What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2020-10-26 compared with 2019-10-28 · 42 added, 565 removed, 59 unchanged (91% of the section changed)

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

Our common stock is listed on the New York Stock Exchange under the symbol AZO. On October 21, 2019, there were 2,112 stockholders of

record, which does not include the number of beneficial owners whose shares were represented by security position listings.

We currently do not pay a

dividend on our common stock.

Our common stock is listed on the New York Stock Exchange under the symbol “AZO.” On October 19, 2020, there were 2,021 stockholders of record, which does not include the number of beneficial owners whose shares were represented by security position listings.

We currently do not pay a dividend on our common stock.

Our ability to pay dividends is subject to limitations imposed by Nevada law.

Any future payment of dividends would be dependent upon our financial condition, capital requirements, earnings and cash flow.

During 1998, the Company announced a program permitting the Company to repurchase a portion of its outstanding shares not to exceed a dollar maximum

established by the Companys Board of Directors.

The program was most recently amended on October 7, 2019, to increase the repurchase authorization by $1.250 billion, bringing total value of authorized share repurchases to

$23.2 billion.

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

Total Number of

Part of Publicly

Announced Plans

Maximum Dollar

Value that May

Yet Be Purchased

Under the Plans

May 5, 2019, to June 1, 2019

1,058,574,234

June 2, 2019, to June 29, 2019

June 30, 2019, to July 27, 2019

July 28, 2019, to August 31, 2019

The Company also repurchased, at market value, an additional 17,201, 11,816 and 12,455 shares in fiscal years 2019, 2018 and

2017, respectively, from employees electing to sell their stock under the Companys Sixth Amended and Restated Employee Stock Purchase Plan (the Employee Plan), qualified under Section 423 of the Internal Revenue Code, under

which all eligible employees may purchase AutoZones common stock at 85% of the lower of the market price of the common stock on the first day or last day of each calendar quarter through payroll deductions.

Maximum permitted annual purchases

are $15,000 per employee or 10 percent of compensation, whichever is less.

During 1998, the Company announced a program permitting the Company to repurchase a portion of its outstanding shares not to exceed a dollar maximum established by the Company’s Board of Directors.

The program was most recently amended on October 7, 2019, to increase the repurchase authorization by $1.250 billion, bringing total value of authorized share repurchases to $23.15 billion.

During fiscal 2020, we temporarily ceased share repurchases under our share repurchase program to conserve liquidity in response to the uncertainty related to COVID-19.

While we have restarted share repurchases during the first quarter of fiscal year 2021, we will continue to evaluate current and expected business conditions and adjust the level of share repurchases under our share repurchase program as we deem appropriate.

The Company did not purchase any shares during the quarter ended August 29, 2020.

The Company also repurchased, at market value, an additional 8,287, 17,201 and 11,816 shares in fiscal years 2020, 2019 and 2018, respectively, from employees electing to sell their stock under the Company’s Sixth Amended and Restated Employee Stock Purchase Plan (the “Employee Plan”), qualified under Section 423 of the Internal Revenue Code, under which all eligible employees may purchase AutoZone’s common stock at 85% of the lower of the market price of the common stock on the first day or last day of each calendar quarter through payroll deductions.

Maximum permitted annual purchases are $15,000 per employee or 10 percent of compensation, whichever is less.

Under the Employee Plan, 10,525, 11,011 and 14,523 shares were sold to employees in fiscal 2020, 2019 and 2018, respectively.

At August 31, 2019, 152,766 shares of

common stock were reserved for future issuance under the Employee Plan.

Once executives have reached the maximum purchases under the Employee Plan, the

Sixth Amended and Restated Executive Stock Purchase Plan (the Executive Plan) permits all eligible executives to purchase AutoZones common stock up to 25 percent of his or her annual salary and bonus.

Purchases by executives

under the Executive Plan were 1,483, 1,840 and 1,865 shares in fiscal 2019, 2018 and 2017, respectively.

At August 29, 2020, 142,241 shares of common stock were reserved for future issuance under the Employee Plan.

Once executives have reached the maximum purchases under the Employee Plan, the Sixth Amended and Restated Executive Stock Purchase Plan (the “Executive Plan”) permits all eligible executives to purchase AutoZone’s common stock up to 25 percent of his or her annual salary and bonus.

Purchases by executives under the Executive Plan were 1,204, 1,483 and 1,840 shares in fiscal 2020, 2019 and 2018, respectively.

At August 29, 2020, 235,361 shares of common stock were reserved for future issuance under the Executive Plan.

Stock Performance Graph

The graph below presents changes in the value of AutoZones stock as compared to Standard & Poors 500 Composite Index (S&P

500) and to Standard & Poors Retail Index (S&P Retail Index) for the five-year period beginning August 30, 2014 and ending August 31, 2019.

The graph below presents changes in the value of AutoZone’s stock as compared to Standard & Poor’s 500 Composite Index (“S&P 500”) and to Standard & Poor’s Retail Index (“S&P Retail Index”) for the five-year period beginning August 29, 2015 and ending August 29, 2020.

