UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q


☒		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended November ~~23, 2019,~~21, 2020, 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

~~Commission file number~~

~~1-10714~~

AUTOZONE, ~~INC.~~

INC.

(Exact name of registrant as specified in its charter)


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

		~~(I.R.S. Employer~~ ~~Identification No.)~~

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

(

901

)

495-6500

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock ($0.01 par value)	AZO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

~~Large accelerated filer~~ ☒		~~Accelerated filer~~ ☐
Large accelerated filer ☒	Accelerated filer ☐
Non-acceleratedfiler ☐	Smaller reporting company ☐
Emerging growth company ☐		~~Smaller reporting company~~ ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

~~12b-2~~

12b-2 of the Exchange Act). Yes

☐

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 Par Value –

~~23,592,711~~

22,759,106 shares outstanding as of December ~~13, 2019.~~11, 2020.

Table of Contents

TABLE OF CONTENTS


PART I.		FINANCIAL INFORMATION	3
	Item 1.	Financial Statements	3
		CONDENSED CONSOLIDATED BALANCE SHEETS	3
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME	4
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	4
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	5
		CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT	6
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
		REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	17
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24	26
	Item 4.	Controls and Procedures	24	27
PART II.		OTHER INFORMATION	25	27
	Item 1.	Legal Proceedings	25	27
	Item 1A.	Risk Factors	25	27
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25	27
	Item 3.	Defaults Upon Senior Securities	26	27
	Item 4.	Mine Safety Disclosures	26	28
	Item 5.	Other Information	26	28
	Item 6.	Exhibits	27	29
SIGNATURES			28	30

Table of Contents

PART I. FINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements.~~

Item 1.Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

November 23
,
2019

August 31
,
2019

Assets

Current assets:

Cash and cash equivalents
$
158,089

$
176,300

Accounts receivable

333,246

308,995

Merchandise inventories

4,463,124

4,319,113

Other current assets

202,516

224,277

Total current assets

5,156,975

5,028,685

Property and equipment:

Property and equipment

7,844,304

7,713,196

Less: Accumulated depreciation and amortization

(3,393,648
)

(3,314,445
)

4,450,656

4,398,751

Operating lease
right-of-use
assets

2,585,105

–

Goodwill

302,645

302,645

Deferred income taxes

27,365

26,861

Other long-term assets

177,710

138,971

3,092,825

468,477

$
12,700,456
$
9,895,913

Liabilities and Stockholders’ Deficit

Current liabilities:

Accounts payable
$
4,922,148
$
4,864,912

Current portion of operating lease liabilities

232,549

–

Accrued expenses and other

618,654

621,932

Income taxes payable

94,885

25,297

Total current liabilities

5,868,236

5,512,141

Long-term debt

5,287,324

5,206,344

Operating lease liabilities, less current portion

2,506,829

–

Deferred income taxes

315,602

311,980

Other long-term liabilities

498,555

579,299

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; 25,465 shares issued and 23,655 shares outstanding as of November 23, 2019; 25,445 shares issued and 24,038 shares outstanding as of August 31, 2019

254

254

Additional
paid-in
capital

1,282,629

1,264,448

Retained deficit

(955,009
)

(1,305,347
)

Accumulated other comprehensive loss

(250,081
)

(269,322
)

Treasury stock, at cost

(1,853,883
)

(1,403,884
)

Total stockholders’ deficit

(1,776,090
)

(1,713,851
)

$

12,700,456
$
9,895,913


	November 21,		August 29,
(in thousands)	2020		2020

Assets
Current assets:
Cash and cash equivalents	$	1,664,005	$	1,750,815
Accounts receivable		350,915		364,774
Merchandise inventories		4,628,334		4,473,282
Other current assets		193,541		223,001
Total current assets		6,836,795		6,811,872

Property and equipment:
Property and equipment		8,283,676		8,136,542
Less: Accumulated depreciation and amortization		(3,697,674)		(3,627,321)
		4,586,002		4,509,221

Operating lease right-of-use assets		2,607,019		2,581,677
Goodwill		302,645		302,645
Deferred income taxes		29,887		27,843
Other long-term assets		206,226		190,614
		3,145,777		3,102,779
	$	14,568,574	$	14,423,872

Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	5,282,313	$	5,156,324
Current portion of operating lease liabilities		246,332		223,846
Accrued expenses and other		771,360		827,668
Income taxes payable		156,698		75,253
Total current liabilities		6,456,703		6,283,091

Long-term debt		5,514,874		5,513,371
Operating lease liabilities, less current portion		2,524,008		2,501,560
Deferred income taxes		370,076		354,186
Other long-term liabilities		729,893		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; 23,761 shares issued and 22,855 shares outstanding as of November 21, 2020; 23,697 shares issued and 23,376 shares outstanding as of August 29, 2020		238		237
Additional paid-in capital		1,323,037		1,283,495
Retained deficit		(1,008,537)		(1,450,970)
Accumulated other comprehensive loss		(306,907)		(354,252)
Treasury stock, at cost		(1,034,811)		(356,487)
Total stockholders’ deficit		(1,026,980)		(877,977)
	$	14,568,574	$	14,423,872

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Twelve Weeks Ended

  (in thousands, except per share data)

November 23,
2019

November 17,
2018


Net sales

$
2,793,038

$
2,641,733


Cost of sales, including warehouse and delivery expenses

1,291,970

1,224,259


Gross profit

1,501,068

1,417,474


Operating, selling, general and administrative expenses

1,001,045

929,656


Operating profit

500,023

487,818


Interest expense, net

43,743

39,006


Income before income taxes

456,280

448,812


Income tax expense

105,942

97,406


Net income

$
350,338

$
351,406


Weighted average shares for basic earnings per share

23,875

25,629


Effect of dilutive stock equivalents

618

468


Weighted average shares for diluted earnings per share

24,493

26,097


Basic earnings per share

$
14.67

$
13.71


Diluted earnings per share

$
14.30

$
13.47


	Twelve Weeks Ended
	November 21,		November 23,
(in thousands, except per share data)	2020		2019

Net sales	$	3,154,261	$	2,793,038
Cost of sales, including warehouse and delivery expenses		1,478,644		1,291,970
Gross profit		1,675,617		1,501,068
Operating, selling, general and administrative expenses		1,060,392		1,001,045
Operating profit		615,225		500,023
Interest expense, net		46,179		43,743
Income before income taxes		569,046		456,280
Income tax expense		126,613		105,942
Net income	$	442,433	$	350,338

Weighted average shares for basic earnings per share		23,223		23,875
Effect of dilutive stock equivalents		555		618
Weighted average shares for diluted earnings per share		23,778		24,493

Basic earnings per share	$	19.05	$	14.67
Diluted earnings per share	$	18.61	$	14.30

See Notes to Condensed Consolidated Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Twelve Weeks Ended

(in thousands)

November 23,
2019

November 17,
2018


Net income

$
350,338

$
351,406


Other comprehensive
income (
loss
)
:


Foreign currency translation adjustments

19,040

(40,573
)


Unrealized (losses) on marketable debt securities, net of taxes
(1)

(188
)

(77
)


Net derivative activities, net of taxes
(2)

389

389


Total other comprehensive
income (
loss
)

19,241

(40,261
)


Comprehensive income

$
369,579

$
311,145

~~(1)~~

~~Unrealized (losses) on marketable debt securities are presented net of tax~~

~~benefit~~

~~of $50 in fiscal 2020 and $20 in fiscal 2019.~~

~~(2)~~

~~Net derivative activities are presented net of taxes of $120 in~~

~~both~~

~~fiscal 2020 and fiscal 2019.~~



	Twelve Weeks Ended
	November 21,		November 23,
(in thousands)	2020		2019

Net income	$	442,433	$	350,338
Other comprehensive income:
Foreign currency translation adjustments		46,995		19,040
Unrealized losses on marketable debt securities, net of taxes		(309)		(188)
Net derivative activities, net of taxes		659		389
Total other comprehensive income		47,345		19,241
Comprehensive income	$	489,778	$	369,579

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Twelve Weeks Ended

(in thousands)

November 23,
2019

November 17,
2018

Cash flows from operating activities:

Net income

$
350,338

$

351,406

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property and equipment and intangibles

89,750

82,452

Amortization of debt origination fees

2,195

1,864

Deferred income taxes

1,940

7,420

Share-based compensation expense

9,996

10,527

Changes in operating assets and liabilities:

Accounts receivable

(23,246
)

(16,338
)

Merchandise inventories

(133,206
)

(167,454
)

Accounts payable and accrued expenses

48,270

67,762

Income taxes payable

69,390

63,774

Other, net

31,675

47,769

Net cash provided by operating activities

447,102

449,182

Cash flows from investing activities:

Capital expenditures

(101,407
)

(98,168
)

Purchase of marketable debt securities

(35,448
)

(7,480
)

Proceeds from sale of marketable debt securities

45,765

13,116

Proceeds from disposal of capital assets and other, net

379

633

Net cash used in investing activities

(90,711
)

(91,899
)

Cash flows from financing activities:

Net proceeds from commercial paper

79,700

149,378

Net proceeds from sale of common stock

8,822

44,671

Purchase of treasury stock

(449,999
)

(497,060
)

Re
p
ayment of
principal porti
on
of financ
e

lease
liabilities

(14,331
)

(12,597
)

Net cash used in financing activities

(375,808
)

(315,608
)

Effect of exchange rate changes on cash

1,206

(7,413
)

Net (decrease)
increase

in cash and cash equivalents

(18,211
)

34,262

Cash and cash equivalents at beginning of period

176,300

217,824

Cash and cash equivalents at end of period

$
158,089

$
252,086


	Twelve Weeks Ended
	November 21,		November 23,
(in thousands)	2020		2019

Cash flows from operating activities:
Net income	$	442,433	$	350,338
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment and intangibles		89,551		89,750
Amortization of debt origination fees		3,150		2,195
Deferred income taxes		10,295		1,940
Share-based compensation expense		10,508		9,996
Changes in operating assets and liabilities:
Accounts receivable		17,491		(23,246)
Merchandise inventories		(124,746)		(133,206)
Accounts payable and accrued expenses		56,273		48,270
Income taxes payable		79,558		69,390
Other, net		98,978		31,675
Net cash provided by operating activities		683,491		447,102

Cash flows from investing activities:
Capital expenditures		(113,036)		(101,407)
Purchase of marketable debt securities		(45,985)		(35,448)
Proceeds from sale of marketable debt securities		51,210		45,765
(Payments) proceeds from disposal of capital assets and other, net		(2,368)		379
Net cash used in investing activities		(110,179)		(90,711)

Cash flows from financing activities:
Net proceeds of commercial paper		—		79,700
Net proceeds from sale of common stock		28,666		8,822
Purchase of treasury stock		(678,324)		(449,999)
Repayment of principal portion of finance lease liabilities		(13,786)		(14,331)
Net cash used in financing activities		(663,444)		(375,808)

Effect of exchange rate changes on cash		3,322		1,206

Net decrease in cash and cash equivalents		(86,810)		(18,211)
Cash and cash equivalents at beginning of period		1,750,815		176,300
Cash and cash equivalents at end of period	$	1,664,005	$	158,089

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

Twelve Weeks Ended
November 23, 2019

(in thousa
nds)

Common
Shares
Issued

Common
Stock

Additional
Paid-in
Capital

Retained
Deficit

Accumulated
Other
Comprehensive
Loss

Treasury
Stock

Total

Balance at August 31, 2019

25,445
$
254
$
1,264,448
$
(1,305,347
) $
(269,322
) $
(1,403,884
) $
(1,713,851
)

Net income

–
– –
350,338
– –
350,338

Total other comprehensive
gain
– – – –
19,241
–
19,241

Purchase of 403 shares of treasury stock
– – – – –
(449,999
)
(449,999
)

Issuance of common stock under stock options and stock purchase plans

20
–
8,822
– – –
8,822

Share-based compensation expense
– –
9,359
– – –
9,359

Balance at November 23, 2019

25,465
$
254

$

1,282,629
$
(955,009
)
$

(250,081
)
$

(1,853,883
)
$

(1,776,090
)

Twelve Weeks Ended

November

17
, 201
8

(in thousands)

Common
Shares
Issued

Common
Stock

Additional
Paid-in
Capital

Retained
Deficit

Accumulated
Other
Comprehensive
Loss

Treasury
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

–

–

–

351,406

–

–

351,406

Total other comprehensive
loss
– – – –
(40,261
) –
(40,261
)

Purchase of 654 shares of treasury stock
– – – – –
(497,060
)
(497,060
)

Issuance of common stock under stock options and stock purchase plans

128

2

44,924
– – –
44,926

Share-based compensation expense
– –
9,501
– – –
9,501

Balance at November 17, 2018

27,658
$
277
$
1,209,851
$
(864,191
) $
(276,066
) $
(1,728,487
) $
(1,658,616
)


	Twelve Weeks Ended November 21, 2020
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total

Balance at August 29, 2020	23,697	$	237	$	1,283,495	$	(1,450,970)	$	(354,252)	$	(356,487)	$	(877,977)
Net income	—		—		—		442,433		—		—		442,433
Total other comprehensive loss	—		—		—		—		47,345		—		47,345
Purchase of 584 shares of treasury stock	—		—		—		—		—		(678,324)		(678,324)
Issuance of common stock under stock options and stock purchase plans	64		1		28,665		—		—		—		28,666
Share-based compensation expense	—		—		10,877		—		—		—		10,877
Balance at November 21, 2020	23,761	$	238	$	1,323,037	$	(1,008,537)	$	(306,907)	$	(1,034,811)	$	(1,026,980)


	Twelve Weeks Ended November 23, 2019
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total

Balance at August 31, 2019	25,445	$	254	$	1,264,448	$	(1,305,347)	$	(269,322)	$	(1,403,884)	$	(1,713,851)
Net income	—		—		—		350,338		—		—		350,338
Total other comprehensive income	—		—		—		—		19,241		—		19,241
Purchase of 403 shares of treasury stock	—		—		—		—		—		(449,999)		(449,999)
Issuance of common stock under stock options and stock purchase plans	20		—		8,822		—		—		—		8,822
Share-based compensation expense	—		—		9,359		—		—		—		9,359
Balance at November 23, 2019	25,465	$	254	$	1,282,629	$	(955,009)	$	(250,081)	$	(1,853,883)	$	(1,776,090)

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

AUTOZONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A – General

The accompanying unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements have been prepared in accordance with United States (“U.S.”) ~~generally~~generally accepted ~~~~accounting principles (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form

10-Q

and Article 10 of Regulation

S-X

of the Securities and Exchange Commission’s (the “SEC”) rules and regulations. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and related notes included in the AutoZone, Inc. (“AutoZone” or the “Company”) Annual Report on Form

10-K

for the year ended August ~~31, 2019.~~

29, 2020.

