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 February |
| | |
☐ | | 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 |
AUTOZONE, INC.
(Exact name of registrant as specified in its charter)
| |
Nevada | 62-1482048 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) | |
| |
123 South Front Street, Memphis, Tennessee | 38103 |
(Address of principal executive offices) | (Zip Code) |
(901) 495-6500
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol(s) |
| Name of Each Exchange on which Registered |
Common Stock ($0.01 par value) | AZO | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically 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 ☒ No ☐
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 ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth 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-212b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value – 22,036,78019,848,868 shares outstanding as of March 12, 2021.11, 2022.
TABLE OF CONTENTS
| | | | |
| 3 | |||
| | 3 | ||
| | | 3 | |
| | | 4 | |
| | | 4 | |
| | | 5 | |
| | | 6 | |
| | | 7 | |
| | |
| |
| | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
| |
| ||
| |
| ||
|
| |||
| |
| ||
| |
| ||
| |
| ||
| |
| ||
| |
| ||
| |
| ||
| |
| ||
| |
|
2
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements.
AUTOZONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | |
| | February 13, | | August 29, | ||
(in thousands) | | 2021 | | 2020 | ||
| | | | | | |
Assets | | | |
| |
|
Current assets: | | | |
| |
|
Cash and cash equivalents | | $ | 1,026,164 | | $ | 1,750,815 |
Accounts receivable | |
| 352,517 | |
| 364,774 |
Merchandise inventories | |
| 4,736,826 | |
| 4,473,282 |
Other current assets | |
| 211,338 | |
| 223,001 |
Total current assets | |
| 6,326,845 | |
| 6,811,872 |
| | | | | | |
Property and equipment: | | | | | | |
Property and equipment | |
| 8,410,097 | |
| 8,136,542 |
Less: Accumulated depreciation and amortization | |
| (3,782,104) | |
| (3,627,321) |
| |
| 4,627,993 | |
| 4,509,221 |
| | | | | | |
Operating lease right-of-use assets | | | 2,660,667 | | | 2,581,677 |
Goodwill | |
| 302,645 | |
| 302,645 |
Deferred income taxes | |
| 30,240 | |
| 27,843 |
Other long-term assets | |
| 211,603 | |
| 190,614 |
| |
| 3,205,155 | |
| 3,102,779 |
| | $ | 14,159,993 | | $ | 14,423,872 |
| | | | | | |
Liabilities and Stockholders’ Deficit | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 5,351,096 | | $ | 5,156,324 |
Current portion of operating lease liabilities | | | 252,523 | | | 223,846 |
Current portion of debt | | | 250,000 | | | 0 |
Accrued expenses and other | |
| 866,297 | |
| 827,668 |
Income taxes payable | |
| 84,355 | |
| 75,253 |
Total current liabilities | |
| 6,804,271 | |
| 6,283,091 |
| | | | | | |
Debt, less current portion | |
| 5,266,396 | |
| 5,513,371 |
Operating lease liabilities, less current portion | | | 2,566,974 | | | 2,501,560 |
Deferred income taxes | |
| 358,161 | |
| 354,186 |
Other long-term liabilities | |
| 687,764 | |
| 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; 22,796 shares issued and 22,183 shares outstanding as of February 13, 2021; 23,697 shares issued and 23,376 shares outstanding as of August 29, 2020 | |
| 228 | |
| 237 |
Additional paid-in capital | |
| 1,314,424 | |
| 1,283,495 |
Retained deficit | |
| (1,801,764) | |
| (1,450,970) |
Accumulated other comprehensive loss | |
| (300,839) | |
| (354,252) |
Treasury stock, at cost | |
| (735,622) | |
| (356,487) |
Total stockholders’ deficit | |
| (1,523,573) | |
| (877,977) |
| | $ | 14,159,993 | | $ | 14,423,872 |
| | | | | | |
| | February 12, | | August 28, | ||
(in thousands) | | 2022 | | 2021 | ||
| | | | | | |
Assets | | | |
| |
|
Current assets: | | | |
| |
|
Cash and cash equivalents | | $ | 239,423 | | $ | 1,171,335 |
Accounts receivable | |
| 405,585 | |
| 378,392 |
Merchandise inventories | |
| 5,031,222 | |
| 4,639,813 |
Other current assets | |
| 227,540 | |
| 225,763 |
Total current assets | |
| 5,903,770 | |
| 6,415,303 |
| | | | | | |
Property and equipment: | | | | | | |
Property and equipment | |
| 8,965,026 | |
| 8,807,178 |
Less: Accumulated depreciation and amortization | |
| (4,085,947) | |
| (3,950,287) |
| |
| 4,879,079 | |
| 4,856,891 |
| | | | | | |
Operating lease right-of-use assets | | | 2,743,771 | | | 2,718,712 |
Goodwill | |
| 302,645 | |
| 302,645 |
Deferred income taxes | |
| 40,730 | |
| 41,043 |
Other long-term assets | |
| 208,478 | |
| 181,605 |
| |
| 3,295,624 | |
| 3,244,005 |
Total assets | | $ | 14,078,473 | | $ | 14,516,199 |
| | | | | | |
Liabilities and Stockholders’ Deficit | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 6,378,606 | | $ | 6,013,924 |
Current portion of operating lease liabilities | | | 268,921 | | | 236,568 |
Accrued expenses and other | |
| 961,898 | |
| 1,039,788 |
Income taxes payable | |
| 75,220 | |
| 79,474 |
Total current liabilities | |
| 7,684,645 | |
| 7,369,754 |
| | | | | | |
Long-term debt | |
| 5,840,884 | |
| 5,269,820 |
Operating lease liabilities, less current portion | | | 2,641,555 | | | 2,632,842 |
Deferred income taxes | |
| 379,176 | |
| 337,125 |
Other long-term liabilities | |
| 669,690 | |
| 704,194 |
| | | | | | |
Commitments and contingencies | | | | | | |
| | | | | | |
Stockholders’ deficit: | | | | | | |
Preferred stock, authorized 1,000 shares; 0 shares issued | |
| — | |
| — |
Common stock, par value $.01 per share, authorized 200,000 shares; 20,650 shares issued and 19,967 shares outstanding as of February 12, 2022; 23,007 shares issued and 21,138 shares outstanding as of August 28, 2021 | |
| 206 | |
| 230 |
Additional paid-in capital | |
| 1,266,015 | |
| 1,465,669 |
Retained deficit | |
| (2,730,731) | |
| (419,829) |
Accumulated other comprehensive loss | |
| (310,163) | |
| (307,986) |
Treasury stock, at cost | |
| (1,362,804) | |
| (2,535,620) |
Total stockholders’ deficit | |
| (3,137,477) | |
| (1,797,536) |
Total liabilities and stockholders' deficit | | $ | 14,078,473 | | $ | 14,516,199 |
See Notes to Condensed Consolidated Financial Statements.
3
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Twenty-Four Weeks Ended | | Twelve Weeks Ended | | Twenty-Four Weeks Ended | ||||||||||||||||
| | February 13, | | February 15, | | February 13, | | February 15, | | February 12, | | February 13, | | February 12, | | February 13, | ||||||||
(in thousands, except per share data) | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Net sales |
| $ | 2,910,818 |
| $ | 2,513,663 |
| $ | 6,065,078 |
| $ | 5,306,700 |
| $ | 3,369,750 |
| $ | 2,910,818 |
| $ | 7,038,653 |
| $ | 6,065,078 |
Cost of sales, including warehouse and delivery expenses | | | 1,351,435 | | | 1,147,600 | | | 2,830,078 | | | 2,439,569 | | | 1,584,524 | | | 1,351,435 | | | 3,328,267 | | | 2,830,078 |
Gross profit | | | 1,559,383 | |
| 1,366,063 | | | 3,235,000 | |
| 2,867,131 | | | 1,785,226 | |
| 1,559,383 | | | 3,710,386 | |
| 3,235,000 |
Operating, selling, general and administrative expenses | | | 1,077,616 | | | 958,125 | | | 2,138,008 | | | 1,959,170 | | | 1,158,466 | | | 1,077,616 | | | 2,329,141 | | | 2,138,008 |
Operating profit | | | 481,767 | | | 407,938 | | | 1,096,992 | | | 907,961 | | | 626,760 | | | 481,767 | | | 1,381,245 | | | 1,096,992 |
Interest expense, net | | | 46,012 | | | 44,335 | | | 92,191 | | | 88,078 | | | 42,471 | | | 46,012 | | | 85,755 | | | 92,191 |
Income before income taxes | | | 435,755 | |
| 363,603 | | | 1,004,801 | |
| 819,883 | | | 584,289 | |
| 435,755 | | | 1,295,490 | |
| 1,004,801 |
Income tax expense | | | 89,809 | | | 64,321 | | | 216,422 | | | 170,263 | | | 112,534 | | | 89,809 | | | 268,500 | | | 216,422 |
Net income | | $ | 345,946 | | $ | 299,282 | | $ | 788,379 | | $ | 649,620 | | $ | 471,755 | | $ | 345,946 | | $ | 1,026,990 | | $ | 788,379 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average shares for basic earnings per share | |
| 22,648 | |
| 23,570 | |
| 22,935 | |
| 23,722 | |
| 20,513 | |
| 22,648 | |
| 20,750 | |
| 22,935 |
Effect of dilutive stock equivalents | | | 520 | | | 590 | | | 538 | | | 604 | | | 645 | | | 520 | | | 633 | | | 538 |
Weighted average shares for diluted earnings per share | |
| 23,168 | |
| 24,160 | |
| 23,473 | |
| 24,326 | |
| 21,158 | |
| 23,168 | |
| 21,383 | |
| 23,473 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share | | $ | 15.27 | | $ | 12.70 | | $ | 34.37 | | $ | 27.38 | | $ | 23.00 | | $ | 15.27 | | $ | 49.49 | | $ | 34.37 |
Diluted earnings per share | | $ | 14.93 | | $ | 12.39 | | $ | 33.59 | | $ | 26.70 | | $ | 22.30 | | $ | 14.93 | | $ | 48.03 | | $ | 33.59 |
See Notes to Condensed Consolidated Financial Statements.
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Twenty-Four Weeks Ended | | Twelve Weeks Ended | | Twenty-Four Weeks Ended | ||||||||||||||||
|
| February 13, |
| February 15, |
| February 13, |
| February 15, |
| February 12, |
| February 13, |
| February 12, |
| February 13, | ||||||||
(in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 345,946 | | $ | 299,282 | | $ | 788,379 | | $ | 649,620 | | $ | 471,755 | | $ | 345,946 | | $ | 1,026,990 | | $ | 788,379 |
Other comprehensive income: | |
|
| |
|
| |
|
| |
|
| ||||||||||||
Other comprehensive income (loss): | |
|
| |
|
| |
|
| |
|
| ||||||||||||
Foreign currency translation adjustments | |
| 5,601 | |
| 21,178 | |
| 52,596 | |
| 40,218 | |
| 14,315 | |
| 5,601 | |
| (2,251) | |
| 52,596 |
Unrealized (losses) gains on marketable debt securities, net of taxes | |
| (192) | |
| 178 | |
| (501) | |
| (10) | ||||||||||||
Unrealized losses on marketable debt securities, net of taxes | |
| (870) | |
| (192) | |
| (1,300) | |
| (501) | ||||||||||||
Net derivative activities, net of taxes | |
| 659 | |
| 388 | |
| 1,318 | |
| 777 | |
| 719 | |
| 659 | |
| 1,374 | |
| 1,318 |
Total other comprehensive income | |
| 6,068 | |
| 21,744 | |
| 53,413 | |
| 40,985 | ||||||||||||
Total other comprehensive income (loss) | |
| 14,164 | |
| 6,068 | |
| (2,177) | |
| 53,413 | ||||||||||||
Comprehensive income | | $ | 352,014 | | $ | 321,026 | | $ | 841,792 | | $ | 690,605 | | $ | 485,919 | | $ | 352,014 | | $ | 1,024,813 | | $ | 841,792 |
See Notes to Condensed Consolidated Financial Statements.