Selected Financial Data

(in thousands, except per share data, same store sales and selected

operating data)

Fiscal Year Ended August

(in thousands, except per share data, same store sales and selected operating data)

Income Statement Data

9 unchanged sentences

Same Store Sales

Increase in domestic comparable store net

Increase in domestic comparable store net sales (5)

Balance Sheet Data

Current assets

Operating lease right-of-use assets (6)

Working capital (deficit)

Current liabilities

Long-term capital leases

Finance lease liabilities, less current portion (6)

Operating lease liabilities, less current portion (6)

Stockholders’ deficit

1 unchanged sentence

Number of locations at beginning of year

Acquired locations (5)

Sold locations (7)

20 unchanged sentences

Number of shares repurchased (in thousands) (12)

(1) The 52 weeks ended August 29, 2020 was negatively impacted by the charges for additional Emergency-Time Off ("ETO") benefit enhancement for eligible part-time and full-time hourly employees and other expenses in response to COVID-19 of $83.9 million (pre-tax), recognized in the third and fourth quarters.

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

(3) Fiscal 2018 was negatively impacted by pension termination charges of $130.3 million (pre-tax) recognized in the fourth quarter and asset impairments of $193.2 million (pre-tax) recognized in the second quarter of fiscal 2018.

See Note L

Pension and Savings Plans and Note M Sale of Assets of the Notes to Consolidated Financial Statements for more information.

Fiscal 2018 also includes a benefit to net income related to the Tax Cuts and Jobs Act (Tax

See “Note L – Pension and Savings Plans” and “Note M – Sale of Assets” of the Notes to Consolidated Financial Statements for more information.

Fiscal 2018 also includes a benefit to net income related to the Tax Cuts and Jobs Act (“Tax Reform”).

See “Note D – Income Taxes” of the Notes to Consolidated Financial Statements for more information.

Fiscal 2019, 2018 and 2017 include excess tax benefits from stock option exercises of $46.0 million,

$31.3 million and $31.2 million, respectively, related to the adoption of Accounting Standards Update (ASU) 2016-09, Compensation Stock Compensation (Topic 718):

(4) Fiscal 2020, 2019, 2018 and 2017 include excess tax benefits from stock option exercises of $20.9 million, $46.0 million, $31.3 million and $31.2 million, respectively, related to the adoption of Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation (Topic 718):

Improvement to Employee Share-based Payment Accounting.

The Company adopted ASU 2016-09 effective August 28, 2016 and applied the recognition of excess tax deficiencies and tax benefits in the income

statement on a prospective basis.

The Company adopted ASU 2016-09 effective August 28, 2016 and applied the recognition of excess tax deficiencies and tax benefits in the income statement on a prospective basis.

Income tax expense, net income and diluted earnings per share amounts presented for prior periods were not restated.

The Company applied ASU 2016-09 relating to the

presentation of the excess tax benefits on the Consolidated Statements of Cash Flows retrospectively.

Prior period amounts for net cash provided by operating activities for all years presented above were restated to conform to the current period

presentation.

The domestic comparable sales increases are based on sales for all AutoZone domestic stores open at least

The Company applied ASU 2016-09 relating to the presentation of the excess tax benefits on the Consolidated Statements of Cash Flows retrospectively.

Prior period amounts for net cash provided by operating activities for all years presented above were restated to conform to the current period presentation.

(5) The domestic comparable sales increases are based on sales for all AutoZone domestic stores open at least one year.

Same store sales are computed on a 52-week basis.

Relocated stores are included in the same store sales computation based on the year the original store was opened.

Closed store sales are included in

the same store sales computation up to the week it closes, and excluded from the computation for all periods subsequent to closing.

Closed store sales are included in the same store sales computation up to the week it closes, and excluded from the computation for all periods subsequent to closing.

All sales through our www.autozone.com website, including consumer direct ship-to-home sales, are also included in the computation.

17 IMC branches were acquired on September 27, 2014.

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

See “Note A – Significant Accounting Policies”.

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

See Note M Sale of Assets of the Notes

to Consolidated Financial Statements for more information.

Inventory turnover is calculated as cost of sales divided by the average merchandise inventory balance over

the trailing 5 quarters.

After-tax return on invested capital is defined as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating leases).

For fiscal 2019, after-tax operating

profit was adjusted for the impact of the revaluation of deferred tax liabilities, net of repatriation tax.

For fiscal 2018, after-tax operating profit was adjusted for impairment charges, pension termination

charges and the impact of the revaluation of deferred tax liabilities, net of repatriation tax.

See Reconciliation of Non-GAAP Financial Measures in Managements Discussion and Analysis of Financial

Condition and Results of Operations.

Adjusted debt to EBITDAR is defined as the sum of total debt, capital lease obligations and annual rents

See “Note M – Sale of Assets” of the Notes to Consolidated Financial Statements for more information.

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

(9) After-tax return on invested capital is defined as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize leases).

For fiscal 2020, average debt is presented net of excess cash of $374.2 million.

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

For fiscal 2018, after-tax operating profit was adjusted for impairment charges, pension termination charges and the impact of the revaluation of deferred tax liabilities, net of repatriation tax.

See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(10) Adjusted debt to EBITDAR is defined as the sum of total debt, finance lease obligations and annual rents times six;

divided by net income plus interest, taxes, depreciation, amortization, rent and share-based compensation expense.

For Fiscal 2020, adjusted debt is presented net of excess cash of $1.6 billion.

For fiscal 2018, net income was adjusted for impairment charges and pension termination charges before tax impact.

Reconciliation of Non-GAAP Financial Measures in Managements Discussion and Analysis of Financial Condition and Results of Operations.

Cash flow before share repurchases and changes in debt is defined as the change in cash and

cash equivalents less the change in debt plus treasury stock purchases.

See Reconciliation of Non-GAAP Financial Measures in Managements Discussion and Analysis of Financial

Condition and Results of Operations.