Operating results for the twelve weeks ended November ~~23, 2019~~21, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending August ~~29, 2020.~~28, 2021. Each of the first three quarters of AutoZone’s fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth ~~quarter~~quarters of fiscal 2021 and 2020 ~~has~~each have 16 ~~weeks and the fourth quarter of fiscal 2019 had 17~~ weeks.

~~Recently Adopted~~

Recent Accounting Pronouncements:

In ~~February 2016,~~August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

~~2016-02,~~

~~Leases (Topic 842)~~

~~, and subsequently amended this update by issuing additional ASU’s that provided clarification and further guidance for areas identified as potential implementation issues. ASU~~

~~2016-02~~

~~requires a~~

~~two-fold~~

approach for lessee accounting, under which a lessee will account for leases as finance leases or operating leases. For all leases with original terms greater than 12 months, both lease classifications will result in the lessee recognizing a

~~right-of-use~~

asset and a corresponding lease liability on its balance sheet, with differing methodologies for income statement recognition. This guidance also requires certain quantitative and qualitative disclosures about leasing arrangements. ASU

~~2016-02~~

and its amendments were effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption was permitted. The ASU’s transition provisions could be applied under a modified retrospective approach to each prior reporting period presented in the financial statements or only at the beginning of the period of adoption using the alternative transition method.

~~he Company adopted this standard and its amendments as of September 1~~

~~, 2019~~

, using the modified retrospective transition method. Under this method, existing leases were recorded at the adoption date, comparative periods were not restated and prior period amounts were not adjusted and continue to be reported under the accounting standards in effect for the prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the carry forward of prior lease identification under Accounting Standards Codification (“ASC”) Topic 840

. The Company made the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term. The Company also elected the practical expedient to not separate lease components from the

~~non-lease~~

components (typically fixed common-area maintenance costs at its retail store locations) for all classes of leased assets, except vehicles. The Company chose not to elect the hindsight practical expedient

~~to determine the reasonably certain lease term for existing leases~~

~~. Adoption of the leasing standard resulted in~~

~~operating lease~~

~~right~~

-u

~~se assets of approximately $2.5 billion and operating lease liabilities of approximately $2.7 billion~~

~~as of~~

~~September~~

~~2019~~

~~. Existing prepaid and deferred rent were~~

~~netted and~~

~~recorded as an offset to our gross operating lease~~

~~right-of-use~~

~~assets.~~

There was no adjustment to the opening balance of retained earnings upon adoption. The standard did not have a material impact on the Company’s Condensed Consolidated Statements of Income, Condensed Consolidated Statement of Cash Flows or covenant compliance under its existing credit agreement. Refer to “Note L- Leases”.

~~In June 2018~~

~~, the FASB issued ASU~~

~~2018-07,~~

~~Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting~~

~~. ASU~~

~~2018-07~~

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 Company adopted this standard beginning with

~~its~~

~~first quarter ending November 23~~

~~, 2019~~

~~. The Company determined that the provisions of ASU~~

~~2018-07~~

~~did not have an impact on its~~

~~Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Cash Flows.~~

~~Recently Issued Accounting Pronouncements:~~

~~In August 2018~~

~~, the FASB issued ASU~~

2018-15,

Intangibles – Goodwill and Other Internal Use Software (Subtopic 350-40): 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 obtain

internal-use

software. ASU

2018-15

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~~

~~with its~~

~~first quarter ending November 21~~

~~, 2020~~

~~The Company is currently evaluating~~adopted the new guidance ~~to determine~~on a prospective basis in the first quarter of fiscal 2021. The adoption of this guidance did not have a material impact on the ~~adoption will have on its~~Company’s Condensed Consolidated Financial Statements ~~of Income, Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Cash Flows.~~

and related disclosures.

In June 2016, the FASB issued ASU

2016-13,

Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

which was subsequently amended in November 2018 through ASU

2018-19,

~~Codific~~

~~tion~~Codification Improvements to Topic 326, Financial Instruments Credit Losses

. ASU

2016-13

~~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~~

~~Table of Contents~~

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 adoption method beginning 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~~Company's Condensed Consolidated Financial Statements ~~of Income, Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Cash Flows.~~

and related disclosures. The balance for allowance for uncollectable accounts was $9.8 million at November 21, 2020 and $10.0 million at August 29, 2020.

Note B – Share-Based Payments

AutoZone maintains several equity incentive plans, which provide equity-based compensation to

non-employee

directors and eligible employees for their service to AutoZone, its subsidiaries or affiliates. The Company recognizes compensation expense for share-based payments based on the fair value of the awards at the grant date. Share-based payments include stock option grants, restricted stock grants, restricted stock unit grants, stock appreciation rights, discounts on shares sold to employees under share purchase plans and other awards. Additionally, directors’ fees are paid in restricted stock units with value equivalent to the value of shares of common stock as of the grant date. The change in fair value of liability-based stock awards is also recognized in share-based compensation expense.

~~Stock Options~~

Table of Contents

Stock Options:

The Company made stock option grants of ~~188,324~~194,511 shares during the twelve week period ended November ~~23, 2019~~21, 2020 and granted options to purchase ~~171,293~~188,324 shares during the comparable prior year period.

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. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date.

The weighted ~~aver~~

geaverage fair value of the stock option awards granted during the twelve week periods ended November

~~, 2019~~ 21, 2020 and November ~~17, 2018,~~23, 2019, using the Black-Scholes-Merton multiple-option pricing valuation model, was ~~$252.39~~

$299.48 and ~~$208.31~~$252.39 per share, respectively, using the following weighted average key assumptions:

Twelve Weeks Ended

November 23,

2019

November 17,
2018

Expected price volatility

22
%

21
%

Risk-free interest rate

1.4
%
3.1
%

Weighted average expected lives (in years)

5.5

5.6

Forfeiture rate

10
%
10
%

Dividend yield

0
%
0
%


	Twelve Weeks Ended
	November 21,		November 23,
	2020		2019

Expected price volatility	28	%	22	%
Risk-free interest rate	0.4	%	1.4	%
Weighted average expected lives (in years)	5.6		5.5
Forfeiture rate	10	%	10	%
Dividend yield	0	%	0	%

During the twelve week period ended November ~~23, 2019,~~21, 2020, 59,990 stock options were exercised at a weighted average exercise price of $496.58. In the comparable prior year period, 18,407 stock options were exercised at a weighted average exercise price of $568.16. In

Restricted Stock Units:

Restricted stock unit awards are valued at the ~~comparable prior year period, 129,559 stock options were exercised at a weighted average exercise~~market price of ~~$359.94.~~

~~Restricted Stock Units~~

The Company made restricted stock unit grants of 7,008 shares to eligible employees during the twelve week period ended November 23, 2019 and 10,474 in the comparable prior year period. The fair value of the restricted stock unit grants is the closing pricea share of the Company’s ~~common~~ stock on the ~~grant~~ date ~~and the grants~~of grant. Grants of employee restricted stock units vest ratably on an annual basis over a four-year service ~~period. Restricted stock unit awards~~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 ~~grant~~ forfeiture assumptions.

~~The weighted average fair value per~~ Grants of non-employee director restricted stock ~~unit granted~~

~~during the t~~

~~welve week period ended November 23, 2019, was~~

~~$1,060.81.~~ units are made and expensed on January 1 of each year, as they vest immediately.

As of November ~~23, 2019,~~21, 2020, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately ~~$11.7~~$14.5 million, before income taxes, which we expect to recognize over an estimated weighted average period of ~~3.3~~3.1 years.

Transactions related to restricted stock units for the twelve weeks ended November ~~23, 2019~~

21, 2020 were

as ~~follow~~

Number

of Shares



Weighted
-
Average


Grant Date Fair
Value

Nonvested at August 31, 2019

10,049
$
773.61

Granted

7,008

1,060.81

Vested

(2,456
)
772.80

Canceled or forfeited

(66
)
772.80

Nonvested at November 23, 2019

14,535
$
912.23

~~Table of Contents~~

follows:


		Weighted-
	Number	Average Grant
	of Shares	Date Fair Value

Nonvested at August 29, 2020	14,160	$	910.63
Granted	6,328		1,139.99
Vested	(4,069)		888.78
Canceled or forfeited	(20)		962.49
Nonvested at November 21, 2020	16,399	$	1,004.49

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was ~~$10.0~~$10.5 million for the twelve week period ended November ~~23, 2019,~~21, 2020, and ~~$10.5~~$10.0 million for the comparable prior year period.

Table of Contents

For the twelve week period ended November ~~23, 2019, 107,511~~21, 2020, 293,280 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, ~~427,407~~107,511 anti-dilutive shares were excluded from the dilutive earnings per share computation.

See AutoZone’s Annual Report on Form

10-K

for the year ended August ~~31, 2019,~~29, 2020, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan and the ~~2011~~2020 Director Compensation ~~Program and the 2014 Director Compensation Plan.~~

Program.

Note C – Fair Value Measurements

The Company defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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:

November 23, 2019

(in thousands)

Level 1

L
evel 2

Level 3

Fair

Value

Other current assets
$
50,015
$
2,350
$
–
$
52,365

Other long-term assets

72,075

3,931

–

76,006

$
122,090
$
6,281
$
–
$
128,371

August 31, 2019

(in thousands)

Level 1

Level 2

Level 3

Fair

Value

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

Other long-term assets

65,573

5,395

–

70,968

$
130,917
$
8,009
$
–
$
138,926


	November 21, 2020
(in thousands)	Level 1		Level 2		Level 3		Fair Value

Other current assets	$	41,085	$	194	$	—	$	41,279
Other long-term assets		83,666		16,678		—		100,344
	$	124,751	$	16,872	$	—	$	141,623


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

Other current assets	$	75,651	$	467	$	—	$	76,118
Other long-term assets		58,792		12,329		—		71,121
	$	134,443	$	12,796	$	—	$	147,239

At November ~~23, 2019,~~21, 2020, the fair value measurement amounts for assets and liabilities recorded in the accompanying Condensed Consolidated Balance Sheets consisted of short-term marketable debt securities, ~~of $52.4 million,~~ which are included within Other current assets, and long-term marketable debt securities, ~~of $76.0 million,~~ which are included in Other long-term assets. The Company’s marketable debt securities are typically valued at the closing price in the principal active market as of the last business day of the quarter or through the use of other market inputs relating to the securities, including benchmark yields and reported trades. The fair values of the marketable debt securities, by asset class, are described in “Note D – Marketable Debt Securities.”