4
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | |
| | Twenty-Four Weeks Ended | ||||
|
| February 13, | | February 15, | ||
(in thousands) | | 2021 | | 2020 | ||
| | | | | | |
Cash flows from operating activities: |
| |
|
| |
|
Net income | | $ | 788,379 | | $ | 649,620 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
|
Depreciation and amortization of property and equipment and intangibles | |
| 184,027 | |
| 180,420 |
Amortization of debt origination fees | |
| 6,369 | |
| 4,216 |
Deferred income taxes | |
| (1,772) | |
| 11,154 |
Share-based compensation expense | |
| 24,178 | |
| 22,107 |
Changes in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable | |
| 15,991 | |
| (28,897) |
Merchandise inventories | |
| (229,542) | |
| (262,234) |
Accounts payable and accrued expenses | |
| 216,540 | |
| 6,571 |
Income taxes payable | |
| 11,180 | |
| 11,124 |
Other, net | |
| 24,497 | |
| 57,563 |
Net cash provided by operating activities | |
| 1,039,847 | |
| 651,644 |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Capital expenditures | |
| (238,644) | |
| (190,563) |
Purchase of marketable debt securities | |
| (48,384) | |
| (56,347) |
Proceeds from sale of marketable debt securities | |
| 60,575 | |
| 70,812 |
(Payments) proceeds from disposal of capital assets and other, net | |
| (1,951) | |
| 1,185 |
Net cash used in investing activities | |
| (228,404) | |
| (174,913) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Net proceeds from commercial paper | |
| — | |
| 242,700 |
Net proceeds from sale of common stock | |
| 66,510 | |
| 48,705 |
Purchase of treasury stock | | | (1,578,323) | | | (764,846) |
Repayment of principal portion of finance lease liabilities | |
| (29,076) | | | (29,324) |
Net cash used in financing activities | |
| (1,540,889) | |
| (502,765) |
| | | | | | |
Effect of exchange rate changes on cash | |
| 4,795 | |
| 2,704 |
| | | | | | |
Net decrease in cash and cash equivalents | |
| (724,651) | |
| (23,330) |
Cash and cash equivalents at beginning of period | |
| 1,750,815 | |
| 176,300 |
Cash and cash equivalents at end of period | | $ | 1,026,164 | | $ | 152,970 |
| | | | | | |
| | Twenty-Four Weeks Ended | ||||
|
| February 12, | | February 13, | ||
(in thousands) | | 2022 | | 2021 | ||
| | | | | | |
Cash flows from operating activities: |
| |
|
| |
|
Net income | | $ | 1,026,990 | | $ | 788,379 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
|
Depreciation and amortization of property and equipment and intangibles | |
| 199,282 | |
| 184,027 |
Amortization of debt origination fees | |
| 5,373 | |
| 6,369 |
Deferred income taxes | |
| 40,983 | |
| (1,772) |
Share-based compensation expense | |
| 30,738 | |
| 24,178 |
Changes in operating assets and liabilities: | |
| | |
|
|
Accounts receivable | |
| (27,385) | |
| 15,991 |
Merchandise inventories | |
| (393,459) | |
| (229,542) |
Accounts payable and accrued expenses | |
| 278,833 | |
| 216,540 |
Income taxes payable | |
| 12,774 | |
| 11,180 |
Other, net | |
| (34,383) | |
| 24,497 |
Net cash provided by operating activities | |
| 1,139,746 | |
| 1,039,847 |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Capital expenditures | |
| (208,143) | |
| (238,644) |
Purchase of marketable debt securities | |
| (22,632) | |
| (48,384) |
Proceeds from sale of marketable debt securities | |
| 13,908 | |
| 60,575 |
Investment in tax credit equity investments | | | (20,656) | | | — |
Proceeds (payments) from disposal of capital assets and other, net | |
| 26,210 | |
| (1,951) |
Net cash used in investing activities | |
| (211,313) | |
| (228,404) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Net proceeds from commercial paper | | | 1,068,100 | | | — |
Repayment of debt | | | (500,000) | | | — |
Net proceeds from sale of common stock | |
| 66,457 | |
| 66,510 |
Purchase of treasury stock | | | (2,459,995) | | | (1,578,323) |
Repayment of principal portion of finance lease liabilities | |
| (31,100) | | | (29,076) |
Other, net | |
| (3,362) | |
| — |
Net cash used in financing activities | |
| (1,859,900) | |
| (1,540,889) |
| | | | | | |
Effect of exchange rate changes on cash | |
| (445) | |
| 4,795 |
| | | | | | |
Net decrease in cash and cash equivalents | |
| (931,912) | |
| (724,651) |
Cash and cash equivalents at beginning of period | |
| 1,171,335 | |
| 1,750,815 |
Cash and cash equivalents at end of period | | $ | 239,423 | | $ | 1,026,164 |
| | | | | | |
See Notes to Condensed Consolidated Financial Statements.
5
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended February 13, 2021 | ||||||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | | | | |
| | Common | | | | | Additional | | | | | Other | | | | | | | ||
|
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| | | |||||
(in thousands) | | Issued | | Stock | | Capital | | Deficit | | Loss | | Stock | | Total | ||||||
| | | | | | | | | | | | | | | | | | | | |
Balance at November 21, 2020 |
| 23,761 | | $ | 238 | | $ | 1,323,037 | | $ | (1,008,537) | | $ | (306,907) | | $ | (1,034,811) | | $ | (1,026,980) |
Net income |
| — | |
| — | |
| — | |
| 345,946 | |
| — | |
| — | |
| 345,946 |
Total other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 6,068 | |
| — | |
| 6,068 |
Retirement of treasury shares | | (1,044) | | | (10) | | | (60,005) | | | (1,139,173) | | | — | | | 1,199,188 | | | — |
Purchase of 752 shares of treasury stock |
| — | |
| — | |
| — | |
| — | |
| — | |
| (899,999) | |
| (899,999) |
Issuance of common stock under stock options and stock purchase plans |
| 79 | |
| — | |
| 37,844 | | | — | | | — | | | — | |
| 37,844 |
Share-based compensation expense |
| — | |
| — | |
| 13,548 | |
| — | |
| — | |
| — | |
| 13,548 |
Balance at February 13, 2021 |
| 22,796 | | $ | 228 | | $ | 1,314,424 | | $ | (1,801,764) | | $ | (300,839) | | $ | (735,622) | | $ | (1,523,573) |
| | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended February 12, 2022 | ||||||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | | | | |
| | Common | | | | | Additional | | Retained | | Other | | | | | | | |||
|
| Shares |
| Common |
| Paid-in |
| Earnings |
| Comprehensive |
| Treasury |
| | | |||||
(in thousands) | | Issued | | Stock | | Capital | | (Deficit) | | Loss | | Stock | | Total | ||||||
| | | | | | | | | | | | | | | | | | | | |
Balance at November 20, 2021 |
| 23,057 | | $ | 231 | | $ | 1,499,557 | | $ | 135,406 | | $ | (324,327) | | $ | (3,435,617) | | $ | (2,124,750) |
Net income |
| — | |
| — | |
| — | |
| 471,755 | |
| — | |
| — | |
| 471,755 |
Total other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 14,164 | |
| — | |
| 14,164 |
Retirement of treasury shares | | (2,484) | | | (25) | | | (294,894) | | | (3,337,892) | | | — | | | 3,632,811 | | | — |
Purchase of 783 shares of treasury stock |
| — | |
| — | |
| — | |
| — | |
| — | |
| (1,559,998) | |
| (1,559,998) |
Issuance of common stock under stock options and stock purchase plans |
| 77 | |
| — | |
| 45,356 | | | — | | | — | | | — | |
| 45,356 |
Share-based compensation expense |
| — | |
| — | |
| 15,996 | |
| — | |
| — | |
| — | |
| 15,996 |
Balance at February 12, 2022 |
| 20,650 | | $ | 206 | | $ | 1,266,015 | | $ | (2,730,731) | | $ | (310,163) | | $ | (1,362,804) | | $ | (3,137,477) |
| | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended February 15, 2020 | ||||||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | | | | |
| | Common | | | | | Additional | | | | | Other | | | | | | | ||
|
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| | | |||||
(in thousands) | | Issued | | Stock | | Capital | | Deficit | | Loss | | Stock | | Total | ||||||
| | | | | | | | | | | | | | | | | | | | |
Balance at November 23, 2019 |
| 25,465 | | $ | 254 | | $ | 1,282,629 | | $ | (955,009) | | $ | (250,081) | | $ | (1,853,883) | | $ | (1,776,090) |
Net income |
| — | |
| — | |
| — | |
| 299,282 | |
| — | |
| — | |
| 299,282 |
Total other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 21,744 | |
| — | |
| 21,744 |
Retirement of treasury shares |
| (1,912) | |
| (19) | |
| (99,686) | |
| (1,878,595) | |
| — | |
| 1,978,300 | |
| — |
Purchase of 267 shares of treasury stock |
| — | |
| — | |
| — | |
| — | |
| — | |
| (314,847) | |
| (314,847) |
Issuance of common stock under stock options and stock purchase plans |
| 100 | |
| 2 | |
| 46,477 | | | — | | | — | | | — | |
| 46,479 |
Share-based compensation expense |
| — | |
| — | |
| 12,313 | |
| — | |
| — | |
| — | |
| 12,313 |
Balance at February 15, 2020 |
| 23,653 | | $ | 237 | | $ | 1,241,733 | | $ | (2,534,322) | | $ | (228,337) | | $ | (190,430) | | $ | (1,711,119) |
| | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended February 13, 2021 | ||||||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | | | | |
| | Common | | | | | Additional | | | | | Other | | | | | | | ||
|
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| | | |||||
(in thousands) | | Issued | | Stock | | Capital | | Deficit | | Loss | | Stock | | Total | ||||||
| | | | | | | | | | | | | | | | | | | | |
Balance at November 21, 2020 |
| 23,761 | | $ | 238 | | $ | 1,323,037 | | $ | (1,008,537) | | $ | (306,907) | | $ | (1,034,811) | | $ | (1,026,980) |
Net income |
| — | |
| — | |
| — | |
| 345,946 | |
| — | |
| — | |
| 345,946 |
Total other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 6,068 | |
| — | |
| 6,068 |
Retirement of treasury shares |
| (1,044) | |
| (10) | |
| (60,005) | |
| (1,139,173) | |
| — | |
| 1,199,188 | |
| — |
Purchase of 752 shares of treasury stock |
| — | |
| — | |
| — | |
| — | |
| — | |
| (899,999) | |
| (899,999) |
Issuance of common stock under stock options and stock purchase plans |
| 79 | |
| — | |
| 37,844 | | | — | | | — | | | — | |
| 37,844 |
Share-based compensation expense |
| — | |
| — | |
| 13,548 | |
| — | |
| — | |
| — | |
| 13,548 |
Balance at February 13, 2021 |
| 22,796 | | $ | 228 | | $ | 1,314,424 | | $ | (1,801,764) | | $ | (300,839) | | $ | (735,622) | | $ | (1,523,573) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twenty-Four Weeks Ended February 13, 2021 | | Twenty-Four Weeks Ended February 12, 2022 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | ||
| | Common | | | | | Additional | | | | | Other | | | | | | | | Common | | | | | Additional | | | | | Other | | | | | | | ||||
|
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| | |
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| | | ||||||||||
(in thousands) | | Issued | | Stock | | Capital | | Deficit | | Loss | | Stock | | Total | | 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) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Balance at August 28, 2021 |
| 23,007 | | $ | 230 | | $ | 1,465,669 | | $ | (419,829) | | $ | (307,986) | | $ | (2,535,620) | | $ | (1,797,536) | ||||||||||||||||||||
Net income |
| — | |
| — | |
| — | |
| 788,379 | |
| — | |
| — | |
| 788,379 |
| — | |
| — | |
| — | |
| 1,026,990 | |
| — | |
| — | |
| 1,026,990 |
Total other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 53,413 | |
| — | |
| 53,413 | ||||||||||||||||||||
Total other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| (2,177) | |
| — | |
| (2,177) | ||||||||||||||||||||
Retirement of treasury shares |
| (1,044) | |
| (10) | |
| (60,005) | |
| (1,139,173) | |
| — | |
| 1,199,188 | |
| — |
| (2,484) | |
| (25) | |
| (294,894) | |
| (3,337,892) | |
| — | |
| 3,632,811 | |
| — |
Purchase of 1,336 shares of treasury stock |
| — | |
| — | |
| — | |
| — | |
| — | |
| (1,578,323) | |
| (1,578,323) | ||||||||||||||||||||
Purchase of 1,298 shares of treasury stock |
| — | |
| — | |
| — | |
| — | |
| — | |
| (2,459,995) | |
| (2,459,995) | ||||||||||||||||||||
Issuance of common stock under stock options and stock purchase plans |
| 143 | |
| 1 | |
| 66,509 | | | — | | | — | | | — | |
| 66,510 |
| 127 | |
| 1 | |
| 66,456 | | | — | | | — | | | — | |
| 66,457 |
Share-based compensation expense |
| — | |
| — | |
| 24,425 | |
| — | |
| — | |
| — | |
| 24,425 |
| — | |
| — | |
| 28,784 | |
| — | |
| — | |
| — | |
| 28,784 |
Balance at February 13, 2021 |
| 22,796 | | $ | 228 | | $ | 1,314,424 | | $ | (1,801,764) | | $ | (300,839) | | $ | (735,622) | | $ | (1,523,573) | ||||||||||||||||||||
Balance at February 12, 2022 |
| 20,650 | | $ | 206 | | $ | 1,266,015 | | $ | (2,730,731) | | $ | (310,163) | | $ | (1,362,804) | | $ | (3,137,477) |
| | | | | | | | | | | | | | | | | | | | |
| | Twenty-Four Weeks Ended February 15, 2020 | ||||||||||||||||||
| | | | | | | | | | | | | 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 |
| — | |
| — | |
| — | |
| 649,620 | |
| — | |
| — | |
| 649,620 |
Total other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 40,985 | |
| — | |
| 40,985 |
Retirement of treasury shares |
| (1,912) | |
| (19) | |
| (99,686) | |
| (1,878,595) | |
| — | |
| 1,978,300 | |
| — |
Purchase of 670 shares of treasury stock |
| — | |
| — | |
| — | |
| — | |
| — | |
| (764,846) | |
| (764,846) |
Issuance of common stock under stock options and stock purchase plans |
| 120 | |
| 2 | |
| 55,299 | | | — | | | — | | | — | |
| 55,301 |
Share-based compensation expense |
| — | |
| — | |
| 21,672 | |
| — | |
| — | |
| — | |
| 21,672 |
Balance at February 15, 2020 |
| 23,653 | | $ | 237 | | $ | 1,241,733 | | $ | (2,534,322) | | $ | (228,337) | | $ | (190,430) | | $ | (1,711,119) |
| | | | | | | | | | | | | | | | | | | | |
| | Twenty-Four Weeks Ended February 13, 2021 | ||||||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | | | | |
| | Common | | | | | Additional | | | | | Other | | | | | | | ||
|
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| | | |||||
(in thousands) | | Issued | | Stock | | Capital | | Deficit | | Loss | | Stock | | Total | ||||||
| | | | | | | | | | | | | | | | | | | | |
Balance at August 29, 2020 |
| 23,697 | | $ | 237 | | $ | 1,283,495 | | $ | (1,450,970) | | $ | (354,252) | | $ | (356,487) | | $ | (877,977) |
Net income |
| — | |
| — | |
| — | |
| 788,379 | |
| — | |
| — | |
| 788,379 |
Total other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 53,413 | |
| — | |
| 53,413 |
Retirement of treasury shares |
| (1,044) | |
| (10) | |
| (60,005) | |
| (1,139,173) | |
| — | |
| 1,199,188 | |
| — |
Purchase of 1,336 shares of treasury stock |
| — | |
| — | |
| — | |
| — | |
| — | |
| (1,578,323) | |
| (1,578,323) |
Issuance of common stock under stock options and stock purchase plans |
| 143 | |
| 1 | |
| 66,509 | | | — | | | — | | | — | |
| 66,510 |
Share-based compensation expense |
| — | |
| — | |
| 24,425 | |
| — | |
| — | |
| — | |
| 24,425 |
Balance at February 13, 2021 |
| 22,796 | | $ | 228 | | $ | 1,314,424 | | $ | (1,801,764) | | $ | (300,839) | | $ | (735,622) | | $ | (1,523,573) |
See Notes to Condensed Consolidated Financial Statements.Statements.
