021.

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Foreign Currency Risk

Foreign currency exposures arising from transactions include firm commitments and anticipated transactions denominated in a currency other than our entities’ functional currencies. To minimize our risk, we generally enter into transactions denominated in the respective functional currencies. We are exposed to Brazilian reals, Canadian dollars, euros, Chinese yuan renminbi and British pounds, but our primary foreign currency exposure arises from Mexican peso-denominated revenues and profits and their translation into U.S. dollars. Foreign currency exposures arising from transactions denominated in currencies other than the functional currency are not material.

We view our investments in Mexican subsidiaries as long-term. As a result, we generally do not hedge these net investments. The net asset exposure in the Mexican subsidiaries translated into U.S. dollars using theyear-end exchange rates was ~~$328.8~~$310.1 million at August ~~31, 2019~~28, 2021 and ~~$590.7~~$293.1 million at August ~~25, 2018.~~29, 2020. Theyear-end exchange rates with respect to the Mexican peso ~~decreased~~increased by approximately ~~7% and approximately 6%~~10% with respect to the U.S. dollar during fiscal ~~2019~~2021 and decreased by approximately 10% with respect to the U.S. dollar during fiscal ~~2018.~~2020. The potential loss in value of our net assets in the Mexican subsidiaries resulting from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates at August ~~31, 2019~~28, 2021 and August ~~25, 2018,~~29, 2020, would have been approximately ~~$29.9~~$28.2 million and approximately ~~$53.7~~$26.6 million, respectively. Any changes in our net assets in the Mexican subsidiaries relating to foreign currency exchange rates would be reflected in the foreign currency translation component of Accumulated Other Comprehensive Loss, unless the Mexican subsidiaries are sold or otherwise disposed.

A hypothetical 10 percent adverse change in average exchange rates would not have a material impact on our results of operations.

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Item 8. Financial Statements and Supplementary Data

Index


Management’s Report on Internal Control Over Financial Reporting	39	44
~~Certifications~~	39
Reports of Independent Registered Public Accounting Firm	40	45
Consolidated Statements of Income	44	48
Consolidated Statements of Comprehensive Income	44	48
Consolidated Balance Sheets	45	49
Consolidated Statements of Cash Flows	46	50
Consolidated Statements of Stockholders’ Deficit	47	51
Notes to Consolidated Financial Statements	48	52

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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 Rules13a-15(f) and15d-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. 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 ~~31, 2019,~~28, 2021, 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 2013 framework.

Based on this assessment, management has concluded that our internal control over financial reporting was effective as of August ~~31, 2019.~~28, 2021.

Our independent registered public accounting firm, Ernst & Young LLP, audited the effectiveness of our internal control over financial reporting. Ernst & Young LLP’s attestation report on the Company’s internal control over financial reporting as of August ~~31, 2019~~28, 2021 is included in this Annual Report on Form10-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 Store Development~~
~~(Principal Financial Officer)~~

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~~Certifications~~

~~Compliance with NYSE Corporate Governance Listing Standards~~

~~On December 20, 2018, 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.~~

~~Rule13a-14(a)~~ ~~Certifications of Principal Executive Officer and Principal Financial Officer~~

~~The Company has filed, as exhibits to its Annual Report on Form10-K~~ ~~for the fiscal year ended August 31, 2019, the certifications of its Principal Executive Officer and Principal Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors ~~and Stockholders~~ of AutoZone, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited AutoZone Inc.’s internal control over financial reporting as of August ~~31, 2019,~~28, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, AutoZone, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of August ~~31, 2019,~~28, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of ~~AutoZone, Inc.~~the Company as of August ~~31, 2019~~28, 2021 and August ~~25, 2018,~~29, 2020, and the related consolidated statements of income, comprehensive income, stockholders’ deficit, and cash flows for each of the three years in the period ended August ~~31, 2019,~~28, 2021, and the related notes and our report dated October ~~28, 2019,~~25, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’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 the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control Over Financial Reporting

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.

~~/s/ Ernst & Young LLP~~

/s/ Ernst & Young LLP

Memphis, Tennessee

October ~~28, 2019~~25, 2021

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors ~~and Stockholders~~ of AutoZone, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of AutoZone, Inc. (the Company) as of August ~~31, 2019~~28, 2021 and August ~~25, 2018,~~29, 2020, the related consolidated statements of income, comprehensive income, ~~stockholders’~~stockholders' deficit, and cash flows for each of the three years in the period ended August ~~31, 2019,~~28, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at August ~~31, 2019~~28, 2021 and August ~~25, 2018,~~29, 2020, and the results of its operations and its cash flows for each of the three years in the period ended August ~~31, 2019,~~28, 2021, 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) (PCAOB), the ~~Company’s~~Company's internal control over financial reporting as of August ~~31, 2019,~~28, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October ~~28, 2019,~~25, 2021, expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

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		*~~Valuation of Self-insurance Reserves~~*

	Valuation of Self-insurance Reserves
Description of the Matter		At August ~~31, 2019,~~28, 2021, the Company’s self-insurance reserve estimate was ~~$207~~$284 million. As more fully described in Note A of the consolidated financial statements, the Company retains a significant portion of the risks associated with workers’ compensation, general liability, ~~products~~product liability, property and vehicle insurance. Accordingly, the Company utilizes various methods, including analyses of historical trends and actuarial methods, to estimate the costs of these risks.

How We Addressed the Matter in Our Audit		Auditing the self-insurance reserve is complex and required the involvement of specialists due to the judgmental nature of estimating the costs to settle reported claims and claims incurred but not yet reported. There are a number of factors and/or assumptions (e.g., severity, duration and frequency of claims, projected inflation of related factors, and the risk-free rate) used in the measurement process which have a significant effect on the estimated self-insurance reserve. We evaluated the design and tested the operating effectiveness of the Company’s controls over the self-insurance reserve process. For example, we tested controls over management’s review of the self-insurance reserve calculations, the significant actuarial assumptions and the data inputs provided to the actuary. To evaluate the self-insurance reserve, our audit procedures included, among others, assessing the methodologies used, evaluating the significant actuarial assumptions discussed above and testing the completeness and the accuracy of the underlying claims data used by the Company. We compared the actuarial assumptions used by management to historical trends and evaluated the change in the self-insurance reserve from the prior year due to changes in these assumptions. In addition, we involved our actuarial specialists to assist in assessing the valuation methodologies and significant assumptions used in the valuation analysis, we evaluated management’s methodology for determining the risk-free interest rate utilized in measuring the net present value of the long-term portion of the self-insurance reserve, we compared the significant assumptions used by management to industry accepted actuarial assumptions and we compared the Company’s reserve to a range developed by our actuarial specialists based on assumptions developed by the specialists.

~~/s/ Ernst & Young LLP~~

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1988.

Memphis, Tennessee

October ~~28, 2019~~25, 2021

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AutoZone, Inc. Consolidated Statements of Income


	August 28,		August 29,		August 31,
	2021		2020		2019
(in thousands, except per share data)	(52 weeks)		(52 weeks)		(53 weeks)

Net sales	$	14,629,585	$	12,631,967	$	11,863,743
Cost of sales, including warehouse and delivery expenses		6,911,800		5,861,214		5,498,742
Gross profit		7,717,785		6,770,753		6,365,001
Operating, selling, general and administrative expenses		4,773,258		4,353,074		4,148,864
Operating profit		2,944,527		2,417,679		2,216,137
Interest expense, net		195,337		201,165		184,804
Income before income taxes		2,749,190		2,216,514		2,031,333
Income tax expense		578,876		483,542		414,112
Net income	$	2,170,314	$	1,732,972	$	1,617,221

Weighted average shares for basic earnings per share		22,237		23,540		24,966
Effect of dilutive stock equivalents		562		553		532
Weighted average shares for diluted earnings per share		22,799		24,093		25,498

Basic earnings per share	$	97.60	$	73.62	$	64.78
Diluted earnings per share	$	95.19	$	71.93	$	63.43

   Year Ended
(in thousands, except per share data)
   August 31,
2019
(53 weeks)    August 25,
2018
(52 weeks)    August 26,
2017
(52 weeks)
Net sales
   $ 11,863,743    $ 11,221,077    $ 10,888,676
Cost of sales, including warehouse and delivery expenses
   5,498,742    5,247,331    5,149,056






Gross profit
   6,365,001    5,973,746    5,739,620
Operating, selling, general and administrative expenses
   4,148,864    4,162,890    3,659,551






Operating profit
   2,216,137    1,810,856    2,080,069
Interest expense, net
   184,804    174,527    154,580






Income before income taxes
   2,031,333    1,636,329    1,925,489
Income tax expense
   414,112    298,793    644,620






Net income
   $ 1,617,221    $ 1,337,536    $ 1,280,869






Weighted average shares for basic earnings per share
   24,966    26,970    28,430
Effect of dilutive stock equivalents
   532    454    635






Weighted average shares for diluted earnings per share
   25,498    27,424    29,065
Basic earnings per share
   $ 64.78    $ 49.59    $ 45.05






Diluted earnings per share
   $ 63.43    $ 48.77    $ 44.07

See Notes to Consolidated Financial Statements.

AutoZone, Inc. Consolidated Statements of Comprehensive Income

   Year Ended
(in thousands)
   August 31,
2019
(53 weeks) August 25,
2018
(52 weeks) August 26,
2017
(52 weeks)
Net income
   $ 1,617,221 $ 1,337,536 $ 1,280,869
Other comprehensive income (loss):

Pension liability adjustments, net of taxes⁽¹⁾⁽⁴⁾
   —   72,376 16,514
Foreign currency translation adjustments
   (36,699 ) (53,085 ) 35,198
Unrealized gains (losses) on marketable debt securities, net of taxes⁽²⁾
   1,464 (862 ) (131 )
Net derivative activity, net of taxes⁽³⁾
   1,718 323 1,391


Total other comprehensive (loss) income
   (33,517 ) 18,752 52,972


Comprehensive income
   $ 1,583,704 $ 1,356,288 $ 1,333,841


Year Ended

August 28,

August 29,

August 31,

2021

2020

2019
(in thousands)
(52 weeks)

(52 weeks)

(53 weeks)

Net income
$
2,170,314

$
1,732,972

$
1,617,221
Other comprehensive gain (loss) income:






Foreign currency translation adjustments

44,683

(66,723)

(36,699)
Unrealized (losses) gains on marketable debt securities, net of taxes

(1,256)

1,254

1,464
Net derivative activities, net of taxes

2,839

(19,461)

1,718
Total other comprehensive income (loss)

46,266

(84,930)

(33,517)
Comprehensive income
$
2,216,580

$
1,648,042

$
1,583,704

(1)
~~Pension liability adjustments are presented net of taxes of $46,523 in 2018, which includes $13,122 related to the adoption of ASU2018-02~~ ~~- Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax effects from Accumulated Other Comprehensive Income (ASU2018-02),~~ ~~and $10,542 in 2017.~~
~~(2)~~
Unrealized gains on marketable debt securities are presented net of taxes of $389 in 2019. Unrealized losses on marketable debt securities are presented net of tax benefit of $234 in 2018, and $69 in 2017.
~~(3)~~
~~Net derivative activities are presented net of taxes of $530 in 2019, $1,882 in 2018, which includes $1,367 related to the adoption of ASU2018-02,~~ ~~and $814 in 2017.~~
~~(4)~~
On December 19, 2017, the Board approved a resolution to terminate both of the Company’s pension plans, effective March 15, 2018. During the fourth quarter of 2018, the Company completed the termination and no longer has any remaining defined benefit pension obligation.
See Notes to Consolidated Financial Statements.

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AutoZone, Inc. Consolidated Balance Sheets

August 28,

August 29,
(in thousands)

2021

2020

Assets


Current assets:


Cash and cash equivalents

$
1,171,335

$
1,750,815
Accounts receivable

378,392

364,774
Merchandise inventories

4,639,813

4,473,282
Other current assets

225,763

223,001
Total current assets

6,415,303

6,811,872

Property and equipment:

Land

1,261,509

1,205,228
Buildings and improvements

4,277,593

4,020,271
Equipment

2,407,046

2,158,251
Leasehold improvements

644,345

586,839
Construction in progress

216,685

165,953
Property and equipment

8,807,178

8,136,542
Less: Accumulated depreciation and amortization

(3,950,287)

(3,627,321)

4,856,891

4,509,221

Operating lease right-of-use assets

2,718,712

2,581,677
Goodwill

302,645

302,645
Deferred income taxes

41,043

27,843
Other long-term assets

181,605

190,614

3,244,005

3,102,779
Total assets

$
14,516,199

$
14,423,872

Liabilities and Stockholders’ Deficit

Current liabilities:

Accounts payable

$
6,013,924

$
5,156,324
Current portion of operating lease liabilities

236,568

223,846
Accrued expenses and other

1,039,788

827,668
Income taxes payable

79,474

75,253
Total current liabilities

7,369,754

6,283,091

Long-term debt

5,269,820

5,513,371
Operating lease liabilities, less current portion

2,632,842

2,501,560
Deferred income taxes

337,125

354,186
Other long-term liabilities

704,194

649,641

Commitments and contingencies

Stockholders’ deficit:

Preferred stock, authorized 1,000 shares; 0 shares issued

—

—
Common stock, par value $.01 per share, authorized 200,000 shares; 23,007 shares issued and 21,138 shares outstanding as of August 28, 2021; 23,697 shares issued and 23,376 shares outstanding as of August 29, 2020

230

237
Additional paid-in capital

1,465,669

1,283,495
Retained deficit

(419,829)

(1,450,970)
Accumulated other comprehensive loss

(307,986)

(354,252)
Treasury stock, at cost

(2,535,620)

(356,487)
Total stockholders’ deficit

(1,797,536)

(877,977)
Total liabilities and stockholders' deficit

$
14,516,199

$
14,423,872

(in thousands)
   August 31,
2019 August 25,
2018
Assets

Current assets:

Cash and cash equivalents
   $ 176,300 $ 217,824
Accounts receivable
   308,995 258,136
Merchandise inventories
   4,319,113 3,943,670
Other current assets
   224,277 216,239


Total current assets
   5,028,685 4,635,869
Property and equipment:

Land
   1,147,709 1,107,092
Buildings and improvements
   3,895,559 3,698,010
Equipment
   1,991,042 1,841,330
Leasehold improvements
   552,018 504,656
Construction in progress
   126,868 140,535


   7,713,196 7,291,623
Less: Accumulated depreciation and amortization
   3,314,445 3,073,223


   4,398,751 4,218,400
Goodwill
   302,645 302,645
Deferred income taxes
   26,861 34,620
Other long-term assets
   138,971 155,446


   468,477 492,711


   $ 9,895,913 $ 9,346,980


Liabilities and Stockholders’ Deficit

Current liabilities:

Accounts payable
   $ 4,864,912 $ 4,409,372
Accrued expenses and other
   621,932 606,894
Income taxes payable
   25,297 12,415


Total current liabilities
   5,512,141 5,028,681
Long-term debt
   5,206,344 5,005,930
Deferred income taxes
   311,980 285,204
Other long-term liabilities
   579,299 547,520
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; 25,445 shares issued and 24,038 shares outstanding in 2019 and 27,530 shares issued and 25,742 shares outstanding in 2018
   254 275
Additionalpaid-in capital
   1,264,448 1,155,426
Retained deficit
   (1,305,347 ) (1,208,824 )
Accumulated other comprehensive loss
   (269,322 ) (235,805 )
Treasury stock, at cost
   (1,403,884 ) (1,231,427 )


Total stockholders’ deficit
   (1,713,851 ) (1,520,355 )


   $ 9,895,913 $ 9,346,980


See Notes to Consolidated Financial Statements.

Table of Contents

AutoZone, Inc. Consolidated Statements of Cash Flows

Year Ended



August 28,

August 29,

August 31,

2021

2020

2019
(in thousands)

(52 weeks)

(52 weeks)

(53 weeks)

Cash flows from operating activities:


Net income

$
2,170,314

$
1,732,972

$
1,617,221
Adjustments to reconcile net income to net cash provided by operating activities:


Depreciation and amortization of property and equipment and intangibles

407,683

397,466

369,957
Amortization of debt origination fees

12,858

10,730

8,162
Deferred income taxes

(34,432)

51,077

35,051
Share-based compensation expense

56,112

44,835

43,255
Changes in operating assets and liabilities:


Accounts receivable

(11,039)

(58,564)

(48,512)
Merchandise inventories

(138,517)

(184,174)

(394,147)
Accounts payable and accrued expenses

1,029,912

531,131

464,176
Income taxes payable

29,467

90,172

(10,489)
Other, net

(3,815)

104,463

43,839
Net cash provided by operating activities

3,518,543

2,720,108

2,128,513

Cash flows from investing activities:


Capital expenditures

(621,767)

(457,736)

(496,050)
Purchase of marketable debt securities

(63,676)

(90,949)

(55,538)
Proceeds from sale of marketable debt securities

95,393

84,237

53,140
Investment in tax credit equity investments

(41,712)

(45,190)

—
Proceeds from disposal of capital assets and other, net

29,984

11,763

6,602
Net cash used in investing activities

(601,778)

(497,875)

(491,846)

Cash flows from financing activities:


Net payments of commercial paper

—

(1,030,000)

(295,300)
Proceeds from issuance of debt

—

1,850,000

750,000
Repayment of debt

(250,000)

(500,000)

(250,000)
Net proceeds from sale of common stock

187,757

68,392

188,819
Purchase of treasury stock

(3,378,321)

(930,903)

(2,004,896)
Repayment of principal portion of finance lease liabilities

(59,853)

(52,158)

(53,307)
Other, net

—

(48,967)

(9,404)
Net cash used in financing activities

(3,500,417)

(643,636)

(1,674,088)

Effect of exchange rate changes on cash

4,172

(4,082)

(4,103)

Net (decrease)/increase in cash and cash equivalents

(579,480)

1,574,515

(41,524)
Cash and cash equivalents at beginning of period

1,750,815

176,300

217,824
Cash and cash equivalents at end of period

$
1,171,335

$
1,750,815

$
176,300

Supplemental cash flow information:


Interest paid, net of interest cost capitalized

$
187,948

$
161,864

$
153,371
Income taxes paid

$
574,854

$
339,486

$
383,871
Leased assets obtained in exchange for new finance lease liabilities

$
112,095

$
115,867

$
147,699
Leased assets obtained in exchange for new operating lease liabilities

$
444,626

$
425,018

$
—

   Year Ended
(in thousands)
   August 31,
2019
(53 weeks) August 25,
2018
(52 weeks) August 26,
2017
(52 weeks)
Cash flows from operating activities:

Net income
   $ 1,617,221 $ 1,337,536 $ 1,280,869
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property and equipment and intangibles
   369,957 345,084 323,051
Amortization of debt origination fees
   8,162 8,393 8,369
Deferred income taxes
   35,051 (124,261 ) 74,902
Share-based compensation expense
   43,255 43,674 38,244
Pension plan contributions
   —   (11,596 ) (17,761 )
Pension termination charges (refund)
   (6,796 ) 130,263 —
Asset impairment
   —   193,162 —
Changes in operating assets and liabilities:

Accounts receivable
   (48,512 ) 7,534 7,795
Merchandise inventories
   (394,147 ) (188,782 ) (236,807 )
Accounts payable and accrued expenses
   464,176 319,609 82,614
Income taxes payable
   (10,489 ) (6,438 ) (3,659 )
Other, net
   50,635 26,114 12,995


Net cash provided by operating activities
   2,128,513 2,080,292 1,570,612
Cash flows from investing activities:

Capital expenditures
   (496,050 ) (521,788 ) (553,832 )
Proceeds from sale of assets
   —   35,279 —
Purchase of marketable debt securities
   (55,538 ) (104,536 ) (85,711 )
Proceeds from sale of marketable debt securities
   53,140 69,644 82,993
Proceeds (payments) from disposal of capital assets and other, net
   6,602 (459 ) 2,951


Net cash used in investing activities
   (491,846 ) (521,860 ) (553,599 )
Cash flows from financing activities:

Net (payments of) proceeds from commercial paper
   (295,300 ) 170,200 (42,400 )
Proceeds from issuance of debt
   750,000 —   600,000
Repayment of debt
   (250,000 ) (250,000 ) (400,000 )
Net proceeds from sale of common stock
   188,819 89,715 54,686
Purchase of treasury stock
   (2,004,896 ) (1,592,013 ) (1,071,649 )
Payments of capital lease obligations
   (53,307 ) (49,004 ) (47,604 )
Other, net
   (9,404 ) (1,052 ) (7,362 )


Net cash used in financing activities
   (1,674,088 ) (1,632,154 ) (914,329 )
Effect of exchange rate changes on cash
   (4,103 ) (1,724 ) 852


Net (decrease) increase in cash and cash equivalents
   (41,524 ) (75,446 ) 103,536
Cash and cash equivalents at beginning of year
   217,824 293,270 189,734


Cash and cash equivalents at end of year
   $ 176,300 $ 217,824 $ 293,270


Supplemental cash flow information:

Interest paid, net of interest cost capitalized
   $ 153,371 $ 163,965 $ 135,331


Income taxes paid
   $ 383,871 $ 427,161 $ 579,925


Assets acquired through capital lease
   $ 147,699 $ 98,782 $ 84,011


See Notes to Consolidated Financial Statements.