Table of Contents

Financial Instruments not Recognized at Fair Value

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

~~Table of Contents~~

Note D – Marketable Debt Securities

Marketable debt securities are carried at fair value, with unrealized gains and losses, net of income taxes, recorded in Accumulated other comprehensive loss until realized, and any credit risk related losses are recognized in net income in the period incurred. The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.” ~~Unrealized gains (losses) on marketable debt securities are recorded in Accumulated other comprehensive loss.~~

The Company’s

available-for-sale

marketable debt securities consisted of the following:

November 23, 2019

  (in thousands)

Amortized

Cost
Basis

Gross


Unrealized


Gains

Gross


Unrealized


Losses


Fair

Value


Corporate debt securities
$
35,093

$
34

$
(6
)

$
  35,121

Government bonds

60,901

515

(18
)
61,398

Mortgage-backed securities

1,787

1

(14
)
1,774

Asset-backed securities and other

30,076

4

(2
)
30,078

$

127,857
$

554

$

(40
) $
128,371

August 31, 2019

  (in thousands)


Amortized


Cost
Basis

Gross


Unrealized


Gains

Gross


Unrealized


Losses


Fair

Value


Corporate debt securities
$
36,998

$
29

$

(19
)

$
37,008

Government bonds

45,741

763

–

46,504

Mortgage-backed securities

2,089

2

(15
)
2,076

Asset-backed securities and other

53,345

–

(7
)
53,338

$

138,173
$
794
$
(41
)

$
138,926


	November 21, 2020
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value

Corporate debt securities	$	42,192	$	816	$	—	$	43,008
Government bonds		75,235		968		(18)		76,185
Mortgage-backed securities		6,590		68		(1)		6,657
Asset-backed securities and other		15,644		131		(2)		15,773
	$	139,661	$	1,983	$	(21)	$	141,623


	August 29, 2020
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value

Corporate debt securities	$	46,652	$	970	$	(4)	$	47,618
Government bonds		44,594		1,172		—		45,766
Mortgage-backed securities		4,842		75		—		4,917
Asset-backed securities and other		48,798		143		(3)		48,938
	$	144,886	$	2,360	$	(7)	$	147,239

The debt securities held at November ~~23, 2019,~~21, 2020, had effective maturities ranging from

less than one year to approximately three ~~years~~

~~. The~~years. At November 21, 2020, the Company ~~did not realize an~~

~~material gains or losses on its marketable debt securities during the twelve week period ended November 23, 2019.~~

~~The Company holds 41~~held 8 securities that are in an unrealized loss ~~position of approximately $40~~

~~thousand~~

at November 23, 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.position. In evaluating whether the securities are deemed to be impaired on an other than temporary basis, the Company considers factors such as the duration and severity of the loss position, the credit worthiness of the investee, the term to maturity and the intent and ability to hold the investments until maturity or until recovery of fair value.

An allowance for credit losses was deemed unnecessary given consideration of the factors above.

Included above in total

~~available~~

~~for~~

~~sale~~

available-for-sale marketable debt securities are ~~$29.2~~$62.3 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.

Table of Contents

Note E – Derivative Financial Instruments

At November ~~23, 2019,~~21, 2020, the Company had ~~$5.1~~$30.4 million recorded in Accumulated other comprehensive loss related to realized losses associated with terminated interest rate swap and treasury rate lock derivatives, which were designated as hedging instruments. Net losses are amortized into Interest expense over the remaining life of the associated debt. During the twelve week ~~period~~periods ended November 21, 2020 and November 23, 2019, ~~and the comparable prior year period,~~ the Company reclassified $863 thousand and $509 thousand of net losses from Accumulated other comprehensive loss to Interest ~~expense.~~expense, respectively. The Company expects to reclassify ~~$2.1~~$3.7 million of net losses from Accumulated other comprehensive loss to Interest expense over the next 12 months.

Note F – Merchandise Inventories

~~Merchandise inventories are stated at the lower of cost or market.~~

Merchandise inventories include related purchasing, storage and handling costs. Inventory cost has been determined using the

last-in,

first-out

(“LIFO”) method stated at the lower of cost or net realizable value for domestic inventories and the weighted average cost method stated at the lower of cost or net realizable value for Mexico and Brazil inventories. Due to historical price deflation on the Company’s merchandise purchases, the Company has exhausted its LIFO reserve balance. The Company’s policy is not to write up inventory in excess of replacement ~~cost, which is based on average~~ cost. The difference between LIFO cost and replacement cost, which

~~has been slightly~~

will be reduced

~~due to recent~~

upon experiencing price inflation on the Company’s merchandise purchases, was ~~$374.8~~$362.5 million at November 23

~~, 2019~~

21, 2020 and ~~$404.9~~$357.0 million at August 31

~~, 2019~~

29, 2020.

~~Table of Contents~~

Note G – Financing

The Company’s long-term debt consisted of the ~~following~~

(in thousands)

November 23,
2019

August 31,
2019

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

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

450,000

Commercial paper, weighted average interest rate of 1.76% and 2.28% at November 23, 2019 and

August 31, 2019, respectively

1,109,700

1,030,000

Total debt before discounts and debt issuance costs

5,309,700

5,230,000

Less: Discounts and debt issuance costs

22,376

23,656

Long-term debt

$

5,287,324

$

5,206,344

following:


	November 21,		August 29,
(in thousands)	2020		2020

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		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		5,550,000		5,550,000
Less: Discounts and debt issuance costs		35,126		36,629
Long-term debt	$	5,514,874	$	5,513,371

As of November ~~23, 2019,~~21, 2020, the ~~commercial paper borrowings and the $500~~$250 million ~~4.000%~~2.500% Senior Notes due ~~November 2020~~April 2021 are classified as long-term in the accompanying

Condensed

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 ~~facilities.~~agreements. As of November ~~23, 2019,~~21, 2020, the Company had ~~$1.997~~$2.748 billion of availability under its ~~$2.0~~$2.750 billion revolving credit ~~facility,~~agreements, which would allow itthe Company to replace these short-term obligations with long-term financing facilities.

Table of Contents

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~~.

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 enhanced) long-term debt ratings. Interest accrues on base rate loans as defined in the Revolving Credit Agreement.

On April 3, 2020, the Company entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) to augment the Company’s access to liquidity due to current macroeconomic conditions, specifically the pandemic, and to supplement the Company’s existing Revolving Credit Agreement. The 364-Day Credit Agreement provides for loans in the aggregate principal amount of up to $750 million. The 364-Day Credit Agreement will terminate, and all amounts borrowed under the 364-Day Credit Agreement will be due and payable, on April 2, 2021. Revolving loans under the 364-Day Credit Agreement may be base rate loans, Eurodollar loans, or a combination of both, at the Company’s election.

As of November ~~23, 2019,~~21, 2020, the Company had ~~$3.2~~0 outstanding borrowings under either of the revolving credit agreements and $1.7 million of outstanding letters of credit under the Revolving Credit Agreement.

Under the Company’s revolving credit agreements, 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 fair value of the Company’s debt was estimated at ~~$5.468~~$6.055 billion as of November ~~23, 2019,~~21, 2020, and ~~$5.419~~$6.081 billion as of August ~~31, 2019,~~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 ~~$180.6~~$540.1 million and $567.5 million at November ~~23, 2019,~~21, 2020 and August 29, 2020, respectively, which reflects their face amount, adjusted for any unamortized debt issuance costs and discounts. ~~At August 31, 2019, the fair value was~~

~~greater~~

~~than the carrying value of debt by $212.7 million.~~

All ~~senior notes~~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~~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~~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~~sale and ~~a change~~leaseback transactions and consolidations, mergers and the sale of ~~control provision that may require acceleration of the repayment obligations under certain circumstances.~~assets. All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs.

As of November ~~23, 2019,~~21, 2020, the Company was in compliance with all covenants and ~~expect~~

expects to remain in compliance with all covenants under its borrowing arrangements.

~~Table of Contents~~

Note H – Stock Repurchase Program

From January 1, 1998 to November ~~23, 2019,~~21, 2020, the Company has repurchased a total of ~~147.3~~148.3 million shares of its common stock at an aggregate cost of ~~$21.873~~$23.032 billion, including ~~403,107~~584,379 shares of its common stock at an aggregate cost of ~~$450.0~~$678.3 million during the twelve week period ended November ~~23, 2019. On October 7, 2019, the Board voted to increase the~~

~~repurchase~~

~~authorization by $1.25 billion. This raised the total value of shares authorized to be repurchased to $23.15 billion.~~21, 2020. Considering the cumulative repurchases as of November ~~23, 2019,~~21, 2020, the Company had ~~$1.277~~

~~illion~~$117.6 million remaining under the Board’s authorization to repurchase its common stock.

Table of Contents

On December 15, 2020, the Board voted to increase the authorization by $1.5 billion to raise the cumulative share repurchase authorization from $23.15 billion to $24.65 billion. Subsequent to November ~~23, 2019,~~21, 2020, the Company has repurchased

~~101,815~~

97,140 shares of its common stock at an aggregate cost of $

~~120.0~~

$110.0 million.

Considering the cumulative repurchases and the increase in authorization subsequent to November 21, 2020, the Company has $1.508 billion remaining under the Board’s authorization to repurchase its stock.

Note I – Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss includes foreign currency translation adjustments, activity for interest rate swaps and treasury rate locks that qualify as cash flow hedges and unrealized gains (losses) on

available-for-sale

debt securities. Changes in Accumulated other comprehensive loss for the twelve week periods ended November ~~23, 2019~~21, 2020 and November ~~17, 2018~~23, 2019 consisted of the following:

(in thousands)

Foreign
Currency and
Other
(2)

Net
Unrealized
Gain (Loss)
on Securities

Derivatives

Total

Balance at August 31, 2019

$
(265,598
)

$
591

$
(4,315
)

$
(269,322
)

Other comprehensive income (loss) before reclassifications
(1)

19,040

(233
)

–

18,807

Amounts reclassified from Accumulated other comprehensive income
(loss)
(1)

–

45
(3)

389
(4)

434

Balance at November 23, 2019

$
(246,558
)

$
403

$
(3,926
)

$

(250,081
)

(in thousands)

Foreign
Currency and
Other
(2)

Net
Unrealized
Gain (Loss)
on Securities

Derivatives

Total

Balance at August 25, 2018

$
(228,899
)

$
(873
)

$
(6,033
)

$
(235,805
)

Other comprehensive loss before reclassifications
(1)

(40,573
)

(77
)

–

(40,650
)

Amounts reclassified from Accumulated other
c
omprehensive loss

–

–

389
(4)

389

Balance at November 17, 2018

$
(269,472
)

$
(950
)

$
(5,644
)

$
(276,066
)


			Net
	Foreign		Unrealized
	Currency and		Gain (Loss)
(in thousands)	Other⁽²⁾		on Securities			Derivatives			Total

Balance at August 29, 2020	$	(332,321)	$	1,845		$	(23,776)		$	(354,252)
Other comprehensive income (loss) before reclassifications⁽¹⁾		46,995		(322)	⁽³⁾		—			46,673
Amounts reclassified from Accumulated other comprehensive loss		—		13	⁽³⁾		659	⁽³⁾		672
Balance at November 21, 2020	$	(285,326)	$	1,536		$	(23,117)		$	(306,907)


			Net
	Foreign		Unrealized
	Currency and		Gain (Loss)
(in thousands)	Other⁽²⁾		on Securities			Derivatives			Total

Balance at August 31, 2019	$	(265,598)	$	591		$	(4,315)		$	(269,322)
Other comprehensive income (loss) before reclassifications⁽¹⁾		19,040		(233)	⁽³⁾		—			18,807
Amounts reclassified from Accumulated other comprehensive loss		—		45	⁽³⁾		389	⁽³⁾		434
Balance at November 23, 2019	$	(246,558)	$	403		$	(3,926)		$	(250,081)

(1)	Amounts in parentheses indicate debits to Accumulated other comprehensive loss.

(2)	Foreign currency is shown net of U.S. tax to account for foreign currency impacts of certain undistributed non-U.S. subsidiaries earnings. Other foreign currency is not shown net of additional U.S. tax as other basis differences of non-U.S. subsidiaries are intended to be permanently reinvested.

(3)

~~Represents realized losses on marketable debt securities,~~Amounts shown are net of
taxes/tax ~~benefit~~
of $12 in fiscal 2020, which is recorded in Operating, selling, general and administrative expenses on the Condensed Consolidated Statements of Income. See “Note D – Marketable Debt Securities” for further discussion.

benefits.

~~(4)~~

~~Represents losses on derivatives, net of taxes of $120 in~~

~~both~~

fiscal 2020 and fiscal 2019, which is recorded in Interest expense, net, on the Condensed Consolidated Statements of Income. See “Note E – Derivative Financial Instruments” for further discussion.

~~Table of Contents~~

Note J – ~~Goodwill and Intangibles~~

~~As of November 23, 2019, there were no changes to the carrying amount of goodwill as described in our Annual Report on Form~~

~~10-K~~

~~for the year ended August 31, 2019.~~

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

(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

(24,722
)
4,654

Total intangible assets other than goodwill
$
30,246
$
(25,592
) $
4,654

~~Amortization expense of intangible assets~~

~~was $1.0 million~~

~~for the twelve week periods ended November 23, 2019 and November 17, 2018.~~

~~Note K –~~ Litigation

The Company is involved in various 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. W

~~hile~~

While the resolution of these matters cannot be predicted with certainty, management does not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to the Company’s Condensed Consolidated ~~Statement~~Statements of Income, Condensed Consolidated Balance ~~Sheet~~Sheets or Condensed Consolidated ~~Statement~~Statements of Cash Flows.