Managements Discussion and Analysis of

Financial Condition and Results of Operations

We are the leading retailer, and a leading distributor, of automotive replacement parts and accessories

in the Americas.

We began operations in 1979 and at August 31, 2019, operated 5,772 stores in the U.S., including Puerto Rico and Saint Thomas;

604 stores in Mexico;

and 35 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 August 31, 2019, in 4,893 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.

have commercial programs in stores in Mexico and Brazil.

We also sell the ALLDATA brand automotive diagnostic and repair software through www.alldata.com and www.alldatadiy.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 do not derive revenue from automotive repair or installation

Executive Summary

For fiscal 2019, we

achieved record net income of $1.617 billion, a 20.9% increase over the prior year, and sales growth of $642.7 million, a 5.7% increase over the prior year.

Both our retail sales and commercial sales grew this past year, as we continue to

make progress on our initiatives that are aimed at improving our ability to say yes to our customers more frequently, drive traffic to our stores and accelerate our commercial growth.

Our business is impacted by various factors within the economy that affect both our consumer and our

industry, including but not limited to fuel costs, wage rates and other economic conditions.

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.

One macroeconomic factor affecting our customers and our industry during fiscal 2019 was gas prices.

fiscal 2019, the average price per gallon of unleaded gasoline in the U.S.

was $2.63 per gallon, compared to $2.67 per gallon during fiscal 2018.

We believe fluctuations in gas prices impact our customers level of disposable income.

approximately 12 billion gallons of unleaded gas consumption each month across the U.S., each $1 decrease at the pump contributes approximately $12 billion of additional spending capacity to consumers each month.

Given the unpredictability

of gas prices, we cannot predict whether gas prices will increase or decrease, nor can we predict how any future changes in gas prices will impact our sales in future periods.

We have also experienced accelerated pressure on wages in the U.S.

during fiscal 2019.

Some of this is attributed to regulatory changes in certain states and

municipalities, while the larger portion is being driven by general market pressures with lower unemployment rates and some specific actions taken in recent years by other retailers.

The regulatory changes are going to continue, as evidenced by the

areas that have passed legislation to increase their wages substantially over the next few years, but we are still assessing to what degree these changes will impact our earnings growth in future periods.

During fiscal 2019, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 85% of total sales, with

failure related categories continuing to comprise our largest set of categories.

While we have not experienced any fundamental shifts in our category sales mix as compared to previous years, in our domestic stores we did experience a slight increase

in mix of sales of the failure category as compared to last year.

We believe the improvement in this sales category was driven by differences in regional weather patterns and improved merchandise assortments due to the products we have added over

the last year.

Our sales mix can be impacted by severe or unusual weather over a short term period.

Over the long term, we believe the impact of the weather on our sales mix is not significant.

The two statistics we believe have the closest correlation to our market growth over the long-term are miles driven and the number of seven year old or older

vehicles on the road.

We believe that

as the number of miles driven increases, consumers vehicles are more likely to need service and maintenance, resulting in an increase in the need for automotive hard parts and maintenance items.

While over the long-term we have seen a close

correlation between our net sales and the number of miles driven, we have also seen certain time frames of minimal correlation in sales performance and miles driven.

During the periods of minimal correlation between net sales and miles driven, we

believe net sales have been positively impacted by other factors, including the number of seven year old or older vehicles on the road.

Since the beginning of the fiscal year and through July 2019 (latest publicly available information), miles

driven in the U.S.

increased by 0.8% compared to the same period in the prior year.

Seven Year Old or Older Vehicles

New vehicles sales increased 0.2% during 2019 as compared to the prior calendar year.

We estimate vehicles are driven an average of approximately 12,500 miles

In seven years, the average miles driven equates to approximately 87,500 miles.

Our experience is that at this point in a vehicles life, most vehicles are not covered by warranties and increased maintenance is needed to keep the

vehicle operating.

According to the latest data provided by the Auto Care Association, as of January 1, 2019, the average age of vehicles on the

road was 11.8 years.

For the eighth consecutive year, the average age of vehicles has exceeded 11 years.

We expect the aging vehicle population to

continue to increase as consumers keep their cars longer in an effort to save money.

As the number of seven year old or older vehicles on the road increases, we expect an increase in demand for the products we sell.

Results of Operations

Fiscal 2019 Compared with Fiscal 2018

For the fiscal year

ended August 31, 2019, we reported net sales of $11.864 billion compared with $11.221 billion for the year ended August 25, 2018, a 5.7% increase from fiscal 2018.

This growth was driven primarily by net sales of

$410.5 million from new domestic stores, the additional 53 rd week sales of $238.6 million and a domestic same store sales increase of 3.0% partially offset by the impact of the sale of

two businesses in the prior year.

Same store sales are computed on a 52-week basis.

Domestic commercial sales increased $348.6 million, or 15.7%, over domestic commercial sales for fiscal 2018 which

benefited $51.3 million from the additional week of sales.

At August 31, 2019, we operated 5,772 domestic stores, 604 in Mexico and 35 in

Brazil, compared with 5,618 domestic stores, 564 in Mexico and 20 in Brazil at August 25, 2018.

We reported a total auto parts segment (domestic, Mexico, Brazil and IMC through April 4, 2018) sales increase of 6.3% for fiscal 2019.

Gross profit for fiscal 2019 was $6.365 billion, or 53.7% of net sales, a 41 basis point increase compared with $5.974 billion, or 53.2% of net

sales for fiscal 2018.

The increase in gross margin was primarily attributable to the favorable impact of the sale of two businesses completed in the prior year (+37 basis points).