6
AUTOZONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A – General
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of 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 29, 2020.28, 2021.
Operating results for the twelve and twenty-four weeks ended February 13, 202112, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 28, 2021.27, 2022. Each of the first three quarters of AutoZone’s fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters of fiscal 20212022 and 20202021 each have 16 weeks.
RecentRecently Issued Accounting Pronouncements:Pronouncements
In August 2018,November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15,2021-10, IntangiblesGovernment Assistance (Topic 832) – 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 ContractDisclosures by Business Entities about Government Assistance. The amendments in this update alignincreases the requirementsdisclosures for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirementsentities receiving governmental assistance for capitalizing implementation costs incurred to develop or obtain internal-use software.more transparency. ASU 2018-152021-10 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.2021. Early adoption is permitted. The Company adopted the new guidance on a prospective basis in the first quarter of fiscal 2021. The adoption ofwill adopt this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements 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, Codification Improvements to Topic 326, Financial Instruments Credit Losses. ASU 2016-13 requires entities to estimate all expected credit losses for financial assets measured at amortized cost basis, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The Company adopted this guidance using the modified retrospective adoption methodstandard beginning with its first quarter endedending November 21, 2020.19, 2022. The adoption of thisCompany is currently evaluating the new guidance did notto determine the impact the adoption will have a material impact on the Company's Condensed Consolidated Financial Statementsconsolidated financial statements and related disclosures. The balance for allowance for uncollectable accounts was $11.2 million at February 13, 2021 and $10.0 million at August 29, 2020.
R
Note B – Share-Based Payments
AutoZone maintains several equity incentive plans, which provide equity-based compensation to non-employee directors and eligible employees for their service to AutoZone, its subsidiaries or affiliates. The Company recognizes compensation expense for share-based payments based on the fair value of the awards at the grant date. Share-based payments include stock option grants, restricted stock grants, restricted stock unit grants, 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:
The Company made stock option grants of 164,262 shares during the twenty-four week period ended February 12, 2022 and granted options to purchase 196,161 shares during the comparable prior year period. The Company grants options to purchase common stock to certain of its employees under its equity incentive plans at prices equal to the market value of the stock on the date of grant. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date.
7
Stock Options:
The Company made stock option grants of 196,161 shares during the twenty-four week period ended February 13, 2021 and granted options to purchase 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 average fair value of the stock option awards granted during the twenty-four week periods ended February 13, 202112, 2022 and February 15, 2020,13, 2021, using the Black-Scholes-Merton multiple-option pricing valuation model, was $299.86$463.09 and $252.39$299.86 per share, respectively, using the following weighted average key assumptions:
| | | | | | | | | | |
| | Twenty-Four Weeks Ended | | Twenty-Four Weeks Ended | | |||||
|
| February 13, |
| February 15, |
|
| February 12, |
| February 13, |
|
|
| 2021 | | 2020 | |
| 2022 | | 2021 | |
| | | | | | | | | | |
Expected price volatility |
| 28 | % | 22 | % |
| 28 | % | 28 | % |
Risk-free interest rate |
| 0.4 | % | 1.4 | % |
| 1.1 | % | 0.4 | % |
Weighted average expected lives (in years) |
| 5.6 |
| 5.5 |
|
| 5.6 |
| 5.6 |
|
Forfeiture rate |
| 10 | % | 10 | % |
| 10 | % | 10 | % |
Dividend yield |
| 0 | % | 0 | % |
| 0 | % | 0 | % |
During the twenty-four week period ended February 13, 2021,12, 2022, 123,216 stock options were exercised at a weighted average exercise price of $584.81. In the comparable prior year period, 138,705 stock options were exercised at a weighted average exercise price of $484.13. In the comparable prior year period, 105,860
As of February 12, 2022, total unrecognized share-based expense related to stock options, were exercised at anet of estimated forfeitures, was approximately $85.2 million, before income taxes, which we expect to recognize over an estimated weighted average exercise priceperiod of $476.60.2.1 years.
Restricted Stock Units:
Restricted stock unit awards are valued at the market price of a share of the Company’s stock on the date of grant. Grants of employee restricted stock units vest ratably on an annual basis over a four-year service period and are payable in shares of common stock on the vesting date. Compensation expense for grants of employee restricted stock units is recognized on a straight-line basis over the four-year service period, less estimated forfeitures, which are consistent with stock option forfeiture assumptions. Grants of non-employee director restricted stock units are made and expensed on January 1 of each year, as they vest immediately.
As of February 13, 2021,12, 2022, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $13.3$14.1 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.92.7 years.
Transactions related to restricted stock units for the twenty-four weeks ended February 13, 202112, 2022 were as follows:
| | | | | | | | | | |
| | | | Weighted- | | | | Weighted- | ||
|
| Number |
| Average Grant |
| Number |
| Average Grant | ||
| | of Shares | | Date Fair Value | | of Shares | | Date Fair Value | ||
| | | | | | | | | | |
Nonvested at August 29, 2020 |
| 14,160 | | $ | 910.63 | |||||
Nonvested at August 28, 2021 |
| 15,751 | | $ | 1,005.41 | |||||
Granted |
| 8,064 | | | 1,149.77 |
| 5,325 | | | 1,732.57 |
Vested |
| (5,805) | |
| 977.48 |
| (6,346) | |
| 1,132.46 |
Canceled or forfeited |
| (78) | |
| 1,008.34 |
| (1,071) | |
| 1,106.02 |
Nonvested at February 13, 2021 |
| 16,341 | | $ | 1,003.98 | |||||
Nonvested at February 12, 2022 |
| 13,659 | | $ | 1,221.98 |
Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $13.7$16.4 million for the twelve week period ended February 13, 2021,12, 2022, and $12.1$13.7 million for the comparable prior year period. Total share-based compensation expense was $24.2$30.7 million for the twenty-four week period ended February 13, 2021,12, 2022, and $22.1$24.2 million for the comparable prior year period.
8
For the twelve week period ended February 13, 2021, 196,28012, 2022, 162,955 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 188,486196,280 anti-dilutive sharesstock options were excluded from the dilutive earnings per share computation. There were 248,578128,399 anti-dilutive shares excluded from the diluted earnings per share computation for the twenty-four week period ended February 13, 2021,12, 2022, and 147,998248,578 anti-dilutive shares excluded for the comparable prior year period.
See AutoZone’s Annual Report on Form 10-K for the year ended August 29, 2020,28, 2021 and other filings with the SEC, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan, the AutoZone, Inc. 2020 Omnibus Incentive Award Plan and the 2020 Director Compensation 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:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | February 13, 2021 | | February 12, 2022 | ||||||||||||||||||||
(in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Other current assets | | $ | 42,741 | | $ | 2 | | $ | — | | $ | 42,743 | | $ | 40,810 | | $ | 44 | | $ | — | | $ | 40,854 |
Other long-term assets | |
| 74,508 | |
| 17,161 | |
| — | |
| 91,669 | |
| 67,853 | |
| 12,264 | |
| — | |
| 80,117 |
| | $ | 117,249 | | $ | 17,163 | | $ | — | | $ | 134,412 | | $ | 108,663 | | $ | 12,308 | | $ | — | | $ | 120,971 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | August 29, 2020 | | August 28, 2021 | ||||||||||||||||||||
(in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Other current assets | | $ | 75,651 | | $ | 467 | | $ | — | | $ | 76,118 | | $ | 46,007 | | $ | — | | $ | — | | $ | 46,007 |
Other long-term assets | |
| 58,792 | |
| 12,329 | |
| — | |
| 71,121 | |
| 54,105 | |
| 13,806 | |
| — | |
| 67,911 |
| | $ | 134,443 | | $ | 12,796 | | $ | — | | $ | 147,239 | | $ | 100,112 | | $ | 13,806 | | $ | — | | $ | 113,918 |
At February 13, 2021,12, 2022, the fair value measurement amounts for assets and liabilities recorded in the accompanying Condensed Consolidated Balance Sheets consisted of short-term marketable debt securities, which are included within Other current assets, and long-term marketable debt securities, 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.”
9
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 GF – Financing.”
Note D – Marketable Debt Securities
Marketable debt securities are carried at fair value, with unrealized gains and losses, net of income taxes, recorded in Accumulated other comprehensive loss until realized, and any credit risk related losses are recognized in net income in the period incurred. The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.”
The Company’s available-for-sale marketable debt securities consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | February 13, 2021 | | February 12, 2022 | ||||||||||||||||||||
|
| Amortized |
| Gross |
| Gross |
| |
| Amortized |
| Gross |
| Gross |
| | ||||||||
| | Cost | | Unrealized | | Unrealized | | Fair | | Cost | | Unrealized | | Unrealized | | Fair | ||||||||
(in thousands) | | Basis | | Gains | | Losses | | Value | | Basis | | Gains | | Losses | | Value | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | $ | 35,515 | | $ | 701 | | $ | — | | $ | 36,216 | | $ | 19,325 | | $ | 79 | | $ | (87) | | $ | 19,317 |
Government bonds | |
| 73,237 | |
| 798 | |
| — | |
| 74,035 | |
| 77,914 | |
| 57 | |
| (773) | |
| 77,198 |
Mortgage-backed securities | |
| 5,702 | |
| 90 | |
| — | |
| 5,792 | |
| 5,656 | |
| 25 | |
| (113) | |
| 5,568 |
Asset-backed securities and other | |
| 18,240 | |
| 129 | |
| — | |
| 18,369 | |
| 18,997 | |
| 11 | |
| (120) | |
| 18,888 |
| | $ | 132,694 | | $ | 1,718 | | $ | — | | $ | 134,412 | | $ | 121,892 | | $ | 172 | | $ | (1,093) | | $ | 120,971 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | August 29, 2020 | | August 28, 2021 | ||||||||||||||||||||
|
| Amortized |
| Gross |
| Gross |
| |
| Amortized |
| Gross |
| Gross |
| | ||||||||
| | Cost | | Unrealized | | Unrealized | | Fair | | Cost | | Unrealized | | Unrealized | | Fair | ||||||||
(in thousands) | | Basis | | Gains | | Losses | | Value | | Basis | | Gains | | Losses | | Value | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | $ | 46,652 | | $ | 970 | | $ | (4) | | $ | 47,618 | | $ | 23,650 | | $ | 329 | | $ | (2) | | $ | 23,977 |
Government bonds | |
| 44,594 | |
| 1,172 | |
| — | |
| 45,766 | |
| 65,416 | |
| 338 | |
| (2) | |
| 65,752 |
Mortgage-backed securities | |
| 4,842 | |
| 75 | |
| — | |
| 4,917 | |
| 6,552 | |
| 58 | |
| (8) | |
| 6,602 |
Asset-backed securities and other | |
| 48,798 | |
| 143 | |
| (3) | |
| 48,938 | |
| 17,551 | |
| 43 | |
| (7) | |
| 17,587 |
| | $ | 144,886 | | $ | 2,360 | | $ | (7) | | $ | 147,239 | | $ | 113,169 | | $ | 768 | | $ | (19) | | $ | 113,918 |
The debt securities held at February 13, 2021,12, 2022, had effective maturities ranging from less than one year to approximately six years.four years. At February 12, 2022, the Company held 38 securities that are in an unrealized loss position of approximately $1.1 million. In evaluating whether a credit loss exists for the securities, the Company considers factors such as the severity of the loss position, the credit worthiness of the investee, the term to maturity and the intent and ability to hold the investments until maturity or until recovery of fair value. An allowance for credit losses was deemed unnecessary given consideration of the factors above.
Included above in total available-for-sale marketable debt securities are $62.4$92.0 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.
10
Note E – Derivative Financial Instruments
At February 13, 2021, the Company had $29.5 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 periods ended February 13, 2021 and February 15, 2020, the Company reclassified $863 thousand and $508 thousand of net losses from Accumulated other comprehensive loss to Interest expense, respectively. During the twenty-four week period ended February 13, 2021 and the comparable prior year period, the Company reclassified $1.7 million and $1.0 million of net losses from Accumulated other comprehensive loss to Interest expense, respectively. The Company expects to reclassify $3.7 million of net losses from Accumulated other comprehensive loss to Interest expense over the next 13 periods.
Note F – Merchandise Inventories
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. The difference between LIFO cost and replacement cost, which will be reduced upon experiencing price inflation on the Company’s merchandise purchases, was $363.3$237.3 million at February 13, 202112, 2022 and $357.0$335.3 million at August 29, 2020.28, 2021.