Table of Contents

AutoZone, Inc. Consolidated Statements of Stockholders’ Deficit

Accumulated

Common

Additional

Other


Shares

Common

Paid-in

Retained

Comprehensive

Treasury


(in thousands)

Issued

Stock

Capital

Deficit

Loss

Stock

Total

Balance at August 25, 2018

27,530

$
275

$
1,155,426

$
(1,208,824)

$
(235,805)

$
(1,231,427)

$
(1,520,355)
Cumulative effect of adoption of ASU 2014-09

—

—

—

(6,773)

—

—

(6,773)
Balance at August 25, 2018, as adjusted

27,530

275

1,155,426

(1,215,597)

(235,805)

(1,231,427)

(1,527,128)
Net income

—

—

—

1,617,221

—

—

1,617,221
Total other comprehensive income

—

—

—

—

(33,517)

—

(33,517)
Purchase of 2,182 shares of treasury stock

—

—

—

—

—

(2,004,896)

(2,004,896)
Retirement of treasury shares

(2,563)

(26)

(125,442)

(1,706,971)

—

1,832,439

—
Issuance of common stock under stock options and stock purchase plans

478

5

195,185

—

—

—

195,190
Share-based compensation expense

—

—

39,279

—

—

—

39,279
Balance at August 31, 2019

25,445

254

1,264,448

(1,305,347)

(269,322)

(1,403,884)

(1,713,851)
Net income

—

—

—

1,732,972

—

—

1,732,972
Total other comprehensive income

—

—

—

—

(84,930)

—

(84,930)
Purchase of 826 shares of treasury stock

—

—

—

—

—

(930,903)

(930,903)
Retirement of treasury shares

(1,912)

(19)

(99,686)

(1,878,595)

—

1,978,300

—
Issuance of common stock under stock options and stock purchase plans

164

2

74,985

—

—

—

74,987
Share-based compensation expense

—

—

43,748

—

—

—

43,748
Balance at August 29, 2020

23,697

237

1,283,495

(1,450,970)

(354,252)

(356,487)

(877,977)
Net income

—

—

—

2,170,314

—

—

2,170,314
Total other comprehensive income

—

—

—

—

46,266

—

46,266
Purchase of 2,592 shares of treasury stock

—

—

—

—

—

(3,378,321)

(3,378,321)
Retirement of treasury shares

(1,044)

(10)

(60,005)

(1,139,173)

—

1,199,188

—
Issuance of common stock under stock options and stock purchase plans

354

3

187,754

—

—

—

187,757
Share-based compensation expense

—

—

54,425

—

—

—

54,425
Balance at August 28, 2021

23,007

$
230

$
1,465,669

$
(419,829)

$
(307,986)

$
(2,535,620)

$
(1,797,536)

(in thousands)
   Common
Shares
Issued Common
Stock Additional
Paid-in
Capital Retained
Deficit Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Balance at August 27, 2016
   30,329 $      303 $ 1,054,647 $ (1,602,186 ) $          (307,529 ) $ (932,773 ) $ (1,787,538 )
Net income
   1,280,869 1,280,869
Total other comprehensive income
   52,972 52,972
Purchase of 1,495 shares of treasury stock
   (1,071,649 ) (1,071,649 )
Retirement of treasury shares
   (1,804 ) (18 ) (64,943 ) (1,321,070 ) 1,386,031 —
Issuance of common stock under stock options and stock purchase plans
   210 2 54,684 54,686
Share-based compensation expense
   42,283 42,283


Balance at August 26, 2017
   28,735 287 1,086,671 (1,642,387 ) (254,557 ) (618,391 ) (1,428,377 )
Net income
   1,337,536 1,337,536
Total other comprehensive income
   18,752 18,752
Purchase of 2,398 shares of treasury stock
   (1,592,013 ) (1,592,013 )
Retirement of treasury shares
   (1,512 ) (15 ) (60,500 ) (918,462 ) 978,977 —
Issuance of common stock under stock options and stock purchase plans
   307 3 89,712 89,715
Adoption of ASU2018-02
   14,489 14,489
Share-based compensation expense
   39,543 39,543


Balance at August 25, 2018
   27,530 275 1,155,426 (1,208,824 ) (235,805 ) (1,231,427 ) (1,520,355 )
Cumulative effect of adoption of ASU2014-09
   (6,773 ) (6,773 )


Balance at August 25, 2018, as adjusted
   27,530 275 1,155,426 (1,215,597 ) (235,805 ) (1,231,427 ) (1,527,128 )
Net income
   1,617,221 1,617,221
Total other comprehensive income
   (33,517 ) (33,517 )
Purchase of 2,182 shares of treasury stock
   (2,004,896 ) (2,004,896 )
Retirement of treasury shares
   (2,563 ) (26 ) (125,442 ) (1,706,971 ) 1,832,439 —
Issuance of common stock under stock options and stock purchase plans
   478 5 195,185 195,190
Share-based compensation expense
   39,279 39,279


Balance at August 31, 2019
   25,445 $ 254 $ 1,264,448 $ (1,305,347 ) $ (269,322 ) $ (1,403,884 ) $ (1,713,851 )


See Notes to Consolidated Financial Statements.

Table of Contents

Notes to Consolidated Financial Statements
Note A – Significant Accounting Policies
Business:AutoZone, Inc. (“AutoZone” or the “Company”) is the leading retailer, and a leading distributor, of automotive replacement parts and accessories in the Americas. At the end of fiscal ~~2019,~~2021, the Company operated ~~5,772~~6,051 stores in the ~~United States, including Puerto Rico and Saint Thomas; 604~~U.S., 664 stores in ~~Mexico;~~Mexico and 3552 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 andnon-automotive products. At the end of fiscal ~~2019, 4,893~~2021, 5,179 of the domestic stores 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 had commercial programs in all stores in Mexico and Brazil. The Company also sells the ALLDATA brand automotive diagnostic, repair and ~~repair~~shop management software through ~~www.alldata.com and www.alldatadiy.com.~~www.alldata.com. Additionally, the Company sells automotive hard parts, maintenance items, accessories, andnon-automotive products through www.autozone.com, and its commercial customers can make purchases through www.autozonepro.com. ~~Additionally, on www.duralastparts.com we provide~~The Company also provides product information on ~~our~~its Duralast branded ~~product.~~products through www.duralastparts.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. Fiscal 2021 and 2020 represented 52 weeks and 2019 represented 53 ~~weeks. Fiscal 2018 and 2017 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.
Variable Interest Entities: The Company invests in certain tax credit funds that promote renewable energy and generate a return primarily through the realization of federal tax credits. The deferral method is used to account for the tax attributes of these investments.

The Company considers its investment in these tax credit funds as an investment in a variable interest entity (“VIE”). The Company evaluates the investment in any VIE to determine whether it is the primary beneficiary. The Company considers a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct financing, leasing, construction and other operating decisions and activities. As of August 28, 2021, the Company held tax credit equity investments that were deemed to be VIE’s and determined that it was not the primary beneficiary of the entities, as it did not have the power to direct the activities that most significantly impacted the entity and accounted for this investment using the equity method. The Company’s maximum exposure to losses is limited to its net investment, which was $11.8 million as of August 28, 2021 and $6.5 million as of August 29, 2020, and was included within the Other long-term assets caption in the accompanying Consolidated Balance Sheets.
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 five days. Credit and debit card receivables included within cash and cash equivalents were ~~$59.4~~$70.5 million at August ~~31, 2019~~28, 2021 and ~~$51.0~~$63.7 million at August ~~25, 2018.~~29, 2020.
Cash balances are held in various locations around the world. Cash and cash equivalents of ~~$49.9~~$80.4 million and ~~$98.8~~$62.4 million were held outside of the U.S. as of August ~~31, 2019,~~28, 2021, and August ~~25, 2018,~~29, 2020, respectively, and were generally utilized to support the liquidity needs in foreign operations.

Table of Contents

Accounts Receivable:~~Accounts~~Effective in fiscal 2021, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires the Company to estimate all expected credit losses for financial assets measured at amortized cost basis, including trade receivables, based on historical experience, current market conditions and supportable forecasts. The Company’s accounts receivable primarily consists of receivables from commercial ~~customers and vendors, and is presented net of an allowance for uncollectible accounts. AutoZone~~customers. The Company routinely grants credit to certain commercial customers on a short-term basis consisting primarily of ~~its commercial customers.~~daily, weekly or monthly terms. 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~~many customers, as well as the low dollar value ~~per transaction~~ for ~~most~~its typical sales transaction.

Receivables are presented net of ~~its sales.~~an allowance for credit losses. Allowances for ~~potential~~expected credit losses are determined based on historical experience, the current economic environment as well as our expectations of future economic conditions and the current evaluation of the composition of accounts receivable. ~~Historically,~~The Company will apply adjustments for specific factors and current economic conditions as needed at each reporting date. The Company’s allowance for credit losses ~~have been within management’s expectations~~are included in “Accounts receivable” on the accompanying Consolidated Balance Sheets as of August 28, 2021 and ~~the~~August 29, 2020. The balance of the allowance for ~~uncollectible accounts~~credit losses was ~~$8.5~~$11.4 million at August ~~31, 2019,~~28, 2021, and ~~$6.1~~$10.0 million at August ~~25, 2018.~~29, 2020.

Vendor Receivables: The Company’s vendor receivables primarily consist of balances arising from its vendors through a variety of programs and arrangements, including rebates, allowances, promotional funds and reimbursement of specific, incremental, identifiable costs incurred by the Company in selling the vendors’ products. The amounts to be received are prescribed by the terms of the vendor agreements and therefore collection of such amounts is generally not at risk. The Company regularly reviews vendor receivables for collectability and assesses the need for an allowance for credit losses based on an evaluation of the vendors’ financial positions and corresponding abilities to meet financial obligations. Management does not believe there is a reasonable likelihood that the Company will be unable to collect the receivables from vendors and did not record a reserve for expected credit losses from vendors in the Consolidated Financial Statements as of August 28, 2021 and August 29, 2020.

Merchandise Inventories:~~Inventories are stated at the lower of cost or market.~~ Merchandise inventories include related purchasing, storage and handling costs. Inventory cost has been determined using thelast-in,first-out (“LIFO”) method stated at the lower of cost or market for domestic inventories and the weighted average cost method ~~for Mexico and Brazil inventories~~ stated at the lower of cost or net realizable ~~value.~~value for Mexico and Brazil inventories. Due to historical price deflation on the Company’s merchandise purchases, the Company has exhausted its LIFO reserve balance. The Company’s policy is to not write up inventory in excess of replacement cost. The difference between LIFO cost and replacement cost, which will be reduced upon experiencing price inflation on the Company’s merchandise purchases, was ~~$404.9~~$335.3 million at August ~~31, 2019,~~28, 2021, and ~~$452.4~~$357.0 million at August ~~25, 2018.~~29, 2020.

Marketable Debt 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 asavailable-for-sale. The Company includes these marketable debt 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 debt securities is included in~~(Refer to “Note E – Fair Value Measurements” and “Note F – Marketable Debt ~~Securities.”~~Securities” for a discussion of marketable debt securities.)

Property and Equipment:Property and equipment is stated at cost. Property consists of land, which includes finance leases – real estate, buildings and improvements, equipment, which includes finance leases – vehicles, and construction in progress. 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, including software, 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.~~finance leases.

Table of Contents

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.

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 had approximately $302.6 million of goodwill, which is allocated to the Auto Parts Stores operating segment at August 28, 2021 and August 29, 2020. The Company performs its annual impairment assessment in the fourth quarter of each fiscal year, unless circumstances dictate more frequent assessments. ~~Refer to “Note N – Goodwill~~In the fourth quarter of fiscal 2021 and ~~Intangibles” for additional disclosures regarding~~2020, the ~~Company’s~~Company concluded its remaining goodwill ~~and impairment assessment.~~

~~Intangible Assets:~~Intangible assets consist of customer relationships purchased relating to ALLDATA operations. Amortizing intangible assets are amortized over periods ranging from 3 to 10 years. Refer to “Note N – Goodwill and Intangibles” and “Note M – Sale of Assets” for additional disclosures regarding the Company’s intangible assets and impairment assessment.was not impaired.

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 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 (the “Board”). Further, the Company does not buy or sell 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~~(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 of 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.

Foreign Currency:The Company accounts for its Mexican, Brazilian, Canadian, European, Chinese and German operations using the local market currency and converts its financial statements from these currencies to U.S. dollars. The cumulative loss on currency translation is recorded as a component of Accumulated Other Comprehensive Loss (Refer to “Note G – Accumulated Other Comprehensive Loss”) for additional information regarding the Company’s Accumulated Other Comprehensive Loss.)

Table of Contents

Self-Insurance Reserves: The Company retains a significant portion of the risks associated with workers’ compensation, general liability, ~~products~~product liability, property and vehicle insurance. The Company obtains third party insurance to limit the exposure related to certain of these risks. The reserve for the Company’s liability associated with these risks totaled ~~$207.0~~$284.0 million and ~~$203.1~~$288.6 million at August ~~31, 2019~~28, 2021 and August ~~25, 2018,~~29, 2020, respectively.

The assumptions made by management in estimating its self-insurance reserves include consideration of historical cost experience, judgments about the present and expected levels of cost per claim and retention levels. The Company utilizes various methods, including analyses of historical trends and use of a specialist, to estimate the costs to settle reported claims and claims incurred but not yet reported. The actuarial methods develop estimates of the future ultimate claim costs based on claims incurred as of the balance sheet date. When estimating these liabilities, the Company considers factors, such as the severity, duration and frequency of claims, legal costs associated with claims, healthcare trends and projected inflation of related factors.

The Company’s liabilities for workers’ compensation, 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, the Company reflects the net present value of the obligations it determines to be long-term using the risk-free interest rate as of the balance sheet date.

~~Deferred Rent:~~Leases: The Company ~~recognizes rent expense on a straight-line basis over the course of the lease term,~~leases certain retail stores, distribution centers and vehicles under various non-callable leases. Leases are categorized at their commencement date, which ~~includes any reasonably assured renewal periods, beginning on~~is the date the Company takes ~~physical~~ possession or control of the ~~property (see “Note O – Leases”). Differences~~underlying asset. Most of the Company’s leases are operating leases; however, certain land and vehicles are leased under finance leases. The leases have varying terms and expire at various dates through 2046. Retail leases typically have initial terms between ~~this calculated expense~~one and ~~cash~~20 years, with one to six optional renewal periods of one to five years each. Finance leases for vehicles typically have original terms between one and five years, and finance leases for real estate typically have terms of 20 or more years. The Company subleases certain properties that are not used in its operations. Sublease income was not significant for the periods presented.

Lease-related assets and liabilities are recognized for all leases with an initial term of 12 months or greater. The exercise of lease renewal options is at the Company’s sole discretion. The Company evaluates renewal options at commencement and on an ongoing basis and includes options that are reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities.

Certain lease agreements require variable payments based upon actual costs of common-area maintenance, real estate taxes and insurance.Lease components are ~~recorded~~not separated from the non-lease components (typically fixed common-area maintenance costs at its retail store locations) for all classes of leased assets, except vehicles which contain variable non-lease components that are expensed as ~~a liability within~~incurred. The Company uses the ~~Accrued expenses~~stated borrowing rate in determining the present value of the lease payments over the lease term for vehicles. The Company’s incremental borrowing rate is used to determine the present value of the lease payments over the lease term for substantially all the operating and financing leases for retail stores, distribution centers and other ~~and Other long-term liabilities captions in~~real estate, as these leases typically do not have a stated borrowing rate. For operating leases that commenced prior to the ~~accompanying Consolidated Balance Sheets, based on~~date of adoption of ASU 2016-02 – Leases (Topic 842), the ~~terms~~Company used the incremental borrowing rate that corresponded to the remaining lease term as of the ~~lease. Deferred rent approximated $159.9 million as~~date of ~~August 31, 2019, and $139.6 million as of August 25, 2018.~~adoption. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. (Refer to “Note M – Leases” for additional disclosures regarding the Company’s leases.)

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(Refer to “Note I – Financing” for a discussion of the carrying values and fair values of the Company’s debt, ~~is included in “Note I – Financing,” marketable debt securities is included in~~ “Note F – Marketable Debt ~~Securities,”~~Securities” for additional disclosures related to marketable debt securities and ~~derivatives is included in~~ “Note H – Derivative Financial ~~Instruments.”~~Instruments” for additional information regarding derivatives.)

Table of Contents

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 the Company in the various jurisdictions in which we operate.

The Company recognizes liabilities for uncertain income tax positions based on atwo-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 the 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, and if applicable, penalties, as a component of Income tax expense. The income tax liabilities and accrued interest and penalties ~~that~~ are expected to be payable within one year of the balance sheet date are presented 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 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~~(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 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’s primary source of revenue is derived from the sale of automotive aftermarket parts and merchandise to its retail and commercial customers. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, in an amount representing the consideration the Company expects to receive in exchange for selling products to its customers. Sales are recorded net of variable consideration in the period incurred, including discounts, sales incentives and rebates, sales taxes and estimated sales returns. Sales returns are based on historical return rates. The Company may enter into contracts that include multiple combinations of products and services, which are accounted for as separate performance obligations and do not require significant judgment.

The Company’s performance obligations are typically satisfied when the customer takes possession of the merchandise. Revenue from retail customers is recognized when the customer leaves our store with the purchased products, typically at the point of sale or forE-commerce orders when the product is shipped. Revenue from commercial customers is recognized upon delivery, typicallysame-day. Payment from retail customers is at the point of sale and payment terms for commercial customers are based on the Company’spre-established credit requirements and generally range from 1 to 30 days. Discounts, sales incentives and rebates are treated as separate performance obligations, and revenue allocated to these performance obligations is recognized as the obligations to the customer are satisfied. Additionally, the Company estimates and records gift card breakage as redemptions occur. The Company offers diagnostic and repair information software used in the automotive repair industry through ALLDATA. This revenue is recognized as services are provided. Revenue from these services are recognized over the life of the contract. ~~See “Note R - Revenue Recognition” for further discussion.~~

Table of Contents

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.

There were no material contract assets, liabilities or deferred costs recorded on the Consolidated Balance Sheet as of August 28, 2021 and August 29, 2020. Revenue related to unfulfilled performance obligations as of August 28, 2021 and August 29, 2020 is not significant. (Refer to “Note P – Segment Reporting” for additional information related to revenue recognized during the period.)

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.

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 $85.9 million in fiscal 2021, $77.6 million in fiscal 2020 and $87.5 million in fiscal ~~2019, $95.2 million in fiscal 2018, and $93.1 million in fiscal 2017.~~2019. Vendor promotional funds, which reduced advertising expense, amounted to $53.2 million in fiscal 2021, $39.4 million in fiscal 2020 and $32.2 million in fiscal ~~2019, $25.3 million in fiscal 2018, and $28.3 million in fiscal 2017.~~2019.