Note LK – Leases

~~The Company adopted ASU~~

~~2016-02,~~

~~Leases (Topic 842)~~

, beginning with its first quarter ended November 23, 2019 which requires leases to be recognized on the balance sheet. Leases with an original term of twelve months or less are not recognized in the Company’s Condensed Consolidated Balance Sheet, and the lease expense related to these short-term leases is recognized over the lease term. The Company elected the practical expedient to not separate lease components from the

~~non-lease~~

~~components, which includes fixed common-area maintenance costs at its retail store locations, for all classes of leased assets, except vehicles. Our vehicle leases typically include variable~~

~~non-lease~~

~~components, such as maintenance and fuel charges, which contain observable standalone prices. We have elected to exclude these variable~~

~~non-lease~~

~~components from vehicle lease payments for the purpose of calculating the~~

~~right-of-use~~

~~assets and liabilities. These variable lease payments are expensed as incurred.~~

The Company’s leases primarily relate to its retail stores, distribution centers and vehicles under various

non-callable

leases. Leases are categorized at their commencement date, which is the date the Company takes possession or control of the 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 2040.~~ Retail leases typically have initial terms of between one and 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 leases typically have terms of 20 or more years. The exercise of lease renewal options is at our sole discretion. The Company evaluates renewal options at lease 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. The Company subleases certain properties that are not used in its operations. Sublease income was not significant for the periods presented. Certain lease agreements require variable payments based upon actual costs of common-area maintenance, real estate taxes and insurance. OurCompany’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Our finance leases for vehicles have a stated borrowing rate which we use in determining the present value of the lease payments over the lease term. Substantially all our operating leases and finance leases for real estate do not provide a stated borrowing rate. Accordingly, we use the Company’s incremental borrowing rate at commencement or modification date in determining the present value of lease payments over the lease term. For operating leases that commenced prior to the date of adoption of the new standard, the Company used the incremental borrowing rate that corresponded to the remaining lease term as of the date of adoption.

Table of Contents

Lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet are as follows:


~~(in thousands)~~	~~Classification~~	~~November 23, 2019~~

~~Assets:~~
~~Operating lease assets~~	~~Operating lease~~ ~~right-of-use~~ ~~assets~~	$	~~2,585,105~~
~~Finance lease assets~~ ~~(1)~~	Property and equipment, less accumulated depreciation and amortization		~~284,383~~
~~Total lease assets~~		$	~~2,869,488~~
~~Liabilities:~~
~~Current:~~
~~Operating~~	~~Current portion of operating lease liab~~ i ~~lities~~	$	~~232,549~~
~~Finance~~	~~Accrued expenses and other~~		~~57,808~~
~~Noncurrent:~~
~~Operating~~	~~Operating lease liabilities, less current portion~~		~~2,506,829~~
~~Finance~~	~~Other long-term liabilities~~		~~137,856~~
~~Total lease liabilities~~		$	~~2,935,042~~

~~(1)~~

~~Finance lease assets are net of accumulated amortization of $85,107.~~


		November 21,		August 29,
(in thousands)	Classification	2020		2020

Assets:
Operating	Operating lease right-of-use assets	$	2,607,019	$	2,581,677
Finance	Property and equipment		328,153		327,006
Total lease assets		$	2,935,172	$	2,908,683
Liabilities:
Current:
Operating	Current portion of operating lease liabilities	$	246,332	$	223,846
Finance	Accrued expenses and other		63,408		67,498
Noncurrent:
Operating	Operating lease liabilities, less current portion		2,524,008		2,501,560
Finance	Other long-term liabilities		169,513		155,855
Total lease liabilities		$	3,003,261	$	2,948,759

Accumulated amortization related to finance lease assets was $95.0 million as of November 21, 2020 and $107.3 million as of August 29, 2020.

Lease costs for finance and operating leases for the ~~twelve-week~~twelve week period ended November ~~23, 2019~~21, 2020 are as follows:

  (in thousands)

Statement of Income Location

Twelve Weeks
Ended
  November 23, 2019

Finance lease cost:

Amortization of lease assets

Depreciation and amortization
$
                 12,656

Interest on lease liabilities

Interest expense, net

1,385

Operating lease cost
(1)

Selling, general and administrative expenses

81,799

Total lease cost
$
95,840


		Twelve Weeks Ended
		November 21,		November 23,
(in thousands)	Statement of Income Location	2020		2019

Finance lease cost:
Amortization of lease assets	Depreciation and amortization	$	9,319	$	12,656
Interest on lease liabilities	Interest expense, net		703		1,385
Operating lease cost⁽¹⁾	Selling, general and administrative expenses		84,103		81,799
Total lease cost		$	94,125	$	95,840

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

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 November 23, 2019 having initial or remaining lease terms in excess of one year are as follows:

(in thousands)

        Finance
Leases

        Operating
Leases

        Total

2020
$
44,456
$
238,345
$
282,801

2021

55,841

318,198

374,039

2022

43,890

304,855

348,745

2023

30,643

285,161

315,804

2024

9,512

261,818

271,330

Thereafter

25,914

2,201,994

2,227,908

Total lease payments

210,256

3,610,371

3,820,627

Less: Interest

(14,592
)
(870,993
)
(885,585
)

Present value of lease liabilities
$


195,664
$
   2,739,378
$


2,935,042

Table of Contents

~~Prior Period Disclosures~~

~~As a result of the adoption of~~

~~ASU 2016-02, Leases (Topic 842),~~

~~on September 1, 2019, the Company is required to present future minimum lease payments for operating leases and capitalized lease obligations having initial or remaining~~

~~non-cancelable~~

~~lease terms in excess of one year. These future minimum lease payments were previously disclosed in our 2019 Annual Report on Form~~

~~10-K~~

~~and accounted for under previous lease guidance. Future minimum annual rental commitments under non-cancelable operating leases and capital leases were as follows as of August 31, 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

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

	~~Twel~~ ~~ve Weeks E~~ ~~nded~~ ~~November 23,~~ ~~2019~~
	November 21,
	2020

Weighted-average remaining lease term in years, inclusive of renewal options that are reasonably certain to be ~~exercised~~ exercised:
Finance leases – real estate	27	29
Finance leases – vehicles	4	4
Operating leases	15	15
Weighted-average discount rate:
Finance leases – real estate	3.48	~~3.20%~~	%
Finance leases – vehicles	2.04	~~2.70%~~	%
Operating leases	3.46	~~3.56%~~	%

The following table summarizes the other information related to the Company’s lease liabilities:


~~(in thousands)~~	~~Twelve Weeks Ended~~ ~~November 23, 2019~~

~~Cash paid for amounts included in the measurement of lease liabilities – operating cash flows from operating leases~~	$	~~50,526~~
~~Leased assets obtained in exchange for new finance lease liabilities~~		~~18,297~~
~~Leased assets obtained in exchange for new operating lease liabilities~~		~~19,656~~



	Twelve Weeks Ended
	November 21,		November 23,
(in thousands)	2020		2019

Cash paid for amounts included in the measurement of lease liabilities – operating cash flows from operating leases	$	49,171	$	50,526
Leased assets obtained in exchange for new finance lease liabilities		23,136		18,297
Leased assets obtained in exchange for new operating lease liabilities		94,105		19,656

As of November ~~23, 2019,~~21, 2020, the Company has entered into additional leases which have not yet commenced and are therefore not part of the

right-of-use

asset and liability. These leases ~~are generally for real estate and~~ have undiscounted future payments of approximately ~~$30.6~~$36.8 million for real estate and $85.0 million for vehicles, of which the majority will replace existing leased vehicles, and will commence when the Company obtains possession of the underlying leased asset. Commencement dates are expected to be from fiscal ~~2020~~2021 to fiscal 2022.

~~Table of Contents~~

Note ML – Segment Reporting

The Company’s operating segments ~~(Do~~

~~estic~~(Domestic Auto Parts, Mexico and Brazil) are aggregated as

reportable segment: Auto Parts

~~Store~~

. 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” in its Annual Report on Form

10-K

for the year ended August ~~31, 2019.~~

29, 2020.

The Auto Parts

Stores

segment is a retailer and distributor of automotive ~~part~~

parts and accessories through the Company’s ~~6,433~~

~~stores~~6,590 locations in the U.S., Mexico and Brazil. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive ~~product~~

products.

The Other category reflects business activities of t

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,

and

E-commerce,

which includes direct sales to customers through www.autozone.com for sales that are not fulfilled by local ~~stores~~stores.

Table of Contents

The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. Segment results for the periods presented were as follows:


	Twelve Weeks Ended
	November 21,		November 23,
(in thousands)	2020		2019

Net Sales
Auto Parts Stores	$	3,101,597	$	2,743,239
Other		52,664		49,799
Total	$	3,154,261	$	2,793,038

Segment Profit
Auto Parts Stores	$	1,639,904	$	1,466,161
Other		35,713		34,907
Gross profit		1,675,617		1,501,068
Operating, selling, general and administrative expenses		(1,060,392)		(1,001,045)
Interest expense, net		(46,179)		(43,743)
Income before income taxes	$	569,046	$	456,280

Note M – Subsequent Events

On December 8, 2020, the Company announced that its Board of Directors approved an additional week of Emergency Time-Off for eligible employees and extended the current carryover period for Paid Time-Off in response to the coronavirus (“COVID-19”). The Company estimates this will result in approximately $50.0 million of expense that will be recorded in the second quarter of this fiscal year.

Operating, selling, general and administrative expenses

Interest expense, net

Income before income taxes

Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

AutoZone, Inc.

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of AutoZone, Inc. (the Company) as of November ~~23, 2019,~~21, 2020, the related condensed consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for the twelve week periods ended November ~~23, 2019~~21, 2020 and November ~~17, 2018,~~23, 2019, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of August ~~31, 2019,~~29, 2020, the related consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated October ~~28, 2019,~~26, 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August ~~31, 2019,~~29, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Memphis, Tennessee

December 18, 2020

~~December 20, 2019~~

Table of Contents

~~Item 2.~~

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In Management’s Discussion and Analysis (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect the future results of AutoZone, Inc. (“AutoZone” or the “Company”). The following MD&A discussion should be read in conjunction with our Condensed Consolidated Financial Statements, related notes to those statements and other financial information, including forward-looking statements and risk factors, that appear elsewhere in this Quarterly Report on Form

10-Q,

our Annual Report on Form

10-K

for the year ended August ~~31, 2019~~29, 2020 and other filings with the SEC.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form

10-Q

constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically use words such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” ~~“strategy”, “seek”, “may”, “could”~~“strategy,” “seek,” “may,” “could,” and similar expressions. These are based on assumptions and assessments made by our management in light of experience and perception of historical trends, current conditions, expected future developments and other factors that we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including without limitation: product demand; energy prices; weather; competition; credit market conditions; cash flows; access to available and feasible financing; future stock repurchases; the impact of recessionary conditions; consumer debt levels; changes in laws or regulations; risks associated with self -insurance; war and the prospect of war, including terrorist activity; the impact of public health issues, such as the ongoing global pandemic of a novel strain of the coronavirus (“COVID-19”); inflation; the ability to hire, train and retain qualified employees; construction delays; the compromising of confidentiality, availability or integrity of information, including ~~cyber attacks;~~cyber-attacks; historic growth rate sustainability; downgrade of our credit ratings; damages to our reputation; challenges in international markets; failure or interruption of our information technology systems; origin and raw material costs of suppliers; disruption in our supply chain, due to public health epidemics or otherwise; impact of tariffs; anticipated impact of new accounting standards; and business interruptions. Certain of these risks and uncertainties are discussed in more detail in the “Risk Factors” section contained in Item 1A under Part 1 of our Annual Report on Form

10-K

for the year ended August ~~31, 2019,~~29, 2020, and these Risk Factors should be read carefully. Forward-looking statements are not guarantees of future performance, ~~and~~ actual results, developments and business decisions may differ from those contemplated by such forward-looking statements, and events described above and in the “Risk Factors” could materially and adversely affect our business. However, it should be understood that it is not possible to identify or predict all such risks and other factors that could affect these forward-looking statements. Forward-looking statements speak only as of the date made. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. ~~Actual results may materially differ from anticipated results.~~

Overview

We are the leading retailer, and a leading distributor, of automotive replacement parts and accessories in the Americas. We began operations in 1979 and at November ~~23, 2019,~~21, 2020, operated ~~5,790~~5,924 stores in the U.S., ~~606~~621 stores in ~~Mexico;~~Mexico and 3745 stores in Brazil. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and

non-automotive

products. At November ~~23, 2019,~~21, 2020, in ~~4,917~~5,043 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 and repair software through ~~www.alldata.com and www.alldatadiy.com.~~www.alldata.com. Additionally, we sell automotive hard parts, maintenance items, accessories and

non-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.

Table of Contents

Operating results for the twelve weeks ended November ~~23, 2019~~21, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending August ~~29, 2020.~~28, 2021. Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth ~~quarter~~quarters of fiscal 2021 and 2020 ~~has~~each have 16 ~~weeks and the fourth quarter of fiscal 2019 had 17~~ weeks. Our business is somewhat seasonal in nature, with the highest sales generally occurring during the months of February through September, and the lowest sales generally occurring in the months of December and January.

COVID-19 Impact

In the first quarter of fiscal 2021, the COVID-19 pandemic has continued to impact our business. While our sales remain at an elevated level compared to sales prior to the pandemic, we have seen a deceleration in sales growth rates throughout this quarter as we get further away from the pandemic-related government stimulus, which we believe benefitted many of our customers and normal seasonality. Our main priority continues to be the health, safety and well-being of our customers and employees. We continue to invest in supplies for the protection of our employees and customers, continue the increased frequency of cleaning and disinfecting our stores and require masks when entering our facilities. Our current operating expenses reflect the increased costs associated with personal protective equipment and more frequent cleaning of our stores, which we expect to continue for the duration of the pandemic. Additionally, on December 8, 2020, we announced that we are providing additional Emergency Time-Off (“ETO”) benefit enhancements for both full and part-time eligible employees in the U.S. along with extending the carryover of unused ETO and normal vacation benefits that will be recognized as an expense of approximately $50 million in our second quarter of fiscal 2021.