Note GF – Financing
The Company’s debt consisted of the following:
| | | | | | | | | | | | |
|
| February 13, |
| August 29, |
| February 12, |
| August 28, | ||||
(in thousands) | | 2021 | | 2020 | | 2022 | | 2021 | ||||
| | | | | | | | | | | | |
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 | | $ | — | | $ | 500,000 |
2.875% Senior Notes due January 2023, effective interest rate of 3.21% | |
| 300,000 | |
| 300,000 | |
| 300,000 | |
| 300,000 |
3.125% Senior Notes due July 2023, effective interest rate of 3.26% | |
| 500,000 | |
| 500,000 | |
| 500,000 | |
| 500,000 |
3.125% Senior Notes due April 2024, effective interest rate 3.32% | |
| 300,000 | |
| 300,000 | |
| 300,000 | |
| 300,000 |
3.250% Senior Notes due April 2025, effective interest rate 3.36% | |
| 400,000 | |
| 400,000 | |
| 400,000 | |
| 400,000 |
3.625% Senior Notes due April 2025, effective interest rate 3.78% | | | 500,000 | | | 500,000 | | | 500,000 | | | 500,000 |
3.125% Senior Notes due April 2026, effective interest rate of 3.28% | |
| 400,000 | |
| 400,000 | |
| 400,000 | |
| 400,000 |
3.750% Senior Notes due June 2027, effective interest rate of 3.83% | |
| 600,000 | |
| 600,000 | |
| 600,000 | |
| 600,000 |
3.750% Senior Notes due April 2029, effective interest rate of 3.86% | |
| 450,000 | |
| 450,000 | |
| 450,000 | |
| 450,000 |
4.000% Senior Notes due April 2030, effective interest rate 4.09% | | | 750,000 | | | 750,000 | | | 750,000 | | | 750,000 |
1.650% Senior Notes due January 2031, effective interest rate of 2.19% | | | 600,000 | | | 600,000 | | | 600,000 | | | 600,000 |
Commercial paper, weighted average interest rate of 0.22% at February 12, 2022 | |
| 1,068,100 | |
| — | ||||||
Total debt before discounts and debt issuance costs | |
| 5,550,000 | |
| 5,550,000 | |
| 5,868,100 | |
| 5,300,000 |
Less: Current portion of debt | | | 250,000 | | | — | ||||||
Less: Discounts and debt issuance costs | |
| 33,604 | |
| 36,629 | | | 27,216 | |
| 30,180 |
Debt, less current portion | | $ | 5,266,396 | | $ | 5,513,371 | ||||||
Long-term Debt | | $ | 5,840,884 | | $ | 5,269,820 |
As of February 13, 2021, the $250 million 2.500% Senior Notes due April 2021 are classified as current in the accompanying Condensed Consolidated Balance Sheets. On MarchNovember 15, 2021, the Company repaid the $250 million 2.500% Senior Notes due April 2021, which were callable at par in March 2021.
As of February 13, 2021, the Company had $2.748 billion of availability underamended and restated its $2.750 billionexisting revolving credit agreements, which would allow the Company to replace these short-term obligations with long-term financing facilities.
11
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 timefacility (the “Revolving Credit Agreement”). Under the Extension Amendment: (i) pursuant to which the Company’s borrowing capacity under the Revolving Credit Agreement was increased from $1.6$2.0 billion to $2.0 billion; (ii)$2.25 billion and the maximum borrowing under the Revolving Credit Agreement may, at the Company’s option, subject to lenders approval, be increased from $2.0$2.25 billion to $2.4 billion; (iii)$3.25 billion. The Revolving Credit Agreement will terminate, and all amounts borrowed will be due and payable on November 15, 2026, but AutoZone may make up to two requests to extend the termination date for an additional period of one year each. Revolving borrowings under the Revolving Credit Agreement was extended from November 18, 2021 until November 18, 2022; and (iv) the Company has the option to make one additional written request of the lenders to extend the termination date then in effect for an additional year. Under the Revolving Credit Agreement, the Company may borrow funds consisting of Eurodollar loans, base rate loans or a combination of both. Interest accrues on Eurodollar loans at a defined Eurodollar rate, defined as LIBOR plus the applicable percentage, as defined in the Revolving Credit Agreement, depending upon the Company’s senior, unsecured, (non-credit 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 provided for loans in the aggregate principal amount of up to $750 million. The 364-Day Credit Agreement had a termination date of, and any amounts borrowed under the 364-Day Credit Agreement were due and payable on, on April 2, 2021. Revolving loans under the 364-Day Credit Agreement could be base rate loans, Eurodollar loans, or a combination of both, at the Company’sAutoZone’s election.
Effective February 22, 2021, the Company terminated the 364-Day The Revolving Credit Agreement dated asincludes (i) a $75 million sublimit for swingline loans, (ii) a $50 million individual issuer letter of April 3, 2020 between the Company as borrower, the banks party thereto,credit sublimit and U.S. Bank National Association as administrative agent. There were 0 borrowings outstanding under this revolving credit agreement. The Company entered into this credit agreement to augment its access to liquidity due to macroeconomic conditions existing at the time, and the Company has determined the additional access to liquidity is no longer necessary.
As of February 13, 2021, the Company had 0 outstanding borrowings under either of the revolving credit agreements and $1.7(iii) a $250 million of outstandingaggregate sublimit for all letters of credit under the Revolving Credit Agreement.credit.
Under the Company’s revolving credit agreements,Revolving Credit Agreement, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances.
The fair value of the Company’s debt was estimated at $6.007 billion asAs of February 13, 2021, and $6.081 billion as of August 29, 2020, based on the quoted market prices for the same or similar issues or on the current rates available to12, 2022, the Company for debthad 0 outstanding borrowings and $1.8 million of outstanding letters of credit under the same terms (Level 2). Such fair value is greater thanRevolving Credit Agreement.
On January 18, 2022, the carrying valueCompany repaid the $500 million 3.700% Senior Notes due April 2022, which were callable at par in January 2022.
11
As of February 12, 2022, the commercial paper borrowings and the $300 million 2.875% Senior Notes due January 2023 were classified as long-term in the accompanying Condensed Consolidated Balance Sheets, as the Company currently has the ability and $567.5 million atintent to refinance them on a long-term basis through available capacity in its Revolving Credit Agreement. As of February 13, 2021 and August 29, 2020, respectively,12, 2022, the Company had $2.2 billion of availability under its Revolving Credit Agreement, without giving effect to commercial paper borrowings, which reflects their face amount, adjusted for any unamortized debt issuance costs and discounts.would allow it to replace these short-term obligations with a long-term financing facility.
All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned are downgraded (as defined in the agreements). Further, the Senior Notes contain a provision that repayment may be accelerated if the Company experiences a change in control (as defined in the agreements). The Company’s borrowings under its Senior Notes contain minimal covenants, primarily restrictions on liens, sale and leaseback transactions and consolidations, mergers and the sale of assets. All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs.
The fair value of the Company’s debt was estimated at $6.0 billion as of February 12, 2022, and $5.7 billion as of August 28, 2021, based on the quoted market prices for the same or similar issues or on the current rates available to the Company for debt of the same terms (Level 2). Such fair value is greater than the carrying value of debt by $128.7 million and $413.1 million at February 12, 2022 and August 28, 2021, respectively, which reflects their face amount, adjusted for any unamortized debt issuance costs and discounts.
As of February 13, 2021,12, 2022, the Company was in compliance with all covenants and expects to remain in compliance with all covenants under its borrowing arrangements.
12
Note HG – Stock Repurchase Program
From January 1, 1998 to February 13, 2021,12, 2022, the Company has repurchased a total of 149.0151.6 million shares of its common stock at an aggregate cost of $23.932$28.2 billion, including 1.3 million shares of its common stock at an aggregate cost of $1.578$2.5 billion during the twenty-four week period ended February 13, 2021. 12, 2022.
On December 15, 2020,14, 2021, the Board voted to increaseauthorize the repurchase authorization byof an additional $1.5 billion. Thisbillion of the Company’s common stock in connection with its ongoing share repurchase program, which raised the total value of shares authorized to be repurchased to $24.65$29.2 billion. Considering the cumulative repurchases as of February 13, 2021,12, 2022, the Company had $717.6$957.6 million remaining under the Board’s authorization to repurchase its common stock.
During the twenty-four week period ended February 13, 2021,12, 2022, the Company retired 1.02.5 million shares of treasury stock which had been previously been repurchased under the Company’s share repurchase program. The retirement increased Retained deficit by $1.139$3.3 billion and decreased Additional paid-in capital by $60.0$294.9 million. During the comparable prior year period, the Company retired 1.91.0 million shares of treasury stock, which increased Retained deficit by $1.879$1.1 billion and decreased Additional paid-in capital by $99.7$60.0 million.
Subsequent to February 13, 2021,12, 2022 and through March 11, 2022, the Company has repurchased 169,396119,542 shares of its common stock at an aggregate cost of $203.0$226.9 million.
Note IH – Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss includes foreign currency translation adjustments, activity for interest rate swaps and treasury rate locks that qualifyqualified as cash flow hedges and unrealized gains (losses) on available-for-sale marketable debt securities. Changes in Accumulated other comprehensive loss for the twelve week periods ended February 13, 2021 and February 15, 2020 consisted of the following:
| | | | | | | | | | | | |
| | | | | Net | | | | | | | |
| | Foreign | | Unrealized | | | | | | | ||
| | Currency and | | Gain (Loss) | | | | | | | ||
(in thousands) |
| Other(2) |
| on Securities | | Derivatives | | Total | ||||
| | | | | | | | | | | | |
Balance at November 21, 2020 | | $ | (285,326) | | $ | 1,536 | | $ | (23,117) | | $ | (306,907) |
Other comprehensive income (loss) before reclassifications(1) | |
| 5,601 | |
| (193) | (3) |
| — | |
| 5,408 |
Amounts reclassified from Accumulated other comprehensive loss | |
| — | |
| 1 | (3) |
| 659 | (3) |
| 660 |
Balance at February 13, 2021 | | $ | (279,725) | | $ | 1,344 | | $ | (22,458) | | $ | (300,839) |
| | | | | | | | | | | | |
| | | | | Net | | | | | | | |
| | Foreign | | Unrealized | | | | | | | ||
| | Currency and | | Gain (Loss) | | | | | | | ||
(in thousands) |
| Other(2) |
| on Securities | | Derivatives | | Total | ||||
| | | | | | | | | | | | |
Balance at November 23, 2019 | | $ | (246,558) | | $ | 403 | | $ | (3,926) | | $ | (250,081) |
Other comprehensive income before reclassifications | |
| 21,178 | |
| 180 | (3) |
| — | |
| 21,358 |
Amounts reclassified from Accumulated other comprehensive income (loss)(1) | |
| — | |
| (2) | (3) |
| 388 | (3) |
| 386 |
Balance at February 15, 2020 | | $ | (225,380) | | $ | 581 | | $ | (3,538) | | $ | (228,337) |
1312
Changes in Accumulated other comprehensive loss for the twelve week periods ended February 12, 2022 and February 13, 2021 consisted of the following:
| | | | | | | | | | | | |
| | | | | Net | | | | | | | |
| | Foreign | | Unrealized | | | | | | | ||
| | Currency and | | Gain (Loss) | | | | | | | ||
(in thousands) |
| Other(1) |
| on Securities | | Derivatives | | Total | ||||
| | | | | | | | | | | | |
Balance at November 20, 2021 | | $ | (304,204) | | $ | 159 | | $ | (20,282) | | $ | (324,327) |
Other comprehensive income (loss) before reclassifications(2)(3) | |
| 14,315 | |
| (870) | |
| 0 | |
| 13,445 |
Amounts reclassified from Accumulated other comprehensive loss(3) | |
| — | |
| — | |
| 719 | |
| 719 |
Balance at February 12, 2022 | | $ | (289,889) | | $ | (711) | | $ | (19,563) | | $ | (310,163) |
| | | | | | | | | | | | |
| | | | | Net | | | | | | | |
| | Foreign | | Unrealized | | | | | | | ||
| | Currency and | | Gain (Loss) | | | | | | | ||
(in thousands) |
| Other(1) |
| on Securities | | Derivatives | | Total | ||||
| | | | | | | | | | | | |
Balance at November 21, 2020 | | $ | (285,326) | | $ | 1,536 | | $ | (23,117) | | $ | (306,907) |
Other comprehensive income (loss) before reclassifications(2)(3) | |
| 5,601 | |
| (193) | |
| — | |
| 5,408 |
Amounts reclassified from Accumulated other comprehensive loss(3) | |
| — | |
| 1 | |
| 659 | |
| 660 |
Balance at February 13, 2021 | | $ | (279,725) | | $ | 1,344 | | $ | (22,458) | | $ | (300,839) |
Changes in Accumulated other comprehensive loss for the twenty-four week periods ended February 13, 202112, 2022 and February 15, 202013, 2021 consisted of the following:
| | | | | | | | | | | | |
| | | | | Net | | | | | | | |
| | Foreign | | Unrealized | | | | | | | ||
| | Currency and | | Gain (Loss) | | | | | | | ||
(in thousands) |
| Other(1) |
| on Securities | | Derivatives | | Total | ||||
| | | | | | | | | | | | |
Balance at August 28, 2021 | | $ | (287,638) | | $ | 589 | | $ | (20,937) | | $ | (307,986) |
Other comprehensive (loss) before reclassifications(2)(3) | |
| (2,251) | |
| (1,300) | |
| 0 | |
| (3,551) |
Amounts reclassified from Accumulated other comprehensive loss(3) | |
| — | |
| — | |
| 1,374 | |
| 1,374 |
Balance at February 12, 2022 | | $ | (289,889) | | $ | (711) | | $ | (19,563) | | $ | (310,163) |
| | | | | | | | | | | | |
| | | | | 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) | |
| 52,596 | |
| (515) | (3) |
| — | |
| 52,081 |
Amounts reclassified from Accumulated other comprehensive loss | |
| — | |
| 14 | (3) |
| 1,318 | (3) |
| 1,332 |
Balance at February 13, 2021 | | $ | (279,725) | | $ | 1,344 | | $ | (22,458) | | $ | (300,839) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Net | | | | | | | | | | | Net | | | | | | | ||
| | Foreign | | Unrealized | | | | | | | | Foreign | | Unrealized | | | | | | | ||||
| | Currency and | | Gain (Loss) | | | | | | | | Currency and | | Gain (Loss) | | | | | | | ||||
(in thousands) |
| Other(2) |
| on Securities | | Derivatives | | Total |
| Other(1) |
| on Securities | | Derivatives | | Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at August 31, 2019 | | $ | (265,598) | | $ | 591 | | $ | (4,315) | | $ | (269,322) | ||||||||||||
Balance at August 29, 2020 | | $ | (332,321) | | $ | 1,845 | | $ | (23,776) | | $ | (354,252) | ||||||||||||
Other comprehensive income (loss) before reclassifications | |
| 40,218 | |
| (53) | (3) |
| — | |
| 40,165 | |
| 52,596 | |
| (515) | |
| — | |
| 52,081 |
Amounts reclassified from Accumulated other comprehensive loss | |
| — | |
| 43 | (3) |
| 777 | (3) |
| 820 | |
| — | |
| 14 | |
| 1,318 | |
| 1,332 |
Balance at February 15, 2020 | | $ | (225,380) | | $ | 581 | | $ | (3,538) | | $ | (228,337) | ||||||||||||
Balance at February 13, 2021 | | $ | (279,725) | | $ | 1,344 | | $ | (22,458) | | $ | (300,839) |
(1) |
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. |
(2) | Amounts in parentheses indicate debits to Accumulated Other Comprehensive Loss. |
(3) | Amounts shown are net of |
13
Note JI – 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. 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 Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.