Operating, selling, general and administrative expenses for fiscal 2019 decreased to $4.149 billion, or 35.0% of net sales, from $4.163 billion, or

37.1% of net sales for fiscal 2018.

The decrease in operating expenses, as a percentage of sales, was primarily due to last years impairment charges of $193.2 million related to the sale of two businesses and pension plan termination

charges of $130.3 million, partially offset by increased domestic store payroll (-66 basis points) in 2019.

See Note L Pension and Savings Plan and Note M Sale of

Assets in the Notes to Consolidated Financial Statements.

Interest expense, net for fiscal 2019 was $184.8 million compared with

$174.5 million during fiscal 2018.

This increase was primarily due to higher debt levels and an additional week of interest incurred due to the 53 rd week.

Average borrowings for fiscal 2019

were $5.097 billion, compared with $4.997 billion for fiscal 2018, and weighted average borrowing rates were 3.2% for fiscal 2019 and fiscal 2018.

Our effective income tax rate was 20.4% of pre-tax income for fiscal 2019 compared to 18.3% for fiscal 2018.

higher tax rate resulted primarily from net impacts of the enactment of Tax Reform (see Note D - Income Taxes in the Notes to Consolidated Financial Statements).

Net income for fiscal 2019 increased by 20.9% to $1.617 billion, and diluted earnings per share increased 30.1% to $63.43 from $48.77 in fiscal 2018.

impact on the fiscal 2019 diluted earnings per share from stock repurchases was an increase of $1.83.

Fiscal 2018 Compared with Fiscal 2017

A discussion of changes in our results of operations from fiscal 2017 to fiscal 2018 has been omitted from this Form

10-K, but may be found in Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-K for the fiscal

year ended August 25, 2018, filed with the SEC on October 24, 2018, which is available free of charge on the SECs website at www.sec.gov and at www.autozone.com, by clicking Investor Relations located at the bottom of the page.

Quarterly Periods

Each of the first three quarters

of our fiscal year consists of 12 weeks, and the fourth quarter consisted of 17 weeks in 2019 and 16 weeks in 2018 and 2017.

Because the fourth quarter contains seasonally high sales volume and consists of 16 or 17 weeks, compared with 12 weeks for

each of the first three quarters, our fourth quarter represents a disproportionate share of the annual net sales and net income.

The fourth quarter of fiscal year 2019 represented 33.6% of annual sales and 35.0% of net income;

and the fourth quarter

of fiscal year 2018 represented 31.7% of annual sales and 29.9% of net income;

and the fourth quarter of fiscal year 2017 represented 32.3% of annual sales and 33.9% of net income.

On December 22, 2017, the U.S.

government enacted Tax Reform into law.

Tax Reform significantly revises the U.S.

federal corporate income tax by, among

other things, lowering the statutory federal corporate rate from 35% to 21%, eliminating certain deductions, imposing a mandatory one-time transition tax on accumulated earnings of foreign subsidiaries, and

changing how foreign earnings are subject to U.S.

Also in December 2017, the SEC issued Staff Accounting Bulletin No.

118 (SAB 118) to address the application of GAAP in situations when the registrant does not have the

necessary information available, prepared and analyzed in reasonable detail to complete the accounting for certain income tax effects of Tax Reform.

During the year ended August 25, 2018, we recorded provisional tax benefit of $131.5 million related to Tax Reform, comprised of a

$157.3 million remeasurement of our net Deferred Tax Asset (DTA), offset by $25.8 million of transition tax.

During the year ended August 31, 2019, the Company completed its analysis of Tax Reform and recorded adjustments

to the previously-recorded provisional amounts, resulting in an $8.8 million tax benefit, primarily related to transition tax on accumulated earnings of foreign subsidiaries.

Beginning with the year ending August 31, 2019, we are subject to a new tax on global intangible low-taxed income

(GILTI) that is imposed on foreign earnings.

We have made the election to record this tax as a period cost, thus we have not adjusted the deferred tax assets or liabilities of our foreign subsidiaries for the new tax.

Net impacts for

GILTI were immaterial and are included in the provision for income taxes for the year ending August 31, 2019.

Liquidity and Capital Resources

The primary source of our liquidity is our cash flows realized through the sale of automotive parts, products and accessories.

Net cash provided by

operating activities was $2.129 billion in 2019, $2.080 billion in 2018 and $1.571 in 2017.

Cash flows from operations are favorable compared to last year primarily due to the timing of payment of accounts payable and growth in net income

partially due to the additional week of sales in the current year.

Our primary capital requirement has been the funding of our continued new-location development program and the building of new distribution centers.

Net cash flows used in investing activities were $491.8 million in fiscal 2019, compared to $521.9 million in fiscal 2018 and

$553.6 million in fiscal 2017.

We invested $496.1 million in capital assets in fiscal 2019, compared to $521.8 million in fiscal 2018 and $553.8 million in fiscal 2017.

We had new location openings of 209 for fiscal 2019, 201 for

fiscal 2018 and 215 for fiscal 2017.

The decrease in capital expenditures from fiscal 2018 to fiscal 2019 was attributable to one distribution center opening in fiscal 2018 and none constructed in fiscal 2019.

We opened two distribution centers in

We invest a portion of our assets held by our wholly owned insurance captive in marketable debt securities.

We purchased $55.5 million in marketable debt securities in fiscal 2019, $104.5 million in fiscal 2018 and

$85.7 million in fiscal 2017.