The long-term impact to our business remains unknown as we are unable to accurately predict the impact COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, the efficacy of a vaccine, the likelihood of a resurgence of the outbreak, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic or to stimulate the economy and other unintended consequences. Accordingly, continued business disruption related to the COVID-19 outbreak may continue to cause significant fluctuations in our business, unusually impacting demand for our products, our store hours and our workforce availability and magnify risks associated with our business and operations. See “Risk Factors—The ongoing outbreak of COVID-19 has been declared a pandemic by the World Health Organization, continues to spread within the United States and many other parts of the world and may have a material adverse effect on our business operations, financial condition, liquidity and cash flow.” in our Annual Report on Form 10-K for additional information.

Executive Summary

Net sales ~~were up 5.7%~~increased 12.9% for the quarter ended November 21, 2020 compared to the prior year period, which was driven by an increase in domestic same store sales (sales from stores open at least one year) of ~~3.4% and new AutoZone stores. Operating profit~~12.3%. Domestic commercial sales increased 2.5% to $500.0 million, while net income for the quarter decreased 0.3% over the same period last year driven by an increased effective tax rate resulting from a reduced benefit from stock options exercised during the quarter11.9% compared to the prior year ~~quarter.~~period, which represents 22.0% of our total sales. Operating profit increased by 23.0% to $615.2 million compared to $500.0 million in the same period last year. Net income for the quarter increased by 26.3% to $442.4 million compared to $350.3 million in the same period last year. Diluted earnings per share increased ~~6.2%~~by 30.1% to ~~$14.30~~$18.61 per share from ~~$13.47~~$14.30 per share in the comparable prior year period.

The increase in net income for the quarter ended November 21, 2020 was driven by strong topline 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 and other economic ~~conditions.~~conditions, including 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.

During the first quarter of fiscal ~~2020,~~2021, failure and maintenance related categories represented the largest portion of our sales mix, at approximately ~~86%~~84% of total sales, ~~with discretionary making up the remaining,~~ which is consistent with the comparable prior year period, with failure related categories continuing to be the largest portion of our sales mix. ~~We did~~While we have not ~~experience~~experienced any fundamental shifts in our category

sales mix as compared to the previous ~~year. Our~~year, in our domestic stores we continue to experience a slight increase in mix of sales ~~mix can be impacted by severe or unusual weather over a short-term period. Over~~of the ~~long-term, we~~discretionary category as compared to previous quarters. We believe the ~~impact~~improvement in this sales category continues to benefit from the pandemic as many of ~~the weather~~our customers spent more time and money to work on ~~our sales mix is not significant.~~

projects.

Table of Contents

The two statistics we believe have the most positive correlation to our market growth over the long-term are miles driven and the number of seven year old or older vehicles on the road. While over the long-term we have seen a ~~positive~~close correlation between our net sales and the number of miles driven, we have also seen time frames of minimal correlation in sales performance and miles driven. During the periods of minimal correlation between net sales and miles driven, we believe net sales have been positively impacted by other factors, including macroeconomic factors and the number of seven year old or older vehicles on the road. The average age of the U.S. light vehicle fleet continues to trend in our industry’s favor. According to the latest data provided by the Auto Care Association ~~as of January 1, 2019,~~in the 2021 Auto Care Factbook, for the 8

ninth consecutive year, the average age of vehicles on the road has exceeded 11 years. Since the beginning of the fiscal year and through September ~~2019~~2020 (latest publicly available information), miles driven in the U.S. ~~increased 1.7%~~decreased 8.6% compared to the same period in the prior year.

We believe the decrease is a result of the COVID-19 pandemic, but we are unable to predict if the decline does continue, the extent of the impact will have on our business.

Twelve Weeks Ended November ~~23, 2019~~

21, 2020

Compared with Twelve Weeks Ended November ~~17, 2018~~

23, 2019

Net sales for the twelve weeks ended November ~~23, 2019~~21, 2020 increased ~~$151.3~~$361.2 million to ~~$2.793~~$3.154 billion, or ~~5.7%,~~12.9% over net sales of ~~$2.642~~$2.793 billion for the comparable prior year period. Total auto parts sales increased by ~~5.8%~~13.1%, primarily driven by an increase in domestic same store sales of ~~3.4%~~12.3% and net sales of ~~$49.1~~$41.1 million from new ~~AutoZone~~ stores. Domestic commercial sales increased ~~$74.6~~$73.9 million to $695.3 million, or ~~13.6%~~11.9%, over the comparable prior year period.

Gross profit for the twelve weeks ended November ~~23, 2019~~21, 2020 was ~~$1.501~~$1.676 billion, compared with ~~$1.417~~$1.501 billion during the comparable prior year period. Gross profit, as a percentage of sales was ~~relatively flat~~53.1% for the twelve weeks ended November 21, 2020 compared to ~~last~~53.7% during the comparable prior year ~~at 53.7%.~~

period. The decrease in gross profit percent was primarily attributable to one-time COVID-19 pandemic related charges, increased loyalty program participation resulting from increased purchase frequency from existing customers, and a shift in mix.

Operating, selling, general and administrative expenses for the twelve weeks ended November ~~23, 2019~~21, 2020 were ~~$1.001~~$1.060 billion, or ~~35.8%~~33.6% of net sales, compared with ~~$929.7 million,~~$1.001 billion, or ~~35.2%~~35.8% of net sales during the comparable prior year period. ~~Operating~~The decrease in operating expenses, as a percentage of sales, ~~were~~was primarily due to leverage from higher ~~than last year with deleverage primarily driven by domestic store payroll and benefits.~~

sales growth.

Net interest expense for the twelve weeks ended November ~~23, 2019~~21, 2020 was ~~$43.7~~$46.2 million compared with ~~$39.0~~$43.7 million during the comparable prior year period. The increase was primarily due to ~~an increase in borrowing levels over the comparable prior year period.~~higher debt levels. Average borrowings for the twelve weeks ended November ~~23, 2019~~21, 2020 were ~~$5.190~~$5.514 billion, compared with ~~$4.972~~$5.190 billion for the comparable prior year period. Weighted average borrowing rates were 3.3% and 3.1% for ~~each of~~ the ~~twelve week periods~~quarter ended November 21, 2020 and November 23, 2019, ~~and November 17, 2018.~~

respectively.

Our effective income tax rate was ~~23.2%~~22.2% of pretax income for the twelve weeks ended November ~~23, 2019~~21, 2020, and ~~21.7%~~23.2% for the comparable prior year period. The ~~increase~~decrease in the tax rate was primarily attributable to a ~~reduced~~higher benefit from stock options exercised during the ~~quarter.~~twelve weeks ended November 21, 2020 compared to the comparable prior year period. The benefit of stock options exercised infor the ~~current quarter~~twelve weeks ended November 21, 2020 was ~~$1.5~~$7.6 million compared to ~~$11.2~~$1.5 million in the comparable prior year ~~quarter.~~

period.

Net income for the twelve week period ended November ~~23, 2019 decreased~~21, 2020 increased by ~~$1.1~~$92.1 million to $442.4 million from $350.3 million ~~due to~~in the ~~factors set forth above,~~comparable prior year period, and diluted earnings per share increased by ~~6.2%~~30.1% to ~~$14.30~~$18.61 from ~~$13.47~~$14.30 in the comparable prior year period. ~~For the twelve weeks ended November 23, 2019 and November 17, 2018, earnings per share includes excess tax benefits from stock option exercises of $0.06 per share and $0.43 per share, respectively.~~ The impact on current quarter diluted earnings per share from stock repurchases since the end of the comparable prior year period was an increase of ~~$0.70.~~

$0.48.

Liquidity and Capital Resources

The primary source of our liquidity is our cash flows realized through the sale of automotive parts, products and accessories. For the twelve weeks ended November ~~23, 2019,~~21, 2020, our net cash flows from operating activities provided ~~$447.1~~$683.5 million as compared with ~~$449.2~~$447.1 million provided during the comparable prior year period. The ~~decrease~~increase is

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primarily due to growth in net income due to accelerated sales growth as a result of the COVID-19 pandemic and the timing of accrued payments.

Our net cash flows used in investing activities for the twelve weeks ended November ~~23, 2019 was $90.7~~21, 2020 were $110.2 million as compared with ~~$91.9~~$90.7 million in the comparable prior year period. Capital expenditures for the twelve weeks ended November ~~23, 2019~~21, 2020 were ~~$101.4~~$113.0 million compared to ~~$98.2~~$101.4 million for the comparable prior year period. The increase is primarily driven by increased store openings compared to the comparable prior year period. During the twelve week period ended November 21, 2020 and November 23, 2019, we opened 41 and 22 net new ~~stores. In the comparable prior year period, we opened 16 net new stores.~~stores, respectively. Investing cash flows were impacted by our wholly owned captive, which purchased ~~$35.4~~$46.0 million and sold ~~$45.8~~$51.2 million in marketable debt securities during the twelve weeks ended November ~~23, 2019.~~21, 2020. During the comparable prior year period, the captive purchased ~~$7.5~~$35.4 million in marketable debt securities and sold ~~$13.1 million in marketable debt securities.~~

$45.8 million.

Our net cash flows used in financing activities for the twelve weeks ended November ~~23, 2019~~21, 2020 were ~~$375.8~~$663.4 million compared to ~~$315.6~~$375.8 million in the comparable prior year period. ~~For~~We did not have any commercial paper activity during the twelve week period ended November ~~23, 2019, our commercial paper activity resulted in~~21, 2020 as compared to $79.7 million in net proceeds in the comparable prior year period. Stock repurchases were $678.3 million in the current twelve week period as compared ~~to $149.4~~with $450.0 million ~~in net proceeds~~ in the comparable prior year period. For the twelve weeks ended November ~~23, 2019,~~21, 2020, proceeds from the sale of common stock and exercises of stock options provided ~~$8.8~~$28.7 million. In the comparable prior year period, proceeds from the sale of common stock and exercises of stock options provided ~~$44.7~~$8.8 million.

During fiscal ~~2020,~~2021, we expect to increase the investment in our business as compared to fiscal ~~2019.~~2020. The expected increase is driven by delays in capital spending for the third and fourth quarter of fiscal 2020 related to the COVID-19 pandemic. Our investments continue to be directed primarily to new stores, ~~investments in technology,~~ supply chain infrastructure, technology and enhancements to existing stores. The amount of our investments in our new 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), located in the ~~United States,~~U.S., Mexico or Brazil, or located in urban or rural areas.

~~Table of Contents~~

In addition to the building and land costs, our new 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. The terms of these agreements are between the vendor and the financial institution. Upon request from the vendor, we confirm to the vendor’s financial institution the balances owed to the vendor, the due date and agree to waive any right of 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 may result in the vendor wanting to renegotiate payment terms. 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. Accounts payable, as a percentage of gross inventory, was 114.1% at November 21, 2020, compared to 110.3% at November 23, ~~2019, compared to 108.9% at November 17, 2018. The increase was primarily due to more favorable vendor terms.~~

2019.

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~~based on our current credit ratings and favorable experiences in the debt markets in the past.

For the trailing four quarters ended November ~~23, 2019,~~21, 2020, our adjusted

after-tax

return on invested capital (“ROIC”), which is a non-GAAP measure, was ~~35.5%~~40.3% as compared to ~~33.7%~~35.5% for the comparable prior year period. 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. For the trailing four quarters ended November 21, 2020, ROIC was presented net of average excess cash of $668.0 million. Refer to the “Reconciliation of

Non-GAAP

Financial Measures” section for further details of our calculation.

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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.

On April 3, 2020, we entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) to augment our access to liquidity due to macroeconomic conditions and supplements our existing Revolving Credit Agreement. The 364-Day Credit Agreement provides for loans in the aggregate principal amount of up to $750 million. The 364-Day Credit Agreement will terminate, and all amounts borrowed under the 364-Day Credit Agreement will be due and payable, on April 2, 2021. Revolving loans under the 364-Day Credit Agreement may be base rate loans, Eurodollar loans, or a combination of both, at our election.

As of November ~~23, 2019,~~21, 2020, we had ~~$3.2~~no outstanding borrowings under either of our revolving credit facilities and $1.7 million of outstanding letters of credit under the Revolving Credit Agreement.

Under our revolving credit agreements, 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.

We also maintain a letter of credit facility that allows us to request the participating bank to issue letters of credit on our behalf up to an aggregate amount of $25 million. The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement. As of November ~~23, 2019,~~21, 2020, we had ~~$20.2~~$25.0 million in letters of credit outstanding under the letter of credit facility, which expires in June 2022.

In addition to the outstanding letters of credit issued under the committed facilities discussed above, we had ~~$224.2~~$224.3 million in letters of credit outstanding as of November ~~23, 2019.~~21, 2020. These letters of credit have various maturity dates and were issued on an uncommitted basis.

All ~~senior notes~~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~~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~~Senior Notes contain minimal covenants, primarily restrictions on ~~liens. Under our revolving credit facilities, covenants include restrictions on~~ liens, ~~a maximum debt to earnings ratio, a minimum fixed charge coverage ratio~~sale and ~~a change~~leaseback transactions and consolidations, mergers and the sale of ~~control provision that may require acceleration of the repayment obligations under certain circumstances.~~assets. All of the repayment obligations under our borrowing arrangements may be accelerated and come due prior to the applicable scheduled payment date if covenants are breached or an event of default occurs. As of November ~~23, 2019,~~21, 2020, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.