Note K – Leases
The Company’s leases primarily relate to its retail stores, distribution centers and vehicles under various non-callable leases. 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 Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
14
Lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet are as follows:
| | | | | | | | |
|
| |
| February 13, |
| August 29, | ||
(in thousands) |
| Classification |
| 2021 | | 2020 | ||
| | | | | | | | |
Assets: |
|
|
| |
| | | |
Operating |
| Operating lease right-of-use assets | | $ | 2,660,667 | | $ | 2,581,677 |
Finance |
| Property and equipment | |
| 327,405 | |
| 327,006 |
Total lease assets |
|
| | $ | 2,988,072 | | $ | 2,908,683 |
Liabilities: |
|
| |
|
| |
| |
Current: | | | | | | | | |
Operating |
| Current portion of operating lease liabilities | | $ | 252,523 | | $ | 223,846 |
Finance |
| Accrued expenses and other | |
| 64,459 | |
| 67,498 |
Noncurrent: |
|
| |
|
| |
| |
Operating |
| Operating lease liabilities, less current portion | |
| 2,566,974 | |
| 2,501,560 |
Finance |
| Other long-term liabilities | |
| 160,951 | |
| 155,855 |
Total lease liabilities |
|
| | $ | 3,044,907 | | $ | 2,948,759 |
Accumulated amortization related to finance lease assets was $99.9 million as of February 13, 2021 and $107.3 million as of August 29, 2020.
Lease costs for finance and operating leases for the twelve weeks ended February 13, 2021 are as follows:
| | | | | | | | |
|
| |
| Twelve Weeks Ended | ||||
| | | | February 13, | | February 15, | ||
(in thousands) | | Statement of Income Location | | 2021 | | 2020 | ||
| | | | | | | | |
Finance lease cost: |
|
|
| |
|
| |
|
Amortization of lease assets |
| Depreciation and amortization | | $ | 13,066 | | $ | 12,872 |
Interest on lease liabilities |
| Interest expense, net | |
| 713 | |
| 1,282 |
Operating lease cost(1) |
| Selling, general and administrative expenses | |
| 85,082 | |
| 80,396 |
Total lease cost | | | | $ | 98,861 | | $ | 94,550 |
Lease costs for finance and operating leases for the twenty-four weeks ended February 13, 2021 are as follows:
| | | | | | | | |
|
| |
| Twenty-Four Weeks Ended | ||||
| | | | February 13, | | February 15, | ||
(in thousands) | | Statement of Income Location | | 2021 | | 2020 | ||
| | | | | | | | |
Finance lease cost: |
|
|
| |
|
| |
|
Amortization of lease assets |
| Depreciation and amortization | | $ | 22,385 | | $ | 25,528 |
Interest on lease liabilities |
| Interest expense, net | |
| 1,416 | |
| 2,667 |
Operating lease cost(1) |
| Selling, general and administrative expenses | |
| 169,184 | |
| 162,195 |
Total lease cost | | | | $ | 192,985 | | $ | 190,390 |
15
The following table summarizes the Company’s lease term and discount rate assumptions:
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
|
| |
|
|
| |
|
|
| |
|
| ||
|
|
| |
|
|
| |
|
|
|
The following table summarizes the other information related to the Company’s lease liabilities:
| | | | | | |
| | | | | | |
| | Twenty-Four Weeks Ended | ||||
| | February 13, | | February 15, | ||
(in thousands) | | 2021 |
| 2020 | ||
| | | | | | |
Cash paid for amounts included in the measurement of lease liabilities – operating cash flows from operating leases | | $ | 123,431 | | $ | 98,021 |
Leased assets obtained in exchange for new finance lease liabilities | |
| 30,764 | | | 45,582 |
Leased assets obtained in exchange for new operating lease liabilities | |
| 217,522 | | | 174,038 |
As of February 13, 2021, 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 have undiscounted future payments of approximately $23.7 million and $159.5 million for real estate and vehicles, respectively, and will commence when the Company obtains possession of the underlying leased asset. Commencement dates are expected to be from fiscal 2021 to fiscal 2022.
Note LJ – Segment Reporting
The Company’s operating segments (Domestic Auto Parts, Mexico and Brazil) are aggregated as 1 reportable segment: Auto Parts Stores. The criteria the Company used to identify the reportable segment are primarily the nature of the products the Company sells and the operating results that are regularly reviewed by the Company’s chief operating decision maker to make decisions about the resources to be allocated to the business units and to assess performance. The accounting policies of the Company’s reportable segment are the same as those described in “Note A – Significant Accounting Policies” in its Annual Report on Form 10-K for the year ended August 29, 2020.28, 2021.
The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s 6,625 locations6,815 stores 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 products.
The Other category reflects business activities of 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 automotive diagnostic, repair and repair informationshop management 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.
16
The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. Segment results for the periods presented were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Twenty-Four Weeks Ended | | | Twelve Weeks Ended | | Twenty-Four Weeks Ended | ||||||||||||||||
|
| February 13, |
| February 15, |
| February 13, |
| February 15, |
|
| February 12, |
| February 13, |
| February 12, |
| February 13, | ||||||||
(in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net Sales |
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
Auto Parts Stores | | $ | 2,859,698 | | $ | 2,464,988 | | $ | 5,961,295 | | $ | 5,208,226 | | | $ | 3,306,223 | | $ | 2,859,698 | | $ | 6,911,730 | | $ | 5,961,295 |
Other | |
| 51,120 | |
| 48,675 | |
| 103,783 | |
| 98,474 | | |
| 63,527 | |
| 51,120 | |
| 126,923 | |
| 103,783 |
Total | | $ | 2,910,818 | | $ | 2,513,663 | | $ | 6,065,078 | | $ | 5,306,700 | | | $ | 3,369,750 | | $ | 2,910,818 | | $ | 7,038,653 | | $ | 6,065,078 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Segment Profit | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
| |
|
|
Auto Parts Stores | | $ | 1,524,981 | | $ | 1,331,270 | | $ | 3,164,885 | | $ | 2,797,431 | | | $ | 1,747,236 | | $ | 1,524,981 | | $ | 3,634,689 | | $ | 3,164,885 |
Other | |
| 34,402 | |
| 34,793 | |
| 70,115 | |
| 69,700 | | |
| 37,990 | |
| 34,402 | |
| 75,697 | |
| 70,115 |
Gross profit | |
| 1,559,383 | |
| 1,366,063 | |
| 3,235,000 | |
| 2,867,131 | | |
| 1,785,226 | |
| 1,559,383 | |
| 3,710,386 | |
| 3,235,000 |
Operating, selling, general and administrative expenses | |
| (1,077,616) | |
| (958,125) | |
| (2,138,008) | |
| (1,959,170) | | |
| (1,158,466) | |
| (1,077,616) | |
| (2,329,141) | |
| (2,138,008) |
Interest expense, net | |
| (46,012) | |
| (44,335) | |
| (92,191) | |
| (88,078) | | |
| (42,471) | |
| (46,012) | |
| (85,755) | |
| (92,191) |
Income before income taxes | | $ | 435,755 | | $ | 363,603 | | $ | 1,004,801 | | $ | 819,883 | | | $ | 584,289 | | $ | 435,755 | | $ | 1,295,490 | | $ | 1,004,801 |
1714
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and Board of Directors and Stockholdersof
AutoZone, Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of AutoZone, Inc. (the Company) as of February 13, 2021,12, 2022, the related condensed consolidated statements of income, comprehensive income and stockholders’ deficit for the twelve and twenty-four week periods ended February 13, 202112, 2022 and February 15, 2020,13, 2021, the condensed consolidated statements of cash flows for the twenty-four week periods ended February 13, 202112, 2022 and February 15, 2020,13, 2021, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements 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 29, 2020,28, 2021, the related consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated October 26, 2020,25, 2021, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August 29, 2020,28, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial 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
March 19, 202118, 2022
1815
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect 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 29, 202028, 2021 and other filings we make 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,” and similar expressions. These are based on assumptions and assessments made by our management in light of experience and perception of historical trends, current conditions, expected future developments and other factors that we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including without limitation: product demand;demand, due to changes in fuel prices, miles driven or otherwise; energy prices; weather; competition; credit market conditions; cash flows; access to available and feasible financing; future stock repurchases; the impact of recessionary conditions; consumer debt levels; changes in laws or regulations; risks associated with self -insurance; war and the prospect of war, including terrorist activity; the impact of public health issues, such as the ongoing global pandemic of a novel strain of the coronavirus (“COVID-19”) and the development, efficacy, distribution and adoption rates of vaccines for COVID-19 and variants thereof;pandemic; inflation; the ability to hire, train and retain qualified employees; construction delays; the compromising of confidentiality, availability or integrity of information, including due to cyber-attacks; historic growth rate sustainability; downgrade of our credit ratings; damagesdamage to our reputation; challenges in international markets; failure or interruption of our information technology systems; origin and raw material costs of suppliers; inventory availability; disruption in our supply chain, due to public health epidemics or otherwise;chain; impact of tariffs; anticipated impact of new accounting standards; and business interruptions. Certain of these risks and uncertainties are discussed in more detail in the “Risk Factors” section contained in Item 1A under Part 1 of our Annual Report on Form 10-K for the year ended August 29, 2020,28, 2021, and these Risk Factors should be read carefully. Forward-looking statements are not guarantees of future performance, 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.
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 February 13, 202112, 2022, operated 5,9516,091 stores in the U.S., 628669 stores in Mexico and 4655 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 February 13, 202112, 2022, in 5,0885,233 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 sell the ALLDATA brand automotive diagnostic, repair and repairshop management software through 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.
1916
Operating results for the twelve and twenty-four weeks ended February 13, 202112, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending August 28, 2021.27, 2022. Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters of fiscal 20212022 and 20202021 each have 16 weeks. Our business is somewhat seasonal in nature, with the highest sales generally occurring during the months of February through September, and the lowest sales generally occurring in the months of December and January.
COVID-19 Impact
In the second quarter of fiscal 2021, theThe COVID-19 pandemic has continuedcontinues to impact the global economy and numerous aspects of our business. Our sales remain at an elevated level compared to sales prior to the pandemic, as we believe the pandemic-related government stimulus benefitted many of our customers. We anticipate the additional stimulus recently approved by the government will further benefitbusiness including our customers, employees and will also have a positive impact on sales. suppliers. Our mainhighest priority continues to beremains the health, safety and well-being of our customers and employees. We continue to invest in supplies forSince the protectionbeginning of our employees and customers, continue the increased frequency of cleaning and disinfecting our stores and require masks when entering our facilities. During the second quarter of fiscal 2021, we provided 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. These benefit enhancements and otherCOVID-19 pandemic, related expenses of $39.9 million have been recognized as an expense in our second quarter of fiscal 2021. For fiscal 2021 we have incurred $44.9 million in ETOexperienced strong same store sales growth and other pandemic related expenses. our sales have remained at all-time high volumes.
The long-term impact of COVID-19 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 impact of variants of the disease, the availabilitymay magnify risks associated with our business and efficacy of vaccines, the speed at which such vaccines are administered, the likelihood of a resurgence of positive cases, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic or to stimulate the economyoperations and other unintended consequences. Accordingly, business disruption related to the COVID-19 outbreak may continue to cause significant fluctuations in our business, unusually impacting demand and availability for our products, our store hours and our workforce availability and magnify risks associated with our business and operations. Seeavailability.
Please refer to the “Risk Factors—The ongoing outbreakFactors” section 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 Reportreport on Form 10-K for the year ended August 28, 2021 for additional information.
Executive Summary
Net sales increased 15.8% for the quarter ended February 13, 202112, 2022 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 15.2%13.8%. Domestic commercial sales increased 14.7% compared to the prior year period,32.1%, which represents approximately 22%25% of our total sales. Operating profit increased by 18.1%30.1% to $481.8$626.8 million compared to $407.9 million in the same period last year.$481.8 million. Net income for the quarter increased by 15.6%36.4% to $345.9$471.8 million compared to $299.3 million in the same period last year.$345.9 million. Diluted earnings per share increased by 20.5%49.4% to $14.93$22.30 per share from $12.39$14.93 per share in the comparable prior year period.share. The increase in net income for the quarter ended February 13, 202112, 2022 was driven by strong topline growth.growth and operating expense leverage.
