AUTOZONE INC 10-K

Item 8. Financial Statements and Supplementary Data Index ​ ​ Management’s Report on Internal Control Over Financial Reporting 44 Reports of Independent Registered Public Accounting Firm 45 Consolidated Statements of Income 48 Consolidated Statements of Comprehensive Income 48 Consolidated Balance Sheets 49 Consolidated Statements of Cash Flows 50 Consolidated Statements of Stockholders’ Deficit 51 Notes to Consolidated Financial Statements 52 ​ ​ ​ 43 ‌ ​ ​ Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting includes, among other things, defined policies and procedures for conducting and governing our business, sophisticated information systems for processing transactions and properly trained staff. Mechanisms are in place to monitor the effectiveness of our internal control over financial reporting, including regular testing performed by the Company’s internal audit team. Actions are taken to correct deficiencies as they are identified. Our procedures for financial reporting include the active involvement of senior management, our Audit Committee and a staff of highly qualified financial and legal professionals. Management, with the participation of our principal executive and financial officers, assessed our internal control over financial reporting as of August 29, 2020, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of August 29, 2020. Our independent registered public accounting firm, Ernst & Young LLP, audited the effectiveness of our internal control over financial reporting. Ernst & Young LLP’s attestation report on the Company’s internal control over financial reporting as of August 29, 2020 is included in this Annual Report on Form 10-K. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 44 ‌ ​ Report of Independent Registered Public Accounting Firm ​ To the Board of Directors and Stockholders of AutoZone, Inc. ​ Opinion on Internal Control Over Financial Reporting We have audited AutoZone Inc.’s internal control over financial reporting as of August 29, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, AutoZone, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of August 29, 2020, based on the COSO criteria. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 29, 2020 and August 31, 2019, and the related consolidated statements of income, comprehensive income, stockholders’ deficit, and cash flows for each of the three years in the period ended August 29, 2020, and the related notes and our report dated October 26, 2020 expressed an unqualified opinion thereon. ​ Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. ​ Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. ​ Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. ​ Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ​ /s/ Ernst & Young LLP Memphis, Tennessee October 26, 2020 45 ‌ ​ Report of Independent Registered Public Accounting Firm ​ To the Board of Directors and Stockholders of AutoZone, Inc. ​ Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of AutoZone, Inc. (the Company) as of August 29, 2020 and August 31, 2019, the related consolidated statements of income, comprehensive income, stockholders' deficit, and cash flows for each of the three years in the period ended August 29, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at August 29, 2020 and August 31, 2019, and the results of its operations and its cash flows for each of the three years in the period ended August 29, 2020, in conformity with U.S. generally accepted accounting principles. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of August 29, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October 26, 2020, expressed an unqualified opinion thereon. ​ Adoption of ASU 2016-02 As discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for leases on September 1, 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and related amendments. ​ Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. ​ ​ ​ ​ ​ 46 ‌ ​ Valuation of Self-insurance Reserves Description of the Matter At August 29, 2020, the Company’s self-insurance reserve estimate was $289 million. As more fully described in Note A of the consolidated financial statements, the Company retains a significant portion of the risks associated with workers’ compensation, general liability, product liability, property and vehicle insurance. Accordingly, the Company utilizes various methods, including analyses of historical trends and actuarial methods, to estimate the costs of these risks. ​ ​ ​ ​ ​ ​ How We Addressed the Matter in Our Audit Auditing the self-insurance reserve is complex and required the involvement of specialists due to the judgmental nature of estimating the costs to settle reported claims and claims incurred but not yet reported. There are a number of factors and/or assumptions (e.g., severity, duration and frequency of claims, projected inflation of related factors, and the risk-free rate) used in the measurement process which have a significant effect on the estimated self-insurance reserve. We evaluated the design and tested the operating effectiveness of the Company’s controls over the self-insurance reserve process. For example, we tested controls over management’s review of the self-insurance reserve calculations, the significant actuarial assumptions and the data inputs provided to the actuary. To evaluate the self-insurance reserve, our audit procedures included, among others, assessing the methodologies used, evaluating the significant actuarial assumptions discussed above and testing the completeness and the accuracy of the underlying claims data used by the Company. We compared the actuarial assumptions used by management to historical trends and evaluated the change in the self-insurance reserve from the prior year due to changes in these assumptions. In addition, we involved our actuarial specialists to assist in assessing the valuation methodologies and significant assumptions used in the valuation analysis, we evaluated management’s methodology for determining the risk-free interest rate utilized in measuring the net present value of the long-term portion of the self-insurance reserve, we compared the significant assumptions used by management to industry accepted actuarial assumptions and we compared the Company’s reserve to a range developed by our actuarial specialists based on assumptions developed by the specialists. ​ ​ /s/ Ernst & Young LLP We have served as the Company’s auditor since 1988. Memphis, Tennessee October 26, 2020 ​ 47 ‌ ​ AutoZone, Inc. Consolidated Statements of Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ August 29, ​ August 31, ​ August 25, ​ ​ 2020 ​ 2019 ​ 2018 (in thousands, except per share data) ​ (52 weeks) ​ (53 weeks) ​ (52 weeks) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales $ 12,631,967 $ 11,863,743 $ 11,221,077 Cost of sales, including warehouse and delivery expenses ​ ​ 5,861,214 ​ ​ 5,498,742 ​ ​ 5,247,331 Gross profit ​ ​ 6,770,753 ​ 6,365,001 ​ 5,973,746 Operating, selling, general and administrative expenses ​ ​ 4,353,074 ​ ​ 4,148,864 ​ ​ 4,162,890 Operating profit ​ ​ 2,417,679 ​ ​ 2,216,137 ​ ​ 1,810,856 Interest expense, net ​ ​ 201,165 ​ ​ 184,804 ​ ​ 174,527 Income before income taxes ​ ​ 2,216,514 ​ 2,031,333 ​ 1,636,329 Income tax expense ​ ​ 483,542 ​ ​ 414,112 ​ ​ 298,793 Net income ​ $ 1,732,972 ​ $ 1,617,221 ​ $ 1,337,536 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares for basic earnings per share ​ 23,540 ​ 24,966 ​ 26,970 Effect of dilutive stock equivalents ​ ​ 553 ​ ​ 532 ​ ​ 454 Weighted average shares for diluted earnings per share ​ 24,093 ​ 25,498 ​ 27,424 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share ​ $ 73.62 ​ $ 64.78 ​ $ 49.59 Diluted earnings per share ​ $ 71.93 ​ $ 63.43 ​ $ 48.77 ​ See Notes to Consolidated Financial Statements. AutoZone, Inc. Consolidated Statements of Comprehensive Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ August 29, ​ August 31, ​ August 25, ​ 2020 ​ 2019 ​ 2018 (in thousands) ​ (52 weeks) ​ (53 weeks) ​ (52 weeks) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 1,732,972 ​ $ 1,617,221 ​ $ 1,337,536 Other comprehensive loss: ​ ​ ​ Pension liability adjustments, net of taxes (1)(2) ​ — ​ — ​ 72,376 Foreign currency translation adjustments ​ ( 66,723 ) ​ ( 36,699 ) ​ ( 53,085 ) Unrealized gains (losses) on marketable debt securities, net of taxes (3) ​ 1,254 ​ 1,464 ​ ( 862 ) Net derivative activities, net of taxes (4) ​ ( 19,461 ) ​ 1,718 ​ 323 Total other comprehensive (loss) income ​ ( 84,930 ) ​ ( 33,517 ) ​ 18,752 Comprehensive income ​ $ 1,648,042 ​ $ 1,583,704 ​ $ 1,356,288 (1) Pension liability adjustments are presented net of taxes of $ 46,523 in 2018, which includes $ 13,122 related to the adoption of ASU 2018-02 - Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax effects from Accumulated Other Comprehensive Income (ASU 2018-02). (2) On December 19, 2017, the Board approved a resolution to terminate both of the Company’s pension plans, effective March 15, 2018. During the fourth quarter of 2018, the Company completed the termination and no longer has any remaining defined benefit pension obligation. (3) Unrealized gains on marketable debt securities are presented net of taxes of $ 336 and $ 389 in 2020 and 2019, respectively. Unrealized losses on marketable debt securities are presented net of tax benefit of $ 234 in 2018. (4) Net derivative activities are presented net of tax benefit of $ 6,164 in 2020. Net derivative activities are presented net of taxes of $ 530 in 2019 and $ 1,882 in 2018, which includes $ 1,367 related to the adoption of ASU 2018-02. ​ See Notes to Consolidated Financial Statements. 48 ‌ ​ AutoZone, Inc. Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ August 29, ​ August 31, (in thousands) ​ 2020 ​ 2019 ​ ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ Current assets: ​ ​ ​ ​ Cash and cash equivalents ​ $ 1,750,815 ​ $ 176,300 Accounts receivable ​ 364,774 ​ 308,995 Merchandise inventories ​ 4,473,282 ​ 4,319,113 Other current assets ​ 223,001 ​ 224,277 Total current assets ​ 6,811,872 ​ 5,028,685 ​ ​ ​ ​ ​ ​ ​ Property and equipment: ​ ​ ​ ​ ​ ​ Land ​ 1,205,228 ​ 1,147,709 Buildings and improvements ​ 4,020,271 ​ 3,895,559 Equipment ​ 2,158,251 ​ 1,991,042 Leasehold improvements ​ 586,839 ​ 552,018 Construction in progress ​ 165,953 ​ 126,868 Property and equipment ​ 8,136,542 ​ 7,713,196 Less: Accumulated depreciation and amortization ​ ( 3,627,321 ) ​ ( 3,314,445 ) ​ ​ 4,509,221 ​ 4,398,751 ​ ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ ​ 2,581,677 ​ ​ — Goodwill ​ 302,645 ​ 302,645 Deferred income taxes ​ 27,843 ​ 26,861 Other long-term assets ​ 190,614 ​ 138,971 ​ ​ 3,102,779 ​ 468,477 ​ ​ $ 14,423,872 ​ $ 9,895,913 ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders’ Deficit ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 5,156,324 ​ $ 4,864,912 Current portion of operating lease liabilities ​ ​ 223,846 ​ ​ — Accrued expenses and other ​ 827,668 ​ 621,932 Income taxes payable ​ 75,253 ​ 25,297 Total current liabilities ​ 6,283,091 ​ 5,512,141 ​ ​ ​ ​ ​ ​ ​ Long-term debt ​ 5,513,371 ​ 5,206,344 Operating lease liabilities, less current portion ​ ​ 2,501,560 ​ ​ — Deferred income taxes ​ 354,186 ​ 311,980 Other long-term liabilities ​ 649,641 ​ 579,299 ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ deficit: ​ ​ ​ ​ ​ ​ Preferred stock, authorized 1,000 shares; no shares issued ​ — ​ — Common stock, par value $ .01 per share, authorized 200,000 shares; 23,697 shares issued and 23,376 shares outstanding as of August 29, 2020; 25,445 shares issued and 24,038 shares outstanding as of August 31, 2019 ​ 237 ​ 254 Additional paid-in capital ​ 1,283,495 ​ 1,264,448 Retained deficit ​ ( 1,450,970 ) ​ ( 1,305,347 ) Accumulated other comprehensive loss ​ ( 354,252 ) ​ ( 269,322 ) Treasury stock, at cost ​ ( 356,487 ) ​ ( 1,403,884 ) Total stockholders’ deficit ​ ( 877,977 ) ​ ( 1,713,851 ) ​ ​ $ 14,423,872 ​ $ 9,895,913 ​ See Notes to Consolidated Financial Statements. 