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;

Vendor allowances that are not reimbursements for specific, incremental and identifiable costs

●

Costs associated with operating the Company’s supply chain, including payroll and benefits, warehouse occupancy, transportation and depreciation; and

●

Inventory shrinkage

~~Total cost~~57

Table of ~~merchandise sold, including:~~Contents

~~Freight expenses associated with moving merchandise inventories from the Company’s vendors to the distribution 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; and~~

~~Inventory shrinkage~~

Operating, Selling, General and Administrative Expenses

●

Payroll and benefits for store, field leadership and store support employees;

●

Occupancy of store and store support facilities;

●

Depreciation and amortization related to store and store support assets;

●

Transportation associated with field leadership, commercial sales force and deliveries from stores;

●

Advertising;

●

Self-insurance; and

●

Other administrative costs, such as credit card transaction fees, legal costs, supplies and travel and lodging

~~Payroll and benefit costs for store, field leadership and store support employees;~~

~~Occupancy costs of store and store support facilities;~~

~~Depreciation and amortization related to store and store support assets;~~

~~Transportation costs associated with field leadership, commercial sales force and deliveries from stores;~~

~~Advertising;~~

~~Self-insurance costs; and~~

~~Other administrative costs, such as credit card transaction fees, legal costs, 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 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 171,652, 169,460 and 90,314 ~~stock options excluded from the diluted earnings per share calculation because they would have been anti-dilutive as of August 31, 2019. There were 847,279~~ stock options excluded for the year ended August ~~25, 2018,~~28, 2021, August 29, 2020 and ~~620,025 stock options excluded for the year ended~~ August ~~26, 2017,~~31, 2019, respectively because they would have been anti-dilutive.

Share-Based Payments:Share-based payments include stock option grants, restricted stock, restricted stock units, stock appreciation rights and other transactions under the Company’s equity incentive plans. The Company recognizes compensation expense for its share-based payments over the requisite service period based on the fair value of the awards. The Company uses the Black-Scholes option pricing model to calculate the fair value of stock options. The value of restricted stock is based on the stock price of the award on the grant date. ~~See~~(Refer to “Note B – Share-Based Payments” for further discussion.)

Risk and Uncertainties: In fiscal ~~2019, one~~2021, 1 class of similar products accounted for approximately 13 percent of the Company’s total revenues, and one vendor supplied approximately 1210 percent of the Company’s total purchases. No other class of similar products accounted for 10 percent or more of total revenues, and no other individual vendor provided more than 10 percent of total purchases.

Recently Adopted Accounting Pronouncements:

In ~~May 2014, the Financial Accounting Standards Board (“FASB”) issued~~~~ASU2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606).~~~~This ASU, along with subsequent ASUs issued to clarify certain provisions of ASU2014-09,~~ is a comprehensive new revenue recognition model that expands disclosure requirements and requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Companies that transition to this new standard may either retrospectively restate each prior reporting period or follow the modified retrospective method, which reflects the cumulative effect of initially applying the updates with an adjustment to retained earnings at the date of adoption. The Company adopted this standard using the modified retrospective approach with its first quarter ended November 17, 2018. Results for the 17 and 53 weeks ended August 31, 2019 were presented under ASU~~2014-09,~~ ~~while prior period amounts were not adjusted and continue to be reported under the accounting standards in effect for the prior periods. The cumulative effect of the adoption of ASU2014-09~~ did not have a material impact on the Company’s consolidated financial condition, results of operations, cash flows, business processes, controls or systems. Refer to “Note R – Revenue Recognition.”

~~In October 2016, the FASB issued~~~~ASU2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory~~~~. ASU2016-16~~ requires that an entity recognize the income tax consequences of an intra-entity transfer of assets other than inventory when the transfer occurs. The guidance must be applied using the modified retrospective approach. The Company adopted this standard with its first quarter ended November 17, 2018 and evaluated the effects from this adoption. The Company determined the provision of ASU~~2016-16~~ ~~did not have an impact on the Company’s consolidated financial statements.~~

~~Recently Issued Accounting Pronouncements:~~

~~In February 2016, the FASB issued~~~~ASU2016-02,~~ ~~Leases (Topic 842),~~~~which replaces the existing guidance in~~ ~~Accounting Standard Codification 840 (“ASC 840”),~~ ~~Leases and requires atwo-fold~~ approach for lessee accounting, under which a lessee will account for leases as finance leases or operating leases. For all leases with terms greater than 12 months, both lease classifications will result in the lessee recognizing a~~right-of-use~~ asset (ROU) and a corresponding lease liability on its balance sheet, with differing methodology for income statement recognition. The amendment will be effective for the Company at the beginning of its fiscal 2020 year, and early adoption is permitted. The Company will adopt this standard beginning our first quarter ending November 23, 2019. The guidance is required to be adopted using the modified retrospective approach, which provides an entity the option to apply the guidance at the beginning of the earliest comparative period presented, or at the beginning of the period in which it is adopted. The Company has elected to apply the guidance at the beginning of the period in which it is adopted. The Company intends to utilize the transition practical expedients under which the Company will not be required to reassess (i) whether expired or existing contracts are or contain leases as defined by the new standard, (ii) the classification of such leases, and (iii) whether previously capitalized initial direct costs would qualify for capitalization under the new standard.

The Company established a cross-functional implementation team to implement the new standard and identify new processes and controls to ensure compliance with the new standard. The implementation team has implemented ASU~~2016-02~~ compliant lease accounting software and completed its internal evaluation of existing contractual arrangements. The Company is finalizing changes to its business processes and controls to support the adoption of the new standard. The Company currently expects to record consolidated ROU assets and lease liabilities of approximately $2.5 billion to $2.8 billion on the date of adoption.

~~In June 2018, the FASB issued ASU2018-07,~~~~Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting~~~~. ASU2018-07~~ aims to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The amendment will be effective for the Company at the beginning of its fiscal 2020 year, and early adoption is permitted. The Company will adopt this standard beginning our first quarter ending November 23, 2019. The Company does not expect the provisions of ASU~~2018-07~~ ~~to have a material impact on its consolidated financial statements.~~

In August 2018, the FASB issued ASU2018-15,Intangibles – Goodwill and Other Internal Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtaininternal-use software. ASU2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ~~Early adoption is permitted.~~ The Company ~~will adopt this standard beginning our first quarter ending November 21, 2020. The Company is currently evaluating~~adopted the new guidance ~~to determine~~on a prospective basis in the ~~impact the~~first quarter of fiscal 2021. The adoption ~~will~~of this guidance did not have a material impact on the Company’s ~~results~~Consolidated Financial Statements and related disclosures.

Table of ~~operations, cash flows and financial condition.~~Contents

In June 2016, the FASB issued ASU2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which was subsequently amended in November 2018 through ASU2018-19,Codification Improvements to Topic 326, Financial Instruments Credit Losses. ASU2016-13 ~~will require~~ requires entities to estimate ~~lifetime~~all expected credit losses for financial assets measured at amortized cost basis, including trade ~~and other~~ receivables, net investments in leases, financial receivables, debt securities, and other instruments, which will result in earlier recognition of credit losses. Further, the new credit loss model will affect how entities estimate their allowance for loss receivables that are current with respect to their payment terms. ASU~~2016-13~~ ~~will be effective for the Company~~held at the ~~beginning of its fiscal 2021 year.~~reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The Company ~~will adopt~~adopted this ~~standard~~guidance using the modified retrospective method beginning ~~our~~with its first quarter ~~ending~~ended November 21, 2020. The ~~Company is currently evaluating the~~adoption of this new guidance ~~to determine the~~did not have a material impact ~~the adoption will have~~ on the Company’s ~~results of operations, cash flows,~~Consolidated Financial Statements and ~~financial condition.~~related disclosures.

Note B – Share-Based Payments

Overview of Share-Based Payment Plans

The Company has several active and inactive equity incentive plans under which the Company has been authorized to grant share-based awards to key employees andnon-employee directors. Awards under these plans have been in the form of restricted stock, restricted stock units, stock options, stock appreciation rights and other awards as defined by the plans. The Company also has an Employee Stock Purchase Plan that allows employees to purchase Company shares at a discount subject to certain limitations. The Company also has an Executive Stock Purchase Plan which permits all eligible executives to purchase AutoZone’s common stock at a discount up to ~~twenty-five~~NaN percent of his or her annual salary and bonus.

Amended and Restated AutoZone, Inc. 2011 Equity Incentive Award Plan

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 tonon-employee directors and employees for their service to AutoZone or its subsidiaries or affiliates. Prior to the Company’s adoption of the 2011 Plan, equity-based compensation was provided to employees under the 2006 Stock Option Plan and tonon-employee directors under the 2003 Director Compensation Plan (the “2003 Comp Plan”).

During fiscal 2016, the Company’s stockholders approved the Amended and Restated AutoZone, Inc. 2011 Equity Incentive Award Plan (the “Amended 2011 Equity Plan”). The Amended 2011 Equity Plan imposes a maximum limit on the compensation, measured as the sum of any cash compensation and the aggregate grant date fair value of awards granted under the Amended 2011 Equity Plan, which may be paid tonon-employee directors for such service during any calendar year. The Amended 2011 Equity Plan also applies aten-year term on the Amended 2011 Equity Plan through December 16, 2025 and extends the Company’s ability to grant incentive stock options under the Amended 2011 Equity Plan through October 7, 2025.

AutoZone, Inc. 2020 Omnibus Incentive Award Plan

On December 16, 2020, the Company’s stockholders approved the AutoZone, Inc. 2020 Omnibus Incentive Award Plan (the “2020 Omnibus Plan”), which serves as the successor to the Amended 2011 Equity Plan. The 2020 Omnibus Plan provides equity-based compensation to our non-employee directors and employees for their service to AutoZone or our subsidiaries or affiliates. Under the 2020 Omnibus 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 based awards, cash based awards and other incentive awards structured by the Compensation Committee and the Board within parameters set forth in the 2020 Omnibus Plan.

Table of Contents

AutoZone, Inc. Director Compensation Program
During fiscal ~~2014,~~2020, the Company adopted the ~~2014~~2020 Director Compensation Program (the “Program”), which states thatnon-employee directors will receive their compensation in awards of restricted stock units under the Amended 2011 Equity ~~Incentive Award~~ Plan (or beginning January 1, 2021, the 2020 Omnibus Plan), with an option for a certain portion of a director’s compensation to be paid in cash at thenon-employee director’s election. The Program replaced the ~~2011~~2018 Director Compensation Program. Under the Program, restricted stock units are granted January 1 of each year (the “Grant Date”). The number of restricted stock units is determined by dividing 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 January 1 of each year and are paid in shares of the Company’s common stock on the fifth anniversary of the Grant Date or the date thenon-employee director ceases to be a member of the Board (“Separation from Service”), whichever occurs first.Non-employee directors may elect to defer receipt of the restricted stock units until their Separation from Service. The cash portion of the award, if elected, is paid ratably over ~~the remaining calendar quarters.~~

~~2011 Director Compensation Program~~

~~In addition to the 2011 Plan, on December 15, 2010, the Company adopted the 2011 Director Compensation Program (the “2011 Program”), which stated thatnon-employee~~ ~~directors would receive their compensation in awards of restricted stock units under the 2011 Plan. Under the 2011 Program, restricted stock units were granted the first day of~~ each calendar quarter. ~~The number of restricted stock units granted each quarter was determined by dividingone-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 were 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.~~

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $56.1 million for fiscal 2021, $44.8 million for fiscal 2020 and $43.3 million for fiscal ~~2019, $43.7 million for fiscal 2018 and $38.2 million for fiscal 2017.~~2019. As of August ~~31, 2019,~~28, 2021, share-based compensation expense for unvested awards not yet recognized in earnings is ~~$34.3~~$52.7 million and will be recognized over a weighted average period of 1.7 years.

General terms and methods of valuation for the Company’s share-based awards are as follows:

Stock Options

The Company grants options to purchase common stock to certain of its employees under 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. Employee options generally vest in equal annual installments on the first, second, third and fourth anniversaries of the grant date and 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.

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 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 31,


2021

2020

2019

Expected price volatility

28
%
22
%
21
%
Risk-free interest rate

0.4
%
1.4
%
3.0
%
Weighted average expected lives (in years)

5.6

5.5

5.6

Forfeiture rate

10
%
10
%
10
%
Dividend yield

0
%
0
%
0
%

   Year Ended
   August 31,
2019 August 25,
2018 August 26,
2017
Expected price volatility
   21 % 20 % 18 %
Risk-free interest rates
   3.0 % 1.9 % 1.2 %
Weighted average expected lives (in years)
   5.6 5.1 5.1
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 its stock to calculate the volatility assumption as it is management’s belief that this is the best indicator of future volatility. 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 per share of options granted was $304.31 during fiscal 2021, $252.54 during fiscal 2020 and $208.37 during fiscal ~~2019, $129.12 during fiscal 2018 and $139.80 during fiscal 2017.~~2019. The intrinsic value of options exercised was $280.1 million in fiscal 2021, $101.9 million in fiscal 2020 and $227.4 million in fiscal ~~2019, $123.1 million in fiscal 2018 and $93.9 million in fiscal 2017.~~2019. The total fair value of options vested was $44.7 million in fiscal 2021, $39.1 million in fiscal 2020 and $34.5 million in fiscal ~~2019, $35.7 million in fiscal 2018 and $34.7 million in fiscal 2017.~~2019.
The Company generally issues new shares when options are exercised. The following table summarizes information about stock option activity for the year ended August ~~31, 2019:~~28, 2021:






Weighted


Average

Remaining

Aggregate

Weighted

Contractual

Intrinsic

Number

Average

Term

Value

of Shares

Exercise Price

(in years)

(in thousands)

Outstanding – August 29, 2020

1,384,986

$
677.15




Granted

202,820

1,152.54




Exercised

(349,592)

541.80




Cancelled

(30,160)

906.26




Outstanding – August 28, 2021

1,208,054

790.41

5.95

$
915,807

Exercisable

766,453

669.30

4.68

673,858
Expected to vest

397,441

1,000.60

8.16

217,754
Available for future grants

1,188,220

   Number
of Shares    Weighted
Average
Exercise
Price    Weighted-
Average
Remaining
Contractual
Term
(in years)    Aggregate
Intrinsic
Value
(in thousands)
Outstanding – August 25, 2018
   1,706,866    $ 534.74
Granted
   172,750    774.33
Exercised
   (471,216 )    413.60
Cancelled
   (59,089 )    679.92



Outstanding – August 31, 2019
   1,349,311    601.36    6.08    $ 675,097



Exercisable
   793,266    528.85    4.88    454,415
Expected to vest
   500,441    704.81    7.80    198,614
Available for future grants
   547,519
Restricted Stock Units
Restricted stock unit awards are valued at the market price of a share of the Company’s stock on the date of grant and vest ratably on an annual basis over a four-year service period and are payable in shares of common stock on the vesting date. Compensation expense for grants of employee restricted stock units is recognized on a straight-line basis over the four-year service period, less estimated forfeitures, which are consistent with stock option forfeiture assumptions.
As of August ~~31, 2019,~~28, 2021, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately ~~$5.6~~$10.5 million, before income taxes, which we expect to recognize over an estimated weighted average period of ~~3.1~~2.4 years.

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Transactions related to restricted stock units for the fiscal year ended August ~~31, 2019~~28, 2021 are as ~~follow:~~follows:

Weighted-


Number

Average Grant

of Shares

Date Fair Value

Nonvested at August 29, 2020

14,160

$
910.63
Granted

8,064

1,149.77
Vested

(5,805)

977.48
Canceled or forfeited

(668)

976.36
Nonvested at August 28, 2021

15,751

$
1,005.41

   Number
of Shares    Weighted-
Average Grant
Date Fair Value
Nonvested at August 25, 2018
   —      —
Granted
   13,021    $ 786.08
Vested
   (2,514 )    838.34
Canceled or forfeited
   (458 )    772.80




Nonvested at August 31, 2019
   10,049    $ 773.61




Stock Appreciation Rights
At August ~~31, 2019,~~28, 2021 and August 29, 2020, the Company had ~~$11.2~~$7.5 million and $5.7 million, respectively of accrued compensation ~~expense related to 10,206~~expense. There were 4,822 outstanding units issued under the 2003 Comp Plan and prior plans. ~~There was $13.6 million compensation expense accrued related to 17,710 outstanding units as of August 25, 2018. The decrease in outstanding units was due to the retirement of one director.~~ As directors retire, this balance will be reduced. NoNaN additional shares of stock or units will be issued in future years under the 2003 Comp ~~Plan.~~Plan or prior plans.
Employee Stock Purchase Plan and Executive Stock Purchase Plan
The Company recognized ~~$2.8~~$2.5 million in compensation expense related to the discount on the selling of shares to employees and executives under the various share purchase plans in fiscal ~~2019, $2.1~~2021, $3.1 million in fiscal ~~2018~~2020 and ~~$1.8~~$2.8 million in fiscal ~~2017.~~2019. Under the Employee Plan, ~~11,011, 14,523~~8,479, 10,525 and ~~14,205~~11,011 shares were sold to employees in fiscal ~~2019, 2018~~2021, 2020 and ~~2017~~2019, respectively. The Company repurchased 7,611, 8,287 and 17,201 shares in fiscal 2021, 2020 and 2019, ~~11,816 shares in fiscal 2018 and 12,455 shares in fiscal 2017~~respectively, all at market value from employees electing to sell their stock. Purchases under the Executive Plan were 997, 1,204 and 1,483 shares in fiscal 2021, 2020 and 2019, ~~1,840 shares in fiscal 2018 and 1,865 shares in fiscal 2017.~~respectively. Issuances of shares under the Employee Plan are netted against repurchases and such repurchases are not included in share repurchases disclosed in “Note K – Stock Repurchase Program.” At August ~~31, 2019, 152,766~~28, 2021, 133,762 shares of common stock were reserved for future issuance under the Employee Plan, and ~~236,565~~234,364 shares of common stock were reserved for future issuance under the Executive Plan.
Note C – Accrued Expenses and Other
Accrued expenses and other consisted of the following:


August 28,

August 29,
(in thousands)

2021

2020

Accrued compensation, related payroll taxes and benefits

$
470,561

$
321,071
Property, sales and other taxes

135,831

121,196
Medical and casualty insurance claims (current portion)

121,237

112,746
Finance lease liabilities

89,932

67,498
Accrued interest

55,435

63,503
Accrued gift cards

50,369

43,876
Accrued sales and warranty returns

32,418

32,356
Other

84,005

65,422

$
1,039,788

$
827,668

(in thousands)
   August 31,
2019    August 25,
2018
Accrued compensation, related payroll taxes and benefits
   $ 170,321    $ 195,004
Property, sales, and other taxes
   122,372    106,050
Medical and casualty insurance claims (current portion)
   89,250    88,761
Capital lease obligations
   56,246    52,290
Accrued interest
   48,147    36,902
Accrued gift cards
   38,658    27,401
Accrued sales and warranty returns
   34,310    20,025
Other
   62,628    80,461




   $ 621,932    $ 606,894




The Company retains a significant portion of the insurance risks associated with workers’ compensation, employee health, general, ~~products~~product 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 retained limits per claim type are $2.0 million for workers’ compensation, ~~$3.0~~$5.0 million for auto liability, $21.5 million for property ~~$0.7 million for employee health,~~ and $1.0 million for general and ~~products~~product liability.