Our business is impacted by various factors within the economy that affect both our consumer and our industry, including but not limited to inflation, fuel costs, wage rates, supply chain disruptions, hiring and other economic conditions, including the effects of, and responses to, COVID-19.the ongoing COVID-19 pandemic. Given the nature of these macroeconomic factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.
20
During the second quarter of fiscal 2021,2022, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 84% of total sales, which is consistent with the comparable prior year period, with failure related categories continuing to be the largest portion of our sales mix. While we haveWe did not experiencedexperience any fundamental shifts in our category sales mix as compared to the previous year, in our domestic storesyear. Our sales mix can be impacted by severe or unusual weather over a short-term period. Over the long-term, we continue to experience a slight increase in mix of salesbelieve the impact of the discretionary category as compared to previous quarters. We believe the improvement in thisweather on our sales category continues to benefit from the pandemic as manymix is not significant.
17
The two statistics we believe have the most positiveclosest correlation to our market growth over the long-term are miles driven and the number of seven year old or older vehicles on the road. While over the long-term we have seen a 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. Accordingfavor as the average age has exceeded 11 years since 2012, according to the latest data provided by the Auto Care Association in theAssociation. As of January 1, 2021, Auto Care Factbook, for the ninth consecutive year, the average age of light vehicles on the road has exceeded 11was 12.1 years. Since the beginning of the fiscal year and through December 20202021 (latest publicly available information), miles driven in the U.S. decreased 9.9%increased 9.6% compared to the same period in the prior year. We believe the decreaseincrease in miles driven is a result ofdue to the COVID-19 pandemic,nation beginning to return to pre-pandemic levels, but we are unable to predict if the declineincrease will continue or the extent of the impact it will have on our business.
Twelve Weeks Ended February 13, 202112, 2022
Compared with Twelve Weeks Ended February 15, 202013, 2021
Net sales for the twelve weeks ended February 13, 202112, 2022 increased $397.2$458.9 million to $2.911$3.4 billion, or 15.8% over net sales of $2.514$2.9 billion for the comparable prior year period. Total auto parts sales increased by 16.0%15.6%, primarily driven by an increase in domestic same store sales of 15.2%13.8% and net sales of $40.8$64.9 million from new stores. Domestic commercial sales increased $82.0$205.0 million to $638.9$843.9 million, or 14.7%32.1%, over the comparable prior year period.
Gross profit for the twelve weeks ended February 13, 202112, 2022 was $1.559$1.8 billion, compared with $1.366$1.6 billion during the comparable prior year period. Gross profit, as a percentage of sales, was 53.6% for the twelve weeks ended February 13, 202153.0% compared to 54.3%53.6% during the comparable prior year period. The decrease in gross profit percentmargin was attributableprimarily driven by initiatives to increased supply chain costs, pricing initiatives, accelerated loyalty program participation and a shift in mix.accelerate commercial business growth.
Operating, selling, general and administrative expenses for the twelve weeks ended February 13, 202112, 2022 were $1.078$1.2 billion, or 37.0%34.4% of net sales, compared with $958.1 million,$1.1 billion, or 38.1%37.0% of net sales during the comparable prior year period. The decrease in operating expenses, as a percentage of sales, was primarily due to leverage from higherdriven by strong sales growth offset by additional ETO benefits offeredand approximately $40 million (137 basis points) in December 2020 and other COVID-19prior year pandemic related expenses, totaling $39.9 million (137 basis points).including Emergency Time-Off (“ETO”) for our AutoZoners.
Net interest expense for the twelve weeks ended February 13, 202112, 2022 was $46.0$42.5 million compared with $44.3$46.0 million during the comparable prior year period. The increase was primarily due to an increase in the weighted average borrowing rate over the comparable prior year period. Average borrowings for the twelve weeks ended February 13, 202112, 2022 were $5.516$5.6 billion, compared with $5.464$5.5 billion for the comparable prior year period. Weighted average borrowing rates were 3.3%3.29% and 3.0%3.27% for the quarter ended February 12, 2022 and February 13, 2021, and February 15, 2020, respectively.
Our effective income tax rate was 20.6%19.3% of pretax income for the twelve weeks ended February 13, 2021,12, 2022, and 17.7%20.6% for the comparable prior year period. The increasedecrease in the tax rate was primarily attributable to a reducedan increased benefit from stock options exercised during the twelve weeks ended February 13, 2021, in addition to various nonrecurring tax benefits recognized during the comparable prior year period.12, 2022. The benefit of stock options exercised for the twelve weeks ended February 13, 202112, 2022 was $11.6$23.4 million compared to $15.0$11.6 million in the comparable prior year period.
Net income for the twelve week period ended February 13, 202112, 2022 increased by $46.7$125.8 million to $345.9$471.8 million from $299.3$345.9 million in the comparable prior year period, and diluted earnings per share increased by 20.5%49.4% to $14.93$22.30 from
21
$12.39 in the comparable prior year period. $14.93. 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 $0.76.$1.89.
18
Twenty-Four Weeks Ended February 13, 202112, 2022
Compared with Twenty-Four Weeks Ended February 15, 2020
13, 2021
Net sales for the twenty-four weeks ended February 13, 202112, 2022 increased $758.4$973.6 million to $6.065$7.0 billion, or 14.3%,16.1% over net sales of $5.307$6.1 billion for the comparable prior year period. Total auto parts sales increased by 14.5%15.9%, primarily driven by an increase in domestic same store sales of 13.6%13.7% and net sales of $81.9$136.2 million from new stores. Domestic commercial sales increased by $155.8$409.6 million to $1.7 billion, or 13.2%30.7%, to $1.334 billion over the comparable prior year period.
Gross profit for the twenty-four weeks ended February 13, 202112, 2022 was $3.235$3.7 billion, or 53.3% of net sales, compared with $2.867$3.2 billion or 54.0%during the comparable prior year period. Gross profit, as a percentage of net sales was 52.7% compared to 53.3% during the comparable prior year period. The decrease in gross margin was primarily driven by pricing initiatives accelerated loyalty program participation, increased supply chain costs and a shift in mix.to accelerate commercial business growth.
Operating, selling, general and administrative expenses for the twenty-four weeks ended February 13, 202112, 2022 were $2.138$2.3 billion, or 35.3%33.1% of net sales, compared with $1.959$2.1 billion, or 36.9%35.3% of net sales during the comparable prior year period. The decrease in operating expenses, as a percentage of sales, was primarily due to leverage from higherdriven by strong sales growth offset by additional ETO benefits offeredand approximately $45 million (74 basis points) in December 2020 and other COVID-19prior year pandemic related expenses, totaling $44.9 million (74 basis points).
including ETO for our AutoZoners.
Net interest expense for the twenty-four weeks ended February 13, 202112, 2022 was $92.2$85.8 million compared with $88.1$92.2 million during the comparable prior year period. The increase was primarily due to an increase in the weighted average borrowing rate over the comparable prior year period. Average borrowings for the twenty-four weeks ended February 13, 202112, 2022 were $5.515$5.4 billion, compared with $5.327$5.5 billion for the comparable prior year period. Weighted average borrowing rates were 3.3%3.29% and 3.1%3.27% for the twenty-four week periods ended February 12, 2022 and February 13, 2021, and February 15, 2020, respectively.
Our effective income tax rate was 21.5%20.7% of pretax income for the twenty-four weeks ended February 13, 2021,12, 2022, and 20.8%21.5% for the comparable prior year period. The increasedecrease in the tax rate was primarily attributable to various nonrecurring tax benefits recognizedan increased benefit from stock options exercised during the comparable prior year period.twenty-four weeks ended February 12, 2022. The benefit of stock options exercised for the twenty-four week period ended February 13, 202112, 2022 was $19.2$34.7 million compared to $16.5$19.2 million in the comparable prior year period.
Net income for the twenty-four week period ended February 13, 202112, 2022 increased by $138.8$238.6 million to $1.0 billion from $788.4 million due toin the factors set forth above,comparable prior year period, and diluted earnings per share increased by 25.8%43.0% to $33.59$48.03 from $26.70 in the comparable prior year period.$33.59. The impact on current year to date diluted earnings per share from stock repurchases since the end of the comparable prior year period resulted inwas an increase of $0.92 per share.$1.64.
Liquidity and Capital Resources
The primary source of our liquidity is our cash flows realized through the sale of automotive parts, products and accessories. Our cash flow results benefitted from the quarters strong sales and continued progress on our initiatives. We believe that our cash generated from operating activities and available credit, supplemented with our long-term borrowings will provide ample liquidity to fund our operations while allowing us to make strategic investments to support long-term growth initiatives and return excess cash to shareholders in the form of share repurchases. As of February 12, 2022, we held $239.4 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our Revolving Credit Agreement, before giving effect to commercial paper borrowings. We believe our sources of liquidity will continue to be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due and fund our share repurchases over the short-term and long-term. In addition, we believe we have the ability to obtain alternative sources of financing, if necessary. However, decreased demand for our products or changes in customer buying patterns would negatively impact our ability to generate cash from operating activities. Decreased demand or changes in buying patterns could also impact our ability to meet our debt covenants of our credit agreements and, therefore, negatively impact the funds available under our Revolving Credit Agreement. In the event our liquidity is insufficient, we may be required to limit our spending.
19
For the twenty-four weeks ended February 13, 2021,12, 2022, our net cash flows from operating activities provided $1.040$1.1 billion as compared with $651.6 million provided$1.0 billion during the comparable prior year period. The increase is primarily due to favorable changes in inventories, accounts payable and growth in net income due to accelerated sales growthgrowth. The increase was partially offset by unfavorable changes in merchandise inventories, driven by higher sustained inventory purchase volume in the current period as compared to the same period in the prior year, and a result ofdecrease in accrued benefits and withholdings in the COVID-19 pandemic.current period, as compared to the same period in the prior year due to the ability to defer certain payroll tax payments in the prior year under the Coronavirus Aid, Relief, and Economic Security Act.
Our net cash flows used in investing activities for the twenty-four weeks ended February 13, 202112, 2022 were $228.4$211.3 million as compared with $174.9$228.4 million in the comparable prior year period. Capital expenditures for the twenty-four weeks ended February 13, 202112, 2022 were $238.6$208.1 million compared to $190.6$238.6 million forin the comparable prior year period. The increasedecrease is primarily driven by increaseddecreased store openings compared to the comparable prior year period.openings. During the twenty-four week period ended February 12, 2022 and February 13, 2021, and February 15, 2020, we opened 7648 and 5076 net new stores, respectively. Investing cash flows were impacted by our wholly owned captive, which purchased $48.4$22.6 million and sold
22
$60.6 $13.9 million in marketable debt securities during the twenty-four weeks ended February 13, 2021.12, 2022. During the comparable prior year period, the captive purchased $56.3$48.4 million in marketable debt securities and sold $70.8$60.6 million.
Our net cash flows used in financing activities for the twenty-four weeks ended February 13, 202112, 2022 were $1.541$1.9 billion compared to $502.8 million in the comparable prior year period. We did not have any commercial paper activity during the twenty-four week period ended February 13, 2021 as compared to $242.7 million in net proceeds$1.5 billion in the comparable prior year period. Stock repurchases were $1.578$2.5 billion in the current twenty-four week period as compared with $764.8 million$1.6 billion in the comparableprior year period. The treasury stock repurchases were primarily funded by cash flows from operations. During the twenty-four weeks ended February 12, 2022, we repaid our $500 million 3.700% Senior Notes due April 2022, which were callable at par in January 2022. For the twenty-four week period ended February 12, 2022, our commercial paper activity resulted in $1.1 billion in net proceeds from commercial paper compared to no commercial paper borrowings in the prior year period. Proceeds from the sale of common stock and exercises of stock options provided $66.5 million for both of the twenty-four weeks ended February 12, 2022 and February 13, 2021, and February 15, 2020 provided $66.5 million and $48.7 million, respectively.
During fiscal 2021,2022, we expect to increase the investment in our business as compared to fiscal 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.2021. Our investments continueare expected to be directed primarily to expansion of our store base and supply chain to fuel the growth of our domestic and international businesses, which includes new stores, supply chain infrastructure, technologyincluding mega hubs, as well as distribution center expansions and enhancements to existing stores.remodels. 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 initial lower investment), and whether such buildings are located in the U.S., Mexico or Brazil, or located in urban or rural areas.
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 arrangements with financial institutions whereby they factor their AutoZone receivables, 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 126.8% at February 12, 2022, compared to 113.0% at February 13, 2021, compared2021. The increase from the comparable prior year period was primarily due to 105.7% at February 15, 2020.increased purchases with favorable vendor terms and higher inventory turns.
20
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 based on our current credit ratings and favorable experiences in the debt markets in the past.
For the trailing four quarters ended February 13, 2021,12, 2022, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 41.5%49.4% as compared to 35.3%36.0% for the comparable prior year period. Adjusted ROIC is calculated as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating leases). We use adjusted ROIC to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance. For the trailing four quarters ended February 13, 2021, ROIC was presented net of average excess cash of $834.3 million. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.
23
Debt Facilities
We entered into a Master Extension, New CommitmentOn November 15, 2021, we amended 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 timeour existing revolving credit facility (the “Revolving Credit Agreement”). Under the Extension Amendment: (i) pursuant to which our borrowing capacity under the Revolving Credit Agreement was increased from $1.6$2.0 billion to $2.0 billion; (ii)$2.25 billion and the maximum borrowing under the Revolving Credit Agreement may, at our option, subject to lenders approval, be increased from $2.0$2.25 billion to $2.4 billion; (iii) the termination date of the$3.25 billion. The Revolving Credit Agreement was extended fromwill terminate, and all amounts borrowed will be due and payable, on November 18, 2021 until November 18, 2022; and (iv)15, 2026, but we have the optionmay make up to make one additional written request of the lenderstwo requests to extend the termination date then in effect for an additional year. Underperiod of one year each. Revolving borrowings 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 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 provided for loans in the aggregate principal amount of up to $750 million. The 364-Day Credit Agreement had a termination date of, and any amounts borrowed under the 364-Day Credit Agreement were due and payable on, April 2, 2021. Revolving loans under the 364-Day Credit Agreement could be base rate loans, Eurodollar loans, or a combination of both, at our election.