49 ‌ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ AutoZone, Inc. Consolidated Statements of Cash Flows ​ ​ Year Ended ​ August 29, ​ August 31, ​ August 25, ​ ​ 2020 ​ 2019 ​ 2018 (in thousands) ​ (52 weeks) ​ (53 weeks) ​ (52 weeks) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from operating activities: ​ ​ ​ Net income ​ $ 1,732,972 ​ $ 1,617,221 ​ $ 1,337,536 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ Depreciation and amortization of property and equipment and intangibles ​ 397,466 ​ 369,957 ​ 345,084 Amortization of debt origination fees ​ 10,730 ​ 8,162 ​ 8,393 Deferred income taxes ​ 51,077 ​ 35,051 ​ ( 124,261 ) Share-based compensation expense ​ 44,835 ​ 43,255 ​ 43,674 Pension plan contributions ​ — ​ — ​ ( 11,596 ) Pension termination charges (refund) ​ — ​ ( 6,796 ) ​ 130,263 Asset impairment ​ — ​ — ​ 193,162 Changes in operating assets and liabilities: ​ ​ ​ Accounts receivable ​ ( 58,564 ) ​ ( 48,512 ) ​ 7,534 Merchandise inventories ​ ( 184,174 ) ​ ( 394,147 ) ​ ( 188,782 ) Accounts payable and accrued expenses ​ 531,131 ​ 464,176 ​ 319,609 Income taxes payable ​ 90,172 ​ ( 10,489 ) ​ ( 6,438 ) Other, net ​ 104,463 ​ 50,635 ​ 26,114 Net cash provided by operating activities ​ 2,720,108 ​ 2,128,513 ​ 2,080,292 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ Capital expenditures ​ ( 457,736 ) ​ ( 496,050 ) ​ ( 521,788 ) Proceeds from sale of assets ​ — ​ — ​ 35,279 Purchase of marketable debt securities ​ ( 90,949 ) ​ ( 55,538 ) ​ ( 104,536 ) Proceeds from sale of marketable debt securities ​ 84,237 ​ 53,140 ​ 69,644 Investment in tax credit equity investments ​ ​ ( 45,190 ) ​ ​ — ​ ​ — Proceeds (payments) from disposal of capital assets and other, net ​ 11,763 ​ 6,602 ​ ( 459 ) Net cash used in investing activities ​ ( 497,875 ) ​ ( 491,846 ) ​ ( 521,860 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ Net (payments) proceeds of commercial paper ​ ( 1,030,000 ) ​ ( 295,300 ) ​ 170,200 Proceeds from issuance of debt ​ 1,850,000 ​ 750,000 ​ — Repayment of debt ​ ( 500,000 ) ​ ( 250,000 ) ​ ( 250,000 ) Net proceeds from sale of common stock ​ 68,392 ​ 188,819 ​ 89,715 Purchase of treasury stock ​ ​ ( 930,903 ) ​ ​ ( 2,004,896 ) ​ ( 1,592,013 ) Repayment of principal portion of finance lease liabilities ​ ( 52,158 ) ​ ​ ( 53,307 ) ​ ( 49,004 ) Other, net ​ ( 48,967 ) ​ ( 9,404 ) ​ ( 1,052 ) Net cash used in financing activities ​ ( 643,636 ) ​ ( 1,674,088 ) ​ ( 1,632,154 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash ​ ( 4,082 ) ​ ( 4,103 ) ​ ( 1,724 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net increase (decrease) in cash and cash equivalents ​ 1,574,515 ​ ( 41,524 ) ​ ( 75,446 ) Cash and cash equivalents at beginning of period ​ 176,300 ​ 217,824 ​ 293,270 Cash and cash equivalents at end of period ​ $ 1,750,815 ​ $ 176,300 ​ $ 217,824 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental cash flow information: ​ ​ ​ Interest paid, net of interest cost capitalized ​ $ 161,864 ​ $ 153,371 ​ $ 163,965 Income taxes paid ​ $ 339,486 ​ $ 383,871 ​ $ 427,161 Leased assets obtained in exchange for new finance lease liabilities ​ $ 115,867 ​ $ 147,699 ​ $ 98,782 Leased assets obtained in exchange for new operating lease liabilities ​ $ 425,018 ​ $ — ​ $ — ​ See Notes to Consolidated Financial Statements. 50 ‌ ​ ​ AutoZone, Inc. Consolidated Statements of Stockholders’ Deficit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ Shares Common Paid-in Retained Comprehensive Treasury ​ ​ (in thousands) ​ Issued ​ Stock ​ Capital ​ Deficit ​ Loss ​ Stock ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at August 26, 2017 28,735 ​ $ 287 ​ $ 1,086,671 ​ $ ( 1,642,387 ) ​ $ ( 254,557 ) ​ $ ( 618,391 ) ​ $ ( 1,428,377 ) Net income — ​ — ​ — ​ 1,337,536 ​ — ​ — ​ 1,337,536 Total other comprehensive income — ​ — ​ — ​ — ​ 18,752 ​ — ​ 18,752 Purchase of 2,398 shares of treasury stock — ​ — ​ — ​ — ​ — ​ ( 1,592,013 ) ​ ( 1,592,013 ) Retirement of treasury shares ( 1,512 ) ​ ( 15 ) ​ ( 60,500 ) ​ ( 918,462 ) ​ — ​ 978,977 ​ — Issuance of common stock under stock options and stock purchase plans 307 ​ 3 ​ 89,712 ​ ​ — ​ ​ — ​ ​ — ​ 89,715 Adoption of ASU 2018-02 — ​ — ​ — ​ 14,489 ​ — ​ — ​ 14,489 Share-based compensation expense — ​ — ​ 39,543 ​ — ​ — ​ — ​ 39,543 Balance at August 25, 2018 27,530 ​ 275 ​ 1,155,426 ​ ( 1,208,824 ) ​ ( 235,805 ) ​ ( 1,231,427 ) ​ ( 1,520,355 ) Cumulative effect of adoption of ASU 2014-09 — ​ — ​ — ​ ( 6,773 ) ​ — ​ — ​ ( 6,773 ) Balance at August 25, 2018, as adjusted 27,530 ​ 275 ​ 1,155,426 ​ ( 1,215,597 ) ​ ( 235,805 ) ​ ( 1,231,427 ) ​ ( 1,527,128 ) Net income — ​ — ​ — ​ 1,617,221 ​ — ​ — ​ 1,617,221 Total other comprehensive income — ​ — ​ — ​ — ​ ( 33,517 ) ​ — ​ ( 33,517 ) Purchase of 2,182 shares of treasury stock — ​ — ​ — ​ — ​ — ​ ( 2,004,896 ) ​ ( 2,004,896 ) Retirement of treasury shares ( 2,563 ) ​ ( 26 ) ​ ( 125,442 ) ​ ( 1,706,971 ) ​ — ​ 1,832,439 ​ — Issuance of common stock under stock options and stock purchase plans 478 ​ 5 ​ 195,185 ​ ​ — ​ ​ — ​ ​ — ​ 195,190 Share-based compensation expense — ​ — ​ 39,279 ​ — ​ — ​ — ​ 39,279 Balance at August 31, 2019 25,445 ​ 254 ​ 1,264,448 ​ ( 1,305,347 ) ​ ( 269,322 ) ​ ( 1,403,884 ) ​ ( 1,713,851 ) Net income — ​ — ​ — ​ 1,732,972 ​ — ​ — ​ 1,732,972 Total other comprehensive income — ​ — ​ — ​ — ​ ( 84,930 ) ​ — ​ ( 84,930 ) Purchase of 826 shares of treasury stock — ​ — ​ — ​ — ​ — ​ ( 930,903 ) ​ ( 930,903 ) Retirement of treasury shares ( 1,912 ) ​ ( 19 ) ​ ( 99,686 ) ​ ( 1,878,595 ) ​ — ​ 1,978,300 ​ — Issuance of common stock under stock options and stock purchase plans 164 ​ 2 ​ 74,985 ​ ​ — ​ ​ — ​ ​ — ​ 74,987 Share-based compensation expense — ​ — ​ 43,748 ​ — ​ — ​ — ​ 43,748 Balance at August 29, 2020 23,697 ​ $ 237 ​ $ 1,283,495 ​ $ ( 1,450,970 ) ​ $ ( 354,252 ) ​ $ ( 356,487 ) ​ $ ( 877,977 ) ​ See Notes to Consolidated Financial Statements. ​ 51 ‌ ​ Notes to Consolidated Financial Statements Note A – Significant Accounting Policies Business: AutoZone, Inc. (“AutoZone” or the “Company”) is the leading retailer, and a leading distributor, of automotive replacement parts and accessories in the Americas. At the end of fiscal 2020, the Company operated 5,885 stores in the U.S., 621 stores in Mexico and 43 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 the end of fiscal 2020, 5,007 of the domestic stores had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts. The Company also had commercial programs in all stores in Mexico and Brazil. The Company also sells the ALLDATA brand automotive diagnostic and repair software through www.alldata.com and www.alldatadiy.com. Additionally, the Company sells automotive hard parts, maintenance items, accessories, and non-automotive products through www.autozone.com, and its commercial customers can make purchases through www.autozonepro.com. The Company also provides product information on its Duralast branded products through www.duralastparts.com. The Company does not derive revenue from automotive repair or installation services. Fiscal Year: The Company’s fiscal year consists of 52 or 53 weeks ending on the last Saturday in August. Fiscal 2020 and 2018 represented 52 weeks and 2019 represented 53 weeks. Basis of Presentation: The Consolidated Financial Statements include the accounts of AutoZone, Inc. and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Variable Interest Entities: The Company invests in certain tax credit funds that promote renewable energy and generate a return primarily through the realization of federal tax credits. The deferral method is used to account for the tax attributes of these investments. ​ The Company considers its investment in these tax credit funds as an investment in a variable interest entity (“VIE”). The Company evaluates the investment in any VIE to determine whether it is the primary beneficiary. The Company considers a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct financing, leasing, construction and other operating decisions and activities. As of August 29, 2020, the Company held tax credit equity investments that were deemed to be VIE’s and determined that it was not the primary beneficiary of the entities, as it did not have the power to direct the activities that most significantly impacted the entity and accounted for this investment using the equity method. The Company’s maximum exposure to losses is limited to its net investment, which was $ 6.5 million as of August 29, 2020, and was included within the Other long-term assets caption in the accompanying Consolidated Balance Sheets. Use of Estimates: Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities to prepare these financial statements. Actual results could differ from those estimates. Cash and Cash Equivalents: Cash equivalents consist of investments with original maturities of 90 days or less at the date of purchase. Cash equivalents include proceeds due from credit and debit card transactions with settlement terms of less than five days . Credit and debit card receivables included within cash and cash equivalents were $ 63.7 million at August 29, 2020 and $ 59.4 million at August 31, 2019. Cash balances are held in various locations around the world. Cash and cash equivalents of $ 62.4 million and $ 49.9 million were held outside of the U.S. as of August 29, 2020, and August 31, 2019, respectively, and were generally utilized to support the liquidity needs in foreign operations. 52 ‌ ​ Accounts Receivable: Accounts receivable consists of receivables from commercial customers and vendors, and is presented net of an allowance for uncollectible accounts. AutoZone routinely grants credit to certain of its commercial customers. The risk of credit loss in its trade receivables is substantially mitigated by the Company’s credit evaluation process, short collection terms and sales to a large number of customers, as well as the low dollar value per transaction for most of its sales. Allowances for potential credit losses are determined based on historical experience and current evaluation of the composition of accounts receivable. Historically, credit losses have been within management’s expectations, and the balance of the allowance for uncollectible accounts was $ 10.0 million at August 29, 2020, and $ 8.5 million at August 31, 2019. 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 market 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 to not write up inventory in excess of replacement cost. The difference between LIFO cost and replacement cost, which will be reduced upon experiencing price inflation on the Company’s merchandise purchases, was $ 357.0 million at August 29, 2020, and $ 404.9 million at August 31, 2019. Marketable Debt Securities: The Company invests a portion of its assets held by the Company’s wholly owned insurance captive in marketable debt securities and classifies them as available-for-sale. The Company includes these debt securities within the Other current assets and Other long-term assets captions in the accompanying Consolidated Balance Sheets and records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period. A discussion of marketable debt securities is included in “Note E – Fair Value Measurements” and “Note F – Marketable Debt Securities.” Property and Equipment: Property and equipment is stated at cost. Property consists of land, which includes finance leases – real estate, buildings and improvements, equipment, which includes finance leases – vehicles, and construction in progress. Depreciation and amortization are computed principally using the straight-line method over the following estimated useful lives: buildings, 40 to 50 years ; building improvements, 5 to 15 years ; equipment, including software, 3 to 10 years ; and leasehold improvements, over the shorter of the asset’s estimated useful life or the remaining lease term, which includes any reasonably assured renewal periods. Depreciation and amortization include amortization of assets under finance lease. Impairment of Long-Lived Assets: The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When such an event occurs, the Company compares the sum of the undiscounted expected future cash flows of the asset (asset group) with the carrying amounts of the asset. If the undiscounted expected future cash flows are less than the carrying value of the assets, the Company measures the amount of impairment loss as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Goodwill: The cost in excess of fair value of identifiable net assets of businesses acquired is recorded as goodwill. Goodwill has not been amortized since fiscal 2001, but an analysis is performed at least annually to compare the fair value of the reporting unit to the carrying amount to determine if any impairment exists. The Company performs its annual impairment assessment in the fourth quarter of each fiscal year, unless circumstances dictate more frequent assessments. Refer to “Note N – Goodwill and Intangibles” for additional disclosures regarding the Company’s goodwill and impairment assessment. Intangible Assets: Intangible assets consist of customer relationships purchased relating to ALLDATA operations. Amortizing intangible assets are amortized over periods ranging from 3 to 10 years . Refer to “Note N – Goodwill and Intangibles” and “Note M – Sale of Assets” for additional disclosures regarding the Company’s intangible assets and impairment assessment. 