We had proceeds from the sale of marketable debt securities of $53.1 million in fiscal 2019, $69.6 million in fiscal 2018 and $83.0 million in fiscal 2017.

Net cash used in financing activities was $1.674 billion in 2019, $1.632 billion in 2018 and $914.3 million in 2017.

The net cash used in

financing activities reflected purchases of treasury stock which totaled $2.005 billion for fiscal 2019, $1.592 billion for fiscal 2018 and $1.072 billion for fiscal 2017.

The treasury stock purchases in fiscal 2019, 2018 and 2017

were primarily funded by cash flows from operations.

The Company issued $750 million of new debt in fiscal 2019 compared to none in fiscal 2018 and $600 million for fiscal 2017.

In fiscal 2019 the proceeds from the issuance of debt were

used to repay a portion of our outstanding commercial paper borrowings and our $250 million Senior Notes due in April 2019 and for other general corporate purposes.

In fiscal 2018, we used commercial paper borrowings to repay our

$250 million Senior Notes due in August 2018.

In fiscal 2017, the proceeds from the issuance of debt were used for the repayment of a portion of our outstanding commercial paper borrowings, which were used to repay the $400 million Senior

Notes due in January 2017.

In fiscal 2019, we made net repayments of commercial paper and short term borrowings in the amount of $295.3 million.

proceeds from the issuance of commercial paper and short-term borrowings for fiscal 2018 were $170.2 million and net repayments of commercial paper and short-term borrowings for fiscal 2017 were $42.4 million.

During fiscal 2020, we expect to increase the investment in our business as compared to fiscal 2019.

investments are expected to be directed primarily to new locations, supply chain infrastructure, enhancements to existing locations and investments in technology.

The amount of investments in our new locations is impacted by different factors,

including such factors as whether the building and land are purchased (requiring higher investment) or leased (generally lower investment), located in the United States, Mexico or Brazil, or located in urban or rural areas.

During fiscal 2019 and

2018, our capital expenditures decreased by approximately 5% and 6%, respectively, compared to the prior year period.

In fiscal 2017, our capital expenditures increased by approximately 13% as compared to the prior year.

In addition to the building and land costs, our new locations require working capital, predominantly for inventories.

Historically, we have negotiated

extended payment terms from suppliers, reducing the working capital required and resulting in a high accounts payable to inventory ratio.

We plan to continue leveraging our inventory purchases;

however, our ability to do so may be limited by our

vendors capacity to factor their receivables from us.

Certain vendors participate in financing arrangements with financial institutions whereby they factor their receivables from us, allowing them to receive payment on our invoices at a

discounted rate.

In recent years, we initiated a variety of strategic tests focused on increasing inventory availability, which increased our inventory per location.

Many of our vendors have supported our initiative to update our product assortments

by providing extended payment terms.

These extended payment terms have allowed us to continue our high accounts payable to inventory ratio.

We had an accounts payable to inventory ratio of 112.6% at August 31, 2019 and 111.8% at August 25,

The increase from fiscal 2018 to fiscal 2019 was primarily due to more favorable vendor terms.

Depending on the timing and magnitude of our future

investments (either in the form of leased or purchased properties or acquisitions), we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures, working

capital requirements and stock repurchases.

The balance may be funded through new borrowings.

We anticipate that we will be able to obtain such financing in view of our credit ratings and favorable experiences in the debt markets in the past.

Our cash balances are held in various locations around the world.

As of August 31, 2019, and August 25, 2018, cash and cash equivalents of

$49.9 million and $98.8 million, respectively, were held outside of the U.S.

and were generally utilized to support the liquidity needs in our foreign operations.

For the fiscal year ended August 31, 2019, our after-tax return on invested capital (ROIC) was 35.7%

as compared to 32.1% for the comparable prior year period.

ROIC is calculated as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating

For fiscal 2019, after-tax operating profit was adjusted for the Tax Reforms impact on the revaluation of deferred tax liabilities, net of the repatriation tax.

For fiscal 2018, after-tax operating profit was adjusted for impairment charges, pension termination charges and Tax Reforms impact on the revaluation of deferred tax liabilities, net of the repatriation tax.

The increase in

ROIC in fiscal 2019 is primarily due to the increase in net income due to the additional week of operations.

We use ROIC to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall

operating performance.

Refer to the Reconciliation of Non-GAAP Financial Measures section for further details of our calculation.

Debt Facilities

We entered into a Master Extension, New

Commitment and Amendment Agreement dated as of November 18, 2017 (the Extension Amendment) to the Third Amended and Restated Credit Agreement dated as of November 18, 2016, as amended, modified, extended or restated from time

to time (the Revolving Credit Agreement).

Under the Extension Amendment:

(i) our borrowing capacity under the Revolving Credit Agreement was increased from $1.6 billion to $2.0 billion;

(ii) our option to increase the

borrowing capacity under the Revolving Credit Agreement was refreshed and the amount of such option remained at $400 million;

(iii) the maximum borrowing under the Revolving Credit Agreement may, at our option, subject to

lenders approval, be increased from $2.0 billion to $2.4 billion;

(iv) the termination date of the Revolving Credit Agreement was extended from November 18, 2021 until November 18, 2022;

and (v) we have the option to

make one additional written request of the lenders to extend the termination date then in effect for an additional year.

Under the Revolving Credit Agreement, we may borrow funds consisting of Eurodollar loans, base rate loans or a combination of

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.

As of August 31, 2019, we had $3.3 million of outstanding letters of credit under the Revolving Credit Agreement.