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Note D – Income Taxes
The components of income from continuing operations before income taxes are as follows:

Year Ended

August 28,

August 29,

August 31,
(in thousands)

2021

2020

2019

Domestic

$
2,436,548

$
1,960,320

$
1,745,625
International

312,642

256,194

285,708

$
2,749,190

$
2,216,514

$
2,031,333

   Year Ended
(in thousands)
   August 31,
2019    August 25,
2018    August 26,
2017
Domestic
   $ 1,745,625    $ 1,412,963    $ 1,737,401
International
   285,708    223,366    188,088






   $ 2,031,333    $ 1,636,329    $ 1,925,489






The provision for income tax expense consisted of the following:

Year Ended

August 28,

August 29,

August 31,
(in thousands)

2021

2020

2019

Current:






Federal

$
438,686

$
324,156

$
274,504
State

79,271

47,880

45,457
International

95,351

60,429

59,100

613,308

432,465

379,061
Deferred:






Federal

(21,366)

43,706

25,757
State

(1,707)

12,544

6,914
International

(11,359)

(5,173)

2,380

(34,432)

51,077

35,051
Income tax expense

$
578,876

$
483,542

$
414,112

   Year Ended
(in thousands)
   August 31,
2019    August 25,
2018    August 26,
2017
Current:

Federal
   $ 274,504    $ 328,963    $ 487,492
State
   45,457    36,389    31,733
International
   59,100    57,702    50,493






   379,061    423,054    569,718
Deferred:

Federal
   25,757    (131,926 )    72,208
State
   6,914    8,167    7,769
International
   2,380    (502 )    (5,075 )






   35,051    (124,261 )    74,902






Income tax expense
   $ 414,112    $ 298,793    $ 644,620






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

Year Ended


August 28,

August 29,

August 31,

(in thousands)

2021

2020

2019

Federal tax at statutory U.S. income tax rate

21.0
%
21.0
%
21.0
%
State income taxes, net

2.2
%
2.2
%
2.0
%
Share-based compensation

(1.7)
%
(0.7)
%
(1.8)
%
Impact of tax reform

—

—

(0.4)
%
Global intangible lower-taxed income ("GILTI")

0.8
%
1.0
%
1.3
%
Foreign Tax Credits

(1.7)
%
(1.1)
%
(1.1)
%
Other

0.5
%
(0.6)
%
(0.6)
%
Effective tax rate

21.1
%
21.8
%
20.4
%

   Year Ended
(in thousands)
   August 31,
2019    August 25,
2018    August 26,
2017
Federal tax at statutory U.S. income tax rate
   21.0%    25.9%    35.0%
State income taxes, net
   2.0%    1.9%    1.3%
Transition tax
   —      1.6%    —
Share-based compensation
   (1.8% )    (1.6% )    (1.4% )
Impact of tax reform
   (0.4% )    (9.6% )    —
Other
   (0.4% )    0.1%    (1.4% )






Effective tax rate
   20.4%    18.3%    33.5%






On December 22, 2017, Tax Reform was enacted into law. Tax Reform significantly revises the U.S. federal corporate income tax by, among other things, lowering the statutory federal corporate rate from 35% to 21%, eliminating certain deductions, imposing a mandatory~~one-time~~ transition tax on accumulated earnings of foreign subsidiaries, and changing how foreign earnings are subject to U.S. federal tax. Also in December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when the registrant does not have the necessary information available, prepared, analyzed in reasonable detail to complete the accounting for certain income tax effects of Tax Reform.
During the year ended August 25, 2018, the Company recorded a provisional tax benefit of $131.5 million related to Tax Reform, comprised of a $157.3 million remeasurement of its net deferred tax assets, offset by $25.8 million of transition tax. During the year ended August 31, 2019, the Company completed its analysis of Tax Reform and recorded adjustments to the previously-recorded provisional amounts, resulting in an $8.8 million tax benefit, primarily related to transition tax.

For the year ended August ~~31, 2019,~~28, 2021, August ~~25, 2018,~~29, 2020, and August ~~26, 2017,~~31, 2019, the Company recognized excess tax benefits from stock option exercises of $56.4 million, $20.9 million, and $46.0 million, ~~$31.3 million and $31.2 million,~~ respectively.

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Beginning with the year ~~ending~~ended August 31, 2019, the Company is subject to a new tax on global intangiblelow-taxed income (“GILTI”) ~~that~~which is imposed on foreign earnings. The Company has made the election to record this tax as a period cost, thus has not adjusted the deferred tax assets or liabilities of its foreign subsidiaries for the new tax. Net impacts for GILTI ~~were immaterial and~~ are included in the provision for income taxes for the ~~year ended~~years ending August 28, 2021, August 29, 2020 and August 31, 2019.

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


August 28,

August 29,
(in thousands)
   August 31,
2019    August 25,
2018

2021

2020

Deferred tax assets:





Net operating loss and credit carryforwards
   $ 42,958    $ 47,190

$
41,825

$
41,437
Accrued benefits
   58,900    62,867

126,086

88,226
Operating lease liabilities

646,938

617,002
Other
   59,237    46,375

69,340

69,788




Total deferred tax assets
   161,095    156,432

884,189

816,453
Less: Valuation allowances
   (23,923 )    (19,619 )




Valuation allowances

(31,098)

(28,373)
Net deferred tax assets
   137,172    136,813

853,091

788,080

Deferred tax liabilities:





Property and equipment
   (114,956 )    (101,049 )

(185,985)

(173,696)
Inventory
   (259,827 )    (242,138 )

(316,736)

(298,585)
Prepaid expenses
   (46,487 )    (42,019 )

(28,676)

(55,827)
Operating lease assets

(609,336)

(581,381)
Other
   (1,021 )    (2,191 )

(8,440)

(4,934)




Total deferred tax liabilities
   (422,291 )    (387,397 )




Deferred tax liabilities

(1,149,173)

(1,114,423)

Net deferred tax liabilities
   $ (285,119 )    $ (250,584 )

$
(296,082)

$
(326,343)




~~The~~
For the year ended August 31, 2019, the Company ~~has historically asserted its intention to indefinitely reinvest foreign~~held the assertion, with few exceptions, that current and accumulated earnings ~~and other~~from foreign operations were not indefinitely reinvested. During the year ended August 29, 2020, the Company asserted indefinite reinvestment for basis differences ~~in certain~~and accumulated earnings through fiscal 2020 with respect to its foreign subsidiaries. For the year ended August ~~31, 2019, with few exceptions,~~28, 2021, the Company ~~no longer considers~~does not assert permanent reinvestment of current ~~and accumulated~~year earnings with respect to ~~be indefinitely reinvested in our~~its Mexican subsidiaries while maintaining its assertion of indefinite reinvestment of earnings of other foreign subsidiaries. Where necessary, ~~withholding tax provisions~~taxes resulting from foreign distributions of current and accumulated earnings (e.g., withholding taxes) have been considered in the Company’s provision for income taxes.
~~The Company maintains its assertion related to other~~
As of August 28, 2021, we have not recorded incremental income taxes for outside basis differences of $443.3 million in our investments in foreign ~~subsidiaries. It is impracticable for the Company to determine~~subsidiaries, as these amounts are indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability onrelated to the outside basis differences in these ~~indefinitely reinvested basis differences.~~entities is not practicable.

At August ~~31, 2019~~28, 2021 and August ~~25, 2018,~~29, 2020, the Company had ~~deferred tax assets of $29.9 million and $30.9 million, respectively, from~~ net operating loss (“NOL”) carryforwards ~~available to reduce future taxable income~~ totaling ~~approximately $226.3~~$259.1 million ($35.9 million tax effected) and ~~$219.1~~$247.1 million ($32.2 million tax effected), respectively. Certain NOLs have no expiration date and others will expire, if not utilized, in various years from fiscal ~~2020~~2022 through ~~2039.~~2041. At August ~~31, 2019~~28, 2021 and August ~~25, 2018,~~29, 2020, the Company had deferred tax assets for income tax credit carryforwards of ~~$13.0 million~~$6.0 and ~~$16.3~~$9.2 million, respectively. Income tax credit carryforwards will expire, if not utilized, in various years from fiscal ~~2020~~2022 through ~~2029.~~2037.

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At August ~~31, 2019~~28, 2021 and August ~~25, 2018,~~29, 2020, the Company had a valuation allowance of ~~$23.9~~$31.1 million and ~~$19.6~~$28.4 million, respectively, on deferred tax assets associated with NOL and tax credit carryforwards for which management has determined it is more likely than not that the deferred tax asset will not be realized. Management believes it is more likely than not that the remaining deferred tax 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)

2021

2020

Beginning balance

$
31,942

$
30,892
Additions based on tax positions related to the current year

10,806

8,512
Additions for tax positions of prior years

4,009

946
Reductions for tax positions of prior years

(886)

(4,124)
Reductions due to settlements

(2,204)

—
Reductions due to statute of limitations

(3,870)

(4,284)

Ending balance

$
39,797

$
31,942

(in thousands)
   August 31,
2019    August 25,
2018
Beginning balance
   $ 26,077    $ 22,201
Additions based on tax positions related to the current year
   8,621    8,184
Additions for tax positions of prior years
   2,115    1,404
Reductions for tax positions of prior years
   (1,219 )    (482 )
Reductions due to settlements
   (1,918 )    (1,930 )
Reductions due to statute of limitations
   (2,784 )    (3,300 )




Ending balance
   $ 30,892    $ 26,077




Included in the August ~~31, 2019~~28, 2021 and the August ~~25, 2018~~29, 2020 balances are ~~$16.8~~$25.8 million and ~~$13.5~~$18.9 million, respectively, of unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate. The balances above also include amounts ~~totaling $11.9~~of $10.4 million and ~~$10.3~~$10.5 million for August ~~31, 2019~~28, 2021 and the August ~~25, 2018,~~29, 2020, respectively, that are accounted for as reductions to deferred tax assets for NOL carryforwards and tax credit carryforwards. It is anticipated that in the event the associated uncertain tax positions are disallowed, the NOL carryforwards and tax credit carryforwards would be utilized to settle the liability.

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 ~~$1.4~~$2.4 million and ~~$0.7~~$1.6 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at August ~~31, 2019~~28, 2021 and August ~~25, 2018,~~29, 2020, respectively.

The Company files U.S. federal, U.S. state and local, and international income tax returns. With few exceptions, the Company is no longer subject to U.S. federal, U.S. state and local, orNon-U.S. examinations by tax authorities for fiscal year ~~2013~~2016 and prior. The Company is typically engaged in various tax examinations at any given time by U.S. federal, U.S. state and local, andNon-U.S. taxing jurisdictions. As of August ~~31, 2019,~~28, 2021, the Company estimates that the amount of unrecognized tax benefits could be reduced by approximately ~~$1.4~~$2.2 million over the next twelve months as a result of tax audit settlements. While the Company believes that it 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.

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Note E – Fair Value Measurements
The Company defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with ASC 820,Fair Value Measurements and Disclosures, the Company uses the fair value hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are set forth below:
Level 1 inputs —— unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2 inputs —— inputs other than quoted market prices included within Level 1 that are observable, either directly or indirectly, for the asset or liability.
Level 3 inputs —— unobservable inputs for the asset or liability, which are based on the Company’s own assumptions as there is little, if any, observable activity in identical assets or liabilities.

Marketable Debt Securities Measured at Fair Value on a Recurring Basis

The Company’s marketable debt securities measured at fair value on a recurring basis were as follows:

August 28, 2021
(in thousands)

Level 1

Level 2

Level 3

Fair Value

Other current assets

$
46,007

$
—

$
—

$
46,007
Other long-term assets

54,105

13,806

—

67,911

$
100,112

$
13,806

$
—

$
113,918

   August 31, 2019

August 29, 2020
(in thousands)
   Level 1    Level 2    Level 3    Fair Value

Level 1

Level 2

Level 3

Fair Value

Other current assets
   $ 65,344    $ 2,614    $ —      $ 67,958

$
75,651

$
467

$
—

$
76,118
Other long-term assets
   65,573    5,395    —      70,968

58,792

12,329

—

71,121








   $ 130,917    $ 8,009    $ —      $ 138,926








   August 25, 2018
(in thousands)
   Level 1    Level 2    Level 3    Fair Value
Other current assets
   $ 55,711    $ 3,733    $ —      $ 59,444
Other long-term assets
   58,973    16,259    —      75,232








   $ 114,684    $ 19,992    $ —      $ 134,676








$
134,443

$
12,796

$
—

$
147,239

At August ~~31, 2019,~~28, 2021, the fair value measurement amounts for assets and liabilities recorded in the accompanying Consolidated Balance Sheet consisted of short-term marketable debt securities of ~~$68.0~~$46.0 million, which are included within Other current assets and long-term marketable debt securities of ~~$71.0~~$67.9 million, which are included in Other long-term assets. The Company’s marketable debt securities are typically valued at the closing price in the principal active market as of the last business day of the quarter or through the use of other market inputs relating to the debt securities, including benchmark yields and reported trades.
A discussion on how the Company’s cash flow hedges are valued is included in “Note H – Derivative Financial Instruments,” while the fair values of the marketable debt securities by asset class are described in “Note F – Marketable Debt Securities.”
Non-Financial Assets Measured at Fair Value on aNon-Recurring Basis
Certain non-financial assets and liabilities are required to be measured at fair value ona non-recurring basis in certain circumstances, including the event of impairment.These non-financial assets and liabilities could include assets and liabilities acquired in an acquisition as well as goodwill, intangible assets and property, plant and equipment that are determined to be impaired. At August ~~31, 2019,~~28, 2021, the Company did not have any othersignificant non-financial assets or liabilities that had been measured at fair value ona non-recurring basis subsequent to initial recognition.

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Financial Instruments not Recognized at Fair Value

The Company has financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short maturities. A discussion of the carrying values and fair values of the Company’s debt is included in “Note I – Financing.”

Note F – Marketable Debt Securities
The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.” Unrealized gains (losses) on marketable debt securities are recorded in Accumulated Other Comprehensive Loss. The Company’savailable-for-sale marketable debt securities consisted of the following:

August 28, 2021


Amortized

Gross

Gross


Cost

Unrealized

Unrealized

Fair
(in thousands)

Basis

Gains

Losses

Value

Corporate debt securities

$
23,650

$
329

$
(2)

$
23,977
Government bonds

65,416

338

(2)

65,752
Mortgage-backed securities

6,552

58

(8)

6,602
Asset-backed securities and other

17,551

43

(7)

17,587

$
113,169

$
768

$
(19)

$
113,918

   August 31, 2019
(in thousands)
   Amortized
Cost
Basis    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Fair
Value

August 29, 2020


Amortized

Gross

Gross


Cost

Unrealized

Unrealized

Fair
(in thousands)

Basis

Gains

Losses

Value

Corporate debt securities
   $ 36,998    $ 29    $ (19 )    $ 37,008

$
46,652

$
970

$
(4)

$
47,618
Government bonds
   45,741    763    —      46,504

44,594

1,172

—

45,766
Mortgage-backed securities
   2,089    2    (15 )    2,076

4,842

75

—

4,917
Asset-backed securities and other
   53,345    —      (7 )    53,338

48,798

143

(3)

48,938








   $ 138,173    $ 794    $ (41 )    $ 138,926








   August 25, 2018
(in thousands)
   Amortized
Cost
Basis    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Fair
Value
Corporate debt securities
   $ 50,306    $ —      $ (684 )    $ 49,622
Government bonds
   28,777    —      (173 )    28,604
Mortgage-backed securities
   3,248    —      (90 )    3,158
Asset-backed securities and other
   53,445    —      (153 )    53,292








   $ 135,776    $ —      $ (1,100 )    $ 134,676








$
144,886

$
2,360

$
(7)

$
147,239

The marketable debt securities held at August ~~31, 2019,~~28, 2021, had effective maturities ranging from less than one year to approximately ~~three~~four years. The Company did not realize any material gains or losses on its marketable debt securities during fiscal ~~2019, 2018~~2021, 2020 or ~~2017.~~2019.
The Company holds 48 securities that are in an unrealized loss position of approximately $41 thousand at August 31, 2019. 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 a credit loss exists for the marketable debt 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 ~~its~~the intent and ability to hold the investments until maturity or ~~until~~ recovery of fair value. An allowance for credit losses was deemed unnecessary given consideration of the factors above.
Included above in total marketable debt securities are ~~$89.2~~$62.5 million and ~~$85.6~~$30.1 million of marketable debt securities transferred by the Company’s insurance captive to a trust account to secure its obligations to an insurance company related to future workers’ compensation and casualty losses as of August ~~31, 2019~~28, 2021 and August ~~25, 2018,~~29, 2020, respectively.

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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) onavailable-for-sale marketable debt securities. Changes in Accumulated Other Comprehensive Loss consisted of the following:

(in thousands)
   Pension
Liability Foreign
Currency⁽²⁾ Net
Unrealized
Gain (Loss)
on Securities Derivatives Total
Balance at August 26, 2017
   $ (72,376 ) $ (175,814 ) $ (11 ) $ (6,356 ) $ (254,557 )
Other comprehensive income (loss) before reclassifications
   77,774 (53,085 ) (800 ) —   23,889
Amounts reclassified from Accumulated Other Comprehensive Loss⁽¹⁾
   7,724 ⁽⁴⁾ —   (62 )⁽⁵⁾ 1,690 ⁽⁶⁾ 9,352
Adoption of ASU2018-02⁽³⁾
   (13,122 ) —   —   (1,367 ) (14,489 )


Balance at August 25, 2018
   —   (228,899 ) (873 ) (6,033 ) (235,805 )
Other Comprehensive (Loss) income before reclassifications
   —   (36,699 ) 1,498 —   (35,201 )
Amounts reclassified from Accumulated Other Comprehensive Loss⁽¹⁾
   —   —   (34 )⁽⁵⁾ 1,718 ⁽⁶⁾ 1,684


Balance at August 31, 2019
   $ —   $ (265,598 ) $ 591 $ (4,315 ) $ (269,322 )


Net

Unrealized

Foreign

Gain (Loss)

(in thousands)

Currency⁽¹⁾

on Securities

Derivatives

Total

Balance at August 31, 2019

$
(265,598)

$
591

$
(4,315)

$
(269,322)
Other Comprehensive (Loss) Income before reclassifications

(66,723)

1,117

(28,197)

(93,803)
Amounts reclassified from Accumulated Other Comprehensive Income (Loss)⁽²⁾⁽³⁾

—

137

8,736

8,873
Balance at August 29, 2020

(332,321)

1,845

(23,776)

(354,252)
Other Comprehensive Income (Loss) before reclassifications

44,683

(1,379)

—

43,304
Amounts reclassified from Accumulated Other Comprehensive (Loss) Income⁽²⁾⁽³⁾

—

123

2,839

2,962
Balance at August 28, 2021

$
(287,638)

$
589

$
(20,937)

$
(307,986)

(1)
~~Amounts in parentheses indicate debits to Accumulated Other Comprehensive Loss (AOCL).~~
~~(2)~~
Foreign currency is shown net of U.S. tax to account for foreign currency impacts of certain undistributednon-U.S. subsidiaries earnings. Other foreign currency is not shown net of additional U.S. tax as other basis differences ofnon-U.S. subsidiaries are intended to be permanently ~~reinvested.~~reinvested
~~(3)~~(2)
~~Represents the tax effects from deferred tax items reclassified from AOCL~~Amounts in parentheses indicate debits to ~~retained earnings related to the adoption of ASU2018-02.~~Accumulated Other Comprehensive Loss.
~~(4)~~(3)
The amounts reclassified from AOCL associated with our pension plans have been reclassified to Operating, selling, general and administrative expenses on the Consolidated Statements of Income as a result of the termination of the plans. See “Note L – Pension and Savings Plans” for further discussion.
~~(5)~~
~~Represents realized gains on marketable debt securities,~~Amounts shown are net of ~~taxes of $389 in fiscal 2019 and realized losses on marketable debt securities, net of~~ taxes/tax benefit of $234 in fiscal 2018, which is recorded in Operating, selling, general, and administrative expenses on the Consolidated Statements of Income. See “Note F – Marketable Debt Securities” for further discussion.benefits.
~~(6)~~
Represents gains and losses on derivatives, net of taxes of $530 in fiscal 2019 and $515 in fiscal 2018, which is recorded in Interest expense, net, on the Consolidated Statements of Income. See “Note H – Derivative Financial Instruments” for further discussion.

Note H – Derivative Financial Instruments
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,Derivatives and Hedging, to the extent our derivatives are effective ~~portion~~in offsetting the variability of ~~a financial instrument’s change~~the hedged cash flows, changes in the derivatives’ fair value ~~is recorded~~are not included in current earnings but are included in Accumulated Other Comprehensive Loss, ~~for derivatives that qualify as cash flow hedges and any ineffective portion~~net of ~~an instrument’s change in fair value is recognized in earnings.~~tax.