53 ‌ ​ Derivative Instruments and Hedging Activities: AutoZone is exposed to market risk from, among other things, changes in interest rates, foreign exchange rates and fuel prices. From time to time, the Company uses various derivative instruments to reduce such risks. To date, based upon the Company’s current level of foreign operations, no derivative instruments have been utilized to reduce foreign exchange rate risk. All of the Company’s hedging activities are governed by guidelines that are authorized by AutoZone’s Board of Directors (the “Board”). Further, the Company does not buy or sell derivative instruments for trading purposes. AutoZone’s financial market risk results primarily from changes in interest rates. At times, AutoZone reduces its exposure to changes in interest rates by entering into various interest rate hedge instruments such as interest rate swap contracts, treasury lock agreements and forward-starting interest rate swaps. All of the Company’s interest rate hedge instruments are designated as cash flow hedges. Refer to “Note H – Derivative Financial Instruments” for additional disclosures regarding the Company’s derivative instruments and hedging activities. Cash flows related to these instruments designated as qualifying hedges are reflected in the accompanying Consolidated Statements of Cash Flows in the same categories as the cash flows from the items being hedged. Accordingly, cash flows relating to the settlement of interest rate derivatives hedging the forecasted issuance of debt have been reflected upon settlement as a component of financing cash flows. The resulting gain or loss from such settlement is deferred to Accumulated Other Comprehensive Loss and reclassified to interest expense over the term of the underlying debt. This reclassification of the deferred gains and losses impacts the interest expense recognized on the underlying debt that was hedged and is therefore reflected as a component of operating cash flows in periods subsequent to settlement. Foreign Currency: The Company accounts for its Mexican, Brazilian, Canadian, European, Chinese and German operations using the local market currency and converts its financial statements from these currencies to U.S. dollars. The cumulative loss on currency translation is recorded as a component of Accumulated Other Comprehensive Loss (Refer to “Note G – Accumulated Other Comprehensive Loss” for additional information regarding the Company’s Accumulated Other Comprehensive Loss.) Self-Insurance Reserves: The Company retains a significant portion of the risks associated with workers’ compensation, general liability, product liability, property and vehicle insurance. The Company obtains third party insurance to limit the exposure related to certain of these risks. The reserve for the Company’s liability associated with these risks totaled $ 288.6 million and $ 207.0 million at August 29, 2020 and August 31, 2019, respectively. The assumptions made by management in estimating its self-insurance reserves include consideration of historical cost experience, judgments about the present and expected levels of cost per claim and retention levels. The Company utilizes various methods, including analyses of historical trends and use of a specialist, to estimate the costs to settle reported claims and claims incurred but not yet reported. The actuarial methods develop estimates of the future ultimate claim costs based on claims incurred as of the balance sheet date. When estimating these liabilities, the Company considers factors, such as the severity, duration and frequency of claims, legal costs associated with claims, healthcare trends and projected inflation of related factors. The Company’s liabilities for workers’ compensation, general and product liability, property and vehicle claims do not have scheduled maturities; however, the timing of future payments is predictable based on historical patterns and is relied upon in determining the current portion of these liabilities. Accordingly, the Company reflects the net present value of the obligations it determines to be long-term using the risk-free interest rate as of the balance sheet date. 54 ‌ ​ Leases: The Company leases certain retail stores, distribution centers and vehicles under various non-callable leases. Leases are categorized at their commencement date and lease-related assets and liabilities are recognized for all leases with an initial term of 12 months or greater. The exercise of lease renewal options is at the Company’s sole discretion. The Company evaluates renewal options at commencement and on an ongoing basis and includes options that are reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease components are not separated from the non-lease components (typically fixed common-area maintenance costs at its retail store locations) for all classes of leased assets, except vehicles which contain variable non-lease components that are expensed as incurred. The Company uses the stated borrowing rate in determining the present value of the lease payments over the lease term for vehicles. The Company’s incremental borrowing rate is used to determine the present value of the lease payments over the lease term for substantially all the operating and financing leases for retail stores, distribution centers and other real estate, as these leases typically do not have a stated borrowing rate. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Effective in fiscal 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). Refer to “Note A – Recently Adopted Accounting Pronouncements”. Prior to the adoption of Topic 842, the Company accounted for leases under Topic 840 and recognized rent expense on a straight-line basis over the course of the lease term, which included any reasonably assured renewal periods, beginning on the date the Company took physical possession of the property. Differences between the calculated expense and cash payments was recorded as a liability within the Accrued expenses and other and Other long-term liabilities captions in the accompanying Consolidated Balance Sheets, based on the terms of the lease. Deferred rent approximated $ 159.9 million as of August 31, 2019. Refer to Note O – Leases for additional disclosures regarding the Company’s leases. Financial Instruments: The Company has financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short maturities. A discussion of the carrying values and fair values of the Company’s debt is included in “Note I – Financing,” marketable debt securities is included in “Note F – Marketable Debt Securities,” and derivatives is included in “Note H – Derivative Financial Instruments.” Income Taxes: The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Our effective tax rate is based on income by tax jurisdiction, statutory rates and tax saving initiatives available to the Company in the various jurisdictions in which we operate. The Company recognizes liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on a quarterly basis or when new information becomes available to management. These reevaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, expirations due to statutes and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to the tax accrual. The Company classifies interest related to income tax liabilities, and if applicable, penalties, as a component of Income tax expense. The income tax liabilities and accrued interest and penalties that are expected to be payable within one year of the balance sheet date are presented within the Accrued expenses and other caption in the accompanying Consolidated Balance Sheets. The remaining portion of the income tax liabilities and accrued interest and penalties are presented within the Other long-term liabilities caption in the accompanying Consolidated Balance Sheets because payment of cash is not anticipated within one year of the balance sheet date. Refer to “Note D – Income Taxes” for additional disclosures regarding the Company’s income taxes. 55 ‌ ​ Sales and Use Taxes: Governmental authorities assess sales and use taxes on the sale of goods and services. The Company excludes taxes collected from customers in its reported sales results; such amounts are included within the Accrued expenses and other caption until remitted to the taxing authorities. Dividends: The Company currently does not pay a dividend on its common stock. The ability to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, any future payment of dividends would be dependent upon the Company’s financial condition, capital requirements, earnings and cash flow. Revenue Recognition: The Company’s primary source of revenue is derived from the sale of automotive aftermarket parts and merchandise to its retail and commercial customers. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, in an amount representing the consideration the Company expects to receive in exchange for selling products to its customers. Sales are recorded net of variable consideration in the period incurred, including discounts, sales incentives and rebates, sales taxes and estimated sales returns. Sales returns are based on historical return rates. The Company may enter into contracts that include multiple combinations of products and services, which are accounted for as separate performance obligations and do not require significant judgment. The Company’s performance obligations are typically satisfied when the customer takes possession of the merchandise. Revenue from retail customers is recognized when the customer leaves our store with the purchased products, typically at the point of sale or for E-commerce orders when the product is shipped. Revenue from commercial customers is recognized upon delivery, typically same-day. Payment from retail customers is at the point of sale and payment terms for commercial customers are based on the Company’s pre-established credit requirements and generally range from 1 to 30 days. Discounts, sales incentives and rebates are treated as separate performance obligations, and revenue allocated to these performance obligations is recognized as the obligations to the customer are satisfied. Additionally, the Company estimates and records gift card breakage as redemptions occur. The Company offers diagnostic and repair information software used in the automotive repair industry through ALLDATA. This revenue is recognized as services are provided. Revenue from these services are recognized over the life of the contract. See “Note R – Revenue Recognition” for further discussion. A portion of the Company’s transactions include the sale of auto parts that contain a core component. The core component represents the recyclable portion of the auto part. Customers are not charged for the core component of the new part if a used core is returned at the point of sale of the new part; otherwise the Company charges customers a specified amount for the core component. The Company refunds that same amount upon the customer returning a used core to the store at a later date. The Company does not recognize sales or cost of sales for the core component of these transactions when a used part is returned or expected to be returned from the customer. Vendor Allowances and Advertising Costs: The Company receives various payments and allowances from its vendors through a variety of programs and arrangements. Monies received from vendors include rebates, allowances and promotional funds. The amounts to be received are subject to the terms of the vendor agreements, which generally do not state an expiration date, but are subject to ongoing negotiations that may be impacted in the future based on changes in market conditions, vendor marketing strategies and changes in the profitability or sell-through of the related merchandise. Rebates and other miscellaneous incentives are earned based on purchases or product sales and are accrued ratably over the purchase or sale of the related product. These monies are generally recorded as a reduction of merchandise inventories and are recognized as a reduction to cost of sales as the related inventories are sold. For arrangements that provide for reimbursement of specific, incremental, identifiable costs incurred by the Company in selling the vendors’ products, the vendor funds are recorded as a reduction to Operating, selling, general and administrative expenses in the period in which the specific costs were incurred. 