As of November ~~23, 2019,~~21, 2020, the ~~$1.110 billion of commercial paper borrowings and the $500~~$250 million ~~4.000%~~2.500% Senior Notes due ~~November 2020 were~~April 2021 are classified as long-term in the Condensed Consolidated Balance Sheets as we ~~had~~have the ability and intent to refinance them on a long-term basis through available capacity in our revolving credit ~~facilities.~~agreements. As of November ~~23, 2019,~~21, 2020, we had ~~$1.997~~$2.748 billion of availability under our ~~$2.0~~$2.750 billion revolving credit ~~facilities,~~agreements, which would allow us to replace these short-term obligations with long-term financing facilities.

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Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and ~~rent~~share-based compensation expense (“EBITDAR”) ratio was 1.9:1 as of November 21, 2020 and was 2.5:1 as of November 23, ~~2019 and was 2.5:1 as of November 17, 2018.~~2019. We calculate adjusted debt as the sum of total debt, finance lease liabilities and rent times six; and we calculate adjusted EBITDAR by adding interest, taxes, depreciation, amortization, rent, and share-based compensation expense ~~impairment charges, pension termination charges and deferred tax liabilities~~ to net income. Adjusted debt to EBITDAR is calculated on a trailing four quarter basis. For the trailing four quarters ended November 21, 2020, debt was presented net of excess cash of $1.469 billion. We target our debt levels to a ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings. We believe this is important information for the management of our debt levels. To the extent EBITDAR continues to grow in future years, we expect our debt levels to increase; conversely, if EBITDAR declines, we would expect our debt levels to decrease. Refer to the “Reconciliation of

Non-GAAP

Financial Measures” section for further details of our calculation.

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Stock Repurchases

From January 1, 1998 to November ~~23, 2019,~~21, 2020, we have repurchased a total of ~~147.3~~148.3 million shares of our common stock at an aggregate cost of ~~$21.873~~$23.032 billion, including ~~403,107~~584,379 shares of our common stock at an aggregate cost of ~~$450.0~~$678.3 million during the twelve week period ended November ~~23, 2019.~~ 21, 2020. Considering cumulative repurchases as of November 21, 2020, we had $117.6 million remaining under the Board’s authorization to repurchase our common stock.

On ~~October 7, 2019,~~December 15, 2020, the Board voted to increase the authorization by ~~$1.25~~$1.5 billion to raise the cumulative share repurchase authorization from $23.15 billion to $24.65 billion. ~~This raised~~Subsequent to November 21, 2020, we have repurchased 97,140 shares of our common stock at an aggregate cost of $110.0 million. Considering the ~~total value of shares authorized to be repurchased to $23.15 billion. Considering~~ cumulative repurchases ~~as of~~and the increase in authorization subsequent to November ~~23, 2019,~~21, 2020, we ~~had $1.277~~have $1.508 billion remaining under the Board’s authorization to repurchase our common stock.

~~Subsequent to November 23, 2019, we have repurchased 101,815 shares of our common stock at an aggregate cost of $120.0 million.~~

Off-Balance

Sheet Arrangements

Since our fiscal year end, we have ~~cancelled,~~canceled, issued and modified

stand-by

letters of credit that are primarily renewed on an annual basis to cover deductible payments to our casualty insurance carriers. Our total

stand-by

letters of credit commitment at November ~~23, 2019,~~21, 2020, was ~~$247.6~~$250.9 million, compared with ~~$101.2~~$246.9 million at August ~~31, 2019,~~29, 2020, and our total surety bonds commitment at November ~~23, 2019,~~21, 2020, was ~~$42.1~~$40.7 million, compared with ~~$36.7~~$56.7 million at August ~~31, 2019.~~

29, 2020.

Financial Commitments

As of November ~~23, 2019,~~21, 2020, there were no significant changes to our contractual obligations as described in our Annual Report on Form

10-K

for the year ended August ~~31, 2019.~~

29, 2020.

Reconciliation of

Non-GAAP

Financial Measures

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain financial measures not derived in accordance with GAAP. These

non-GAAP

financial measures provide additional information for determining our ~~optimum~~optimal 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

non-GAAP

financial measures, as we believe they provide additional information that is useful to ~~investors.~~investors as it indicates more clearly our comparative year-to-year operating results. Furthermore, our management and the Compensation Committee of the Board use ~~the above mentioned~~

these non-GAAP

financial measures to analyze and compare our underlying operating results and use select measurements to determine payments of performance-based compensation. We have included a reconciliation of this information to the most comparable GAAP measures in the following reconciliation tables.

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Reconciliation of

Non-GAAP

Financial Measure: Adjusted
After-Tax
ROIC

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended November ~~23, 2019~~21, 2020 and November ~~17, 2018.~~

A

B

A-B=C

D

C+D

  (in thousands, except percentage)

Fiscal Year
Ended
August 31,
2019

Twelve
Weeks Ended
November 17,
2018

Forty-One
Weeks Ended
August 31,
2019

Twelve
Weeks Ended
November 23,
2019

Trailing Four
Quarters Ended
November 23,
2019

  Net income
$
1,617,221
$
351,406
$
1,265,815
$
350,338
$
1,616,153

  Adjustments:

  Interest expense

184,804

39,006

145,798

43,743

189,541

  Rent expense
(1)

332,726

71,216

261,510

75,592

337,102

  Tax effect
(2)

(107,129
)
(22,816
)
(84,313
)
(24,702
)
(109,015
)

  Deferred tax liabilities, net of repatriation tax

(6,340
)
–

(6,340
)
–

(6,340
)

  Adjusted
after-tax
return
$
         2,021,282
$
         438,812
$
         1,582,470
$
         444,971
$
2,027,441

  Average debt
(3)
$
5,182,565

  Average stockholders’ deficit
(3)

(1,666,486
)
  Add: Rent x 6
(1)

2,022,612

  Average finance lease liabilities
(3)

170,863


Pre-tax
invested capital
$
         5,709,554

  Adjusted
after-tax
ROIC

35.5%

A

B

A-B=C

D

C+D

  (in thousands, except percentage)

Fiscal Year
Ended
August 25,
2018

Twelve
Weeks Ended
November 18,
2017

Forty
Weeks Ended
August 25,
2018

Twelve
Weeks Ended
November 17,
2018

Trailing Four
Quarters Ended
November 17,
2018

  Net income
$
1,337,536
$
281,003
$
1,056,533
$
351,406
$
1,407,939

  Adjustments:

  Impairment before tax

193,162

–

193,162

–

193,162

  Pension termination charges before tax

130,263

–

130,263

–

130,263

  Interest expense

174,527

38,889

135,638

39,006

174,644

  Rent expense

315,580

69,655

245,925

71,216

317,141

  Tax effect
(2)

(211,806
)
(36,362
)
(175,444
)
(25,773
)
(201,217
)

  Deferred tax liabilities, net of repatriation tax

(132,113
)
–

(132,113
)
–

(132,113
)

  Adjusted
after-tax
return
$
         1,807,149
$
353,185
$
1,453,964
$
435,855
$
1,889,819

  Average debt
(3)
$
5,028,638

  Average stockholders’ deficit
(3)

(1,479,244
)
  Add: Rent x 6

1,902,846

  Average finance lease liabilities
(3)

157,763


Pre-tax
invested capital
$
5,610,003

  Adjusted
after-tax
ROIC

33.7%

23, 2019.


	A		B		A-B=C		D		C+D
	Fiscal Year		Twelve		Forty		Twelve		Trailing Four
	Ended		Weeks Ended		Weeks Ended		Weeks Ended		Quarters Ended
	August 29,		November 23,		August 29,		November 21,		November 21,
(in thousands, except percentages)	2020		2019		2020		2020		2020

Net income	$	1,732,972	$	350,338	$	1,382,634	$	442,433	$	1,825,067
Adjustments:
Interest expense		201,165		43,743		157,422		46,179		203,601
Rent expense⁽²⁾		329,783		75,592		254,191		78,027		332,218
Tax effect⁽³⁾		(114,685)		(25,776)		(88,909)		(26,828)		(115,737)
Adjusted after-tax return	$	2,149,235	$	443,897	$	1,705,338	$	539,811	$	2,245,149

Average debt⁽⁴⁾⁽⁵⁾									$	4,769,061
Average stockholders’ deficit⁽⁵⁾										(1,404,980)
Add: Rent x 6⁽²⁾										1,993,308
Average finance lease liabilities⁽⁵⁾										214,601
Invested capital									$	5,571,990

Adjusted after-tax ROIC										40.3	%


	A		B		A-B=C		D		C+D
	Fiscal Year		Twelve		Forty-One		Twelve		Trailing Four
	Ended		Weeks Ended		Weeks Ended		Weeks Ended		Quarters Ended
	August 31,		November 17,		August 31,		November 23,		November 23,
(in thousands, except percentages)	2019⁽¹⁾		2018		2019		2019		2019

Net income	$	1,617,221	$	351,406	$	1,265,815	$	350,338	$	1,616,153
Adjustments:
Interest expense		184,804		39,006		145,798		43,743		189,541
Rent expense⁽²⁾		332,726		71,216		261,510		75,592		337,102
Tax effect⁽³⁾		(107,129)		(22,816)		(84,313)		(24,702)		(109,015)
Deferred tax liabilities, net of repatriation tax		(6,340)		—		(6,340)		—		(6,340)
Adjusted after-tax return	$	2,021,282	$	438,812	$	1,582,470	$	444,971	$	2,027,441

Average debt⁽⁵⁾									$	5,182,565
Average stockholders' deficit⁽⁵⁾										(1,666,486)
Add: Rent x 6⁽²⁾										2,022,612
Average finance lease liabilities⁽⁵⁾										170,863
Invested capital									$	5,709,554

Adjusted after-tax ROIC										35.5	%

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

The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended November 21, 2020 and November 23, 2019.


	A		B		A-B=C		D		C+D
	Fiscal Year		Twelve		Forty		Twelve		Trailing Four
	Ended		Weeks Ended		Weeks Ended		Weeks Ended		Quarters Ended
	August 29,		November 23,		August 29,		November 21,		November 21,
(in thousands, except ratios)	2020		2019		2020		2020		2020

Net income	$	1,732,972	$	350,338	$	1,382,634	$	442,433	$	1,825,067
Add: Interest expense		201,165		43,743		157,422		46,179		203,601
Income tax expense		483,542		105,942		377,600		126,613		504,213
Adjusted EBIT		2,417,679		500,023		1,917,656		615,225		2,532,881
Add: Depreciation and amortization expense		397,466		89,750		307,716		89,551		397,267
Rent expense⁽²⁾		329,783		75,592		254,191		78,027		332,218
Share-based expense		44,835		9,996		34,839		10,508		45,347
Adjusted EBITDAR	$	3,189,763	$	675,361	$	2,514,402	$	793,311	$	3,307,713

Debt⁽⁶⁾									$	4,045,681
Financing lease liabilities										232,921
Add: Rent x 6⁽²⁾										1,993,308
Adjusted debt									$	6,271,910

Adjusted debt to EBITDAR										1.9


	A		B		A-B=C		D		C+D
	Fiscal Year		Twelve		Forty-One		Twelve		Trailing Four
	Ended		Weeks Ended		Weeks Ended		Weeks Ended		Quarters Ended
	August 31,		November 17,		August 31,		November 23,		November 23,
(in thousands, except ratio)	2019⁽¹⁾		2018		2019		2019		2019

Net income	$	1,617,221	$	351,406	$	1,265,815	$	350,338	$	1,616,153
Add: Interest expense		184,804		39,006		145,798		43,743		189,541
Income tax expense		414,112		97,406		316,706		105,942		422,648
Adjusted EBIT		2,216,137		487,818		1,728,319		500,023		2,228,342
Add: Depreciation and amortization expense		369,957		82,452		287,505		89,750		377,255
Rent expense⁽²⁾		332,726		71,216		261,510		75,592		337,102
Share-based expense		43,255		10,527		32,728		9,996		42,724
Adjusted EBITDAR	$	2,962,075	$	652,013	$	2,310,062	$	675,361	$	2,985,423

Debt									$	5,287,324
Finance lease liabilities										195,663
Add: Rent x 6⁽²⁾										2,022,612
Adjusted debt									$	7,505,599

Adjusted debt to EBITDAR										2.5

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(1)	~~Effective September~~ 1,The fiscal year ended August 31, 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.~~ consists of 53 weeks.