At August ~~31, 2019,~~28, 2021, the Company had ~~$5.6~~$27.5 million recorded in Accumulated Other Comprehensive Loss related to net realized losses associated with terminated interest rate swap and treasury rate lock derivatives which were designated as hedging instruments. Net losses are amortized into Interest expense over the remaining life of the associated debt. During ~~the~~ fiscal ~~2019 and 2018,~~2021, the Company reclassified ~~$2.2~~$3.7 million of net losses from Accumulated Other Comprehensive Loss to Interest expense. During fiscal 2020, the Company reclassified $2.6 million of net losses from Accumulated Other Comprehensive Loss to Interest expense. The Company expects to reclassify $3.6 million of net losses from Accumulated Other Comprehensive Loss to Interest expense ~~and expects~~over the ~~same level~~next 12 months.

Table of ~~expense in fiscal 2020.~~Contents

Note I – Financing

The Company’s debt consisted of the following:


August 28,

August 29,
(in thousands)

2021

2020

2.500% Senior Notes due April 2021, effective interest rate of 2.62%

$
—

$
250,000
3.700% Senior Notes due April 2022, effective interest rate of 3.85%

500,000

500,000
2.875% Senior Notes due January 2023, effective interest rate of 3.21%

300,000

300,000
3.125% Senior Notes due July 2023, effective interest rate of 3.26%

500,000

500,000
3.125% Senior Notes due April 2024, effective interest rate 3.32%

300,000

300,000
3.250% Senior Notes due April 2025, effective interest rate 3.36%

400,000

400,000
3.625% Senior Notes due April 2025, effective interest rate 3.78%

500,000

500,000
3.125% Senior Notes due April 2026, effective interest rate of 3.28%

400,000

400,000
3.750% Senior Notes due June 2027, effective interest rate of 3.83%

600,000

600,000
3.750% Senior Notes due April 2029, effective interest rate of 3.86%

450,000

450,000
4.000% Senior Notes due April 2030, effective interest rate 4.09%

750,000

750,000
1.650% Senior Notes due January 2031, effective interest rate of 2.19%

600,000

600,000
Total debt before discounts and debt issuance costs

5,300,000

5,550,000
Less: Discounts and debt issuance costs

30,180

36,629
Long-term debt

$
5,269,820

$
5,513,371

(in thousands)
August 31,
2019 August 25,
2018
1.625% Senior Notes due April 2019, effective interest rate of 1.77%
$ —   $ 250,000
4.000% Senior Notes due November 2020, effective interest rate of 4.43%
500,000 500,000
2.500% Senior Notes due April 2021, effective interest rate of 2.62%
250,000 250,000
3.700% Senior Notes due April 2022, effective interest rate of 3.85%
500,000 500,000
2.875% Senior Notes due January 2023, effective interest rate of 3.21%
300,000 300,000
3.125% Senior Notes due July 2023, effective interest rate of 3.26%
500,000 500,000
3.125% Senior Notes due April 2024, effective interest rate 3.32%
300,000 —
3.250% Senior Notes due April 2025, effective interest rate 3.36%
400,000 400,000
3.125% Senior Notes due April 2026, effective interest rate of 3.28%
400,000 400,000
3.750% Senior Notes due June 2027, effective interest rate of 3.83%
600,000 600,000
3.750% Senior Notes due April 2029, effective interest rate of 3.86%
450,000 —
Commercial paper, weighted average interest rate of 2.28% and 2.29% at August 31, 2019 and August 25, 2018, respectively
1,030,000 1,325,300

Total debt before discounts and debt issuance costs
5,230,000 5,025,300
Less: Discounts and debt issuance costs
23,656 19,370

Long-term debt
$ 5,206,344 $ 5,005,930

As of August 31, 2019, the commercial paper borrowings are classified as long-term in the accompanying Consolidated Balance Sheets as the Company has the ability and intent to refinance on a long-term basis through available capacity in its revolving credit facilities. As of August 31, 2019, the Company had $1.997 billion of availability under its $2.0 billion revolving credit facilities, which would allow it to replace these short-term obligations with long-term financing facilities.
The Company entered into a Master Extension, New Commitment and Amendment Agreement dated as of November 18, 2017 (the “Extension Amendment”) to the Third Amended and Restated Credit Agreement dated as of November 18, 2016, as amended, modified, extended or restated from time to time (the “Revolving Credit Agreement”). Under the Extension Amendment: (i) the Company’s borrowing capacity under the Revolving Credit Agreement was increased from $1.6 billion to $2.0 billion; (ii) the ~~Company’s option to increase its borrowing capacity under the Revolving Credit Agreement was “refreshed” and the amount of such option remained at $400 million; (iii) the~~ maximum borrowing under the Revolving Credit Agreement may, at the Company’s option, subject to lenders approval, be increased from $2.0 billion to $2.4 billion; ~~(iv)~~(iii) the termination date of the Revolving Credit Agreement was extended from November 18, 2021 until November 18, 2022; and ~~(v)~~(iv) the Company has the option to make one additional written request of the lenders to extend the termination date then in effect for an additional year. Under the Revolving Credit Agreement, the Company may borrow funds consisting of Eurodollar loans, base rate loans or a combination of both. Interest accrues on Eurodollar loans at a defined Eurodollar rate, defined as LIBOR plus the applicable percentage, as defined in the Revolving Credit Agreement, depending upon the Company’s senior, unsecured,~~(non-credit~~ (non-credit enhanced) long-term debt ratings. Interest accrues on base rate loans as defined in the Revolving Credit Agreement.
As of August ~~31, 2019,~~28, 2021, the Company had no0 outstanding borrowings ~~outstanding~~ and ~~$3.3~~$1.7 million of outstanding letters of credit under the Revolving Credit Agreement. The Company intends to amend and restate its Revolving Credit Agreement and anticipates closing the agreement during the first quarter of fiscal year 2022.
Under the Company’s Revolving Credit Agreement, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances.
The Revolving Credit Agreement requires that the Company’s consolidated interest coverage ratio as of the last day of each quarter shall be no less than 2.5:1. 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 ~~31,~~28, 2021 was 6.9:1.
69

Table of Contents

On April 3, 2020, the Company entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) to supplement the Company’s existing Revolving Credit Agreement. The 364-day Credit Agreement had a termination date of, and any amounts borrowed under the 364-Day Credit Agreement were due and payable on, April 2, 2021. Revolving loans under the 364-Day Credit Agreement could be base rate loans, Eurodollar Loans, or a combination of both, at the Company’s election.

Effective February 22, 2021, the Company terminated the 364-Day Credit Agreement. There were 0 borrowings outstanding under the 364-Day Credit Agreement. The Company entered into the 364-Day Credit Agreement to augment its access to liquidity due to macroeconomic conditions existing at the time, and the Company determined the additional access to liquidity was no longer necessary.

As of August 28, 2021, the $500 million 3.700% Senior Notes due April 2022 are classified as long-term in the accompanying Consolidated Balance Sheets as the Company has the ability and intent to refinance them on a long-term basis through available capacity in its Revolving Credit Agreement. As of August 28, 2021, the Company had $1.998 billion of availability under its $2.0 billion Revolving Credit Agreement, which would allow the Company to replace these short-term obligations with a long-term financing facility.

On March 15, 2021 the Company repaid the $250 million 2.500% Senior Notes due April 2021, which were callable at par in March 2021.

On August 14, 2020, the Company issued $600 million in 1.650% Senior Notes due January 2031 under its automatic shelf registration statement on Form S-3, filed with the SEC on April 4, 2019 ~~was 5.7:1.~~(File No. 333-230719) (the “2019 Shelf Registration Statement”). The 2019 Shelf Registration Statement 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. Proceeds from the debt issuance were used for general corporate purposes, including the repayment of the $500 million in 4.000% Senior Notes due in November 2020 that were callable at par in August 2020.

On March 30, 2020, the Company issued $500 million in 3.625% Senior Notes due April 2025 and $750 million in 4.000% Senior Notes due April 2030 under the 2019 Shelf Registration Statement. Proceeds from the debt issuance were used to repay a portion of the outstanding commercial paper borrowings and for other general corporate purposes.

On April 18, 2019, the Company issued $300 million in 3.125% Senior Notes due April 2024 and $450 million in 3.750% Senior Notes due April 2029 under the 2019 Shelf Registration Statement. Proceeds from the debt issuance were used to repay a portion of the outstanding commercial paper borrowings, the $250 million in 1.625% Senior Notes due in April 2019 and for other general corporate purposes.

All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned to the Senior Notes are downgraded (as defined in the agreements). Further, the Senior Notes contain a provision that repayment of the Senior Notes may be accelerated if the Company experiences a change in control (as defined in the agreements). The Company’s borrowings under its senior notes contain minimal covenants, primarily restrictions on liens. All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs. Interest for Senior Notes is paid on a semi-annual basis.

The Company also maintains a letter of credit facility that allows it to request the participating bank to issue letters of credit on its behalf up to an aggregate amount of $25 million. The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement. In fiscal 2019, the Company amended the existing letter of credit facility to decrease the amount that can be requested in letters of credit from $75 million to $25 million effective June 2019. This amendment also extended the maturity date from June 2019 to June 2022. As of August ~~31, 2019,~~28, 2021, the Company had ~~$25.0~~$23.9 million in letters of credit outstanding under the letter of credit ~~facility.~~facility which expires in June 2022.

In addition to the outstanding letters of credit issued under the committed ~~facilities~~facility discussed above, the Company had ~~$72.9~~$136.8 million in letters of credit outstanding as of August ~~31, 2019.~~28, 2021. These letters of credit have various maturity dates and were issued on an uncommitted basis.

On April 18, 2019, the Company issued $300 million in 3.125% Senior Notes due April 2024 and $450 million in 3.750% Senior Notes due April 2029 under its automatic shelf registration statement on Form~~S-3,~~ ~~filed with the SEC on April 4, 2019 (FileNo. 333-230719)~~ ~~(the “2019 Shelf Registration”). Proceeds from the debt issuance were used to repay a portion~~70

Table of ~~the outstanding commercial paper borrowings, the $250 million in 1.625% Senior Notes due in April 2019 and for other general corporate purposes.~~Contents

On April 18, 2017, the Company issued $600 million in 3.750% Senior Notes due June 2027 under its shelf registration statement filed with the SEC on April 15, 2015 (the “2015 Shelf Registration”). Proceeds from the debt issuance were used for general corporate purposes.

All senior notes are subject to an interest rate adjustment if the debt ratings assigned to the senior notes are downgraded (as defined in the agreements). Further, the senior notes contain a provision that repayment of the senior notes may be accelerated if the Company experiences a change in control (as defined in the agreements). The Company’s borrowings under its senior notes contain minimal covenants, primarily restrictions on liens. Under its revolving credit facilities, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances. All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs.

As of August ~~31, 2019,~~28, 2021, the Company was in compliance with all covenants related to its borrowing arrangements. ~~All of the Company’s debt is unsecured. Scheduled maturities of debt are as follows:~~

(in thousands)
   Scheduled
Maturities
2020
   $ 1,030,000
2021
   750,000
2022
   500,000
2023
   800,000
2024
   300,000
Thereafter
   1,850,000


Subtotal
   5,230,000
Discount and debt issuance costs
   23,656


Total Debt
   $ 5,206,344


The fair value of the Company’s debt was estimated at ~~$5.419~~$5.683 billion as of August ~~31, 2019,~~28, 2021, and ~~$4.948~~$6.081 billion as of August ~~25, 2018,~~29, 2020, based on the quoted market prices for the same or similar issues or on the current rates available to the Company for debt of the same terms (Level 2). Such fair value is greater than the carrying value of debt by ~~$212.7~~$413.1 million and $567.5 million at August ~~31, 2019, which~~28, 2021 and August 29, 2020, respectively. This amount reflects face amount, adjusted for any unamortized debt issuance costs and discounts. ~~At August 25, 2018,~~

All of the ~~fair value was less than the carrying value~~Company’s debt is unsecured. Scheduled maturities of debt ~~by $57.5 million.~~are as follows:

Scheduled
(in thousands)

Maturities

2022

$
500,000
2023

800,000
2024

300,000
2025

900,000
2026

400,000
Thereafter

2,400,000
Subtotal

5,300,000
Discount and debt issuance costs

30,180
Total Debt

$
5,269,820

Note J – Interest Expense
Net interest expense consisted of the following:

Year Ended


August 28,

August 29,

August 31,
(in thousands)

2021

2020

2019

Interest expense

$
202,326

$
208,021

$
193,671
Interest income

(5,417)

(5,689)

(7,396)
Capitalized interest

(1,572)

(1,167)

(1,471)

$
195,337

$
201,165

$
184,804

   Year Ended
(in thousands)
   August 31,
2019    August 25,
2018    August 26,
2017
Interest expense
   $ 193,671    $ 181,668    $ 159,329
Interest income
   (7,396 )    (5,636 )    (3,502 )
Capitalized interest
   (1,471 )    (1,505 )    (1,247 )






   $ 184,804    $ 174,527    $ 154,580






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 ~~Board.~~Company’s Board of Directors. The share repurchase program was amended on ~~September 26, 2018~~December 15, 2020 to increase the repurchase authorization to ~~$20.9~~$24.65 billion from ~~$19.65~~$23.15 billion and on March ~~20, 2019~~23, 2021 to increase the repurchase authorization to ~~$21.9 billion from $20.9~~$26.15 billion. ~~From January 1998 to August 31, 2019, the~~The Company has ~~repurchased a total~~$417.6 million remaining under the Board’s authorization to repurchase its common stock.

71

Table of ~~146.9 million shares at an aggregate cost of $21.423 billion.~~ Contents

The Company’s share repurchase activity consisted of the following:

Year Ended


August 28,

August 29,

August 31,
(in thousands)

2021

2020

2019

Amount

$
3,378,321

$
930,903

$
2,004,896
Shares

2,592

826

2,182

   Year Ended
(in thousands)
   August 31,
2019    August 25,
2018    August 26,
2017
Amount
   $ 2,004,896    $ 1,592,013    $ 1,071,649
Shares
   2,182    2,398    1,495
During fiscal year ~~2019,~~2021, the Company retired ~~2.6~~1.0 million shares of treasury stock which had previously been repurchased under the Company’s share repurchase program. The retirement increased Retained deficit by ~~$1.707~~$1.139 billion and decreased Additionalpaid-in capital by ~~$125.4~~$60.0 million. During the comparable prior year period, the Company retired ~~1.5~~1.9 million shares of treasury stock, which increased Retained deficit by ~~$918.5 million~~$1.879 billion and decreased Additionalpaid-in capital by ~~$60.5~~$99.7 million.
Beginning in the first quarter of fiscal 2021, the Company restarted share repurchases under its share repurchase program, which had been temporarily suspended during fiscal 2020 in response to the uncertainty surrounding the COVID-19 pandemic. The Company will continue to evaluate current and expected business conditions and adjust the level of share repurchases under its share repurchase program as it deems appropriate.
On October ~~7, 2019,~~5, 2021, the Board voted to authorize the repurchase of an additional ~~$1.25~~$1.5 billion of the Company’s common stock in connection with ~~our~~the Company’s ongoing share repurchase program. Since the inception of the repurchase program in 1998, the Board has authorized ~~$23.2~~$27.65 billion in share repurchases. Subsequent to August ~~31, 2019,~~28, 2021 and through October 18, 2021, the Company has repurchased ~~259,384~~220,022 shares of common stock at an aggregate cost of ~~$284.6~~$362.8 million. Considering the cumulative repurchases and the increase in authorization subsequent to August ~~31, 2019, we have $1.44~~28, 2021, the Company has $1.555 billion remaining under the Board’s authorization to repurchase its common stock.
Note L – ~~Pension and~~401(k) Savings ~~Plans~~Plan
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, resulting in pension plan participants earning no new benefits under the plan formula and no new participants joining the pension plan.
On January 1, 2003, the Company’s supplemental defined benefit pension plan for certain highly compensated employees was also frozen, resulting in pension plan participants earning no new benefits under the plan formula and no new participants joining the pension plan.

On December 19, 2017, the Board of Directors approved a resolution to terminate both of the Company’s pension plans, effective March 15, 2018. The Company offered plan participants the option to receive an annuity purchased from an insurance carrier or a~~lump-sum~~ ~~cash payment based on a number of factors. During the fourth quarter of 2018, the Company contributed $11.4 million to the pension plans to ensure that sufficient assets were available for thelump-sum~~ payments and annuity purchases, completed the transfer of all lump sum payments, transferred all remaining benefit obligations related to the pension plans to a highly rated insurance company, and recognized $130.3 million of~~non-cash~~ pension termination charges in Operating, selling, general and administrative expenses in the Consolidated Statements of Income. During fiscal 2019, the Company received a refund of $6.8 million related primarily to annuity purchase overpayments, recorded in Operating, selling, general and administrative expenses, net within the Consolidated statements of income. There are no actuarial assumptions reflected in any pension plans estimates. The Company will no longer have any remaining defined pension benefit obligation and thus no periodic pension benefit expense.

~~The following table sets forth the plans’ funded status:~~

(in thousands)
   August 25,
2018⁽¹⁾
Change in Projected Benefit Obligation:

Projected benefit obligation at beginning of year
   $ 314,724
Interest cost
   10,356
Actuarial (gains) losses
   (676 )
Annuities purchased
   (157,589 )
Benefits and settlements paid
   (166,815 )


Benefit obligations at end of year
   $ —


Change in Plan Assets:

Fair value of plan assets at beginning of year
   $ 316,267
Actual return on plan assets
   (3,428 )
Employer contributions
   11,596
Annuities purchased
   (157,589 )
Benefits and settlements paid
   (166,815 )
Asset reversion upon termination
   (31 )


Fair value of plan assets at end of year
   $ —


~~(1)~~
~~The pension plans were terminated in fiscal 2018.~~
~~Net periodic benefit expense consisted of the following:~~

   Year Ended
(in thousands)
   August 25,
2018⁽¹⁾    August 26,
2017
Interest cost
   $ 10,356    $ 10,335
Expected return on plan assets
   (18,997 )    (20,056 )
Recognized net actuarial losses
   10,736    13,873
Settlement loss
   130,263    —




Net periodic benefit expense
   $ 132,358    $ 4,152




~~(1)~~
~~The pension plans were terminated in fiscal 2018.~~

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

   Year Ended
   August 25,
2018⁽¹⁾ August 26,
2017
Discount rate to determine benefit obligation
   3.86 % 3.86 %
Discount rate to determine net interest cost
   3.36 % 3.21 %
Expected long-term rate of return on plan assets
   6.00 % 7.00 %
~~(1)~~
~~The pension plans were terminated in fiscal 2018.~~
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. The Company made matching contributions to employee accounts in connection with the 401(k) plan of $34.1 million in fiscal 2021, $29.8 million in fiscal 2020 and $25.8 million in fiscal ~~2019, $23.1 million in fiscal 2018, and $21.0 million in fiscal 2017.~~2019.