56 ‌ ​ The Company expenses advertising costs as incurred. Advertising expense, net of vendor promotional funds, was $ 77.6 million in fiscal 2020, $ 87.5 million in fiscal 2019 and $ 95.2 million in fiscal 2018. Vendor promotional funds, which reduced advertising expense, amounted to $ 39.4 million in fiscal 2020, $ 32.2 million in fiscal 2019 and $ 25.3 million in fiscal 2018. Cost of Sales and Operating, Selling, General and Administrative Expenses: The following illustrates the primary costs classified in each major expense category: Cost of Sales ● Total cost of merchandise sold, including: o Freight expenses associated with moving merchandise inventories from the Company’s vendors to the distribution centers; o Vendor allowances that are not reimbursements for specific, incremental and identifiable costs ● Costs associated with operating the Company’s supply chain, including payroll and benefits, warehouse occupancy, transportation and depreciation; and ● Inventory shrinkage Operating, Selling, General and Administrative Expenses ● Payroll and benefits for store, field leadership and store support employees; ● Occupancy of store and store support facilities; ● Depreciation and amortization related to store and store support assets; ● Transportation associated with field leadership, commercial sales force and deliveries from stores; ● Advertising; ● Self-insurance; and ● Other administrative costs, such as credit card transaction fees, legal costs, supplies and travel and lodging Warranty Costs: The Company or the vendors supplying its products provides the Company’s customers limited warranties on certain products that range from 30 days to lifetime. In most cases, the Company’s vendors are primarily responsible for warranty claims. Warranty costs relating to merchandise sold under warranty not covered by vendors are estimated and recorded as warranty obligations at the time of sale based on each product’s historical return rate. These obligations, which are often funded by vendor allowances, are recorded within the Accrued expenses and other caption in the Consolidated Balance Sheets. For vendor allowances that are in excess of the related estimated warranty expense for the vendor’s products, the excess is recorded in inventory and recognized as a reduction to cost of sales as the related inventory is sold. Shipping and Handling Costs: The Company does not generally charge customers separately for shipping and handling. Substantially all the costs the Company incurs to ship products to our stores are included in cost of sales. Pre-opening Expenses: Pre-opening expenses, which consist primarily of payroll and occupancy costs, are expensed as incurred. Earnings per Share : Basic earnings per share is based on the weighted average outstanding common shares. Diluted earnings per share is based on the weighted average outstanding common shares adjusted for the effect of common stock equivalents, which are primarily stock options. There were 169,460 , 90,314 and 847,279 stock options excluded for the year ended August 29, 2020, August 31, 2019 and August 25, 2018, respectively because they would have been anti-dilutive. 57 ‌ ​ Share-Based Payments: Share-based payments include stock option grants, restricted stock, restricted stock units, stock appreciation rights and other transactions under the Company’s equity incentive plans. The Company recognizes compensation expense for its share-based payments over the requisite service period based on the fair value of the awards. The Company uses the Black-Scholes option pricing model to calculate the fair value of stock options. The value of restricted stock is based on the stock price of the award on the grant date. See “Note B – Share-Based Payments” for further discussion. Risk and Uncertainties: In fiscal 2020, one class of similar products accounted for approximately 12 percent of the Company’s total revenues, and one vendor supplied approximately 12 percent of the Company’s total purchases. No other class of similar products accounted for 10 percent or more of total revenues , and no other individual vendor provided more than 10 percent of total purchases. Recently Adopted Accounting Pronouncements: In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) , and subsequently amended this update by issuing additional ASU’s that provided clarification and further guidance for areas identified as potential implementation issues. ASU 2016-02 requires a two-fold approach for lessee accounting, under which a lessee will account for leases as finance leases or operating leases. For all leases with original terms greater than 12 months, both lease classifications will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodologies for income statement recognition. This guidance also requires certain quantitative and qualitative disclosures about leasing arrangements. ASU 2016-02 and its amendments were effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption was permitted. The ASU’s transition provisions could be applied under a modified retrospective approach to each prior reporting period presented in the financial statements or only at the beginning of the period of adoption using the alternative transition method. ​ The Company adopted this standard and its amendments as of September 1, 2019, using the modified retrospective transition method. Under this method, existing leases were recorded at the adoption date, comparative periods were not restated and prior period amounts were not adjusted and continue to be reported under the accounting standards in effect for the prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the carry forward of prior lease identification under Accounting Standards Codification (“ASC”) Topic 840. The Company made the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term. The Company also elected the practical expedient to not separate lease components from the non-lease components (typically fixed common-area maintenance costs at its retail store locations) for all classes of leased assets, except vehicles. The Company chose not to elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. Adoption of the leasing standard resulted in operating lease right-of-use assets of approximately $ 2.5 billion and operating lease liabilities of approximately $ 2.7 billion as of September 1, 2019. Existing prepaid and deferred rent were netted and recorded as an offset to our gross operating lease right-of-use assets. There was no adjustment to the opening balance of retained earnings upon adoption. The standard did not have a material impact on the Company’s Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Cash Flows or covenant compliance under its existing credit agreement. Refer to “Note O – Leases”. In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 aims to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The Company adopted this standard beginning with its first quarter ending November 23, 2019. The Company determined that the provisions of ASU 2018-07 did not have an impact on its Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows. 58 ‌ ​ Recently Issued Accounting Pronouncements: In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract . The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this standard beginning with its first quarter ending November 21, 2020. The Company does not expect a material effect on its Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows. 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 will require entities to estimate lifetime expected credit losses for trade and other receivables, net investments in leases, financial receivables, debt securities, and other instruments, which will result in earlier recognition of credit losses. Further, the new credit loss model will affect how entities estimate their allowance for loss receivables that are current with respect to their payment terms. ASU 2016-13 will be effective for the Company at the beginning of its fiscal 2021 year. The Company will adopt this standard beginning its first quarter ending November 21, 2020. The Company does not expect a material effect on its Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows. Note B – Share-Based Payments Overview of Share-Based Payment Plans The Company has several active and inactive equity incentive plans under which the Company has been authorized to grant share-based awards to key employees and non-employee directors. Awards under these plans have been in the form of restricted stock, restricted stock units, stock options, stock appreciation rights and other awards as defined by the plans. The Company also has an Employee Stock Purchase Plan that allows employees to purchase Company shares at a discount subject to certain limitations. The Company also has an Executive Stock Purchase Plan which permits all eligible executives to purchase AutoZone’s common stock at a discount up to twenty-five percent of his or her annual salary and bonus. Amended and Restated AutoZone, Inc. 2011 Equity Incentive Award Plan On December 15, 2010, the Company’s stockholders approved the 2011 Equity Incentive Award Plan (the “2011 Plan”), allowing the Company to provide equity-based compensation to non-employee directors and employees for their service to AutoZone or its subsidiaries or affiliates. Prior to the Company’s adoption of the 2011 Plan, equity-based compensation was provided to employees under the 2006 Stock Option Plan and to non-employee directors under the 2003 Director Compensation Plan (the “2003 Comp Plan”). During fiscal 2016, the Company’s stockholders approved the Amended and Restated AutoZone, Inc. 2011 Equity Incentive Award Plan (the “Amended 2011 Equity Plan”). The Amended 2011 Equity Plan imposes a maximum limit on the compensation, measured as the sum of any cash compensation and the aggregate grant date fair value of awards granted under the Amended 2011 Equity Plan, which may be paid to non-employee directors for such service during any calendar year. The Amended 2011 Equity Plan also applies a ten-year term on the Amended 2011 Equity Plan through December 16, 2025 and extends the Company’s ability to grant incentive stock options through October 7, 2025. 59 ‌ ​ AutoZone, Inc. Director Compensation Program During fiscal 2020, the Company adopted the 2020 Director Compensation Program (the “Program”), which states that non-employee directors will receive their compensation in awards of restricted stock units under the 2018 Equity Incentive Award Plan, with an option for a certain portion of a director’s compensation to be paid in cash at the non-employee director’s election. The Program replaced the 2018 Director Compensation Program. Under the Program, restricted stock units are granted January 1 of each year (the “Grant Date”). The number of restricted stock units is determined by dividing the amount of the annual retainer by the fair market value of the shares of common stock as of the Grant Date. The restricted stock units are fully vested on January 1 of each year and are paid in shares of the Company’s common stock on the fifth anniversary of the Grant Date or the date the non-employee director ceases to be a member of the Board (“Separation from Service”), whichever occurs first. Non-employee directors may elect to defer receipt of the restricted stock units until their Separation from Service. The cash portion of the award, if elected, is paid ratably over each calendar quarter. Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $ 44.8 million for fiscal 2020, $ 43.3 million for fiscal 2019 and $ 43.7 million for fiscal 2018. As of August 29, 2020, share-based compensation expense for unvested awards not yet recognized in earnings is $ 42.0 million and will be recognized over a weighted average period of 1.7 years. General terms and methods of valuation for the Company’s share-based awards are as follows: Stock Options The Company grants options to purchase common stock to certain of its employees under its plan at prices equal to the market value of the stock on the date of grant. Options have a term of 10 years or 10 years and one day from grant date. Employee options generally vest in equal annual installments on the first, second, third and fourth anniversaries of the grant date and generally have 30 or 90 days after the service relationship ends, or one year after death, to exercise all vested options. The fair value of each option grant is separately estimated for each vesting date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company has estimated the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The following table presents the weighted average for key assumptions used in determining the fair value of options granted and the related share-based compensation expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ August 29, August 31, August 25, ​ 2020 ​ 2019 ​ 2018 ​ Expected price volatility 22 % 21 % 20 % Risk-free interest rate 1.4 % 3.0 % 1.9 % Weighted average expected lives (in years) 5.5 5.6 5.1 ​ Forfeiture rate 10 % 10 % 10 % Dividend yield 0 % 0 % 0 % ​ The following methodologies were applied in developing the assumptions used in determining the fair value of options granted: Expected price volatility – This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. The Company uses actual historical changes in the market value of its stock to calculate the volatility assumption as it is management’s belief that this is the best indicator of future volatility. The Company calculates daily market value changes from the date of grant over a past period representative of the expected life of the options to determine volatility. An increase in the expected volatility will increase compensation expense. 60 ‌ ​ Risk-free interest rate – This is the U.S. Treasury rate for the week of the grant having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense. Expected lives – This is the period of time over which the options granted are expected to remain outstanding and is based on historical experience. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Options granted have a maximum term of ten years or ten years and one day. An increase in the expected life will increase compensation expense. Forfeiture rate – This is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. This estimate is based on historical experience at the time of valuation and reduces expense ratably over the vesting period. An increase in the forfeiture rate will decrease compensation expense. This estimate is evaluated periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate. Dividend yield – The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. An increase in the dividend yield will decrease compensation expense. The weighted average grant date fair value per share of options granted was $ 252.54 during fiscal 2020, $ 208.37 during fiscal 2019 and $ 129.12 during fiscal 2018. The intrinsic value of options exercised was $ 101.9 million in fiscal 2020, $ 227.4 million in fiscal 2019 and $ 123.1 million in fiscal 2018. The total fair value of options vested was $ 39.1 million in fiscal 2020, $ 34.5 million in fiscal 2019 and $ 35.7 million in fiscal 2018. The Company generally issues new shares when options are exercised. The following table summarizes information about stock option activity for the year ended August 29, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Remaining ​ Aggregate ​ ​ ​ ​ Weighted ​ Contractual ​ Intrinsic ​ ​ Number ​ Average ​ Term ​ Value ​ ​ of Shares ​ Exercise Price ​ (in years) ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding – August 31, 2019 1,349,311 ​ $ 601.36 ​ Granted 188,824 ​ 1,061.57 ​ Exercised ( 146,705 ) ​ 472.37 ​ Cancelled ( 6,444 ) ​ 735.42 ​ Outstanding – August 29, 2020 1,384,986 ​ 677.15 5.82 ​ $ 709,085 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercisable 882,668 ​ 587.27 4.65 ​ 531,234 Expected to vest 452,086 ​ 835.08 7.88 ​ 160,066 Available for future grants 348,293 ​ ​ ​ ​ ​ ​ ​ ​ ​ Restricted Stock Units Restricted stock unit awards are valued at the market price of a share of the Company’s stock on the date of grant and vest ratably on an annual basis over a four-year service period and are payable in shares of common stock on the vesting date. Compensation expense for grants of employee restricted stock units is recognized on a straight-line basis over the four-year service period, less estimated forfeitures, which are consistent with stock option forfeiture assumptions. As of August 29, 2020, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $ 9.0 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.7 years. 61 ‌ ​ Transactions related to restricted stock units for the fiscal year ended August 29, 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Number Average Grant ​ ​ of Shares ​ Date Fair Value Nonvested at August 31, 2019 10,049 ​ $ 773.61 Granted 8,735 ​ ​ 1,086.61 Vested ( 4,183 ) ​ 945.58 Canceled or forfeited ( 441 ) ​ 942.76 Nonvested at August 29, 2020 14,160 ​ $ 910.63 ​ Stock Appreciation Rights At August 29, 2020, the Company had $ 5.7 million and at August 31, 2019, the Company had $ 11.2 million of accrued compensation expense related to 4,822 and 10,206 outstanding units, respectively, issued under the 2003 Comp Plan and prior plans. As directors retire, this balance will be reduced. No additional shares of stock or units will be issued in future years under the 2003 Comp Plan or prior plans. Employee Stock Purchase Plan and Executive Stock Purchase Plan The Company recognized $ 3.1 million in compensation expense related to the discount on the selling of shares to employees and executives under the various share purchase plans in fiscal 2020, $ 2.8 million in fiscal 2019 and $ 2.1 million in fiscal 2018. Under the Employee Plan, 10,525 , 11,011 and 14,523 shares were sold to employees in fiscal 2020, 2019 and 2018, respectively. The Company repurchased 8,287 , 17,201 and 11,816 shares in fiscal 2020, 2019 and 2018, respectively all at market value from employees electing to sell their stock. Purchases under the Executive Plan were 1,204 , 1,483 and 1,840 shares in fiscal 2020, 2019 and 2018, respectively. Issuances of shares under the Employee Plan are netted against repurchases and such repurchases are not included in share repurchases disclosed in “Note K – Stock Repurchase Program.” At August 29, 2020, 142,241 shares of common stock were reserved for future issuance under the Employee Plan, and 235,361 shares of common stock were reserved for future issuance under the Executive Plan. Note C – Accrued Expenses and Other Accrued expenses and other consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ August 29, August 31, (in thousands) ​ 2020 ​ 2019 ​ ​ ​ ​ ​ ​ ​ Accrued compensation, related payroll taxes and benefits ​ $ 321,071 ​ $ 170,321 Property, sales, and other taxes ​ 121,196 ​ 122,372 Medical and casualty insurance claims (current portion) ​ 112,746 ​ 89,250 Finance lease liabilities ​ 67,498 ​ 56,246 Accrued interest ​ 63,503 ​ 48,147 Accrued gift cards ​ 43,876 ​ 38,658 Accrued sales and warranty returns ​ 32,356 ​ 34,310 Other ​ 65,422 ​ 62,628 ​ ​ $ 827,668 ​ $ 621,932 ​ ​ ​ ​ ​ ​ ​ ​ The Company retains a significant portion of the insurance risks associated with workers’ compensation, employee health, general, product liability, property and vehicle insurance. A portion of these self-insured losses is managed through a wholly owned insurance captive. The Company maintains certain levels for stop-loss coverage for each self-insured plan in order to limit its liability for large claims. The retained limits per claim type are $ 2.0 million for workers’ compensation, $ 5.0 million for auto liability, $ 21.5 million for property, $ 0.7 million for employee health, and $ 1.0 million for general and product liability. ​ 62 ‌ ​ Note D – Income Taxes The components of income from continuing operations before income taxes are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ August 29, ​ August 31, ​ August 25, (in thousands) ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Domestic ​ $ 1,960,320 ​ $ 1,745,625 ​ $ 1,412,963 International ​ 256,194 ​ 285,708 ​ 223,366 ​ ​ $ 2,216,514 ​ $ 2,031,333 $ 1,636,329 ​ The provision for income tax expense consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ August 29, ​ August 31, ​ August 25, (in thousands) 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current: ​ ​ ​ Federal ​ $ 324,156 ​ $ 274,504 ​ $ 328,963 State ​ 47,880 ​ 45,457 ​ 36,389 International ​ 60,429 ​ 59,100 ​ 57,702 ​ ​ 432,465 ​ 379,061 ​ 423,054 Deferred: ​ ​ ​ Federal ​ 43,706 ​ 25,757 ​ ( 131,926 ) State ​ 12,544 ​ 6,914 ​ 8,167 International ​ ( 5,173 ) ​ 2,380 ​ ( 502 ) ​ ​ 51,077 ​ 35,051 ​ ( 124,261 ) Income tax expense ​ $ 483,542 ​ $ 414,112 ​ $ 298,793 ​ A reconciliation of the provision for income taxes to the amount computed by applying the federal statutory tax rate to income before income taxes is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ August 29, ​ August 31, ​ August 25, ​ (in thousands) ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ Federal tax at statutory U.S. income tax rate 21.0 % 21.0 % 25.9 % State income taxes, net 2.2 % 2.0 % 1.9 % Transition tax — — 1.6 % Share-based compensation ( 0.7 ) % ( 1.8 ) % ( 1.6 ) % Impact of tax reform — ​ ( 0.4 ) % ( 9.6 ) % Global intangible lower-taxed income (“GILTI”) ​ 1.0 % 1.3 % — ​ Foreign Tax Credits ​ ( 1.1 ) % ( 1.1 ) % — ​ Other ( 0.6 ) % ( 0.6 ) % 0.1 % Effective tax rate 21.8 % 20.4 % 18.3 % ​ On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform”) was enacted into law. Tax Reform significantly revises the U.S. federal corporate income tax by, among other things, lowering the statutory federal corporate rate from 35 % to 21 %, eliminating certain deductions, imposing a mandatory one-time transition tax on accumulated earnings of foreign subsidiaries, and changing how foreign earnings are subject to U.S. federal tax. Also in December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when the registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of Tax Reform. 63 ‌ ​ During the year ended August 25, 2018, the Company recorded provisional tax benefit of $ 131.5 million related to Tax Reform, comprised of $ 157.3 million remeasurement of its net 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. For the year ended August 29, 2020, August 31, 2019, and August 25, 2018, the Company recognized excess tax benefits from stock option exercises of $ 20.9 million, $ 46.0 million, and $ 31.3 million, respectively. Beginning with the year ending August 31, 2019, the Company is subject to GILTI which is imposed on foreign earnings. The Company has made the election to record this tax as a period cost, thus has not adjusted the deferred tax assets or liabilities of its foreign subsidiaries for the new tax. Net impacts for GILTI are included in the provision for income taxes for the years ended August 31, 2019 and August 29, 2020. Significant components of the Company’s deferred tax assets and liabilities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ August 29, August 31, (in thousands) ​ 2020 ​ 2019 ​ ​ ​ ​ ​ ​ ​ Deferred tax assets: ​ ​ Net operating loss and credit carryforwards ​ $ 41,437 ​ $ 42,958 Accrued benefits ​ 88,226 ​ 58,900 Operating lease liabilities ​ ​ 617,002 ​ ​ — Other ​ 69,788 ​ 59,237 Total deferred tax assets ​ 816,453 ​ 161,095 Less: Valuation allowances ​ ( 28,373 ) ​ ( 23,923 ) Net deferred tax assets ​ 788,080 ​ 137,172 Deferred tax liabilities: ​ ​ Property and equipment ​ ( 173,696 ) ​ ( 114,956 ) Inventory ​ ( 298,585 ) ​ ( 259,827 ) Prepaid expenses ​ ( 55,827 ) ​ ( 46,487 ) Operating lease assets ​ ​ ( 581,381 ) ​ ​ — Other ​ ( 4,934 ) ​ ( 1,021 ) Total deferred tax liabilities ​ ( 1,114,423 ) ​ ( 422,291 ) Net deferred tax liabilities ​ $ ( 326,343 ) ​ $ ( 285,119 ) ​ ​ ​ ​ ​ ​ ​ ​ For the year ended August 31, 2019, the Company held the assertion, with few exceptions, that current and accumulated earnings from foreign operations were not indefinitely reinvested. During the year ended August 29, 2020, the Company asserted indefinite reinvestment for other basis differences and accumulated earnings through fiscal 2020 between its Luxembourg parent and Mexico subsidiaries. In addition, the Company has maintained its assertion of indefinite reinvestment of earnings between its Dutch parent and Puerto Rican subsidiary. Where necessary, withholding tax provisions resulting from foreign distributions of current and accumulated earnings have been considered in the Company’s provision for income taxes. ​ The Company maintains its assertion related to other basis differences in foreign subsidiaries. It is impracticable for the Company to determine the amount of unrecognized deferred tax liability on these indefinitely reinvested basis differences. ​ At August 29, 2020 and August 31, 2019, the Company had deferred tax assets of $ 32.2 million and $ 29.9 million, respectively, from net operating loss (“NOL”) carryforwards available to reduce future taxable income totaling approximately $ 247.1 million and $ 226.3 million, respectively. Certain NOLs have no expiration date and others will expire, if not utilized, in various years from fiscal 2021 through 2040 . At August 29, 2020 and August 31, 2019, the Company had deferred tax assets for income tax credit carryforwards of $ 9.2 million and $ 13.0 million, respectively. Income tax credit carryforwards will expire, if not utilized, in various years from fiscal 2021 through 2037 . 64 ‌ ​ ​ At August 29, 2020 and August 31, 2019, the Company had a valuation allowance of $ 28.4 million and $ 23.9 million, respectively, on deferred tax assets associated with NOL and tax credit carryforwards for which management has determined it is more likely than not that the deferred tax asset will not be realized. Management believes it is more likely than not that the remaining deferred tax assets will be fully realized. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ August 29, August 31, (in thousands) ​ 2020 ​ 2019 ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ $ 30,892 ​ $ 26,077 Additions based on tax positions related to the current year ​ 8,512 ​ 8,621 Additions for tax positions of prior years ​ 946 ​ 2,115 Reductions for tax positions of prior years ​ ( 4,124 ) ​ ( 1,219 ) Reductions due to settlements ​ — ​ ( 1,918 ) Reductions due to statute of limitations ​ ( 4,284 ) ​ ( 2,784 ) Ending balance ​ $ 31,942 ​ $ 30,892 ​ Included in the August 29, 2020 and the August 31, 2019 balances are $ 18.9 million and $ 16.8 million, respectively, of unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate. The balances above also include amounts of $ 10.5 million and $ 11.9 million for August 29, 2020 and the August 31, 2019, respectively, that are accounted for as reductions to deferred tax assets for NOL carryforwards and tax credit carryforwards. It is anticipated that in the event the associated uncertain tax positions are disallowed, the NOL carryforwards and tax credit carryforwards would be utilized to settle the liability. ​ The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. The Company had $ 1.6 million and $ 1.4 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at August 29, 2020 and August 31, 2019, respectively. ​ The Company files U.S. federal, U.S. state and local, and international income tax returns. With few exceptions, the Company is no longer subject to U.S. federal, U.S. state and local, or Non-U.S. examinations by tax authorities for fiscal year 2013 and prior. The Company is typically engaged in various tax examinations at any given time by U.S. federal, U.S. state and local, and Non-U.S. taxing jurisdictions. As of August 29, 2020, the Company estimates that the amount of unrecognized tax benefits could be reduced by approximately $ 1.5 million over the next twelve months as a result of tax audit settlements. While the Company believes that it is adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be determined at this time and could result in final settlements that differ from current estimates. Note E – Fair Value Measurements The Company defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with ASC 820, Fair Value Measurements and Disclosures , the Company uses the fair value hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are set forth below: Level 1 inputs — unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date. Level 2 inputs — inputs other than quoted market prices included within Level 1 that are observable, either directly or indirectly, for the asset or liability. 65 ‌ ​ Level 3 inputs — unobservable inputs for the asset or liability, which are based on the Company’s own assumptions as there is little, if any, observable activity in identical assets or liabilities. Marketable Debt Securities Measured at Fair Value on a Recurring Basis The Company’s marketable debt securities measured at fair value on a recurring basis were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ August 29, 2020 (in thousands) Level 1 Level 2 Level 3 Fair Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other current assets ​ $ 75,651 ​ $ 467 ​ $ — ​ $ 76,118 Other long-term assets ​ 58,792 ​ 12,329 ​ — ​ 71,121 ​ ​ $ 134,443 ​ $ 12,796 ​ $ — ​ $ 147,239 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ August 31, 2019 (in thousands) Level 1 Level 2 Level 3 Fair Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other current assets ​ $ 65,344 ​ $ 2,614 ​ $ — ​ $ 67,958 Other long-term assets ​ 65,573 ​ 5,395 ​ — ​ 70,968 ​ ​ $ 130,917 ​ $ 8,009 ​ $ — ​ $ 138,926 ​ At August 29, 2020, the fair value measurement amounts for assets and liabilities recorded in the accompanying Consolidated Balance Sheet consisted of short-term marketable debt securities of $ 76.1 million, which are included within Other current assets and long-term marketable debt securities of $ 71.1 million, which are included in Other long-term assets. The Company’s marketable debt securities are typically valued at the closing price in the principal active market as of the last business day of the quarter or through the use of other market inputs relating to the debt securities, including benchmark yields and reported trades. A discussion on how the Company’s cash flow hedges are valued is included in “Note H – Derivative Financial Instruments,” while the fair values of the marketable debt securities by asset class are described in “Note F – Marketable Debt Securities.” Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis Certain non-financial assets and liabilities are required to be measured at fair value on a non-recurring basis in certain circumstances, including the event of impairment. These non-financial assets and liabilities could include assets and liabilities acquired in an acquisition as well as goodwill, intangible assets and property, plant and equipment that are determined to be impaired. At August 29, 2020, the Company did not have any other significant non-financial assets or liabilities that had been measured at fair value on a non-recurring basis subsequent to initial recognition. Financial Instruments not Recognized at Fair Value The Company has financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short maturities. A discussion of the carrying values and fair values of the Company’s debt is included in “Note I – Financing.” 66 ‌ ​ Note F – Marketable Debt Securities The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.” Unrealized gains (losses) on marketable debt securities are recorded in Accumulated Other Comprehensive Loss. The Company’s available-for-sale marketable debt securities consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ August 29, 2020 ​ Amortized Gross Gross ​ ​ ​ Cost ​ Unrealized ​ Unrealized ​ Fair (in thousands) ​ Basis ​ Gains ​ Losses ​ Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities ​ $ 46,652 ​ $ 970 ​ $ ( 4 ) ​ $ 47,618 Government bonds ​ 44,594 ​ 1,172 ​ — ​ 45,766 Mortgage-backed securities ​ 4,842 ​ 75 ​ — ​ 4,917 Asset-backed securities and other ​ 48,798 ​ 143 ​ ( 3 ) ​ 48,938 ​ ​ $ 144,886 ​ $ 2,360 ​ $ ( 7 ) ​ $ 147,239 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ August 31, 2019 ​ Amortized Gross Gross ​ ​ ​ Cost ​ Unrealized ​ Unrealized ​ Fair (in thousands) ​ Basis ​ Gains ​ Losses ​ Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities ​ $ 36,998 ​ $ 29 ​ $ ( 19 ) ​ $ 37,008 Government bonds ​ 45,741 ​ 763 ​ — ​ 46,504 Mortgage-backed securities ​ 2,089 ​ 2 ​ ( 15 ) ​ 2,076 Asset-backed securities and other ​ 53,345 ​ — ​ ( 7 ) ​ 53,338 ​ ​ $ 138,173 ​ $ 794 ​ $ ( 41 ) ​ $ 138,926 ​ The marketable debt securities held at August 29, 2020, had effective maturities ranging from less than one year to approximately three years . The Company did not realize any material gains or losses on its marketable debt securities during fiscal 2020, 2019 or 2018. Included above in total marketable debt securities are $ 30.1 million and $ 89.2 million of marketable debt securities transferred by the Company’s insurance captive to a trust account to secure its obligations to an insurance company related to future workers’ compensation and casualty losses as of August 29, 2020 and August 31, 2019, respectively. 67 ‌ ​ Note G – Accumulated Other Comprehensive Loss Accumulated Other Comprehensive Loss includes certain adjustments to pension liabilities, foreign currency translation adjustments, certain activity for interest rate swaps and treasury rate locks that qualify as cash flow hedges and unrealized gains (losses) on available-for-sale debt securities. Changes in Accumulated Other Comprehensive Loss consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized ​ ​ ​ ​ ​ ​ ​ ​ Foreign ​ Gain (Loss) ​ ​ ​ ​ ​ ​ (in thousands) Currency (2) on Securities ​ Derivatives ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at August 25, 2018 ​ $ ( 228,899 ) ​ $ ( 873 ) ​ $ ( 6,033 ) ​ $ ( 235,805 ) Other Comprehensive (Loss) income before reclassifications ​ ( 36,699 ) ​ 1,498 ​ — ​ ( 35,201 ) Amounts reclassified from Accumulated Other Comprehensive Loss (1) ​ — ​ ( 34 ) (3) 1,718 (4) 1,684 Balance at August 31, 2019 ​ ​ ( 265,598 ) ​ ​ 591 ​ ​ ( 4,315 ) ​ ​ ( 269,322 ) Other Comprehensive (Loss) income before reclassifications ​ ( 66,723 ) ​ 1,117 ​ ( 28,197 ) ​ ( 93,803 ) Amounts reclassified from Accumulated Other Comprehensive Loss (1) ​ — ​ 137 (3) 8,736 (4) 8,873 Balance at August 29, 2020 ​ $ ( 332,321 ) ​ $ 1,845 ​ $ ( 23,776 ) ​ $ ( 354,252 ) (1) Amounts in parentheses indicate debits to Accumulated Other Comprehensive Loss. (2) Foreign currency is shown net of U.S. tax to account for foreign currency impacts of certain undistributed non-U.S. subsidiaries earnings. Other foreign currency is not shown net of additional U.S. tax as other basis differences of non-U.S. subsidiaries are intended to be permanently reinvested. (3) Represents realized gains on marketable debt securities, net of taxes of $ 38 in fiscal 2020 and realized gains on marketable debt securities, net of tax benefit of $ 9 in fiscal 2019, which is recorded in Operating, selling, general, and administrative expenses on the Consolidated Statements of Income. See “Note F – Marketable Debt Securities” for further discussion. (4) Represents gains and losses on derivatives, net of tax benefit of $ 6,164 in fiscal 2020 and net of taxes of $ 530 in fiscal 2019, which is recorded in Interest expense, net, on the Consolidated Statements of Income. See “Note H – Derivative Financial Instruments” for further discussion . ​ Note H – Derivative Financial Instruments The Company periodically uses derivatives to hedge exposures to interest rates. The Company does not hold or issue financial instruments for trading purposes. For transactions that meet the hedge accounting criteria, the Company formally designates and documents the instrument as a hedge at inception and quarterly thereafter assesses the hedges to ensure they are effective in offsetting changes in the cash flows of the underlying exposures. Derivatives are recorded in the Company’s Consolidated Balance Sheet at fair value, determined using available market information or other appropriate valuation methodologies. In accordance with ASC Topic 815, Derivatives and Hedging , to the extent our derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings but are included in Accumulated Other Comprehensive Loss, net of tax. ​ At August 29, 2020, the Company had $ 31.2 million recorded in Accumulated Other Comprehensive Loss related to net realized losses associated with terminated interest rate swap and treasury rate lock derivatives which were designated as hedging instruments. Net losses are amortized into Interest expense over the remaining life of the associated debt. During fiscal 2020, the Company reclassified $ 2.6 million of net losses from Accumulated Other Comprehensive Loss to Interest expense. During 2019, the Company reclassified $ 2.2 million of net losses from Accumulated Other Comprehensive Loss to Interest expense. The Company expects to reclassify $ 3.7 million of net losses from Accumulated Other Comprehensive Loss to Interest expense over the next 12 months. ​ ​ ​ ​ ​ 68 ‌ ​ Note I – Financing ​ The Company’s debt consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ August 29, August 31, (in thousands) ​ 2020 ​ 2019 ​ ​ ​ ​ ​ ​ ​ 4.000 % Senior Notes due November 2020 , effective interest rate of 4.43 % ​ $ — ​ $ 500,000 2.500 % Senior Notes due April 2021 , effective interest rate of 2.62 % ​ 250,000 ​ 250,000 3.700 % Senior Notes due April 2022 , effective interest rate of 3.85 % ​ 500,000 ​ 500,000 2.875 % Senior Notes due January 2023 , effective interest rate of 3.21 % ​ 300,000 ​ 300,000 3.125 % Senior Notes due July 2023 , effective interest rate of 3.26 % ​ 500,000 ​ 500,000 3.125 % Senior Notes due April 2024 , effective interest rate 3.32 % ​ 300,000 ​ 300,000 3.250 % Senior Notes due April 2025 , effective interest rate 3.36 % ​ 400,000 ​ 400,000 3.625 % Senior Notes due April 2025 , effective interest rate 3.78 % ​ ​ 500,000 ​ ​ — 3.125 % Senior Notes due April 2026 , effective interest rate of 3.28 % ​ 400,000 ​ 400,000 3.750 % Senior Notes due June 2027 , effective interest rate of 3.83 % ​ 600,000 ​ 600,000 3.750 % Senior Notes due April 2029 , effective interest rate of 3.86 % ​ 450,000 ​ 450,000 4.000 % Senior Notes due April 2030 , effective interest rate 4.09 % ​ ​ 750,000 ​ ​ — 1.650 % Senior Notes due January 2031 , effective interest rate of 2.19 % ​ ​ 600,000 ​ ​ — Commercial paper, weighted average interest rate of 2.28 % at August 31, 2019 ​ — ​ 1,030,000 Total debt before discounts and debt issuance costs ​ 5,550,000 ​ 5,230,000 Less: Discounts and debt issuance costs ​ 36,629 ​ 23,656 Long-term debt ​ $ 5,513,371 ​ $ 5,206,344 ​ The Company entered into a Master Extension, New Commitment and Amendment Agreement dated as of November 18, 2017 (the “Extension Amendment”) to the Third Amended and Restated Credit Agreement dated as of November 18, 2016, as amended, modified, extended or restated from time to time (the “Revolving Credit Agreement”). Under the Extension Amendment: (i) the Company’s borrowing capacity under the Revolving Credit Agreement was increased from $ 1.6 billion to $ 2.0 billion; (ii) the maximum borrowing under the Revolving Credit Agreement may, at the Company’s option, subject to lenders approval, be increased from $ 2.0 billion to $ 2.4 billion; (iii) the termination date of 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 and supplement the Company’s existing Revolving Credit Agreement. The 364-Day Credit Agreement provides for loans in the aggregate principal amount of up to $ 750 million. The 364-Day Credit Agreement will terminate, and all amounts borrowed under the 364-Day Credit Agreement will be due and payable, on April 2, 2021. Revolving loans under the 364-Day Credit Agreement may be base rate loans, Eurodollar loans, or a combination of both, at the Company’s election. As of August 29, 2020, the Company had no outstanding borrowings under each of the revolving credit agreements and $ 1.7 million of outstanding letters of credit under the Revolving Credit Agreement. Under its 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. 