Revolving Credit Agreement requires that our consolidated interest coverage ratio as of the last day of each quarter shall be no less than 2.5:1.

This ratio is defined as the ratio of (i) consolidated earnings before interest, taxes and rents

to (ii) consolidated interest expense plus consolidated rents.

Our consolidated interest coverage ratio as of August 31, 2019 was 5.7:1.

August 31, 2019, our $1.030 billion of commercial paper borrowings were classified as long-term in the Consolidated Balance Sheets as we have the ability and intent to refinance them on a long-term basis through available capacity in our

revolving credit facilities.

As of August 31, 2019, we had $1.997 billion of availability under our $2.0 billion revolving credit facility, which would allow us to replace these short-term obligations with long-term financing

We also maintain a letter of credit facility that allows us to request the participating bank to issue letters of credit on our behalf up to

an aggregate amount of $25 million.

The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement.

In fiscal 2019, we amended our existing letter of credit facility to decrease the

amount that can be requested in letters of credit from $75 million to $25 million effective June 2019.

This amendment also extended the maturity date from June 2019 to June 2022.

As of August 31, 2019, we had $25.0 million in

letters of credit outstanding under the letter of credit facility.

In addition to the outstanding letters of credit issued under the committed facilities

discussed above, we had $72.9 million in letters of credit outstanding as of August 31, 2019.

These letters of credit have various maturity dates and were issued on an uncommitted basis.

On April 18, 2019, we issued $300 million in 3.125% Senior Notes due April 2024 and $450 million in 3.750% Senior Notes due April 2029 under

our automatic shelf registration statement on Form S-3, filed with the SEC on April 4, 2019 (File No.

333-230719) (the 2019 Shelf Registration).

Proceeds from the debt issuance were used to repay a portion of our outstanding commercial paper borrowings, the $250 million in 1.625% Senior Notes due in April 2019 and for other general corporate purposes.

On April 18, 2017, we issued $600 million in 3.750% Senior Notes due June 2027 under our shelf registration statement filed with the SEC on

April 15, 2015 (the 2015 Shelf Registration).

Proceeds from the debt issuance were used for general corporate purposes.

The senior notes

contain a provision that repayment of the senior notes may be accelerated if we experience a change in control (as defined in the agreements).

Our borrowings under our senior notes contain minimal covenants, primarily restrictions on liens, sale and

leaseback transactions and consolidations, mergers and the sale of assets.

Under our revolving credit facility, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control

provision that may require acceleration of the repayment obligations under certain circumstances.

All of the repayment obligations under our borrowing arrangements may be accelerated and come due prior to the applicable scheduled payment date if

covenants are breached or an event of default occurs.

As of August 31, 2019, we were in compliance with all covenants and expect to remain in

compliance with all covenants under our borrowing arrangements.

For the fiscal years ended August 31, 2019 and August 26, 2018, our adjusted

debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (EBITDAR) ratio was 2.5:1.

We calculate adjusted debt as the sum of total debt, capital lease obligations and rent times six;

and we calculate EBITDAR by adding interest, taxes, depreciation, amortization, rent and share-based compensation expense to net income.

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

tax impact as these charges are not reflective of ongoing operations.

We target our debt levels to a specified ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings and believe this is important information for

the management of our debt levels.

To the extent EBITDAR continues to grow in future years, we expect our debt levels to increase;

if EBITDAR declines, we would expect our debt levels to decrease.

Refer to the Reconciliation of Non-GAAP Financial Measures section for further details of our calculation.

Stock Repurchases

During 1998, we announced a program

permitting us to repurchase a portion of our outstanding shares not to exceed a dollar maximum established by our Board of Directors (the Board).

On September 26, 2018, the Board voted to increase the authorization by

$1.25 billion.

On March 20, 2019, the Board voted to increase the authorization by $1.0 billion.

This raised the total value of shares authorized to be repurchased to $21.9 billion.

From January 1998 to August 31, 2019, we

have repurchased a total of 146.9 million shares at an aggregate cost of $21.423 billion.

We repurchased 2.2 million shares of common stock at an aggregate cost of $2.005 billion during fiscal 2019, 2.4 million shares of

common stock at an aggregate cost of $1.592 billion during fiscal 2018 and 1.5 million shares of common stock at an aggregate cost of $1.072 billion during fiscal 2017.

Considering cumulative repurchases as of August 31, 2019, we

had $476.8 million remaining under the Boards authorization to repurchase our common stock.

For the fiscal year ended August 31, 2019,

cash flow before share repurchases and changes in debt was $1.759 billion as compared to $1.596 billion during the comparable prior year period.

Cash flow before share repurchases and changes in debt is calculated as the net increase or

decrease in cash and cash equivalents less net increases or decreases in debt plus share repurchases.

We use cash flow before share repurchases and changes in debt to calculate the cash flows remaining and available in an effort to increase

shareholder value in the form of share repurchases.

We believe this is important information regarding our allocation of available capital where we prioritize investments in the business and utilize the remaining funds to repurchase shares, while

maintaining debt levels that support our investment grade credit ratings.

If we allowed these funds to accumulate on our balance sheet instead of repurchasing our shares, we believe our earnings per share and stock price would be negatively

Refer to the Reconciliation of Non-GAAP Financial Measures section for further details of our calculation.

On October 7, 2019, the Board voted to authorize the repurchase of an additional $1.25 billion of our common stock in connection with our ongoing

share repurchase program.

Since the inception of the repurchase program in 1998, the Board has authorized $23.2 billion in share repurchases.