Table of Contents

Note M – ~~Sale of Assets~~Leases
~~During~~Lease-related assets and liabilities recorded on the second quarter of fiscal 2018, the Company determined that the approximate fair value less costs to sell its IMC and AutoAnything businesses was significantly lower than the carrying value of the net assets based on recent offers received and recorded impairment charges totaling $193.2 million within Operating, selling, general and administrative expenses in its Condensed Consolidated ~~Statements of Income.~~
The Company recorded an impairment charge of $93.6 million for its IMC business, which was reflected as a component of Auto Parts Locations in its segment reporting in fiscal 2018. Impairment charges for AutoAnything, which were reflected as a component of the Other category in the Company’s segment reporting, totaled $99.6 million in fiscal 2018.
~~During the third quarter of fiscal 2018, the Company completed the IMC and AutoAnything sales for total consideration that approximated the remaining net book value at the closing date.~~
~~Note N – Goodwill and Intangibles~~
~~The changes in the carrying amount of goodwill~~Balance Sheets are as follows:

(in thousands)
   Auto Parts
Locations    Other    Total
Net balance as of August 26, 2017
   $ 326,703    $ 65,184    $ 391,887
Goodwill adjustments
   (24,058 )    (65,184 )    (89,242 )






Net balance as of August 25, 2018⁽¹⁾
   302,645    —      302,645
Goodwill adjustments
   —      —      —






Net balance as of August 31, 2019
   $ 302,645    $ —      $ 302,645












(in thousands)

Classification

August 28, 2021

August 29, 2020

Assets:





Operating

Operating lease right-of-use assets

$
2,718,712

$
2,581,677
Finance

Property and equipment

383,736

327,006
Total lease assets



$
3,102,448

$
2,908,683
Liabilities:





Current:

Operating

Current portion of operating lease liabilities

$
236,568

$
223,846
Finance

Accrued expenses and other

89,932

67,498
Noncurrent:





Operating

Operating lease liabilities, less current portion

2,632,842

2,501,560
Finance

Other long-term liabilities

186,122

155,855
Total lease liabilities



$
3,145,464

$
2,948,759

~~(1)~~
~~During the second quarter of fiscal 2018, the Company recorded impairment charges related to its IMC and AutoAnything businesses. See “Note M – Sale of Assets” for further discussion.~~
The Company performs its annual goodwill and intangibles impairment test in the fourth quarter of each fiscal year. In the fourth quarter of fiscal 2019 and 2018, the Company concluded its remaining goodwillAccumulated amortization related to finance lease assets was ~~not impaired. Total accumulated goodwill impairment~~$107.0 million as of August ~~31, 2019~~28, 2021 and ~~August 25, 2018 was $107.5 million.~~

~~The carrying amounts of intangible assets are included in Other long-term assets as follows:~~

   August 31, 2019
(in thousands)
   Estimated
Useful Life    Gross
Carrying
Amount    Accumulated
Amortization    Net
Carrying
Amount
Amortizing intangible assets:

Technology
   3-5 years    $ 870    $ (870 )    $ —
Customer relationships
   3-10 years    29,376    (23,760 )    5,616






      $ 30,246    $ (24,630 )    5,616





Total intangible assets other than goodwill
            $ 5,616


   August 25, 2018⁽¹⁾
(in thousands)
   Estimated
Useful Life    Gross
Carrying
Amount    Accumulated
Amortization    Net
Carrying
Amount
Amortizing intangible assets:

Technology
   3-5 years    $ 870    $ (870 )    $ —
Customer relationships
   3-10 years    29,376    (19,587 )    9,789






      $ 30,246    $ (20,457 )    9,789





Total intangible assets other than goodwill
            $ 9,789


~~(1)~~
~~During the second quarter of fiscal 2018, the Company recorded $26.9~~$107.3 million of impairment charges related to AutoAnything’s and IMC’s trade names as the Company determined that the approximate fair value less costs to sell the businesses was significantly lower than the carrying value of the net assets. See “Note M – Sale of Assets” for further discussion. Trade names at August 25, 2018 reflect a total accumulated impairment of $31.0 million.
~~Amortization expense of intangible assets for the years ended August 31, 2019 and August 25, 2018 was $4.2 million and $5.1 million, respectively.~~
~~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, 2019, is estimated~~29, 2020.
Lease costs for finance and operating leases for the 52 weeks ended August 28, 2021 and August 29, 2020 are as follows:

(in thousands)
   Total
2020
   $ 4,173
2021
   1,443
Thereafter
   —


   $ 5,616






For the year ended
(in thousands)

Statement of Income Location

August 28, 2021

August 29, 2020

Finance lease cost:






Amortization of lease assets

Depreciation and amortization

$
53,377

$
55,920
Interest on lease liabilities

Interest expense, net

2,957

4,355
Operating lease cost⁽¹⁾

Selling, general and administrative expenses

371,109

355,230
Total lease cost

$
427,443

$
415,505

(1) Includes short-term leases, variable lease costs and sublease income, which are immaterial.

~~Note O – Leases~~73

Table of Contents

The future rental payments, inclusive of renewal options that have been included in defining the expected lease term, of our operating and finance lease obligations as of August 28, 2021 having initial or remaining lease terms in excess of one year are as follows:


Finance

Operating


(in thousands)

Leases

Leases

Total

2022

$
91,228

$
323,245

$
414,473
2023

56,534

346,367

402,901
2024

50,435

325,775

376,210
2025

39,628

300,916

340,544
2026

18,294

272,157

290,451
Thereafter

48,380

2,114,538

2,162,918
Total lease payments

304,499

3,682,998

3,987,497
Less: Interest

(28,445)

(813,588)

(842,033)
Present value of lease liabilities

$
276,054

$
2,869,410

$
3,145,464

The following table summarizes the Company’s lease term and discount rate assumptions:

August 28, 2021

Weighted-average remaining lease term in years, inclusive of renewal options that are reasonably certain to be exercised:

Finance leases – real estate
25

Finance leases – vehicles
4

Operating leases
15

Weighted-average discount rate:

Finance leases – real estate
3.75
%
Finance leases – vehicles
1.37
%
Operating leases
3.44
%

Cash paid for amounts included in the measurement of operating lease liabilities of $300.6 million and $352.9 million was reflected in cash flows from operating activities in the consolidated statement of cash flows for fiscal years 2021 and 2020, respectively.
As of August 28, 2021, the Company has entered into additional leases ~~some of its retail stores, distribution centers, facilities, land~~which have not yet commenced and ~~equipment, including vehicles. Other than vehicle leases, most~~are therefore not part of the right-of-use asset and liability. These leases ~~are operating leases, which include renewal options made at the Company’s election~~have undiscounted future payments of approximately $40.1 million and ~~provisions~~$69.2 million for ~~percentage rent based on sales. Rental expense was $332.7 million in fiscal 2019, $315.6 million in fiscal 2018,~~real estate and ~~$302.9 million in fiscal 2017. Percentage rentals were insignificant.~~
~~The Company records rent for all operating leases on a straight-line basis over the lease term, including any reasonably assured renewal periods~~vehicles, respectively, and ~~the period of time prior to the lease term that~~will commence when the Company ~~is in~~obtains possession of the underlying leased ~~space for the purpose of installing leasehold improvements. Differences between recorded rent expense and cash payments~~asset. Commencement dates are recorded as a liability in Accrued expenses and other and Other long-term liabilities in the accompanying Consolidated Balance Sheets, based on the terms of the lease. The deferred rent approximated $159.9 million on August 31, 2019, and $139.6 million on August 25, 2018.expected to be from fiscal 2022 to fiscal 2023.
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 leases. At August 31, 2019, the Company had capital lease assets of $182.0 million, net of accumulated amortization of $81.2 million, and capital lease obligations of $179.9 million, of which $56.2 million is classified as Accrued expenses and other as it represents the current portion of these obligations. At August 25, 2018, the Company had capital lease assets of $156.8 million, net of accumulated amortization of $79.9 million, and capital lease obligations of $154.3 million, of which $52.3 million is classified as Accrued expenses and other as it represents the current portion of these obligations.
~~Future minimum annual rental commitments undernon-cancelable~~ ~~operating leases and capital leases were as follows at the end of fiscal 2019:~~

(in thousands)
   Operating
Leases    Capital
Leases
2020
   $ 315,424    $ 56,246
2021
   302,056    51,679
2022
   281,287    39,094
2023
   252,868    28,401
2024
   221,213    7,300
Thereafter
   824,244    —




Total minimum payments required
   $ 2,197,092    182,720



Less: Interest
      (2,815 )


Present value of minimum capital lease payments
      $ 179,905


Note PN – Commitments and Contingencies
Construction commitments, primarily for new stores, totaled approximately ~~$38.0~~$48.2 million at August ~~31, 2019.~~28, 2021.
The Company had ~~$101.2~~$162.4 million in outstanding standby letters of credit and ~~$36.7~~$35.4 million in surety bonds as of August ~~31, 2019,~~28, 2021, 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 Sheets. The standby letters of credit and surety bonds arrangements have automatic renewal clauses.

Table of Contents

Note QO – Litigation

The Company is involved in various ~~other~~ legal proceedings incidental to the conduct of its business, including, but not limited to, several lawsuits containing class-action allegations in which the plaintiffs are current and former hourly and salaried employees who allege various wage and hour violations and unlawful termination practices. The 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 ~~R – Revenue Recognition~~

~~The Company adopted ASU2014-09,~~ ~~Revenue from Contracts with Customers using the modified retrospective method beginning with our first quarter ending November 17, 2018. The cumulative effect of initially applying ASU2014-09~~ resulted in an increase to the opening retained deficit balance of $6.8 million, net of taxes at August 26, 2018, and a related adjustment to accounts receivable, other current assets, other long-term assets, other current liabilities and deferred income taxes as of that date. Revenue for periods prior to August 26, 2018 were not adjusted and continue to be reported under the accounting standards in effect for the prior periods.

There were no material contract assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheet as of August 31, 2019. Revenue related to unfulfilled performance obligations as of August 31, 2019 is not significant. Refer to “Note S – Segment Reporting” for additional information related to revenue recognized during the period.

~~Note S~~P – Segment Reporting

The Company’s operating segments (Domestic Auto Parts, Mexico and ~~Brazil; and IMC results through April 4, 2018)~~Brazil) are aggregated as ~~one~~1 reportable segment: Auto Parts ~~Locations.~~Stores. The criteria the Company used to identify the reportable segment are primarily the nature of the products the Company sells and the operating results that are regularly reviewed by the Company’s chief operating decision maker to make decisions about the resources to be allocated to the business units and to assess performance. The accounting policies of the Company’s reportable segment are the same as those described in “Note A – Significant Accounting Policies.”

The Auto Parts ~~Locations~~Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s ~~6,411 locations~~6,767 stores in the ~~United States, Puerto Rico, Saint Thomas,~~U.S., Mexico and Brazil. Each ~~location~~store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories andnon-automotive products.

The Other category reflects business activities of ~~three~~2 operating segments that are not separately reportable due to the materiality of these operating segments. The operating segments include ALLDATA, which produces, sells and maintains diagnostic and repair information software used in the automotive repair ~~industry;~~industry and E-commerce, which includes direct sales to customers through www.autozone.com for sales that are not fulfilled by local ~~stores; and AutoAnything, which includes direct sales to customers through www.autoanything.com, prior to the Company’s sale~~stores.

Table of ~~substantially all of its assets on February 26, 2018.~~Contents

The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. The following table shows segment results for the following fiscal ~~years:~~years:

   Year Ended

Year Ended


August 28,

August 29,

August 31,
(in thousands)
   August 31,
2019    August 25,
2018    August 26,
2017

2021

2020

2019
Net Sales:

Auto Parts Locations
   $ 11,645,235    $ 10,951,498    $ 10,523,272

Net Sales






Auto Parts Stores

$
14,381,712

$
12,405,929

$
11,645,235
Other
   218,508    269,579    365,404

247,873

226,038

218,508






Total
   $ 11,863,743    $ 11,221,077    $ 10,888,676

$
14,629,585

$
12,631,967

$
11,863,743






Segment Profit:

Auto Parts Locations
   $ 6,209,229    $ 5,805,561    $ 5,544,494

Segment Profit






Auto Parts Stores

$
7,556,889

$
6,617,508

$
6,209,229
Other
   155,772    168,185    195,126

160,896

153,245

155,772






Gross profit
   6,365,001    5,973,746    5,739,620

7,717,785

6,770,753

6,365,001
Operating, selling, general and administrative expenses⁽¹⁾
   (4,148,864 )    (4,162,890 )    (3,659,551 )

(4,773,258)

(4,353,074)

(4,148,864)
Interest expense, net
   (184,804 )    (174,527 )    (154,580 )

(195,337)

(201,165)

(184,804)






Income before income taxes
   $ 2,031,333    $ 1,636,329    $ 1,925,489

$
2,749,190

$
2,216,514

$
2,031,333






Segment Assets:







Auto Parts Locations
   $ 9,781,926    $ 9,231,021    $ 8,964,371
Auto Parts Stores

$
14,398,581

$
14,303,427

$
9,781,926
Other
   113,987    115,959    295,410

117,618

120,445

113,987






Total
   $ 9,895,913    $ 9,346,980    $ 9,259,781

$
14,516,199

$
14,423,872

$
9,895,913






Capital Expenditures:







Auto Parts Locations
   $ 479,120    $ 499,762    $ 533,304
Auto Parts Stores

$
602,329

$
432,067

$
479,120
Other
   16,930    22,026    20,528

19,438

25,669

16,930






Total
   $ 496,050    $ 521,788    $ 553,832

$
621,767

$
457,736

$
496,050






Auto Parts Locations Sales by Product Grouping:


Auto Parts Stores Sales by Product Grouping:






Failure
   $ 5,728,294    $ 5,338,890    $ 5,100,702

$
7,048,700

$
6,088,859

$
5,728,294
Maintenance items
   4,140,987    3,914,546    3,774,386

4,888,763

4,284,913

4,140,987
Discretionary
   1,775,954    1,698,062    1,648,184

2,444,249

2,032,157

1,775,954






Auto Parts Locations net sales
   $ 11,645,235    $ 10,951,498    $ 10,523,272






Auto Parts Stores net sales

$
14,381,712

$
12,405,929

$
11,645,235
~~(1)~~
~~Operating, selling, general and administrative expenses for fiscal 2018 include $130.3 million related to pension termination charges and $193.2 million related to impairment charges.~~

~~Note T – Quarterly Summary~~⁽¹⁾76

~~(Unaudited)~~Table of Contents

   Twelve Weeks Ended    Seventeen
Weeks Ended
(in thousands, except per share data)
   November 17,
2018    February 9,
2019    May 4,
2019    August 31,
2019⁽²⁾
Net sales
   $ 2,641,733    $ 2,450,568    $ 2,783,006    $ 3,988,435
Gross profit
   1,417,474    1,325,107    1,492,020    2,130,400
Operating profit
   487,818    400,020    547,523    780,775
Income before income taxes
   448,812    358,658    504,284    719,578
Net income⁽⁵⁾
   351,406    294,638    405,949    565,228
Basic earnings per share
   13.71    11.71    16.35    23.15
Diluted earnings per share
   13.47    11.49    15.99    22.59
   Twelve Weeks Ended    Sixteen
Weeks Ended
(in thousands, except per share data)
   November 18,
2017    February 10,
2018⁽³⁾⁽⁵⁾    May 5,
2018⁽⁵⁾    August 25,
2018^(2)(4)(5)
Net sales
   $ 2,589,131    $ 2,413,026    $ 2,660,152    $ 3,558,769
Gross profit
   1,365,848    1,277,046    1,422,974    1,907,879
Operating profit
   468,754    205,098    545,765    591,239
Income before income taxes
   429,865    165,758    503,807    536,899
Net income
   281,003    289,530    366,721    400,282
Basic earnings per share
   10.17    10.58    13.62    15.27
Diluted earnings per share
   10.00    10.38    13.42    15.02
~~(1)~~
The sum of quarterly amounts may not equal the annual amounts reported due to rounding. In addition, the earnings per share amounts 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 2019 is based on a17-week~~ ~~period while fiscal 2018 is based on a16-week~~ ~~period. All other quarters presented are based on a12-week~~ ~~period.~~
~~(3)~~
~~The second quarter of fiscal 2018 includes impairment charges of $193.2 million. See “Note M – Sale of Assets.”~~
~~(4)~~
~~The fourth quarter of fiscal 2018 includes pension termination charges of $130.3 million. See “Note L - Pension and Savings Plans.”~~
~~(5)~~
~~Net income of the second, third and fourth quarter of fiscal 2018 and all of fiscal 2019 benefitted from changes due to Tax Reform. See “Note D – Income Taxes.”~~

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of August ~~31, 2019,~~28, 2021, 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 Rules13a-15(e) and15d-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 as of August ~~31, 2019.~~28, 2021.
Internal Control Over Financial Reporting
A report of AutoZone’s management on our internal control over financial reporting (as such term defined in Rule 13a-15(f) under the Exchange Act) and a report of Ernst & Young, LLP, an independent registered public accounting firm, on the effectiveness of AutoZone’s internal control over financial reporting are included in Part I, Item 8 of this document and is incorporated herein by reference.
Changes in Internal ~~Controls~~Control Over Financial Reportings
There were no changes in our internal control over financial reporting that occurred during the quarter ended August ~~31, 2019~~28, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of Registered Public Accounting Firm
Our internal control over financial reporting as of August 28, 2021 has been audited by Ernst & Young, LLP, an independent registered public accounting firm, which also audited our Consolidated Financial Statements for the year ended August 28, 2021, as stated in their report included herein, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of August 28, 2021.

Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.

Table of Contents

PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information set forth in Part I, Item 1 of this document in the section entitled “Information about our Executive Officers,” is incorporated herein by reference in response to this item. Additionally, the information contained in AutoZone, Inc.’s Proxy Statement dated October ~~28, 2019,~~25, 2021, in the sections entitled “Corporate Governance Matters,” “Proposal 1 – Election of Directors” and “Delinquent Section 16(a) Reports,” 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 other financial executives. The Company has made the Code of Ethical Conduct available at www.autozone.com, which can be accessed by clicking “Investor Relations” located at the bottom of the page.
Item 11. Executive Compensation
The information contained in AutoZone, Inc.’s Proxy Statement dated October ~~28, 2019,~~25, 2021, 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 ~~28, 2019,~~25, 2021, in the sections entitled “Security Ownership of Management and Board of Directors,” “Security Ownership of Certain Beneficial Owners” and “Equity Compensation ~~Plans – Summary Table”~~Plans” is incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions, and Director Independence
~~Not applicable.~~The information contained in AutoZone, Inc’s Proxy Statement dated October 25, 2021, in the sections entitled “Related Party Transactions” and “Corporate Governance Matters – Independence” is incorporated herein by reference in response to this item.
Item 14. Principal Accounting Fees and Services
The information contained in AutoZone, Inc.’s Proxy Statement dated October ~~28, 2019,~~25, 2021, in the section entitled “Proposal 2 – Ratification of Independent Registered Public Accounting Firm,” is incorporated herein by reference in response to this item.

Table of Contents

PART IV
Item 15. Exhibits and Financial Statement Schedules
The following information required under this item is filed as part of this report.
(a) Financial Statements
The following financial statements, related notes and reports of independent registered public accounting firm are filed with this Annual Report onForm 10-K in Part II, Item 8:

Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the fiscal years ended August ~~31, 2019,~~28, 2021, August ~~25, 2018,~~29, 2020 and August ~~26, 2017~~31, 2019
Consolidated Statements of Comprehensive Income for the fiscal years ended August ~~31, 2019,~~28, 2021, August ~~25, 2018,~~29, 2020 and August ~~26, 2017~~31, 2019
Consolidated Balance Sheets as of August ~~31, 2019,~~28, 2021 and August ~~25, 2018~~29, 2020
Consolidated Statements of Cash Flows for the fiscal years ended August ~~31, 2019,~~28, 2021, August ~~25, 2018,~~29, 2020 and August ~~26, 2017~~31, 2019
Consolidated Statements of Stockholders’ Deficit for the fiscal years ended August ~~31, 2019,~~28, 2021, August ~~25, 2018,~~29, 2020 and August ~~26, 2017~~31, 2019
Notes to Consolidated Financial Statements
~~(b)~~
(b)
Exhibits
The following exhibits are being filed herewith:

3.1
    ~~3.1~~

Restated Articles of Incorporation of AutoZone, Inc. Incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form10-Q for the quarter ended February 13, 1999.

3.2
    ~~3.2~~

Seventh Amended and RestatedBy-Laws of AutoZone, Inc. Incorporated by reference to Exhibit 3.1 to the Current Report on Form8-K dated March 19, 2018.

4.1
    ~~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 FormS-3 (No.333-107828) filed August 11, 2003.

4.2
    ~~4.2~~

~~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% Senior Notes due 2020. Incorporated by reference to 4.1 to the Current Report on Form8-K~~ ~~dated November~~ ~~15, 2010.~~
    ~~4.3~~ ~~Form of 4.000% Senior Notes due 2020. Incorporated by reference from the Form8-K~~ ~~dated November~~ ~~15, 2010.~~
    ~~4.4~~ 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 Form8-K dated April 24, 2012.

4.3
    ~~4.5~~

Form of 3.700% Senior Notes due 2022. Incorporated by reference from the Form8-K dated April 24, 2012.

4.4
    ~~4.6~~

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 on Form8-K dated November 13, 2012.