69 ‌ ​ The Revolving Credit Agreement requires that the Company’s consolidated interest coverage ratio as of the last day of each quarter shall be no less than 2.5 :1. This ratio is defined as the ratio of (i) consolidated earnings before interest, taxes and rents to (ii) consolidated interest expense plus consolidated rents. The Company’s consolidated interest coverage ratio as of August 29, 2020 was 6.1 :1. As of August 29, 2020, the $ 250 million 2.500 % Senior Notes due April 2021 are classified as long-term in the accompanying Consolidated Balance Sheets as the Company has the ability and intent to refinance the notes on a long-term basis through available capacity in its revolving credit agreements. As of August 29, 2020, the Company had $ 2.748 billion of availability, before giving effect to commercial paper borrowings, under its $ 2.750 billion revolving credit agreements which would allow the Company to replace these short-term obligations with long-term financing facilities. The Company also maintains a letter of credit facility that allows it to request the participating bank to issue letters of credit on its behalf up to an aggregate amount of $ 25 million. The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement. As of August 29, 2020, the Company 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, the Company had $ 220.3 million in letters of credit outstanding as of August 29, 2020. These letters of credit have various maturity dates and were issued on an uncommitted basis. On August 14, 2020, the Company issued $ 600 million in 1.650 % Senior Notes due January 2031 under its automatic shelf registration statement on Form S-3, filed with the SEC on April 4, 2019 (File No. 333-230719) (the “2019 Shelf Registration”). The 2019 Shelf Registration allows the Company to sell an indeterminate amount in debt securities to fund general corporate purposes, including repaying, redeeming or repurchasing outstanding debt and for working capital, capital expenditures, new store openings, stock repurchases and acquisitions. Proceeds from the debt issuance were used for general corporate purposes, including the repayment of the $ 500 million in 4.000 % Senior Notes due in November 2020 that were callable at par in August 2020. On March 30, 2020, the Company issued $ 500 million in 3.625 % Senior Notes due April 2025 and $ 750 million in 4.000 % Senior Notes due April 2030 under the 2019 Shelf Registration. Proceeds from the debt issuance were used to repay a portion of the outstanding commercial paper borrowings and for other general corporate purposes. On April 18, 2019, the Company issued $ 300 million in 3.125 % Senior Notes due April 2024 and $ 450 million in 3.750 % Senior Notes due April 2029 under the 2019 Shelf Registration. Proceeds from the debt issuance were used to repay a portion of the outstanding commercial paper borrowings, the $ 250 million in 1.625 % Senior Notes due in April 2019 and for other general corporate purposes. All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned to the Senior Notes are downgraded (as defined in the agreements). Further, the Senior Notes contain a provision that repayment of the Senior Notes may be accelerated if the Company experiences a change in control (as defined in the agreements). The Company’s borrowings under its senior notes contain minimal covenants, primarily restrictions on liens. All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs. 70 ‌ ​ As of August 29, 2020, the Company was in compliance with all covenants related to its borrowing arrangements. All of the Company’s debt is unsecured. Scheduled maturities of debt are as follows: ​ ​ ​ ​ ​ ​ Scheduled (in thousands) ​ Maturities ​ ​ ​ ​ 2021 ​ $ 250,000 2022 ​ 500,000 2023 ​ 800,000 2024 ​ 300,000 2025 ​ 900,000 Thereafter ​ 2,800,000 Subtotal ​ 5,550,000 Discount and debt issuance costs ​ 36,629 Total Debt ​ $ 5,513,371 ​ The fair value of the Company’s debt was estimated at $ 6.081 billion as of August 29, 2020, and $ 5.419 billion as of August 31, 2019, 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 $ 567.5 million at August 29, 2020, which reflects face amount, adjusted for any unamortized debt issuance costs and discounts. At August 31, 2019, the fair value was greater than the carrying value of debt by $ 212.7 million. Note J – Interest Expense Net interest expense consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ August 29, August 31, August 25, (in thousands) ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense ​ $ 208,021 ​ $ 193,671 ​ $ 181,668 Interest income ​ ( 5,689 ) ​ ( 7,396 ) ​ ( 5,636 ) Capitalized interest ​ ( 1,167 ) ​ ( 1,471 ) ​ ( 1,505 ) ​ ​ $ 201,165 ​ $ 184,804 ​ $ 174,527 ​ ​ ​ Note K – Stock Repurchase Program During 1998, the Company announced a program permitting the Company to repurchase a portion of its outstanding shares not to exceed a dollar maximum established by the Board. On October 7, 2019, the Board voted to authorize the repurchase of an additional $ 1.25 billion of its common stock in connection with its ongoing share repurchase program. Since the inception of the repurchase program in 1998, the Board has authorized $ 23.15 billion in share repurchases. The Company has $ 795.9 million remaining under the Board’s authorization to repurchase its common stock. The Company’s share repurchase activity consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ August 29, August 31, August 25, (in thousands) ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount ​ $ 930,903 ​ $ 2,004,896 ​ $ 1,592,013 Shares ​ 826 ​ 2,182 ​ 2,398 ​ 71 ‌ ​ During fiscal year 2020, the Company retired 1.9 million shares of treasury stock which had previously been repurchased under the Company’s share repurchase program. The retirement increased Retained deficit by $ 1.879 billion and decreased Additional paid-in capital by $ 99.7 million. During the comparable prior year period, the Company retired 2.6 million shares of treasury stock, which increased Retained deficit by $ 1.707 billion and decreased Additional paid-in capital by $ 125.4 million. During fiscal 2020, the Company temporarily ceased share repurchases to conserve liquidity in response to the uncertainty related to COVID-19. While the Company restarted share repurchases during the first quarter of fiscal year 2021, the Company will continue to evaluate current and expected business conditions and adjust the level of share repurchases as the Company deems appropriate. Subsequent to August 29, 2020, the Company has repurchased 269,795 shares of common stock at an aggregate cost of $ 314.4 million. Considering the cumulative repurchases subsequent to August 29, 2020, the Company has $ 481.5 million remaining under the Board’s authorization to repurchase its common stock. Note L – Pension and Savings Plans Prior to January 1, 2003, substantially all full-time employees were covered by a defined benefit pension plan. The benefits under the plan were based on years of service and the employee’s highest consecutive five-year average compensation. On January 1, 2003, the plan was frozen, resulting in pension plan participants earning no new benefits under the plan formula and no new participants joining the pension plan. On January 1, 2003, the Company’s supplemental defined benefit pension plan for certain highly compensated employees was also frozen, resulting in pension plan participants earning no new benefits under the plan formula and no new participants joining the pension plan. On December 19, 2017, the Board of Directors approved a resolution to terminate both of the Company’s pension plans, effective March 15, 2018. The Company offered plan participants the option to receive an annuity purchased from an insurance carrier or a lump-sum cash payment based on a number of factors. During the fourth quarter of 2018, the Company contributed $ 11.4 million to the pension plans to ensure that sufficient assets were available for the lump-sum payments and annuity purchases, completed the transfer of all lump sum payments, transferred all remaining benefit obligations related to the pension plans to a highly rated insurance company, and recognized $ 130.3 million of non-cash pension termination charges in Operating, selling, general and administrative expenses in the Consolidated Statements of Income. During fiscal 2019, the Company received a refund of $ 6.8 million related primarily to annuity purchase overpayments, recorded in Operating, selling, general and administrative expenses, net within the Consolidated statements of income. No refunds or expenses related to pension termination occurred in fiscal 2020. There are no actuarial assumptions reflected in any pension plans estimates. The Company will no longer have any remaining defined pension benefit obligation and thus no periodic pension benefit expense. Net periodic benefit expense consisted of the following: ​ ​ ​ ​ ​ ​ Year Ended ​ August 25 (in thousands) ​ 2018 (1) ​ ​ ​ ​ Interest cost ​ $ 10,356 Expected return on plan assets ​ ( 18,997 ) Recognized net actuarial losses ​ 10,736 Settlement loss ​ 130,263 Net periodic benefit expense ​ $ 132,358 (1) The pension plans were terminated in fiscal 2018. 72 ‌ ​ The Company has a 401(k) plan that covers all domestic employees who meet the plan’s participation requirements. The plan features include Company matching contributions, immediate 100 % vesting of Company contributions and a savings option up to 25 % of qualified earnings. The Company makes matching contributions, per pay period, up to a specified percentage of employees’ contributions as approved by the Board. The Company made matching contributions to employee accounts in connection with the 401(k) plan of $ 29.8 million in fiscal 2020, $ 25.8 million in fiscal 2019 and $ 23.1 million in fiscal 2018. Note M – Sale of Assets During the second quarter of fiscal 2018, the Company determined that the approximate fair value less costs to sell its IMC and AutoAnything businesses was significantly lower than the carrying value of the net assets based on recent offers received and recorded impairment charges totaling $ 193.2 million within Operating, selling, general and administrative expenses in its Condensed Consolidated Statements of Income. The Company recorded an impairment charge of $ 93.6 million for its IMC business, which was reflected as a component of Auto Parts Locations in its segment reporting in fiscal 2018. Impairment charges for AutoAnything, which were reflected as a component of the Other category in the Company’s segment reporting, totaled $ 99.6 million in fiscal 2018. During the third quarter of fiscal 2018, the Company completed the IMC and AutoAnything sales for total consideration that approximated the remaining net book value at the closing date. Note N – Goodwill and Intangibles The Company had approximately $ 302.6 million of goodwill, which is allocated to the Auto Parts Locations operating segment at August 29, 2020 and August 31, 2019. The Company performs its annual goodwill and intangibles impairment test in the fourth quarter of each fiscal year. In the fourth quarter of fiscal 2020 and 2019, the Company concluded its remaining goodwill was not impaired. The carrying amounts of intangible assets are included in Other long-term assets as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ August 29, 2020 ​ Estimated Gross ​ ​ Net ​ ​ Useful ​ Carrying ​ Accumulated ​ Carrying (in thousands) ​ Life ​ Amount ​ Amortization ​ Amount ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortizing intangible assets: ​ ​ ​ Customer relationships 3 - 10 years ​ 29,376 ​ ( 27,933 ) ​ 1,443 Total intangible assets other than goodwill ​ ​ ​ $ 29,376 ​ $ ( 27,933 ) ​ $ 1,443 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ August 31, 2019 ​ Estimated Gross ​ ​ Net ​ ​ Useful ​ Carrying ​ Accumulated ​ Carrying (in thousands) ​ Life ​ Amount ​ Amortization ​ Amount ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortizing intangible assets: ​ ​ ​ Technology 3 - 5 years ​ $ 870 ​ $ ( 870 ) ​ $ — Customer relationships 3 - 10 years ​ 29,376 ​ ( 23,760 ) ​ 5,616 Total intangible assets other than goodwill ​ ​ ​ $ 30,246 ​ $ ( 24,630 ) ​ $ 5,616 ​ Amortization expense of intangible assets for the years ended August 29, 2020 and August 31, 2019 was $ 4.2 million, respectively. 