(2)	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 1252 weeks ended November 21, 2020 and 53 weeks ended November 23, ~~2019.~~ 2019 (in thousands):


Total lease cost, per ASC 842, for the 52 weeks ended November 21, 2020	$	413,790
Less: Finance lease interest and amortization		(56,256)
Less: Variable operating lease components, related to insurance and common area maintenance for the 52 weeks ended November 21, 2020		(25,316)
Rent expense for the 52 weeks ended November 21, 2020	$	332,218

Total lease cost, per ASC 842, for the 12 weeks ended November 23, 2019	$	95,840
Less: Finance lease interest and amortization		(14,041)
Less: Variable operating lease components, related to insurance and common area maintenance for the 12 weeks ended November 23, 2019		(6,207)
Rent expense for the 12 weeks ended November 23, 2019	$	75,592
Add: Rent expense for the 41 weeks ended August 31, 2019 as previously reported prior to the adoption of ASC 842		261,510
Rent expense for the 53 weeks ended November 23, 2019	$	337,102

Total lease cost per ASC 842, for the 12 weeks ended November 23, 2019
$
95,840

Less: Finance lease interest and amortization

(14,041
)
Less:
Variable operating lease components, related to insurance and common area maintenance for the 12 weeks ended November 23, 2019

(6,207
)

Rent expense for the 12 weeks ended November 23, 2019

75,592

Add: Rent expense for the 41 weeks ended August 31, 2019, as previously reported prior to the adoption of ASC 842

261,510

Rent expense for the 53 weeks ended November 23, 2019
$
337,102

~~(2)~~(3)

Effective tax rate over trailing four quarters ended November 21, 2020 and November 23, 2019 is 21.6% and 20.7%~~. Effective tax rate over~~, respectively.

(4)	Average debt for the trailing four quarters ended November ~~17, 2018~~21, 2020 is ~~24.2% for impairment, 28.1% for pension termination and 23.4% for interest and rent expense.~~presented net of average excess cash of $668.0 million.

~~(3)~~(5)

All averages are computed based on trailing 5 quarter balances.

~~Table of Contents~~

~~Reconciliation of~~

~~Non-GAAP~~

~~Financial Measure: Adjusted Debt to EBITDAR~~

~~The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended November 23, 2019 and November 17, 2018.~~

A

B

A-B=C

D

C+D

  (in thousands, except ratio)

Fiscal Year
Ended
August 31,
2019

Twelve Weeks
Ended
November 17,
2018

Forty-One
Weeks Ended
August 31,
2019

Twelve
Weeks Ended
November 23,
2019

Trailing Four
Quarters Ended
November 23,
2019

  Net income
$
1,617,221
$
351,406
$
1,265,815
$
350,338
$
1,616,153

  Add: Interest expense

184,804

39,006

145,798

43,743

189,541

  Income tax expense

414,112

97,406

316,706

105,942

422,648

  Adjusted EBIT

2,216,137

487,818

1,728,319

500,023

2,228,342

  Add: Depreciation expense

369,957

82,452

287,505

89,750

377,255

  Rent expense

332,726

71,216

261,510

75,592

337,102

  Share-based expense

43,255

10,527

32,728

9,996

42,724

  Adjusted EBITDAR
$
         2,962,075
$
         652,013
$
         2,310,062
$
         675,361
$
         2,985,423

  Debt
$
5,287,324

  Finance lease liabilities

195,663

  Add : Rent x 6
(1)

2,022,612

  Adjusted debt
$
7,505,599

  Adjusted debt to EBITDAR

2.5

A

B

A-B=C

D

C+D

  (in thousands, except ratio)

Fiscal Year
Ended
August 25,
2018

Twelve Weeks
Ended
November 18,
2017

Forty
Weeks Ended
August 25,
2018

Twelve
Weeks Ended
November 17,
2018

Trailing Four
Quarters Ended
November 17,
2018

  Net income
$
1,337,536
$
281,003
$
1,056,533
$
351,406
$
1,407,939

  Add: Impairment before tax

193,162

–

193,162

–

193,162

  Pension termination charges before tax

130,263

–

130,263

–

130,263

  Interest expense

174,527

38,889

135,638

39,006

174,644

  Income tax expense

298,793

148,862

149,931

97,406

247,337

  Adjusted EBIT

2,134,281

468,754

1,665,527

487,818

2,153,345

  Add: Depreciation expense

345,084

77,986

267,098

82,452

349,550

  Rent expense

315,580

69,655

245,925

71,216

317,141

  Share-based expense

43,674

11,086

32,588

10,527

43,115

  Adjusted EBITDAR
$
2,838,619
$
627,481
$
2,211,138
$
652,013
$
2,863,151

  Debt
$
5,156,037

  Finance lease liabilities

158,284

  Add: Rent x 6

1,902,846

  Adjusted debt
$
7,217,167

  Adjusted debt to EBITDAR

2.5

~~(1)~~(6)

~~Effective September 1, 2019, the~~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, forended the 12 weeks ended November ~~23, 2019.~~

21, 2020 with excess cash of $1.469 billion. Debt is presented net of excess cash.

~~Table of Contents~~

Recent Accounting Pronouncements

Refer to Note A of the Notes to Condensed Consolidated Financial Statements for the discussion of recent accounting pronouncements.

Critical Accounting Policies and Estimates

Preparation of our consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the financial statements, reported amounts of revenues and expenses during the reporting period and related disclosures of contingent liabilities. Our policies are evaluated on an ongoing basis, and our significant judgments and estimates are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results could differ under different assumptions or conditions.

Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form

10-K

for the year ended August ~~31, 2019. Our~~29, 2020. There have been no significant changes to our critical accounting policies ~~have not changed~~ since the filing of our Annual Report on Form

10-K

for the year ended August ~~31, 2019. The Company has not made any changes in these critical accounting policies during the period covered by this Quarterly Report on Form~~

~~10-Q.~~

29, 2020.

~~Item 3.~~

~~Quantitative and Qualitative Disclosures about Market Risk~~

Item 3.Quantitative and Qualitative Disclosures about Market Risk

At November ~~23, 2019, the only~~21, 2020, we had no material change to our instruments and positions that ~~are~~is sensitive to market risk since the disclosures in our ~~2019~~ Annual Report ~~to Stockholders was~~on Form 10-K for the ~~$79.7 million net increase in commercial paper.~~

year ended August 29, 2020.

The fair value of our debt was estimated at ~~$5.468~~$6.055 billion as of November ~~23, 2019~~21, 2020, and ~~$5.419~~$6.081 billion as of August ~~31, 2019,~~29, 2020, based on the quoted market prices for the same or similar debt issues or on the current rates available to ~~AutoZone~~us for debt ofhaving the same ~~terms.~~remaining maturities. Such fair value was greater than the carrying value of debt by ~~$180.6~~$540.1 million and $567.5 million at November ~~23, 2019~~21, 2020 and ~~greater than the carrying value by $212.7 million at~~ August ~~31, 2019.~~29, 2020, respectively. We ~~had $1.110 billion of~~did not have any variable rate debt outstanding at November ~~23, 2019~~21, 2020. The carrying value of debt reflects its face amount adjusted for any unamortized debt issuance costs and ~~$1.030 billion of variable~~discounts. We had outstanding fixed rate debt ~~outstanding~~of $5.515 billion, net of unamortized debt issuance costs of $35.1 million at November 21, 2020 and $5.513 billion, net of unamortized debt issuance costs of $36.6 million at August ~~31, 2019. At these borrowing levels for variable rate debt, a~~29, 2020. A one percentage point increase in interest rates would have ~~had an unfavorable annual impact on our~~

~~pre-tax~~

earnings and cash flows of $11.1 million in fiscal 2020. The primary interest rate exposure on variable rate debt is based on LIBOR. We had outstanding fixed rate debt of $4.178 billion, net of unamortized debt issuance costs of $22.4 million at November 23, 2019 and $4.176 billion, net of unamortized debt issuance costs of $23.7 million at August 31, 2019. A one percentage point increase in interest rates would reducereduced the fair value of our fixed rate debt by ~~$168.5~~$304.1 million at November ~~23, 2019.~~21, 2020.

Table of Contents

~~Item 4.~~

~~Controls and Procedures~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of November ~~23, 2019,~~21, 2020, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules

13a-15(e)

and

15d-15(e)

under the Exchange Act, as amended. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of November ~~23, 2019.~~

21, 2020.

Changes in Internal Controls

~~During the first quarter ended November 23, 2019, we adopted the new accounting standard under ASU~~
~~2016-02,~~
~~Leases (Topic 842)~~
~~(Refer to “Note A – General” and “Note L – Leases”), and as a result, we modified the related internal controls over financial reporting.~~

There ~~have been~~were no ~~other~~ changes in our internal control over financial reporting that occurred during the quarter ended November ~~23, 2019~~21, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

PART II. OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings~~

~~In 2004, we acquired a store site~~

Item 1. Legal Proceedings

As of the date of this filing, there have been no additional material legal proceedings or material developments in ~~Mount Ephraim, New Jersey that had previously been~~ the ~~site~~legal proceedings disclosed in Part 1, Item 3, of a gasoline service station and contained evidence of groundwater contamination. Upon acquisition, we voluntarily reported the groundwater contamination issue to the New Jersey Department of Environmental Protection (“NJDEP”) and entered into a Voluntary Remediation Agreement providingour Annual Report in Form 10-K for the ~~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 potential vapor intrusion impacts in downgradient residences and businesses. The NJDEP has asserted, in a Directive and Notice to Insurers dated February 19, 2013 and again in an Amended Directive and Notice to Insurers dated January 13, 2014 (collectively the “Directives”), that we are liable for the downgradient impacts under a joint and severable liability theory. By letter dated April 23, 2015, NJDEP has demanded payment from us, and other parties, in the amount of approximately $296 thousand for costs incurred by NJDEP in connection with contamination downgradient of the property. By letter dated Januaryfiscal year ended August 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 the Company’s Condensed Consolidated Statement of Income, Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Cash Flows.

We are involved in various other legal proceedings incidental to the conduct of our business, including, but not limited to, several lawsuits containing class-action allegations in which the plaintiffs are current and former hourly and salaried employees who allege various wage and hour violations and unlawful termination practices. We do not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to the Company’s Condensed Consolidated Statement of Income, Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Cash Flows.

2020.

~~Item 1A.~~

~~Risk Factors~~

Item 1A. Risk Factors

As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form

10-K

for the fiscal year ended August ~~31, 2019.~~

29, 2020.

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Shares of common stock repurchased by the Company during the quarter ended November ~~23, 2019~~21, 2020 were as follows:

Issuer Repurchases of Equity Securities

Period

Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Maximum Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs

  September 1, 2019 to September 28, 2019

97,846
$
1,124.20

97,846
$
1,616,794,844

  September 29, 2019 to October 26, 2019

179,671

1,083.27

179,671

1,422,162,936

  October 27, 2019 to November 23, 2019

125,590

1,157.49

125,590

1,276,793,619

  Total

403,107
$
       1,116.33

            403,107
$
     1,276,793,619


				Total Number of	Maximum Dollar
				Shares Purchased as	Value that May Yet
	Total Number	Average		Part of Publicly	Be Purchased Under
	of Shares	Price Paid		Announced Plans or	the Plans or
Period	Purchased	per Share		Programs	Programs

August 30, 2020 to September 26, 2020	17,431	$	1,147.35	17,431	$	775,890,528
September 27, 2020 to October 24, 2020	279,010		1,168.13	279,010		449,970,108
October 25, 2020 to November 21, 2020	287,938		1,154.43	287,938		117,565,977
Total	584,379	$	1,160.76	584,379	$	117,565,977

During 1998, we announced a program permitting us to repurchase a portion of our outstanding shares not to exceed a dollar maximum established by our Board of Directors. This program was most recently amended on ~~October 7, 2019~~December 15, 2020 to increase the repurchase authorization by ~~$1.25~~$1.5 billion. This brings the total value of shares to be repurchased to ~~$23.15~~$24.65 billion. All of the above repurchases were part of this program.

Subsequent to November ~~23, 2019,~~21, 2020, we have repurchased ~~101,815~~97,140 shares of our common stock at an aggregate cost of ~~$120.0~~$110.0 million.

~~Table of Contents~~

~~Item 3.~~

~~Defaults Upon Senior Securities~~

Item 3. Defaults Upon Senior Securities

Not applicable.

~~Not applicable.~~

Table of Contents

~~Item 4.~~

~~Mine Safety Disclosures~~

Item 4. Mine Safety Disclosures

Not applicable.

~~Item 5.~~

~~Other Information~~

Item 5. Other Information

Not applicable.

~~Not applicable.~~

Table of Contents

~~Item 6.~~

~~Exhibits~~

Item 6. 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 Form 10-Q for the quarter ended February 13, 1999.

3.2		Seventh Amended and Restated By-Laws of AutoZone, Inc. incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated March 19, 2018.

15.1		Letter Regarding Unaudited Interim Financial Statements.

31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101. INS		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		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

~~101.LAB~~ 101.DEF		Inline XBRL Taxonomy Extension ~~Labels~~Definition Linkbase Document

~~101.PRE~~ 101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

~~101.DEF~~ 104.		~~XBRL Taxonomy Extension Definition Document~~

~~104.~~		~~Cover Page~~ The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended November 21, 2020, has been formatted asin Inline ~~XBRL and contained in Exhibits 101~~ XBRL.

*	Furnished herewith.