On February 22, 2021, we terminated the 364-Day The Revolving Credit Agreement dated asincludes (i) a $75 million sublimit for swingline loans, (ii) a $50 million individual issuer letter of April 3, 2020 between the Company as borrower, the banks party thereto,credit sublimit and U.S. Bank, National Association, as administrative agent. There were no borrowings outstanding under this revolving credit agreement. We entered into this credit agreement to augment our access to liquidity due to macroeconomic conditions existing at the time, and we have determined the additional access to liquidity is no longer necessary.
As of February 13, 2021, we had no outstanding borrowings under either of our revolving credit facilities and $1.7(iii) a $250 million of outstandingaggregate sublimit for all letters of credit under the Revolving Credit Agreement.credit.
Under our revolving credit agreements,Revolving Credit Agreement, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances.
As of February 12, 2022, we had no outstanding borrowings and $1.8 million of outstanding letters of credit under our Revolving Credit Agreement.
We also maintain a letter of credit facility that allows us to request the participating bank to issue letters of credit on our behalf up to an aggregate amount of $25 million. The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement. As of February 13, 2021,12, 2022, we had $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 $136.8$105.1 million in letters of credit outstanding as of February 13, 2021.12, 2022. These letters of credit have various maturity dates and were issued on an uncommitted basis.
On January 18, 2022, we repaid the $500 million 3.700% Senior Notes due April 2022, which were callable at par in January 2022.
As of February 12, 2022, our $1.1 billion of commercial paper borrowings and the $300 million 2.875% Senior Notes due January 2023 were classified as long-term in the Consolidated Balance Sheets, as we have the current ability and intent to refinance them on a long-term basis through available capacity in our Revolving Credit Agreement. As of February 12, 2022, we had $2.2 billion of availability under our Revolving Credit Agreement, without giving effect to commercial paper borrowings, which would allow us to replace these short-term obligations with a long-term financing facility.
21
All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned are downgraded (as defined in the agreements). Further, the Senior Notes contain a provision that repayment may be accelerated if we experience a change in control (as defined in the agreements). Our borrowings under our Senior Notes contain minimal covenants, primarily restrictions on liens, sale and leaseback transactions and consolidations, mergers and the sale of assets. All of the repayment obligations under our borrowing arrangements may be accelerated and come due prior to the applicable scheduled payment date if covenants are breached or an event of default occurs. As of February 13, 2021,12, 2022, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.
24
As of February 13, 2021, the $250 million 2.500% Senior Notes due April 2021 were classified as short-term in the accompanying Condensed Consolidated Balance Sheets. On March 15, 2021, we repaid the $250 million 2.500% Senior Notes due April 2021 which were callable at par in March 2021.
As of February 13, 2021, we had $2.748 billion of availability under our $2.750 billion revolving credit agreements.
Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.0:1 as of February 13, 202112, 2022 and was 2.6:2.3:1 as of February 15, 2020.13, 2021. We calculate adjusted debt as the sum of total debt, financing lease liabilities and rent times six; and we calculate adjusted EBITDAR by adding interest, taxes, depreciation, amortization, rent, and share-based compensation expense to net income. Adjusted debt to EBITDAR is calculated on a trailing four quarter basis. For the trailing four quarters ended February 13, 2021, debt was presented net of excess cash of $831.4 million. We target our debt levels to a ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings. We believe this is important information for the management of our debt levels. ToManagement expects the ratio of adjusted debt to EBITDAR to return to pre-pandemic levels in the future, increasing debt levels. Once the target ratio is achieved, to the extent adjusted EBITDAR continues to grow in future years,increases, we expect our debt levels to increase; conversely, if adjusted EBITDAR declines,decreases, we would expect our debt levels to decrease. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.
Stock Repurchases
From January 1, 1998 to February 13, 2021,12, 2022, we have repurchased a total of 149.0151.6 million shares of our common stock at an aggregate cost of $23.932$28.2 billion, including 1.3 million shares of our common stock at an aggregate cost of $1.578$2.5 billion during the twenty-four week period ended February 13, 2021.12, 2022.
On December 15, 2020,14, 2021, the Board voted to increaseauthorize the repurchase authorization byof an additional $1.5 billion. Thisbillion of our common stock in connection with our ongoing share repurchase program, which raised the total value of our shares authorized to be repurchased to $24.65$29.2 billion. Considering the cumulative repurchases as of February 13, 2021,12, 2022, we had $717.6$957.6 million remaining under the Board’s authorization to repurchase our common stock.
Subsequent to February 13, 202112, 2022 and through March 11, 2022, we have repurchased 169,396119,542 shares of our common stock at an aggregate cost of $203.0$226.9 million.
Off-Balance Sheet Arrangements
Since our fiscal year end, we have 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 February 13, 2021,12, 2022, was $163.4$131.9 million, compared with $246.9$162.4 million at August 29, 2020,28, 2021, and our total surety bonds commitment at February 13, 2021,12, 2022, was $40.6$36.4 million, compared with $56.7$35.4 million at August 29, 2020.28, 2021.
Financial Commitments
AsExcept for the previously discussed Revolving Credit Agreement and the repayment of the $500 million 3.700% Senior Notes due April 2022, as of February 13, 2021,12, 2022, there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 29, 2020.28, 2021.
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 optimal capital structure and are used to assist management in evaluating performance and in making appropriate business decisions to maximize stockholders’ value.
22
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 as it indicates more clearly our comparative year-to-year operating results. Furthermore, our management and the Compensation Committee of the Board use these non-GAAP financial measures to analyze and compare our underlying
25
operating results and use select measurements to determine payments of performance-based compensation. We have included a reconciliation of this information to the most comparable GAAP measures in the following reconciliation tables.
Reconciliation of Non-GAAP Financial Measure: Adjusted After-Tax ROIC
The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended February 13, 202112, 2022 and February 15, 2020.13, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | A | | B | | A-B=C | | D | | C+D | | | A | | B | | A-B=C | | D | | C+D | | ||||||||||
|
| Fiscal Year | | Twenty-Four | | Twenty-Eight | | Twenty-Four | | Trailing Four |
| | Fiscal Year | | Twenty-Four | | Twenty-Eight | | Twenty-Four | | Trailing Four |
| ||||||||||
| | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | | | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | | ||||||||||
| | August 29, | | February 15, | | August 29, | | February 13, | | February 13, | | | August 28, | | February 13, | | August 28, | | February 12, | | February 12, | | ||||||||||
(in thousands, except percentage) | | 2020 |
| 2020 |
| 2020 |
| 2021 |
| 2021 | | | 2021 | | 2021 | | 2021 | | 2022 | | 2022 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| $ | 1,732,972 |
| $ | 649,620 |
| $ | 1,083,352 |
| $ | 788,379 |
| $ | 1,871,731 |
| | $ | 2,170,314 | | $ | 788,379 | | $ | 1,381,935 | | $ | 1,026,990 | | $ | 2,408,925 |
|
Adjustments: | |
|
| |
|
| |
|
| |
|
| |
| | | |
|
| |
|
| |
|
| |
| | |
| | |
Interest expense | |
| 201,165 | |
| 88,078 | |
| 113,087 | |
| 92,191 | |
| 205,278 | | |
| 195,337 | |
| 92,191 | |
| 103,146 | |
| 85,755 | |
| 188,901 | |
Rent expense | |
| 329,783 | |
| 150,751 | |
| 179,032 | |
| 156,937 | |
| 335,969 | | |
| 345,380 | |
| 156,937 | |
| 188,443 | |
| 165,967 | |
| 354,410 | |
Tax effect | |
| (117,340) | |
| (52,781) | |
| (64,559) | |
| (55,057) | |
| (119,616) | | |
| (112,469) | |
| (51,819) | |
| (60,650) | |
| (52,358) | |
| (113,008) | |
Adjusted after-tax return | | $ | 2,146,580 | | $ | 835,668 | | $ | 1,310,912 | | $ | 982,450 | | $ | 2,293,362 | | | $ | 2,598,562 | | $ | 985,688 | | $ | 1,612,874 | | $ | 1,226,354 | | $ | 2,839,228 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average debt | | | | | | | | | | | | | | $ | 4,648,593 | | | | | | | | | | | | | | | $ | 5,433,252 | |
Average stockholders’ deficit | | | | | | | | | | | | | |
| (1,354,477) | | | | | | | | | | | | | | |
| (2,069,346) | |
Add: Rent x 6 | | | | | | | | | | | | | |
| 2,015,814 | | | | | | | | | | | | | | |
| 2,126,460 | |
Average finance lease liabilities | | | | | | | | | | | | | |
| 220,550 | | | | | | | | | | | | | | |
| 255,497 | |
Invested capital | | | | | | | | | | | | | | $ | 5,530,480 | | | | | | | | | | | | | | | $ | 5,745,863 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted after-tax ROIC | | | | | | | | | | | | | |
| 41.5 | % | | | | | | | | | | | | | |
| 49.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | A | | B | | A-B=C | | D | | C+D | | | A | | B | | A-B=C | | D | | C+D | | ||||||||||
|
| Fiscal Year | | Twenty-Four | | Twenty-Nine | | Twenty-Four | | Trailing Four | | | Fiscal Year | | Twenty-Four | | Twenty-Eight | | Twenty-Four | | Trailing Four | | ||||||||||
| | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | | | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | | ||||||||||
| | August 31, | | February 9, | | August 31, | | February 15, | | February 15, | | | August 29, | | February 15, | | August 29, | | February 13, | | February 13, | | ||||||||||
(in thousands, except percentage) | | 2019(1) |
| 2019 |
| 2019 |
| 2020 |
| 2020 | | | 2020 | | 2020 | | 2020 | | 2021 | | 2021 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| $ | 1,617,221 |
| $ | 646,044 |
| $ | 971,177 |
| $ | 649,620 |
| $ | 1,620,797 | | | $ | 1,732,972 | | $ | 649,620 | | $ | 1,083,352 | | $ | 788,379 | | $ | 1,871,731 | |
Adjustments: | |
| | |
| | |
| | |
|
| |
| | | |
| | |
| | |
| | |
|
| |
| | |
Interest expense | |
| 184,804 | |
| 80,369 | |
| 104,435 | |
| 88,078 | |
| 192,513 | | |
| 201,165 | |
| 88,078 | |
| 113,087 | |
| 92,191 | |
| 205,278 | |
Rent expense | |
| 332,726 | |
| 144,360 | |
| 188,366 | |
| 150,751 | |
| 339,117 | | |
| 329,783 | |
| 150,751 | |
| 179,032 | |
| 156,937 | |
| 335,969 | |
Tax effect | |
| (107,129) | |
| (46,519) | |
| (60,610) | |
| (49,438) | |
| (110,048) | | |
| (117,340) | |
| (52,781) | |
| (64,559) | |
| (55,057) | |
| (119,616) | |
Deferred tax liabilities, net of repatriation tax | |
| (6,340) | |
| (6,340) | |
| — | |
| — | |
| — | | ||||||||||||||||
Adjusted after-tax return | | $ | 2,021,282 | | $ | 817,914 | | $ | 1,203,368 | | $ | 839,011 | | $ | 2,042,379 | | | $ | 2,146,580 | | $ | 835,668 | | $ | 1,310,912 | | $ | 982,450 | | $ | 2,293,362 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average debt(5) | | | | | | | | | | | | | | $ | 5,241,651 | | ||||||||||||||||
Average stockholders' deficit(5) | | | | | | | | | | | | | |
| (1,676,987) | | ||||||||||||||||
Add: Rent x 6(2) | | | | | | | | | | | | | |
| 2,034,702 | | ||||||||||||||||
Average finance lease liabilities(5) | | | | | | | | | | | | | |
| 178,416 | | ||||||||||||||||
Average debt(3) | | | | | | | | | | | | | | $ | 5,482,877 | | ||||||||||||||||
Average stockholders' deficit(3) | | | | | | | | | | | | | |
| (1,354,477) | | ||||||||||||||||
Add: Rent x 6(1) | | | | | | | | | | | | | |
| 2,015,814 | | ||||||||||||||||
Average finance lease liabilities(3) | | | | | | | | | | | | | |
| 220,550 | | ||||||||||||||||
Invested capital | | | | | | | | | | | | | | $ | 5,777,782 | | | | | | | | | | | | | | | $ | 6,364,764 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted after-tax ROIC | | | | | | | | | | | | | |
| 35.3 | % | | | | | | | | | | | | | |
| 36.0 | % |
2623
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 February 13, 202112, 2022 and February 15, 2020.13, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | A | | B | | A-B=C | | D | | C+D | | | A | | B | | A-B=C | | D | | C+D | ||||||||||
|
| Fiscal Year | | Twenty Four | | Twenty-Eight | | Twenty-Four | | Trailing Four |
|
| Fiscal Year | | Twenty-Four | | Twenty-Eight | | Twenty-Four | | Trailing Four | ||||||||||
| | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | | | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | ||||||||||