73 ‌ ​ Total future amortization expense for intangible assets that have finite lives, based on the existing intangible assets and their current estimated useful lives as of August 29, 2020, is estimated to be $ 1.4 million for fiscal 2021 and none thereafter. ​ Note O – Leases The Company adopted ASU 2016-02, Leases (Topic 842), beginning with its first quarter ended November 23, 2019 which requires leases to be recognized on the balance sheet. Leases with an original term of 12 months or less are not recognized in the Company’s Condensed Consolidated Balance Sheets, and the lease expense related to these short-term leases is recognized over the lease term. The Company aggregates lease and non-lease components, which includes fixed common-area maintenance costs at its retail store locations, for all classes of leased assets, except vehicles. The Company’s vehicle leases typically include variable non-lease components, such as maintenance and fuel charges. The Company excludes these variable non-lease components from vehicle lease payments for the purpose of calculating the right-of-use assets and liabilities. These variable lease payments are expensed as incurred. The Company’s leases primarily relate to its retail stores, distribution centers and vehicles under various non-callable leases. Leases are categorized at their commencement date, which is the date the Company takes possession or control of the underlying asset. Most of the Company’s leases are operating leases; however, certain land and vehicles are leased under finance leases. The leases have varying terms and expire at various dates through 2040. Retail leases typically have initial terms of between one and 20 years, with one to six optional renewal periods of one to five years each. Finance leases for vehicles typically have original terms between one and five years , and finance leases for real estate leases typically have terms of 20 or more years. The exercise of lease renewal options is at the Company’s sole discretion. The Company evaluates renewal options at lease commencement and on an ongoing basis and includes options that are reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. The Company subleases certain properties that are not used in its operations. Sublease income was not significant for the periods presented. Certain lease agreements require variable payments based upon actual costs of common-area maintenance, real estate taxes and insurance. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company’s finance leases for vehicles have a stated borrowing rate which it uses in determining the present value of the lease payments over the lease term. Substantially all the operating leases and finance leases for real estate do not provide a stated borrowing rate. Accordingly, the Company uses its incremental borrowing rate at commencement or modification date in determining the present value of lease payments over the lease term. For operating leases that commenced prior to the date of adoption of the new standard, the Company used the incremental borrowing rate that corresponded to the remaining lease term as of the date of adoption. Lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet are as follows: ​ ​ ​ ​ ​ ​ ​ (in thousands) Classification August 29, 2020 ​ ​ ​ ​ ​ ​ Assets: ​ Operating Operating lease right-of-use assets ​ $ 2,581,677 Finance Property and equipment ​ 327,006 Total lease assets ​ $ 2,908,683 Liabilities: ​ Current: ​ ​ ​ ​ ​ Operating Current portion of operating lease liabilities ​ $ 223,680 Finance Accrued expenses and other ​ 67,498 Noncurrent: ​ Operating Operating lease liabilities, less current portion ​ 2,501,726 Finance Other long-term liabilities ​ 155,855 Total lease liabilities ​ $ 2,948,759 ​ Accumulated amortization related to finance lease assets was $ 107.3 million as of August 29, 2020. 74 ‌ ​ Lease costs for finance and operating leases are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For year ended (in thousands) ​ Statement of Income Location ​ August 29, 2020 ​ ​ ​ ​ ​ ​ Finance lease cost: ​ Amortization of lease assets Depreciation and amortization ​ $ 55,920 Interest on lease liabilities Interest expense, net ​ 4,355 Operating lease cost (1) Selling, general and administrative expenses ​ 355,230 Total lease cost ​ ​ ​ $ 415,505 ​ (1) Includes short-term leases, variable lease costs and sublease income, which are immaterial. The future rental payments, inclusive of renewal options that have been included in defining the expected lease term, of our operating and finance lease obligations as of August 29, 2020 having initial or remaining lease terms in excess of one year are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance Operating ​ (in thousands) ​ Leases ​ Leases ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ $ 69,013 ​ $ 302,890 ​ $ 371,903 2022 ​ 57,188 ​ 324,860 ​ 382,048 2023 ​ 45,377 ​ 307,859 ​ 353,236 2024 ​ 24,590 ​ 284,296 ​ 308,886 2025 ​ 10,447 ​ 259,099 ​ 269,546 Thereafter ​ 44,765 ​ 2,055,365 ​ 2,100,130 Total lease payments ​ ​ 251,380 ​ ​ 3,534,369 ​ 3,785,749 Less: Interest ​ ( 28,027 ) ​ ( 808,963 ) ​ ( 836,990 ) Present value of lease liabilities ​ $ 223,353 ​ $ 2,725,406 ​ $ 2,948,759 ​ The following table summarizes the Company’s lease term and discount rate assumptions: ​ ​ ​ ​ ​ ​ August 29, 2020 Weighted-average remaining lease term in years, inclusive of renewal options that are reasonably certain to be exercised ​ Finance leases – real estate 27 ​ Finance leases – vehicles 3 ​ Operating leases 15 ​ Weighted-average discount rate: ​ Finance leases – real estate 3.49 % Finance leases – vehicles 2.29 % Operating leases 3.46 % ​ ​ ​ ​ 75 ‌ ​ Cash paid for amounts included in the measurement of operating lease liabilities of $ 352.9 million was reflected in cash flows from operating activities in the consolidated statement of cash flows for fiscal 2020. As of August 29, 2020, the Company has entered into additional leases which have not yet commenced and are therefore not part of the right-of-use asset and liability. These leases are generally for real estate and have undiscounted future payments of approximately $ 16.7 million 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 P – Commitments and Contingencies Construction commitments, primarily for new stores, totaled approximately $ 50.9 million at August 29, 2020. The Company had $ 246.9 million in outstanding standby letters of credit and $ 56.7 million in surety bonds as of August 29, 2020, which all have expiration periods of less than one year . A substantial portion of the outstanding standby letters of credit (which are primarily renewed on an annual basis) and surety bonds are used to cover reimbursement obligations to our workers’ compensation carriers. There are no additional contingent liabilities associated with these instruments as the underlying liabilities are already reflected in the Consolidated Balance Sheets. The standby letters of credit and surety bonds arrangements have automatic renewal clauses. Note Q – 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. The Company does not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to the Company’s financial condition, results of operations or cash flows. Note R – Revenue Recognition The Company adopted ASU 2014-09, Revenue from Contracts with Customers using the modified retrospective method beginning with our first quarter ending in fiscal 2019, November 17, 2018. The cumulative effect of initially applying ASU 2014-09 resulted in an increase to the opening retained deficit balance of $ 6.8 million, net of taxes at August 26, 2018, and a related adjustment to accounts receivable, other current assets, other long-term assets, other current liabilities and deferred income taxes as of that date. Revenue for periods prior to August 26, 2018 were not adjusted and continue to be reported under the accounting standards in effect for the prior periods. There were no material contract assets, liabilities or deferred costs recorded on the Consolidated Balance Sheet as of August 29, 2020. Revenue related to unfulfilled performance obligations as of August 29, 2020 and August 31, 2019 is not significant. Refer to “Note S – Segment Reporting” for additional information related to revenue recognized during the period. Note S – Segment Reporting The Company’s operating segments (Domestic Auto Parts, Mexico and Brazil; and IMC results through April 4, 2018) are aggregated as one reportable segment: Auto Parts Locations. The criteria the Company used to identify the reportable segment are primarily the nature of the products the Company sells and the operating results that are regularly reviewed by the Company’s chief operating decision maker to make decisions about the resources to be allocated to the business units and to assess performance. The accounting policies of the Company’s reportable segment are the same as those described in “Note A – Significant Accounting Policies.” The Auto Parts Locations segment is a retailer and distributor of automotive parts and accessories through the Company’s 6,549 locations in the U.S., Mexico and Brazil. Each location carries an extensive product line for cars, 76 ‌ ​ 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 three operating segments that are not separately reportable due to the materiality of these operating segments. The operating segments include ALLDATA, which produces, sells and maintains diagnostic and repair information software used in the automotive repair industry and E-commerce, which includes direct sales to customers through www.autozone.com for sales that are not fulfilled by local stores; and AutoAnything, which includes direct sales to customers through www.autoanything.com, prior to the Company’s sale of substantially all of its assets on February 26, 2018. The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. The following table shows segment results for the following fiscal years : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ August 29, August 31, August 25, (in thousands) ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Sales ​ ​ ​ Auto Parts Locations ​ $ 12,405,929 ​ $ 11,645,235 ​ $ 10,951,498 Other ​ 226,038 ​ 218,508 ​ 269,579 Total ​ $ 12,631,967 ​ $ 11,863,743 ​ $ 11,221,077 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Segment Profit ​ ​ ​ Auto Parts Locations ​ $ 6,617,508 ​ $ 6,209,229 ​ $ 5,805,561 Other ​ 153,245 ​ 155,772 ​ 168,185 Gross profit ​ 6,770,753 ​ 6,365,001 ​ 5,973,746 Operating, selling, general and administrative expenses (1) ​ ( 4,353,074 ) ​ ( 4,148,864 ) ​ ( 4,162,890 ) Interest expense, net ​ ( 201,165 ) ​ ( 184,804 ) ​ ( 174,527 ) Income before income taxes ​ $ 2,216,514 ​ $ 2,031,333 ​ $ 1,636,329 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Segment Assets: ​ ​ ​ Auto Parts Locations ​ $ 14,303,427 ​ $ 9,781,926 ​ $ 9,231,021 Other ​ 120,445 ​ 113,987 ​ 115,959 Total ​ $ 14,423,872 ​ $ 9,895,913 ​ $ 9,346,980 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capital Expenditures: ​ ​ ​ Auto Parts Locations ​ $ 432,067 ​ $ 479,120 ​ $ 499,762 Other ​ 25,669 ​ 16,930 ​ 22,026 Total ​ $ 457,736 ​ $ 496,050 ​ $ 521,788 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Auto Parts Locations Sales by Product Grouping: ​ ​ ​ Failure ​ $ 6,088,859 ​ $ 5,728,294 ​ $ 5,338,890 Maintenance items ​ 4,284,913 ​ 4,140,987 ​ 3,914,546 Discretionary ​ 2,032,157 ​ 1,775,954 ​ 1,698,062 Auto Parts Locations net sales ​ $ 12,405,929 ​ $ 11,645,235 ​ $ 10,951,498 ​ (1) Operating, selling, general and administrative expenses for fiscal 2018 include $ 130.3 million related to pension termination charges and $ 193.2 million related to impairment charges . ​ ​ 77 ‌ ​ Note T – Quarterly Summary (1) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sixteen ​ ​ Twelve Weeks Ended ​ Weeks Ended ​ November 23, February 15, May 9, August 29, (in thousands, except per share data) ​ 2019 ​ 2020 ​ 2020 ​ 2020 (2) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales ​ $ 2,793,038 ​ $ 2,513,663 ​ $ 2,779,299 ​ $ 4,545,968 Gross profit ​ 1,501,068 ​ 1,366,063 ​ 1,490,648 ​ ​ 2,412,975 Operating profit ​ 500,023 ​ 407,938 ​ 491,673 ​ 1,018,045 Income before income taxes ​ 456,280 ​ 363,603 ​ 444,223 ​ 952,407 Net income ​ 350,338 ​ 299,282 ​ 342,896 ​ ​ 740,457 Basic earnings per share ​ 14.67 ​ 12.70 ​ 14.66 ​ 31.67 Diluted earnings per share ​ 14.30 ​ 12.39 ​ 14.39 ​ 30.93 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Seventeen ​ Twelve Weeks Ended ​ Weeks Ended ​ ​ November 17, February 9, May 4, August 31, (in thousands, except per share data) ​ 2018 ​ 2019 ​ 2019 ​ 2019 (2) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net sales $ 2,641,733 ​ $ 2,450,568 ​ $ 2,783,006 ​ $ 3,988,435 Gross profit ​ 1,417,474 ​ 1,325,107 ​ 1,492,020 ​ 2,130,400 Operating profit ​ 487,818 ​ 400,020 ​ 547,523 ​ 780,775 Income before income taxes ​ 448,812 ​ 358,658 ​ 504,284 ​ 719,578 Net income (3) ​ 351,406 ​ 294,638 ​ 405,949 ​ 565,228 Basic earnings per share ​ 13.71 ​ 11.71 ​ 16.35 ​ 23.15 Diluted earnings per share ​ ​ 13.47 ​ 11.49 ​ 15.99 ​ 22.59 ​ (1) The sum of quarterly amounts may not equal the annual amounts reported due to rounding. In addition, the earnings per share amounts are computed independently for each quarter while full year is based on the annual weighted average shares outstanding. (2) The fourth quarter for fiscal 2020 is based on a 16-week period while fiscal 2019 is based on a 17-week period. All other quarters presented are based on a 12-week period. ​ ​ 78 ‌ ​ Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.