* Furnished herewith.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities ~~Exc~~

~~hange~~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.~~
			AUTOZONE, INC.
~~By:~~
	By:	/s/ WILLIAM T. GILES
	William T. Giles
	Chief Financial Officer and Executive Vice President
	Finance, Information Technology and Store Development
	(Principal Financial Officer)

~~By:~~	By:	/s/ CHARLIE PLEAS, III
	Charlie Pleas, III
	Senior Vice President, Controller
	(Principal Accounting Officer)
Dated: December 18, 2020

~~Dated: December 20, 2019~~


(in thousands)	November 23 , 2019				August 31 , 2019

Assets
Current assets:
Cash and cash equivalents		$	158,089			$	176,300
Accounts receivable			333,246				308,995
Merchandise inventories			4,463,124				4,319,113
Other current assets			202,516				224,277
Total current assets			5,156,975				5,028,685

Property and equipment:
Property and equipment			7,844,304				7,713,196
Less: Accumulated depreciation and amortization			(3,393,648	)			(3,314,445	)
			4,450,656				4,398,751

Operating lease right-of-use assets			2,585,105				–
Goodwill			302,645				302,645
Deferred income taxes			27,365				26,861
Other long-term assets			177,710				138,971
			3,092,825				468,477
		$	12,700,456			$	9,895,913

Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable		$	4,922,148			$	4,864,912
Current portion of operating lease liabilities			232,549				–
Accrued expenses and other			618,654				621,932
Income taxes payable			94,885				25,297
Total current liabilities			5,868,236				5,512,141

Long-term debt			5,287,324				5,206,344
Operating lease liabilities, less current portion			2,506,829				–
Deferred income taxes			315,602				311,980
Other long-term liabilities			498,555				579,299

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; 25,465 shares issued and 23,655 shares outstanding as of November 23, 2019; 25,445 shares issued and 24,038 shares outstanding as of August 31, 2019			254				254
Additional paid-in capital			1,282,629				1,264,448
Retained deficit			(955,009	)			(1,305,347	)
Accumulated other comprehensive loss			(250,081	)			(269,322	)
Treasury stock, at cost			(1,853,883	)			(1,403,884	)
Total stockholders’ deficit			(1,776,090	)			(1,713,851	)
		$	12,700,456			$	9,895,913

	Twelve Weeks Ended
(in thousands, except per share data)	November 23, 2019		November 17, 2018

Net sales	$	2,793,038	$	2,641,733
Cost of sales, including warehouse and delivery expenses		1,291,970		1,224,259

Gross profit		1,501,068		1,417,474
Operating, selling, general and administrative expenses		1,001,045		929,656

Operating profit		500,023		487,818
Interest expense, net		43,743		39,006

Income before income taxes		456,280		448,812
Income tax expense		105,942		97,406

Net income	$	350,338	$	351,406


Weighted average shares for basic earnings per share		23,875		25,629
Effect of dilutive stock equivalents		618		468

Weighted average shares for diluted earnings per share		24,493		26,097


Basic earnings per share	$	14.67	$	13.71

Diluted earnings per share	$	14.30	$	13.47


	Twelve Weeks Ended November 23, 2019
(in thousa nds)	Common Shares Issued		Common Stock		Additional Paid-in Capital		Retained Deficit			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at August 31, 2019		25,445	$	254	$	1,264,448	$	(1,305,347	)	$	(269,322	)	$	(1,403,884	)	$	(1,713,851	)
Net income		–		–		–		350,338			–			–			350,338
Total other comprehensive gain		–		–		–		–			19,241			–			19,241
Purchase of 403 shares of treasury stock		–		–		–		–			–			(449,999	)		(449,999	)
Issuance of common stock under stock options and stock purchase plans		20		–		8,822		–			–			–			8,822
Share-based compensation expense		–		–		9,359		–			–			–			9,359

Balance at November 23, 2019		25,465	$	254	$	1,282,629	$	(955,009	)	$	(250,081	)	$	(1,853,883	)	$	(1,776,090	)


	Twelve Weeks Ended November 17 , 201 8
(in thousands)	Common Shares Issued		Common Stock		Additional Paid-in Capital		Retained Deficit			Accumulated Other Comprehensive Loss			Treasury 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		–		–		–		351,406			–			–			351,406
Total other comprehensive loss		–		–		–		–			(40,261	)		–			(40,261	)
Purchase of 654 shares of treasury stock		–		–		–		–			–			(497,060	)		(497,060	)
Issuance of common stock under stock options and stock purchase plans		128		2		44,924		–			–			–			44,926
Share-based compensation expense		–		–		9,501		–			–			–			9,501

Balance at November 17, 2018		27,658	$	277	$	1,209,851	$	(864,191	)	$	(276,066	)	$	(1,728,487	)	$	(1,658,616	)


	Twelve Weeks Ended
		November 23, 2019		November 17, 2018

Expected price volatility		22	%		21	%
Risk-free interest rate		1.4	%		3.1	%
Weighted average expected lives (in years)		5.5			5.6
Forfeiture rate		10	%		10	%
Dividend yield		0	%		0	%


	Number of Shares			Weighted - Average Grant Date Fair Value
Nonvested at August 31, 2019		10,049		$	773.61
Granted		7,008			1,060.81
Vested		(2,456	)		772.80
Canceled or forfeited		(66	)		772.80
Nonvested at November 23, 2019		14,535		$	912.23


	November 23, 2019
(in thousands)	Level 1		L evel 2		Level 3			Fair Value

Other current assets	$	50,015	$	2,350		$	–		$	52,365
Other long-term assets		72,075		3,931			–			76,006

	$	122,090	$	6,281		$	–		$	128,371


	August 31, 2019
(in thousands)	Level 1		Level 2			Level 3		Fair Value

Other current assets	$	65,344	$	2,614		$	–		$	67,958
Other long-term assets		65,573		5,395			–			70,968

	$	130,917	$	8,009		$	–		$	138,926


		November 23, 2019
(in thousands)	Amortized Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value

Corporate debt securities		$	35,093		$	34		$	(6	)		$	35,121
Government bonds			60,901			515			(18	)			61,398
Mortgage-backed securities			1,787			1			(14	)			1,774
Asset-backed securities and other			30,076			4			(2	)			30,078

		$	127,857		$	554		$	(40	)		$	128,371


(in thousands)	November 23, 2019		August 31, 2019

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		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		450,000
Commercial paper, weighted average interest rate of 1.76% and 2.28% at November 23, 2019 and August 31, 2019, respectively		1,109,700		1,030,000

Total debt before discounts and debt issuance costs		5,309,700		5,230,000
Less: Discounts and debt issuance costs		22,376		23,656

Long-term debt	$	5,287,324	$	5,206,344


(in thousands)	Foreign Currency and Other (2)				Net Unrealized Gain (Loss) on Securities				Derivatives					Total

Balance at August 31, 2019		$	(265,598	)		$	591			$	(4,315	)		$	(269,322	)
Other comprehensive income (loss) before reclassifications (1)			19,040				(233	)			–				18,807
Amounts reclassified from Accumulated other comprehensive income (loss) (1)			–				45	(3)			389	(4)			434

Balance at November 23, 2019		$	(246,558	)		$	403			$	(3,926	)		$	(250,081	)


(in thousands)	Foreign Currency and Other (2)				Net Unrealized Gain (Loss) on Securities				Derivatives				Total

Balance at August 25, 2018		$	(228,899	)		$	(873	)		$	(6,033	)		$	(235,805	)
Other comprehensive loss before reclassifications (1)			(40,573	)			(77	)			–				(40,650	)
Amounts reclassified from Accumulated other c omprehensive loss			–				–				389	(4)			389

Balance at November 17, 2018		$	(269,472	)		$	(950	)		$	(5,644	)		$	(276,066	)


(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		(24,722	)		4,654
Total intangible assets other than goodwill			$	30,246	$	(25,592	)	$	4,654


(in thousands)	Finance Leases				Operating Leases				Total

2020		$	44,456			$	238,345			$	282,801
2021			55,841				318,198				374,039
2022			43,890				304,855				348,745
2023			30,643				285,161				315,804
2024			9,512				261,818				271,330
Thereafter			25,914				2,201,994				2,227,908

Total lease payments			210,256				3,610,371				3,820,627
Less: Interest			(14,592	)			(870,993	)			(885,585	)

Present value of lease liabilities		$	195,664			$	2,739,378			$	2,935,042

(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


	A			B			A-B=C			D			C+D
(in thousands, except percentage)	Fiscal Year Ended August 31, 2019			Twelve Weeks Ended November 17, 2018			Forty-One Weeks Ended August 31, 2019			Twelve Weeks Ended November 23, 2019			Trailing Four Quarters Ended November 23, 2019
Net income	$	1,617,221		$	351,406		$	1,265,815		$	350,338			$	1,616,153
Adjustments:
Interest expense		184,804			39,006			145,798			43,743				189,541
Rent expense (1)		332,726			71,216			261,510			75,592				337,102
Tax effect (2)		(107,129	)		(22,816	)		(84,313	)		(24,702	)			(109,015	)

Deferred tax liabilities, net of repatriation tax		(6,340	)		–			(6,340	)		–				(6,340	)

Adjusted after-tax return	$	2,021,282		$	438,812		$	1,582,470		$	444,971			$	2,027,441

Average debt (3)														$	5,182,565
Average stockholders’ deficit (3)															(1,666,486	)
Add: Rent x 6 (1)															2,022,612
Average finance lease liabilities (3)															170,863

Pre-tax invested capital														$	5,709,554

Adjusted after-tax ROIC															35.5%


	A			B			A-B=C			D				C+D
(in thousands, except percentage)	Fiscal Year Ended August 25, 2018			Twelve Weeks Ended November 18, 2017			Forty Weeks Ended August 25, 2018			Twelve Weeks Ended November 17, 2018				Trailing Four Quarters Ended November 17, 2018
Net income	$	1,337,536		$	281,003		$	1,056,533		$	351,406			$	1,407,939
Adjustments:
Impairment before tax		193,162			–			193,162			–				193,162
Pension termination charges before tax		130,263			–			130,263			–				130,263
Interest expense		174,527			38,889			135,638			39,006				174,644
Rent expense		315,580			69,655			245,925			71,216				317,141
Tax effect (2)		(211,806	)		(36,362	)		(175,444	)		(25,773	)			(201,217	)

Deferred tax liabilities, net of repatriation tax		(132,113	)		–			(132,113	)		–				(132,113	)

Adjusted after-tax return	$	1,807,149		$	353,185		$	1,453,964		$	435,855			$	1,889,819

Average debt (3)														$	5,028,638
Average stockholders’ deficit (3)															(1,479,244	)
Add: Rent x 6															1,902,846
Average finance lease liabilities (3)															157,763

Pre-tax invested capital														$	5,610,003

Adjusted after-tax ROIC															33.7%


	A		B		A-B=C		D		C+D

(in thousands, except ratio)	Fiscal Year Ended August 31, 2019		Twelve Weeks Ended November 17, 2018		Forty-One Weeks Ended August 31, 2019		Twelve Weeks Ended November 23, 2019		Trailing Four Quarters Ended November 23, 2019
Net income	$	1,617,221	$	351,406	$	1,265,815	$	350,338		$	1,616,153
Add: Interest expense		184,804		39,006		145,798		43,743			189,541
Income tax expense		414,112		97,406		316,706		105,942			422,648

Adjusted EBIT		2,216,137		487,818		1,728,319		500,023			2,228,342
Add: Depreciation expense		369,957		82,452		287,505		89,750			377,255
Rent expense		332,726		71,216		261,510		75,592			337,102
Share-based expense		43,255		10,527		32,728		9,996			42,724

Adjusted EBITDAR	$	2,962,075	$	652,013	$	2,310,062	$	675,361		$	2,985,423

Debt										$	5,287,324
Finance lease liabilities											195,663
Add : Rent x 6 (1)											2,022,612

Adjusted debt										$	7,505,599

Adjusted debt to EBITDAR											2.5


	A		B		A-B=C		D			C+D

(in thousands, except ratio)	Fiscal Year Ended August 25, 2018		Twelve Weeks Ended November 18, 2017		Forty Weeks Ended August 25, 2018		Twelve Weeks Ended November 17, 2018			Trailing Four Quarters Ended November 17, 2018
Net income	$	1,337,536	$	281,003	$	1,056,533	$	351,406		$	1,407,939
Add: Impairment before tax		193,162		–		193,162		–			193,162
Pension termination charges before tax		130,263		–		130,263		–			130,263
Interest expense		174,527		38,889		135,638		39,006			174,644
Income tax expense		298,793		148,862		149,931		97,406			247,337

Adjusted EBIT		2,134,281		468,754		1,665,527		487,818			2,153,345
Add: Depreciation expense		345,084		77,986		267,098		82,452			349,550
Rent expense		315,580		69,655		245,925		71,216			317,141
Share-based expense		43,674		11,086		32,588		10,527			43,115

Adjusted EBITDAR	$	2,838,619	$	627,481	$	2,211,138	$	652,013		$	2,863,151

Debt										$	5,156,037
Finance lease liabilities											158,284
Add: Rent x 6											1,902,846

Adjusted debt										$	7,217,167

Adjusted debt to EBITDAR											2.5


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 of Shares that May Yet Be Purchased Under the Plans or Programs
September 1, 2019 to September 28, 2019		97,846	$	1,124.20		97,846	$	1,616,794,844
September 29, 2019 to October 26, 2019		179,671		1,083.27		179,671		1,422,162,936
October 27, 2019 to November 23, 2019		125,590		1,157.49		125,590		1,276,793,619

Total		403,107	$	1,116.33		403,107	$	1,276,793,619