4.5
    ~~4.7~~

Form of 2.875% Senior Notes due 2023. Incorporated by reference from the Form8-K dated November 13, 2012.



4.6	~~4.8~~	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 Form8-K dated April 29, 2013.

Table of Contents


4.7
	~~4.9~~		Form of 3.125% Senior Notes due 2023. Incorporated by reference to Exhibit 4.2 to the Form8-K dated April 29, 2013.

4.8	~~4.10~~		Officers’ Certificate dated April 29, 2015, pursuant to Section 3.2 of the Indenture dated August 8, 2003, setting forth the terms of the 2.500% Senior Notes due 2021. Incorporated by reference to Exhibit 4.1 to the Current Report on Form8-K dated April 29, 2015.

4.9	~~4.11~~		Form of 2.500% Senior Notes dated 2021. Incorporated by reference to Exhibit 4.3 to the Current Report on Form8-K dated April 29, 2015.

4.10	~~4.12~~		Officers’ Certificate dated April 29, 2015, pursuant to Section 3.2 of the Indenture dated August 8, 2003, setting forth the terms of the 3.250% Senior Notes due 2025. Incorporated by reference to Exhibit 4.2 to the Current Report on Form8-K dated April 29, 2015.

4.11	~~4.13~~	Form of 3.250% Senior Notes due 2025. Incorporated by reference to Exhibit 4.4 to the Current Report on Form8-K dated April 29, 2015.

4.12	~~4.14~~	Officers’ Certificate dated April 21, 2016, pursuant to Section 3.2 of the Indenture dated August ~~8, 2003, setting forth the terms of the 1.625% Senior Notes due 2019. Incorporated by reference to Exhibit 4.1 to the Current Report on Form8-K~~ ~~dated April~~ ~~21, 2016.~~

	~~4.15~~	~~Form of 1.625% Senior Notes due 2019. Incorporated by reference to Exhibit 4.3 to the Current Report on Form8-K~~ ~~dated April~~ ~~21, 2016.~~

	~~4.16~~	~~Officers’ Certificate dated April~~ ~~21, 2016, pursuant to Section~~ ~~3.2 of the Indenture dated August~~ 8, 2003, setting forth the terms of the 3.125% Senior Notes due 2026. Incorporated by reference to Exhibit 4.2 to the Current Report on Form8-K dated April 21, 2016.

4.13	~~4.17~~	Form of 3.125% Senior Notes due 2026. Incorporated by reference to Exhibit 4.4 to the Current Report on Form8-K dated April 21, 2016.

4.14	~~4.18~~	Officers’ Certificate dated April 18, 2017, pursuant to Section 3.2 of the Indenture dated August 8, 2003, setting forth the terms of the 3.750% Senior Notes due 2027. Incorporated by reference to Exhibit 4.1 to the Current Report on Form8-K dated April 18, 2017.

4.15	~~4.19~~	Form of 3.750% Senior Notes due 2027. Incorporated by reference to Exhibit 4.2 to the Current Report on Form8-K dated April 18, 2017.

4.16	~~4.20~~	Officers’ Certificate dated April 18, 2019, pursuant to Section 3.2 of the Indenture dated August 8, 2003, setting forth the terms of the 3.125% Senior Notes due 2024. Incorporated by reference to Exhibit 4.1 to the Current Report on Form8-K dated April 18, 2019.

4.17	~~4.21~~	Officers’ Certificate dated April 18, 2019, pursuant to Section 3.2 of the Indenture dated August 8, 2003, setting forth the terms of the 3.750% Senior Notes due 2029. Incorporated by reference to Exhibit 4.2 to the Current Report on Form8-K dated April 18, 2019.



4.18	~~4.22~~		Form of 3.125% Senior Notes due 2024. Incorporated by reference to Exhibit 4.3 to the Current Report on Form8-K dated April 18, 2019.

4.19	~~4.23~~		Form of 3.750% Senior Notes due 2029. Incorporated by reference to Exhibit 4.4 to the Current Report on Form8-K dated April 18, 2019.

4.20	~~4.24~~	Officers’ Certificate dated March 30, 2020, pursuant to Section 3.2 of the Indenture, dated March 30, 2020, setting forth the terms of the 3.625% Senior Notes due 2025. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated March 30, 2020.

4.21		Officers’ Certificate dated March 30, 2020, pursuant to Section 3.2 of the Indenture, dated March 30, 2020, setting forth the terms of the 4.000% Senior Notes due 2030. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K dated March 30, 2020.

Table of Contents

4.22		Form of 3.625% Note due 2025. Incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K dated March 30, 2020.

4.23		Form of 4.000% Note due 2030. Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K dated March 30, 2020.

4.24		Form of 4.000% Note due 2030. Incorporated by reference to Exhibit 4.5 to the Current Report on Form 8-K dated March 30, 2020.
4.25		Form of 1.650% Note due 2031. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K dated August 14, 2020.

4.26		Form of 1.650% Note due 2031. Incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K dated August 14, 2020.

4.27		Officers’ Certificate dated August 14, 2020, pursuant to Section 3.2 of the Indenture, dated August 14, 2020, setting forth the terms of the 1.650% Senior Notes due 2031. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated August 14, 2020.

4.28		Description of Securities of AutoZone, Inc. Incorporated by reference to Exhibit 4.24 to the Annual Report on Form 10-K dated October 28, 2019.

*10.1	*10.1		Second Amended and Restated 1998 Director Compensation Plan. Incorporated by reference to Exhibit 10.2 to the Annual Report on Form10-K for the fiscal year ended August 26, 2000.

*10.2	*10.2		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 of Stockholders held December 12, 2002.

*10.3	*10.3		Third Amendment to the AutoZone, Inc. Executive Deferred Compensation Plan. Incorporated by reference to Exhibit 10.1 to the Form8-K dated December 12, 2012.

*10.4	*10.4		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 of Stockholders held December 13, 2006.

*10.5	*10.5		Form of Stock Option Agreement. Incorporated by reference to Exhibit 10.26 to the Annual Report on Form10-K for the fiscal year ended August 25, 2007.

*10.6	*10.6		Amended and Restated AutoZone, Inc. 2003 Director Compensation Plan. Incorporated by reference to Exhibit 99.2 to the Current Report on Form8-K dated January 4, 2008.

*10.7	*10.7		Form ofnon-compete andnon-solicitation agreement for Section 16 executive officers and by AutoZone, Inc. Incorporated by reference to Exhibit 99.2 to the Current Report on Form8-K dated February 15, 2008.

*10.8	*10.8		~~Form ofnon-compete~~ ~~andnon-solicitation~~ ~~agreement approved by AutoZone’s Compensation Committee for execution bynon-executive~~ ~~officers. Incorporated by reference to Exhibit 99.3 to the Current Report on Form8-K~~ ~~dated February~~ ~~15, 2008.~~

	*10.9		Agreement dated February 14, 2008, between AutoZone, Inc. and William C. Rhodes, III. Incorporated by reference to Exhibit 99.4 to the Current Report on Form8-K dated February 15, 2008.

*10.9	*10.10		~~Form ofnon-compete~~ ~~andnon-solicitation~~ ~~agreement forNon-Section~~ ~~16 officers and by AutoZone, Inc. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form10-Q~~ ~~for the quarter ended May~~ ~~3, 2008.~~

	*10.11		AutoZone, Inc. 2015 Executive Incentive Compensation Plan incorporated by reference to Exhibit A to the definitive proxy statement dated October 27, 2014, for the Annual Meeting of Stockholders held December 18, 2014.

Table of Contents

*10.10	*10.12	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.

*10.11	*10.13	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 Form10-Q dated December 16, 2010.



*10.12	*10.14	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 Form10-Q dated December 16, 2010.

*10.13	*10.15	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 Form10-Q dated December 16, 2010.

*10.14	*10.16	~~AutoZone, Inc. 2011 Director Compensation Program. Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form10-Q~~ ~~dated December~~ ~~16, 2010.~~

	*10.17	Form of Stock Option Agreement under the 2011 Equity Incentive Award Plan. Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form10-Q dated March 17, 2011.

*10.15	*10.18	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 Form10-K for the fiscal year ended August 27, 2011.

*10.16	*10.19	First Amended and Restated AutoZone, Inc. Enhanced Severance Pay Plan. Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form10-Q dated March 17, 2011.

*10.17	*10.20	~~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 Form10-K~~ ~~for the fiscal year ended August~~ ~~27, 2011.~~ Reserved.

*10.18	*10.21	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 Form10-K for the fiscal year ended August 27, 2011.

*10.19	*10.22	~~Sixth Amended and Restated AutoZone, Inc. Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.40 to the Annual Report on Form10-K~~ ~~for the fiscal year ended August~~ ~~27, 2011.~~

	*10.23	Second Amendment to the AutoZone, Inc. Executive Deferred Compensation Plan. Incorporated by reference to Exhibit 10.1 to the Current Report on Form8-K dated December 14, 2011.

*10.20	*10.24	Offer letter dated ~~April~~ ~~26, 2012,~~August 5, 2020, to ~~Ronald B. Griffin.~~Jamere Jackson. Incorporated by reference to Exhibit ~~10.39 of Annual Report~~10.1 on Form~~10-K~~ 8-K dated ~~October~~ ~~22, 2012.~~September 14, 2020.

*10.21	*10.25	~~Offer letter dated February~~ ~~7, 2013, to Albert Saltiel. Incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form10-Q~~ ~~dated June~~ ~~12, 2013.~~

	*10.26	Amended and Restated AutoZone, Inc. Executive Deferred Compensation Plan dated December 17, 2013. Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form10-Q dated March 25, 2014.

*10.22	*10.27	AutoZone, Inc. Director Compensation Program effective January 1, ~~2014.~~2020. Incorporated by reference to Exhibit ~~10.3~~10.5 to the Quarterly Report on Form10-Q ~~dated~~ date March ~~25, 2014.~~ 19, 2021.

*10.23	*10.28	Amended and Restated AutoZone, Inc. 2011 Equity Incentive Award Plan dated December 16, 2015. Incorporated by reference to Exhibit A to the definitive proxy statement dated October 26, 2015, for the Annual Meeting of Stockholders held December 16, 2015.

10.24	~~10.29~~	Third Amended and Restated Credit Agreement dated as of November 18, 2016, among AutoZone, Inc., as Borrower, the lenders party thereto and Bank of America, N.A. as Administrative Agent, incorporated by reference to Exhibit 10.1 of the Current Report on Form8-K dated November 21, 2016.

Table of Contents

*10.25

	*10.30		AutoZone, Inc. Sixth Amended and Restated Executive Stock Purchase Plan. Incorporated by reference to Exhibit A to the definitive proxy statement dated October 24, 2016, for the Annual Meeting of Stockholders held December 14, 2016.

10.26	~~10.31~~		Master Extension, New Commitment and Amendment Agreement dated as of November 18, 2017 among AutoZone, Inc. as Borrower; Bank of America, N.A. as Administrative Agent and Swingline Lender; JPMorgan Chase Bank, N.A. as Syndication Agent; Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Chase Bank, N.A. as Joint Lead Arrangers; Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Chase Bank, N.A., SunTrust Robinson Humphrey, Inc., U.S. Bank National Association, Wells Fargo Securities, LLC and Barclay’s Capital as Joint Book Runners; SunTrust Bank, U.S. Bank National Association, Wells Fargo Bank, National Association and Barclay’s Bank PLC as Documentation Agents; and the several lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Current Report on the Form 8-K dated November 22, 2017.

*10.27	*10.32		Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the 2011 Equity Incentive Award Plan for officers effective September 27, 2011. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form10-Q dated December 17, 2018.
*10.28		364-Day Credit Agreement dated April 3, 2020, by and among the Company, as borrower, the several lenders from time to time party thereto, and U.S. Bank, National Association., as administrative agent for the lenders. Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated April 7, 2020.
*10.29	~~21.1~~	AutoZone, Inc. 2020 Omnibus Incentive Award Plan. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated December 17, 2020.
*10.30		Form of Grant Notice and Award Agreement for Stock Options granted to Officers under the AutoZone, Inc. 2020 Omnibus Incentive Award Plan. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K dated December 17, 2020.

*10.31		Form of Grant Notice and Award Agreement for Restricted Stock Units granted to Officers under the AutoZone, Inc. 2020 Omnibus Incentive Award Plan. Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K dated December 17, 2020.

*10.32		Form of Grant Notice and Award Agreement for Restricted Stock Units granted to Directors under the AutoZone, Inc. 2020 Omnibus Incentive Award Plan. Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K dated December 17, 2020.

*10.33		AutoZone, Inc. Director Compensation Program. Incorporated by reference to Exhibit 10.5 to the Current Report on Form 10-Q dated March 19, 2021.

*10.34		Amendment No. 1 to the AutoZone, Inc. 2020 Omnibus Incentive Award Plan.

21.1		Subsidiaries of the Registrant.

23.1	~~23.1~~		Consent of Independent Registered Public Accounting Firm.

31.1	~~31.1~~		Certification of Principal Executive Officer Pursuant to Rules13a-14(a) and15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Table of Contents

31.2	~~31.2~~		Certification of Principal Financial Officer Pursuant to Rules13a-14(a) and15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	~~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	~~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	~~101.INS~~		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH	~~101.SCH~~		Inline XBRL Taxonomy Extension Schema Document

101.CAL	~~101.CAL~~		Inline XBRL Taxonomy Extension Calculation Document

101.LAB	~~101.LAB~~		Inline XBRL Taxonomy Extension Labels Document

101.PRE	~~101.PRE~~		Inline XBRL Taxonomy Extension Presentation Document

101.DEF	~~101.DEF~~		Inline XBRL Taxonomy Extension Definition Document

104		Cover Page XBRL File

*	Management contract or compensatory plan or arrangement.

(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.

Item 16. Form10-K Summary

None.

Table of Contents

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 C. RHODES, III

William C. Rhodes, III

Chairman, President and

Chief Executive Officer

(Principal Executive Officer)

Dated: October 25, 2021

~~Dated: October 28, 2019~~

Table of Contents

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

/s/ WILLIAM C. RHODES, III	Chairman, President and Chief Executive Officer	October ~~28, 2019~~25, 2021
William C. Rhodes, III	(Principal Executive Officer)

/s/ ~~WILLIAM T. GILES~~JAMERE JACKSON	Chief Financial Officer and Executive Vice	October ~~28, 2019~~25, 2021
~~William T. Giles~~ Jamere Jackson	President – Finance ~~Information Technology~~ and Store Development
	~~Store Development (Principal~~ (Principal Financial Officer)

/s/ CHARLIE PLEAS, III	Senior Vice President and Controller	October ~~28, 2019~~25, 2021
Charlie Pleas, III	(Principal Accounting Officer)

/s/ DOUGLAS H. BROOKS	Director	October ~~28, 2019~~25, 2021
Douglas H. Brooks

/s/ MICHAEL M. CALBERT	Director	October ~~28, 2019~~25, 2021
Michael M. Calbert

/s/ LINDA A. GOODSPEED	Director	October ~~28, 2019~~25, 2021
Linda A. Goodspeed

/s/ EARL G. GRAVES, JR.	Director	October ~~28, 2019~~25, 2021
Earl, G. Graves, Jr.

/s/ ENDERSON GUIMARAES	Director	October ~~28, 2019~~25, 2021
Enderson Guimaraes

/s/ D. BRYAN JORDAN	Director	October ~~28, 2019~~25, 2021
D. Bryan Jordan

/s/ GALE V. KING	Director	October ~~28, 2019~~25, 2021
Gale V. King

~~/s/ W. ANDREW MCKENNA~~	~~Director~~	~~October 28, 2019~~
~~W. Andrew McKenna~~

/s/ GEORGE R. MRKONIC, JR.	Director	October ~~28, 2019~~25, 2021
George R. Mrkonic, Jr.

~~/s/ LUIS P. NIETO~~	~~Director~~	~~October 28, 2019~~
~~Luis P. Nieto~~

/s/ JILL A. SOLTAU	Director	October ~~28, 2019~~25, 2021
Jill A. Soltau

83


For the fiscal year ended August 28, 2021.

OR

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

For the transition period from ______ to ______.

Commission file number 1-10714


Nevada		62-1482048
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

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



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


~~PART I~~			4
~~Item 1. Business~~PART I			4
~~Introduction~~Item 1.	Business		4
	Introduction	4
	Human Capital Resources	4
	Store Operations	6
	Commercial	7
	Store Development	8
	Marketing and Merchandising Strategy			5	8
~~Commercial~~			7
~~Store Operations~~			7
~~Store Development~~			8
Purchasing and Supply Chain			8	10
	Competition			9	10
	Government Relations	10
	Trademarks and Patents			9	11
	~~Employees~~Seasonality			9	11
	~~Seasonality~~AutoZone Websites			9	11
~~AutoZone Websites~~			9
Information about our Executive Officers			10	11
Item 1A. ~~Risk Factors~~	Risk Factors		12	14
Item 1B.	Unresolved Staff Comments			19	23
Item 2. ~~Properties~~	Properties		19	23
Item 3. ~~Legal Proceedings~~	Legal Proceedings		19	24
Item 4.	Mine Safety Disclosures			20
	24
~~PART II~~			21
PART II		24
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			21	24
Item 6. ~~Selected Financial Data~~	Reserved		23	25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			24	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk			36	41
Item 8.	Financial Statements and Supplementary Data			38	43
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure			74	77
Item 9A.	Controls and Procedures			74	77
Item 9B. ~~Other Information~~			74

~~PART III~~Other Information			75	77
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	77

PART III		78
Item 10.	Directors, Executive Officers and Corporate Governance			75	78
Item 11. ~~Executive Compensation~~	Executive Compensation		75	78
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			75	78
Item 13.	Certain Relationships and Related Transactions, and Director Independence			75	78
Item 14.	Principal Accounting Fees and Services			75
	78
~~PART IV~~			76
PART IV		79
Item 15.	Exhibits and Financial Statement Schedules			76	79
Item 16. ~~Form10-K~~ ~~Summary~~	Form 10-K Summary		81	84


	Store
	Count
Alabama		~~116~~	120
Alaska		8
Arizona		~~150~~	162
Arkansas		66	70
California		~~624~~	641
Colorado		91	95
Connecticut		49	53
Delaware		16	17
Florida		~~362~~	397
Georgia		~~202~~	209
Hawaii		11
Idaho		30	32
Illinois		~~240~~	243
Indiana		~~156~~	160
Iowa		32	36
Kansas		54
Kentucky		98	102
Louisiana		~~126~~	129
Maine		14
Maryland		80	88
Massachusetts		82	83
Michigan		~~198~~	214
Minnesota		57	60
Mississippi		95	98
Missouri		~~116~~	120
Montana		14	15
Nebraska		23	24
Nevada		65	66
New Hampshire		23
New Jersey		~~108~~	117
New Mexico		62	63
New York		~~201~~


North Carolina	~~221~~	228
North Dakota	7
Ohio	~~270~~	277
Oklahoma	78	85
Oregon	48	53
Pennsylvania	~~198~~	211
Puerto Rico	48	50
Rhode Island	17
Saint Thomas	1
South Carolina	90	101
South Dakota	8	9
Tennessee	~~166~~	174
Texas	~~630~~	652
Utah	61	70
Vermont	2
Virginia	~~134~~	146
Washington	94	97
Washington, DC	5
West Virginia	44	45
Wisconsin	72	77
Wyoming	9
	9
Total Domestic stores	~~5,772~~	6,051
Mexico	~~604~~	664
Brazil	35
	52
Total stores	~~6,411~~


	Fiscal Year
	2021	2020	2019	2018	2017
Locations:
Beginning	6,549	6,411	6,202	6,029	5,814
Sold⁽¹⁾	—	—	—	26	—
New	219	138	209	201	215
Closed	1	—	—	2	—
Net new	218	138	209	199	215
Relocated	12	5	2	7	5
Ending	6,767	6,549	6,411	6,202	6,029


	Fiscal Year
	2019		2018		2017		2016		2015
Locations:
Beginning		6,202		6,029		5,814		5,609		5,391
Acquired⁽¹⁾		—		—		—		—		17
Sold⁽²⁾		—		26		—		—		—
New		209		201		215		205		202
Closed		—		2		—		—		1

Net new		209		199		215		205		201

Relocated		2		7		5		6		5

Ending		6,411		6,202		6,029		5,814		5,609


	•		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 and may drive their vehicles less, resulting in less wear and tear and lower demand for repairs and maintenance.


	•		the weather. Milder weather conditions may lower the failure rates of automotive parts, while extended periods of rain and winter precipitation 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. Additionally, global warming trends and other significant climate changes can create more variability in the short term or lead to other weather conditions that could impact our business.

	•		technological advances. Advances in automotive technology, such as electric vehicles, and parts design can result in cars needing maintenance less frequently and parts lasting longer.


	•		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, ride sharing 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.


	•		restrictions on access to telematics and diagnostic tools and repair information imposed by the original vehicle manufacturers or by governmental regulation. These restrictions may cause vehicle owners to rely on dealers to perform maintenance and repairs.


	No. of Stores		Store Square Footage
Leased		3,398		22,160,926
Owned		3,013		20,365,525

Total		6,411		42,526,451


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, 2019, to June 1, 2019		108,418	$	1,014.58		108,418	$	1,058,574,234
June 2, 2019, to June 29, 2019		103,332		1,093.45		103,332		945,586,095
June 30, 2019, to July 27, 2019		136,426		1,147.37		136,426		789,054,681
July 28, 2019, to August 31, 2019		285,688		1,093.02		285,688		476,792,875

Total		633,864	$	1,091.37		633,864	$	476,792,875


(in thousands, except per share data, same store sales and selected operating data)	Fiscal Year Ended August
	2019⁽¹⁾			2018⁽²⁾			2017			2016			2015
Income Statement Data
Net sales	$	11,863,743		$	11,221,077		$	10,888,676		$	10,635,676		$	10,187,340
Cost of sales, including warehouse and delivery expenses		5,498,742			5,247,331			5,149,056			5,026,940			4,860,309

Gross profit		6,365,001			5,973,746			5,739,620			5,608,736			5,327,031
Operating, selling, general and administrative expenses		4,148,864			4,162,890			3,659,551			3,548,341			3,373,980

Operating profit		2,216,137			1,810,856			2,080,069			2,060,395			1,953,051
Interest expense, net		184,804			174,527			154,580			147,681			150,439

Income before income taxes		2,031,333			1,636,329			1,925,489			1,912,714			1,802,612
Income tax expense⁽³⁾		414,112			298,793			644,620			671,707			642,371

Net income⁽³⁾	$	1,617,221		$	1,337,536		$	1,280,869		$	1,241,007		$	1,160,241

Diluted earnings per share⁽³⁾	$	63.43		$	48.77		$	44.07		$	40.70		$	36.03

Weighted average shares for diluted earnings per share⁽³⁾		25,498			27,424			29,065			30,488			32,206

Same Store Sales
Increase in domestic comparable store net sales⁽⁴⁾		3.0	%		1.8	%		0.5	%		2.4	%		3.8	%
Balance Sheet Data
Current assets	$	5,028,685		$	4,635,869		$	4,611,255		$	4,239,573		$	3,970,294
Working capital (deficit)		(483,456	)		(392,812	)		(155,046	)		(450,747	)		(742,579	)
Total assets		9,895,913			9,346,980			9,259,781			8,599,787			8,102,349
Current liabilities		5,512,141			5,028,681			4,766,301			4,690,320			4,712,873
Debt		5,206,344			5,005,930			5,081,238			4,924,119			4,624,876
Long-term capital leases		123,659			102,013			102,322			102,451			87,639
Stockholders’ (deficit)		(1,713,851	)		(1,520,355	)		(1,428,377	)		(1,787,538	)		(1,701,390	)
Selected Operating Data
Number of locations at beginning of year		6,202			6,029			5,814			5,609			5,391
Acquired locations⁽⁵⁾		—			—			—			—			17
Sold locations⁽⁶⁾		—			26			—			—			—
New locations		209			201			215			205			202
Closed locations		—			2			—			—			1

Net new locations		209			199			215			205			201

Relocated locations		2			7			5			6			5

Number of locations at end of year		6,411			6,202			6,029			5,814			5,609

AutoZone domestic commercial programs		4,893			4,741			4,592			4,390			4,141
Inventory per location (in thousands)	$	674		$	636		$	644		$	625		$	610
Total AutoZone store square footage (in thousands)		42,526			41,066			39,684			38,198			36,815
Average square footage per AutoZone store		6,633			6,621			6,611			6,600			6,587
Increase in AutoZone store square footage		3.6	%		3.5	%		3.9	%		3.8	%		3.9	%
Average net sales per AutoZone store (in thousands)	$	1,847		$	1,778		$	1,756		$	1,773		$	1,761
Net sales per AutoZone store average square foot	$	279		$	269		$	266		$	269		$	268
Total employees at end of year (in thousands)		96			89			87			84			81
Inventory turnover⁽⁷⁾		1.3	x		1.3	x		1.4	x		1.4	x		1.4	x
Accounts payable to inventory ratio		112.6	%		111.8	%		107.4	%		112.8	%		112.9	%
After-tax return on invested capital⁽⁸⁾		35.7	%		32.1	%		29.9	%		31.3	%		31.2	%
Adjusted debt to EBITDAR⁽⁹⁾		2.5			2.5			2.6			2.5			2.5
Net cash provided by operating activities (in thousands)⁽³⁾	$	2,128,513		$	2,080,292		$	1,570,612		$	1,641,060		$	1,573,018
Cash flow before share repurchases and changes in debt (in thousands)⁽¹⁰⁾	$	1,758,672		$	1,596,367		$	1,017,585		$	1,166,987		$	1,018,440
Share repurchases (in thousands)	$	2,004,896		$	1,592,013		$	1,071,649		$	1,452,462		$	1,271,416
Number of shares repurchased (in thousands)		2,182			2,398			1,495			1,903			2,010


(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
Debt⁽¹⁾	$	5,230,000		$	1,030,000	$	1,250,000	$	1,100,000	$	1,850,000
Interest payments⁽²⁾		751,813			143,250		250,250		168,438		189,875
Operating leases⁽³⁾		2,197,092			315,424		583,343		474,081		824,244
Capital leases⁽⁴⁾		182,720			56,246		90,773		35,701		—
Self-insurance reserves⁽⁵⁾		242,991			89,250		77,508		34,393		41,840
Construction commitments		37,969			37,969		—		—		—

	$	8,642,585	��	$	1,672,139	$	2,251,874	$	1,812,613	$	2,905,959


(in thousands)	Total Other Commitments
Standby letters of credit	$	101,172
Surety bonds		36,685

	$	137,857


	Fiscal Year Ended August
(in thousands, except percentages)	2019⁽¹⁾			2018⁽²⁾			2017			2016			2015
Net income	$	1,617,221		$	1,337,536		$	1,280,869		$	1,241,007		$	1,160,241
Adjustments:
Impairment before tax		—			193,162			—			—			—
Pension termination charges before tax		—			130,263			—			—			—
Interest expense		184,804			174,527			154,580			147,681			150,439
Rent expense		332,726			315,580			302,928			280,490			269,458
Tax effect⁽³⁾		(105,576	)		(211,806	)		(153,265	)		(150,288	)		(149,483	)
Deferred tax liabilities, net of repatriation tax⁽⁴⁾		(6,340	)		(132,113	)		—			—			—

After-tax return	$	2,022,835		$	1,807,149		$	1,585,112		$	1,518,890		$	1,430,655

Average debt⁽⁵⁾	$	5,126,286		$	5,013,678		$	5,061,502		$	4,820,402		$	4,458,114
Average stockholders’ (deficit)⁽⁵⁾		(1,615,339	)		(1,433,196	)		(1,730,559	)		(1,774,329	)		(1,619,596	)
Rent x 6⁽⁶⁾		1,996,358			1,893,480			1,817,568			1,682,940			1,616,748
Average capital lease obligations⁽⁵⁾		162,591			156,198			150,066			131,008			126,096

Invested capital	$	5,669,896		$	5,630,160		$	5,298,577		$	4,860,021		$	4,581,362

ROIC		35.7	%		32.1	%		29.9	%		31.3	%		31.2	%


	Fiscal Year Ended August
(in thousands, except ratios)	2019⁽¹⁾		2018⁽²⁾		2017		2016		2015
Net income	$	1,617,221	$	1,337,536	$	1,280,869	$	1,241,007	$	1,160,241
Add: Impairment before tax		—		193,162		—		—		—
Pension termination charges before tax		—		130,263		—		—		—
Interest expense		184,804		174,527		154,580		147,681		150,439
Income tax expense		414,112		298,793		644,620		671,707		642,371

EBIT		2,216,137		2,134,281		2,080,069		2,060,395		1,953,051
Add: Depreciation and amortization expense		369,957		345,084		323,051		297,397		269,919
Rent expense		332,726		315,580		302,928		280,490		269,458
Share-based expense		43,255		43,674		38,244		39,825		40,995

EBITDAR	$	2,962,075	$	2,838,619	$	2,744,292	$	2,678,107	$	2,533,423

Debt	$	5,206,344	$	5,005,930	$	5,081,238	$	4,924,119	$	4,624,876
Capital lease obligations		179,905		154,303		150,456		147,285		128,167
Rent x 6		1,996,358		1,893,480		1,817,568		1,682,940		1,616,748

Adjusted debt	$	7,382,607	$	7,053,713	$	7,049,262	$	6,754,344	$	6,369,791

Adjusted debt to EBITDAR		2.5		2.5		2.6		2.5		2.5


	Year Ended
(in thousands, except per share data)	August 31, 2019 (53 weeks)		August 25, 2018 (52 weeks)		August 26, 2017 (52 weeks)
Net sales	$	11,863,743	$	11,221,077	$	10,888,676
Cost of sales, including warehouse and delivery expenses		5,498,742		5,247,331		5,149,056

Gross profit		6,365,001		5,973,746		5,739,620
Operating, selling, general and administrative expenses		4,148,864		4,162,890		3,659,551

Operating profit		2,216,137		1,810,856		2,080,069
Interest expense, net		184,804		174,527		154,580

Income before income taxes		2,031,333		1,636,329		1,925,489
Income tax expense		414,112		298,793		644,620

Net income	$	1,617,221	$	1,337,536	$	1,280,869

Weighted average shares for basic earnings per share		24,966		26,970		28,430
Effect of dilutive stock equivalents		532		454		635

Weighted average shares for diluted earnings per share		25,498		27,424		29,065
Basic earnings per share	$	64.78	$	49.59	$	45.05

Diluted earnings per share	$	63.43	$	48.77	$	44.07


	Year Ended
	August 28,		August 29,		August 31,
	2021		2020		2019
(in thousands)	(52 weeks)		(52 weeks)		(53 weeks)

Net income	$	2,170,314	$	1,732,972	$	1,617,221
Other comprehensive gain (loss) income:
Foreign currency translation adjustments		44,683		(66,723)		(36,699)
Unrealized (losses) gains on marketable debt securities, net of taxes		(1,256)		1,254		1,464
Net derivative activities, net of taxes		2,839		(19,461)		1,718
Total other comprehensive income (loss)		46,266		(84,930)		(33,517)
Comprehensive income	$	2,216,580	$	1,648,042	$	1,583,704


(in thousands)	August 31, 2019			August 25, 2018
Assets
Current assets:
Cash and cash equivalents	$	176,300		$	217,824
Accounts receivable		308,995			258,136
Merchandise inventories		4,319,113			3,943,670
Other current assets		224,277			216,239

Total current assets		5,028,685			4,635,869
Property and equipment:
Land		1,147,709			1,107,092
Buildings and improvements		3,895,559			3,698,010
Equipment		1,991,042			1,841,330
Leasehold improvements		552,018			504,656
Construction in progress		126,868			140,535

		7,713,196			7,291,623
Less: Accumulated depreciation and amortization		3,314,445			3,073,223

		4,398,751			4,218,400
Goodwill		302,645			302,645
Deferred income taxes		26,861			34,620
Other long-term assets		138,971			155,446

		468,477			492,711

	$	9,895,913		$	9,346,980

Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	4,864,912		$	4,409,372
Accrued expenses and other		621,932			606,894
Income taxes payable		25,297			12,415

Total current liabilities		5,512,141			5,028,681
Long-term debt		5,206,344			5,005,930
Deferred income taxes		311,980			285,204
Other long-term liabilities		579,299			547,520
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; 25,445 shares issued and 24,038 shares outstanding in 2019 and 27,530 shares issued and 25,742 shares outstanding in 2018		254			275
Additionalpaid-in capital		1,264,448			1,155,426
Retained deficit		(1,305,347	)		(1,208,824	)
Accumulated other comprehensive loss		(269,322	)		(235,805	)
Treasury stock, at cost		(1,403,884	)		(1,231,427	)

Total stockholders’ deficit		(1,713,851	)		(1,520,355	)

	$	9,895,913		$	9,346,980


								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total

Balance at August 25, 2018	27,530	$	275	$	1,155,426	$	(1,208,824)	$	(235,805)	$	(1,231,427)	$	(1,520,355)
Cumulative effect of adoption of ASU 2014-09	—		—		—		(6,773)		—		—		(6,773)
Balance at August 25, 2018, as adjusted	27,530		275		1,155,426		(1,215,597)		(235,805)		(1,231,427)		(1,527,128)
Net income	—		—		—		1,617,221		—		—		1,617,221
Total other comprehensive income	—		—		—		—		(33,517)		—		(33,517)
Purchase of 2,182 shares of treasury stock	—		—		—		—		—		(2,004,896)		(2,004,896)
Retirement of treasury shares	(2,563)		(26)		(125,442)		(1,706,971)		—		1,832,439		—
Issuance of common stock under stock options and stock purchase plans	478		5		195,185		—		—		—		195,190
Share-based compensation expense	—		—		39,279		—		—		—		39,279
Balance at August 31, 2019	25,445		254		1,264,448		(1,305,347)		(269,322)		(1,403,884)		(1,713,851)
Net income	—		—		—		1,732,972		—		—		1,732,972
Total other comprehensive income	—		—		—		—		(84,930)		—		(84,930)
Purchase of 826 shares of treasury stock	—		—		—		—		—		(930,903)		(930,903)
Retirement of treasury shares	(1,912)		(19)		(99,686)		(1,878,595)		—		1,978,300		—
Issuance of common stock under stock options and stock purchase plans	164		2		74,985		—		—		—		74,987
Share-based compensation expense	—		—		43,748		—		—		—		43,748
Balance at August 29, 2020	23,697		237		1,283,495		(1,450,970)		(354,252)		(356,487)		(877,977)
Net income	—		—		—		2,170,314		—		—		2,170,314
Total other comprehensive income	—		—		—		—		46,266		—		46,266
Purchase of 2,592 shares of treasury stock	—		—		—		—		—		(3,378,321)		(3,378,321)
Retirement of treasury shares	(1,044)		(10)		(60,005)		(1,139,173)		—		1,199,188		—
Issuance of common stock under stock options and stock purchase plans	354		3		187,754		—		—		—		187,757
Share-based compensation expense	—		—		54,425		—		—		—		54,425
Balance at August 28, 2021	23,007	$	230	$	1,465,669	$	(419,829)	$	(307,986)	$	(2,535,620)	$	(1,797,536)


(in thousands)	Common Shares Issued			Common Stock			Additional Paid-in Capital			Retained Deficit			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at August 27, 2016		30,329		$	303		$	1,054,647		$	(1,602,186	)		$ (307,529	)	$	(932,773	)	$	(1,787,538	)
Net income											1,280,869									1,280,869
Total other comprehensive income														52,972						52,972
Purchase of 1,495 shares of treasury stock																	(1,071,649	)		(1,071,649	)
Retirement of treasury shares		(1,804	)		(18	)		(64,943	)		(1,321,070	)					1,386,031			—
Issuance of common stock under stock options and stock purchase plans		210			2			54,684												54,686
Share-based compensation expense								42,283												42,283

Balance at August 26, 2017		28,735			287			1,086,671			(1,642,387	)		(254,557	)		(618,391	)		(1,428,377	)
Net income											1,337,536									1,337,536
Total other comprehensive income														18,752						18,752
Purchase of 2,398 shares of treasury stock																	(1,592,013	)		(1,592,013	)
Retirement of treasury shares		(1,512	)		(15	)		(60,500	)		(918,462	)					978,977			—
Issuance of common stock under stock options and stock purchase plans		307			3			89,712												89,715
Adoption of ASU2018-02											14,489									14,489
Share-based compensation expense								39,543												39,543

Balance at August 25, 2018		27,530			275			1,155,426			(1,208,824	)		(235,805	)		(1,231,427	)		(1,520,355	)
Cumulative effect of adoption of ASU2014-09											(6,773	)								(6,773	)

Balance at August 25, 2018, as adjusted		27,530			275			1,155,426			(1,215,597	)		(235,805	)		(1,231,427	)		(1,527,128	)
Net income											1,617,221									1,617,221
Total other comprehensive income														(33,517	)					(33,517	)
Purchase of 2,182 shares of treasury stock																	(2,004,896	)		(2,004,896	)
Retirement of treasury shares		(2,563	)		(26	)		(125,442	)		(1,706,971	)					1,832,439			—
Issuance of common stock under stock options and stock purchase plans		478			5			195,185												195,190
Share-based compensation expense								39,279												39,279

Balance at August 31, 2019		25,445		$	254		$	1,264,448		$	(1,305,347	)	$	(269,322	)	$	(1,403,884	)	$	(1,713,851	)


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

Outstanding – August 29, 2020	1,384,986	$	677.15
Granted	202,820		1,152.54
Exercised	(349,592)		541.80
Cancelled	(30,160)		906.26
Outstanding – August 28, 2021	1,208,054		790.41	5.95	$	915,807

Exercisable	766,453		669.30	4.68		673,858
Expected to vest	397,441		1,000.60	8.16		217,754
Available for future grants	1,188,220


	Number of Shares			Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding – August 25, 2018		1,706,866		$	534.74
Granted		172,750			774.33
Exercised		(471,216	)		413.60
Cancelled		(59,089	)		679.92

Outstanding – August 31, 2019		1,349,311			601.36		6.08	$	675,097

Exercisable		793,266			528.85		4.88		454,415
Expected to vest		500,441			704.81		7.80		198,614
Available for future grants		547,519


		Weighted-
	Number	Average Grant
	of Shares	Date Fair Value

Nonvested at August 29, 2020	14,160	$	910.63
Granted	8,064		1,149.77
Vested	(5,805)		977.48
Canceled or forfeited	(668)		976.36
Nonvested at August 28, 2021	15,751	$	1,005.41


	Number of Shares			Weighted- Average Grant Date Fair Value
Nonvested at August 25, 2018		—			—
Granted		13,021		$	786.08
Vested		(2,514	)		838.34
Canceled or forfeited		(458	)		772.80

Nonvested at August 31, 2019		10,049		$	773.61


	August 28, 2021
(in thousands)	Level 1		Level 2		Level 3		Fair Value

Other current assets	$	46,007	$	—	$	—	$	46,007
Other long-term assets		54,105		13,806		—		67,911
	$	100,112	$	13,806	$	—	$	113,918


	August 31, 2019

									August 29, 2020
(in thousands)	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value

Other current assets	$	65,344	$	2,614	$	—	$	67,958	$	75,651	$	467	$	—	$	76,118
Other long-term assets		65,573		5,395		—		70,968		58,792		12,329		—		71,121

	$	130,917	$	8,009	$	—	$	138,926


	August 25, 2018
(in thousands)	Level 1		Level 2		Level 3		Fair Value
Other current assets	$	55,711	$	3,733	$	—	$	59,444
Other long-term assets		58,973		16,259		—		75,232

	$	114,684	$	19,992	$	—	$	134,676

									$	134,443	$	12,796	$	—	$	147,239


	August 28, 2021
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value

Corporate debt securities	$	23,650	$	329	$	(2)	$	23,977
Government bonds		65,416		338		(2)		65,752
Mortgage-backed securities		6,552		58		(8)		6,602
Asset-backed securities and other		17,551		43		(7)		17,587
	$	113,169	$	768	$	(19)	$	113,918

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