Subsequent to August 31, 2019, we have repurchased 259,384 shares of common stock at an aggregate

cost of $284.6 million.

Considering the cumulative repurchases and the increase in authorization subsequent to August 31, 2019, we have $1.44 billion remaining under the Boards authorization to repurchase its common stock.

Financial Commitments

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

(in thousands)

Payment Due by Period

Interest payments (2)

Operating leases (3)

Capital leases (4)

Self-insurance reserves (5)

Construction commitments

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

Represents obligations for interest payments on long-term debt.

Operating lease obligations are inclusive of amounts accrued within deferred rent and closed store

obligations reflected in our Consolidated Balance Sheets.

Capital lease obligations include related interest.

Self-insurance reserves reflect estimates based on actuarial calculations.

Although these obligations do not

have scheduled maturities, the timing of future payments are predictable based upon historical patterns.

Accordingly, we reflect the net present value of these obligations in our Consolidated Balance Sheets.

Our tax liability for uncertain tax positions, including interest and penalties, was $20.5 million at August 31, 2019.

Approximately

$1.8 million is classified as current liabilities and $18.7 million is classified as long-term liabilities.

We did not reflect these obligations in the table above as we are unable to make an estimate of the timing of payments of the

long-term liabilities due to uncertainties in the timing and amounts of the settlement of these tax positions.

Off-Balance Sheet Arrangements

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

(in thousands)

Standby letters of credit

A substantial portion of the outstanding standby letters of credit (which are primarily renewed on an annual basis) and surety

bonds are used to cover reimbursement obligations to our workers compensation carriers.

There are no additional contingent liabilities associated

with these instruments as the underlying liabilities are already reflected in our Consolidated Balance Sheets.

The standby letters of credit and surety bond arrangements expire within one year, but have automatic renewal clauses.

Reconciliation of Non-GAAP Financial Measures

Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations include certain

financial measures not derived in accordance with generally accepted accounting principles (GAAP).

These non-GAAP financial measures provide additional information for determining our optimum

capital structure and are used to assist management in evaluating performance and in making appropriate business decisions to maximize stockholders value.

Non-GAAP financial measures should not be used as a substitute for

GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows.

However, we have presented the non-GAAP financial measures, as we

believe they provide additional information that is useful to investors as it indicates more clearly our comparative year-to-year operating results.

Furthermore, our

management and Compensation Committee of the Board use the above-mentioned non-GAAP financial measures to analyze and compare our underlying operating results and use select measurements to determine payments

of performance-based compensation.

We have included a reconciliation of this information to the most comparable GAAP measures in the following reconciliation tables.

Reconciliation of Non-GAAP Financial Measure:

Cash Flow Before Share Repurchases and Changes in Debt

The following table reconciles net increase (decrease) in cash and cash equivalents to cash flow before share repurchases and changes in debt, which is

presented in Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations:

Fiscal Year Ended August

(in thousands)

Net cash provided by/(used in):

Operating activities (1)

Investing activities

Financing activities (1)

Effect of exchange rate changes on cash

Net (decrease)/increase in cash and cash equivalents

(Decrease)/increase in debt, excluding deferred financing costs

Share repurchases

Cash flow before share repurchases and changes in debt

The Company adopted the provisions of ASU 2016-09,

Compensation Stock Compensation (Topic 718):

Improvement to Employee Share-based Payment Accounting, as of August 28, 2016.

We have applied ASU 2016-09 relating to the presentation of the

excess tax benefits on the Consolidated Statements of Cash Flows retrospectively.

Prior period amounts for net cash provided by operating and financing activities for fiscal 2015 presented above were restated to conform to the current period

presentation.

Reconciliation of Non-GAAP Financial Measure:

After-tax ROIC

The following table calculates the percentage of ROIC.

ROIC is calculated as after-tax operating profit (excluding rent) divided by invested capital (which includes a factor to capitalize operating leases).

The ROIC percentages are presented in Selected Financial Data and

Managements Discussion and Analysis of Financial Condition and Results of Operations:

Fiscal Year Ended August

(in thousands, except percentages)

Impairment before tax

Pension termination charges before tax

Interest expense

Tax effect (3)

Deferred tax liabilities, net of repatriation

After-tax return

Average debt (5)

Average stockholders

(deficit) (5)

Average capital lease obligations (5)

Invested capital

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

For fiscal 2018, after-tax operating profit was adjusted for

impairment charges and pension settlement charges.

For fiscal 2019, the effective tax rate was 20.4%.

The effective tax rate during fiscal 2018 was 24.2% for

impairment, 28.1% for pension termination and 26.2% for interest and rent expense.

For fiscal 2017, 2016, and 2015 the effective tax rate was 33.5%, 35.1% and 35.6%, respectively.

For fiscal 2018 and 2019, after-tax operating profit was adjusted

for the impact of the revaluation of deferred tax liabilities, net of repatriation tax.

All averages are computed based on trailing five quarters.

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

Reconciliation of Non-GAAP Financial Measure:

Adjusted Debt to

The following table calculates the ratio of adjusted debt to EBITDAR.

Adjusted debt to EBITDAR is calculated as the sum of total debt, capital

lease obligations and annual rents times six;

divided by net income plus interest, taxes, depreciation, amortization, rent and share-based compensation expense.