| | August 29, | | February 15, | | August 29, | | February 13, | | February 13, | | | August 28, | | February 13, | | August 28, | | February 12, | | February 12, | ||||||||||
(in thousands, except ratio) | | 2020 |
| 2020 |
| 2020 |
| 2021 |
| 2021 | | | 2021 |
| 2021 |
| 2021 |
| 2022 |
| 2022 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| $ | 1,732,972 |
| $ | 649,620 |
| $ | 1,083,352 |
| $ | 788,379 |
| $ | 1,871,731 |
|
| $ | 2,170,314 |
| $ | 788,379 |
| $ | 1,381,935 |
| $ | 1,026,990 |
| $ | 2,408,925 |
Add: Interest expense | |
| 201,165 | |
| 88,078 | |
| 113,087 | |
| 92,191 | |
| 205,278 | | |
| 195,337 | |
| 92,191 | |
| 103,146 | |
| 85,755 | |
| 188,901 |
Income tax expense | | | 483,542 | | | 170,263 | | | 313,279 | | | 216,422 | | | 529,701 | | | | 578,876 | | | 216,422 | | | 362,454 | | | 268,500 | | | 630,954 |
Adjusted EBIT | |
| 2,417,679 | |
| 907,961 | |
| 1,509,718 | |
| 1,096,992 | |
| 2,606,710 | | |||||||||||||||
EBIT | |
| 2,944,527 | |
| 1,096,992 | |
| 1,847,535 | |
| 1,381,245 | |
| 3,228,780 | ||||||||||||||||
Add: Depreciation and amortization expense | |
| 397,466 | |
| 180,420 | |
| 217,046 | |
| 184,027 | |
| 401,073 | | |
| 407,683 | |
| 184,027 | |
| 223,656 | |
| 199,282 | |
| 422,938 |
Rent expense | |
| 329,783 | |
| 150,751 | |
| 179,032 | |
| 156,937 | |
| 335,969 | | |
| 345,380 | |
| 156,937 | |
| 188,443 | |
| 165,967 | |
| 354,410 |
Share-based expense | |
| 44,835 | |
| 22,107 | |
| 22,728 | |
| 24,178 | |
| 46,906 | | |
| 56,112 | |
| 24,178 | |
| 31,934 | |
| 30,738 | |
| 62,672 |
Adjusted EBITDAR | | $ | 3,189,763 | | $ | 1,261,239 | | $ | 1,928,524 | | $ | 1,462,134 | | $ | 3,390,658 | | | $ | 3,753,702 | | $ | 1,462,134 | | $ | 2,291,568 | | $ | 1,777,232 | | $ | 4,068,800 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt | | | | | | | | | | | | | | $ | 4,684,979 | | | | | | | | | | | | | | | $ | 5,840,884 |
Financing lease liabilities | | | | | | | | | | | | | | | 225,411 | | | | | | | | | | | | | | | | 272,719 |
Add: Rent x 6 | | | | | | | | | | | | | |
| 2,015,814 | | | | | | | | | | | | | | |
| 2,126,460 |
Adjusted debt | | | | | | | | | | | | | | $ | 6,926,204 | | | | | | | | | | | | | | | $ | 8,240,063 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| |
Adjusted debt to EBITDAR | | | | | | | | | | | | | | | 2.0 | | | | | | | | | | | | | | | | 2.0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | A | | B | | A-B=C | | D | | C+D | | A | | B | | A-B=C | | D | | C+D | ||||||||||
| | Fiscal Year | | Twenty-Four | | Twenty-Nine | | Twenty-Four | | Trailing Four | | Fiscal Year | | Twenty-Four | | Twenty-Eight | | Twenty-Four | | Trailing Four | ||||||||||
| | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | | Ended | | Weeks Ended | | Weeks Ended | | Weeks Ended | | Quarters Ended | ||||||||||
| | August 31, | | February 9, | | August 31, | | February 15, | | February 15, | | August 29, | | February 15, | | August 29, | | February 13, | | February 13, | ||||||||||
(in thousands, except ratio) | | 2019(1) |
| 2019 |
| 2019 |
| 2020 |
| 2020 | | 2020 |
| 2020 |
| 2020 |
| 2021 |
| 2021 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| $ | 1,617,221 |
| $ | 646,044 |
| $ | 971,177 |
| $ | 649,620 |
| $ | 1,620,797 |
| $ | 1,732,972 |
| $ | 649,620 |
| $ | 1,083,352 |
| $ | 788,379 |
| $ | 1,871,731 |
Add: Interest expense | |
| 184,804 | |
| 80,369 | |
| 104,435 | |
| 88,078 | |
| 192,513 | |
| 201,165 | |
| 88,078 | |
| 113,087 | |
| 92,191 | |
| 205,278 |
Income tax expense | | | 414,112 | | | 161,426 | | | 252,686 | | | 170,263 | | | 422,949 | | | 483,542 | | | 170,263 | | | 313,279 | | | 216,422 | | | 529,701 |
Adjusted EBIT | |
| 2,216,137 | |
| 887,839 | |
| 1,328,298 | |
| 907,961 | |
| 2,236,259 | |||||||||||||||
EBIT | |
| 2,417,679 | |
| 907,961 | |
| 1,509,718 | |
| 1,096,992 | |
| 2,606,710 | |||||||||||||||
Add: Depreciation and amortization expense | |
| 369,957 | |
| 166,230 | |
| 203,727 | |
| 180,420 | |
| 384,147 | |
| 397,466 | |
| 180,420 | |
| 217,046 | |
| 184,027 | |
| 401,073 |
Rent expense | |
| 332,726 | |
| 144,360 | |
| 188,366 | |
| 150,751 | |
| 339,117 | |
| 329,783 | |
| 150,751 | |
| 179,032 | |
| 156,937 | |
| 335,969 |
Share-based expense | |
| 43,255 | |
| 21,558 | |
| 21,697 | |
| 22,107 | |
| 43,804 | |
| 44,835 | |
| 22,107 | |
| 22,728 | |
| 24,178 | |
| 46,906 |
Adjusted EBITDAR | | $ | 2,962,075 | | $ | 1,219,987 | | $ | 1,742,088 | | $ | 1,261,239 | | $ | 3,003,327 | | $ | 3,189,763 | | $ | 1,261,239 | | $ | 1,928,524 | | $ | 1,462,134 | | $ | 3,390,658 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt | | | | | | | | | | | | | | $ | 5,451,471 | | | | | | | | | | | | | | $ | 5,516,396 |
Financing lease liabilities | | | | | | | | | | | | | |
| 196,047 | | | | | | | | | | | | | |
| 225,411 |
Add: Rent x 6 | | | | | | | | | | | | | | | 2,034,702 | | | | | | | | | | | | | | | 2,015,814 |
Adjusted debt | | | | | | | | | | | | | | $ | 7,682,220 | | | | | | | | | | | | | | $ | 7,757,621 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted debt to EBITDAR | | | | | | | | | | | | | | | 2.6 | | | | | | | | | | | | | | | 2.3 |
27
(1) |
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 trailing four quarters ended February |
| | | |
Total lease cost, per ASC 842, for the trailing four quarters ended February 13, 2021 |
| $ | 418,100 |
Less: Finance lease interest and amortization | |
| (55,880) |
Less: Variable operating lease components, related to insurance and common area maintenance for the trailing four quarters ended February 13, 2021 | |
| (26,251) |
Rent expense for the trailing four quarters ended February 13, 2021 | | $ | 335,969 |
| | | |
Total lease cost, per ASC 842, for the 24 weeks ended February 15, 2020 |
| $ | 190,390 |
Less: Finance lease interest and amortization | |
| (28,195) |
Less: Variable operating lease components, related to insurance and common area maintenance | |
| (11,444) |
Rent expense for the 24 weeks ended February 15, 2020 | | $ | 150,751 |
Add: Rent expense for the 29 weeks ended August 31, 2019 as previously reported prior to the adoption of ASC 842 | | | 188,366 |
Rent expense for the trailing four quarters ended February 15, 2020 | | $ | 339,117 |
| | | | | | |
| | Trailing Four Quarters Ended | ||||
(in thousands) | | February 12, 2022 | | February 13, 2021 | ||
| | | | | ||
Total lease cost, per ASC 842 |
| $ | 442,950 | | $ | 418,100 |
Less: Finance lease interest and amortization | |
| (62,607) | | | (55,880) |
Less: Variable operating lease components, related to insurance and common area maintenance | |
| (25,933) | | | (26,251) |
Rent expense | | $ | 354,410 | | $ | 335,969 |
Effective tax rate over trailing four quarters ended February 12, 2022 and February 13, 2021 is 20.8% and |
All averages are computed based on trailing five quarter balances. |
24
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
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 29, 2020.28, 2021. There have been no significant changes to our critical accounting policies since the filing of our Annual Report on Form 10-K for the year ended August 29, 2020.28, 2021.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
At February 13, 2021, we had no12, 2022, the only material changechanges to our instruments and positions that isare sensitive to market risk since the disclosures in our Annual Report on Form 10-K for the year ended August 29, 2020.28, 2021 were our Revolving Credit Agreement, which was amended and restated on November 15, 2021 to increase our borrowing capacity from $2.0 billion to $2.25 billion, the $500 million 3.700% Senior Note debt repayment and the $1.1 billion net increase in commercial paper.
The fair value of our debt was estimated at $6.007$6.0 billion as of February 13, 2021,12, 2022 and $6.081$5.7 billion as of August 29, 2020,28, 2021, based on the quoted market prices for the same or similar debt issues or on the current rates available to us for debt having the same remaining maturities. Such fair value was greater than the carrying value of debt by $490.9$128.7 million and $567.5$413.1 million at February 13, 202112, 2022 and August 29, 2020,28, 2021, respectively. We did not have anyhad $1.1 billion of variable rate debt outstanding at February 13,12, 2022 and no variable rate debt outstanding at August 28, 2021. At these borrowing levels for variable rate debt, a one percentage point increase in interest rates would have had an unfavorable annual impact on our pre-tax earnings and cash flows of $10.7 million in fiscal 2022. The primary interest rate exposure is based on LIBOR. The carrying value of debt reflects its face amount adjusted for any unamortized debt issuance costs and discounts. We had outstanding fixed rate debt of $5.516$4.8 billion, net of unamortized debt issuance costs of $33.6$27.2 million at February 13, 202112, 2022 and $5.513$5.3 billion, net of unamortized debt issuance costs of $36.6$30.2 million at August 29, 2020.28, 2021. A onepercentage point increase in interest rates would have reduced the fair value of our fixed rate debt by $290.8$213.6 million at February 13, 2021.
12, 2022.
28
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of February 13, 2021,12, 2022, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in 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 February 13, 2021.12, 2022.
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the quarter ended February 13, 202112, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this filing, there have been no additional material legal proceedings or material developments in the legal proceedings disclosed in Part 1, Item 3, of our Annual Report in Form 10-K for the fiscal year ended August 29, 2020.28, 2021.
25
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 29, 2020.28, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Shares of common stock repurchased by the Company during the quarter ended February 13, 202112, 2022 were as follows:
Issuer Repurchases of Equity Securities
| | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| Total Number of |
| Maximum Dollar |
| |
| | |
| Total Number of |
| Maximum Dollar | ||
| | | | | | | Shares Purchased as | | Value that May Yet | | | | | | | Shares Purchased as | | Value that May Yet | ||
| | Total Number | | Average | | Part of Publicly | | Be Purchased Under | | Total Number | | Average | | Part of Publicly | | Be Purchased Under | ||||
| | of Shares | | Price Paid | | Announced Plans or | | the Plans or | | of Shares | | Price Paid | | Announced Plans or | | the Plans or | ||||
Period | | Purchased | | per Share | | Programs | | Programs | | Purchased | | per Share | | Programs | | Programs | ||||
| | | | | | | | | | | | | | | | | | | | |
November 22, 2020 to December 19, 2020 |
| 103,621 | | $ | 1,133.94 |
| 103,621 | | $ | 1,500,066,354 | ||||||||||
December 20, 2020 to January 16, 2021 |
| 235,626 | |
| 1,212.39 |
| 235,626 | |
| 1,214,395,896 | ||||||||||
January 17, 2021 to February 13, 2021 |
| 412,757 | |
| 1,203.68 |
| 412,757 | |
| 717,566,745 | ||||||||||
November 21, 2021 to December 18, 2021 |
| 100,484 | | $ | 1,918.46 |
| 100,484 | | $ | 2,324,797,047 | ||||||||||
December 19, 2021 to January 15, 2022 |
| 185,254 | |
| 2,037.29 |
| 185,254 | |
| 1,947,380,819 | ||||||||||
January 16, 2022 to February 12, 2022 |
| 497,520 | |
| 1,989.48 |
| 497,520 | |
| 957,573,710 | ||||||||||
Total |
| 752,004 | | $ | 1,196.80 |
| 752,004 | | $ | 717,566,745 |
| 783,258 | | $ | 1,991.68 |
| 783,258 | | $ | 957,573,710 |
During 1998, we announced a program permitting us to repurchase a portion of our outstanding shares not to exceed a dollar maximum established by our Board of Directors. This program was most recently amended by the Board on December 15, 202014, 2021 to increaseauthorize the repurchase authorization byof an additional $1.5 billion.billion of our common stock. This brings the total value of sharescumulative share repurchase authorization to be repurchased to $24.65$29.2 billion. All of the above repurchases were part of this program.
Subsequent to February 13, 2021,12, 2022 and through March 11, 2022, we have repurchased 169,396119,542 shares of our common stock at an aggregate cost of $203.0$226.9 million.
Item 3. Defaults Upon Senior Securities
Not applicable.
29
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The following exhibits are being filed herewith:
| | |
3.1 |
| |
| | |
3.2 | | |
| | |
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
15.1 | | |
| | |
31.1 | | |
| | |
26
31.2 | | |
| | |
32.1* | | |
| | |
32.2* | | |
| | |
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 |
| | |
30
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
104. | | The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended February |
* | Furnished herewith. |
3127
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| AUTOZONE, INC. | |
| | |
| By: | /s/ JAMERE JACKSON |
| Jamere Jackson | |
| Chief Financial Officer and Executive Vice President | |
| Finance and Store Development | |
| (Principal Financial Officer) | |
| | |
| By: | /s/ |
|
| |
|
(Principal Accounting Officer) | |
|
| |
Dated: March | |
3228