The adjusted debt to EBITDAR ratios are presented in Selected Financial

Data and Managements Discussion and Analysis of Financial Condition and Results of Operations:

Fiscal Year Ended August

(in thousands, except ratios)

Impairment before tax

Pension termination charges before tax

Interest expense

Income tax expense

Depreciation and amortization expense

Share-based expense

Capital lease obligations

Adjusted debt

Adjusted debt to EBITDAR

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

For fiscal 2018, net income was adjusted to exclude impairment charges and pension termination charges

Recent Accounting Pronouncements

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

Critical Accounting Policies and Estimates

of our Consolidated Financial Statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the financial statements, reported amounts of revenues and expenses during the reporting

period and related disclosures of contingent liabilities.

In the Notes to our Consolidated Financial Statements, we describe our significant accounting policies used in preparing the Consolidated Financial Statements.

Our policies are evaluated on

an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances.

Actual results could differ under different assumptions or conditions.

Our senior management has identified the

critical accounting policies for the areas that are materially impacted by estimates and assumptions and have discussed such policies with the Audit Committee of our Board.

The following items in our Consolidated Financial Statements represent our

critical accounting policies that require significant estimation or judgment by management:

Self-Insurance Reserves

We retain a significant portion of the risks associated with workers compensation, general, products liability, property and vehicle liability;

obtain third party insurance to limit the exposure related to certain of these risks.

Our self-insurance reserve estimates totaled $207.0 million at August 31, 2019, and $203.1 million at August 25, 2018.

This change is primarily

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

The assumptions made by management in estimating our self-insurance reserves include consideration of

historical cost experience, judgments about the present and expected levels of cost per claim and retention levels.

We utilize various methods, including analyses of historical trends and use of a specialist, to estimate the cost to settle reported

claims and claims incurred but not yet reported.

The actuarial methods develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet date.

When estimating these liabilities, we consider factors, such as

the severity, duration and frequency of claims, legal costs associated with claims, healthcare trends and projected inflation of related factors.

In recent history, our methods for determining our exposure have remained consistent, and our

historical trends have been appropriately factored into our reserve estimates.

As we obtain additional information and refine our methods regarding the assumptions and estimates we use to recognize liabilities incurred, we will adjust our reserves

Management believes that the various assumptions developed and actuarial methods used to determine our self- insurance reserves are

reasonable and provide meaningful data and information that management uses to make its best estimate of our exposure to these risks.

Arriving at these estimates, however, requires a significant amount of subjective judgment by management, and as a

result these estimates are uncertain and our actual exposure may be different from our estimates.

For example, changes in our assumptions about healthcare costs, the severity of accidents and the incidence of illness, the average size of claims and

other factors could cause actual claim costs to vary materially from our assumptions and estimates, causing our reserves to be overstated or understated.

For instance, a 10% change in our self-insurance liability would have affected net income by

approximately $16.3 million for fiscal 2019.

Our liabilities for workers compensation, general and product liability, property and vehicle

claims do not have scheduled maturities;

however, the timing of future payments is predictable based on historical patterns and is relied upon in determining the current portion of these liabilities.

Accordingly, we reflect the net present value of

the obligations we determine to be long-term using the risk-free interest rate as of the balance sheet date.

If the discount rate used to calculate the

present value of these reserves changed by 25 basis points, net income would have been affected by approximately $1.3 million for fiscal 2019.

Our liability for health benefits is classified as current, as the historical average duration of

claims is approximately six weeks.

income tax returns are audited by state, federal and foreign tax authorities, and we are typically engaged in various tax examinations at any given time.

Tax contingencies often arise due to uncertainty or differing interpretations of the

application of tax rules throughout the various jurisdictions in which we operate.

The contingencies are influenced by items such as tax audits, changes in tax laws, litigation, appeals and prior experience with similar tax positions.

We regularly review our tax reserves for these items and assess the adequacy of the amount we have recorded.

As of August 31, 2019, we had approximately

$20.5 million reserved for uncertain tax positions.

We evaluate exposures associated with our various tax filings by estimating a liability for

uncertain tax positions based on a two-step process.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not

that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be

realized upon ultimate settlement.

We believe our estimates to be reasonable and have not experienced material adjustments to our reserves in the

previous three years;

however, actual results could differ from our estimates, and we may be exposed to gains or losses that could be material.

Specifically, management has used judgment and made assumptions to estimate the likely outcome of

uncertain tax positions.

Additionally, to the extent we prevail in matters for which a liability has been established, or must pay in excess of recognized reserves, our effective tax rate in any particular period could be materially affected.

Vendor Allowances

We receive various payments and allowances from our vendors through a variety of programs and arrangements, including allowances for warranties, advertising

and general promotion of vendor products.

Vendor allowances are treated as a reduction of the cost of inventory, unless they are provided as a reimbursement of specific, incremental, identifiable costs incurred by the Company in selling the

vendors products.

Approximately 87% of the vendor funds received are recorded as a reduction of the cost of inventories and recognized as a reduction to cost of sales as these inventories are sold.

Based on our vendor agreements, a significant portion of vendor funding we receive is earned as we purchase inventory.

Therefore, we record receivables for

funding earned but not yet received as we purchase inventory.

During the year, we regularly review the receivables from vendors to ensure vendors are able to meet their obligations.

We generally have not recorded a reserve against these receivables

as we have not experienced significant losses and typically have a legal right of offset with our vendors for payments owed them.

Historically, we have had write-offs less than $1 million in each of the last three years.

See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(11) Cash flow before share repurchases and changes in debt is defined as the change in cash and cash equivalents less the change in debt plus treasury stock purchases.

See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations .

(12) During the third quarter of fiscal 2020, the Company temporarily ceased share repurchases under the share repurchase program in response to COVID-19.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity