What changed in this filing

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Item 1. Financial Statements

2020-12-18 compared with 2020-06-12 · 92 added, 255 removed, 330 unchanged (51% of the section changed)

33 unchanged sentences

Common stock, par value $ .01 per share, authorized 200,000 shares;

23,669 shares issued and 23,348 shares outstanding as of May 9, 2020;

23,761 shares issued and 22,855 shares outstanding as of November 21, 2020;

23,697 shares issued and 23,376 shares outstanding as of August 29, 2020

8 unchanged sentences

( 1,026,980 )

( 1,713,851 )

See Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

Twelve Weeks Ended

Thirty-Six Weeks Ended

(in thousands, except per share data)

14 unchanged sentences

Twelve Weeks Ended

Thirty-Six Weeks Ended

(in thousands)

Other comprehensive loss:

Other comprehensive income:

Foreign currency translation adjustments

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

Unrealized losses on marketable debt securities, net of taxes

Net derivative activities, net of taxes

Total other comprehensive loss

Total other comprehensive income

Comprehensive income

(1) Unrealized gains on marketable debt securities are presented net of taxes of $ 309 in fiscal 2020 and $ 65 in fiscal 2019 for the twelve weeks ended and $ 306 in fiscal 2020 and $ 180 in fiscal 2019 for the thirty-six weeks ended.

(2) Net derivative activities are presented net of tax benefits of $ 3,913 in fiscal 2020 and net of taxes of $ 120 in fiscal 2019 for the twelve weeks ended and net of tax benefits of $ 3,673 in fiscal 2020 and net of taxes of $ 360 in fiscal 2019 for the thirty-six weeks ended.

See Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Thirty-Six Weeks Ended

Twelve Weeks Ended

(in thousands)

15 unchanged sentences

Proceeds from sale of marketable debt securities

Proceeds from disposal of capital assets and other, net

(Payments) proceeds from disposal of capital assets and other, net

Net cash used in investing activities

Cash flows from financing activities:

Net payments of commercial paper

( 1,030,000 )

Proceeds from issuance of debt

Repayment of debt

Net proceeds of commercial paper

Net proceeds from sale of common stock

Purchase of treasury stock

( 1,313,116 )

Repayment of principal portion of finance lease liabilities

Net cash used in financing activities

( 1,043,477 )

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Twelve Weeks Ended May 9, 2020

Comprehensive

(in thousands)

Balance at February 15, 2020

( 2,534,323 )

( 1,711,119 )

Total other comprehensive loss

Purchase of 156 shares of treasury stock

Issuance of common stock under stock options and stock purchase plans

Share-based compensation expense

Balance at May 9, 2020

( 2,191,427 )

( 1,632,736 )

Twelve Weeks Ended May 4, 2019

Comprehensive

(in thousands)

Balance at February 9, 2019

( 2,276,525 )

( 1,594,362 )

Total other comprehensive income

Purchase of 472 shares of treasury stock

Issuance of common stock under stock options and stock purchase plans

Share-based compensation expense

Balance at May 4, 2019

( 1,870,576 )

( 1,589,513 )

Thirty-Six Weeks Ended May 9, 2020

Twelve Weeks Ended November 21, 2020

Comprehensive

2 unchanged sentences

( 1,450,970 )

( 1,403,884 )

( 1,713,851 )

Total other comprehensive loss

Retirement of treasury shares

( 1,878,595 )

Purchase of 584 shares of treasury stock

1 unchanged sentence

Share-based compensation expense

Balance at May 9, 2020

Balance at November 21, 2020

( 1,008,537 )

( 1,034,811 )

Thirty-Six Weeks Ended May 4, 2019

( 1,026,980 )

Twelve Weeks Ended November 23, 2019

Comprehensive

4 unchanged sentences

( 1,713,851 )

Cumulative effect of adoption of ASU 2014-09

Balance at August 25, 2018, as adjusted

( 1,215,597 )

( 1,231,427 )

( 1,527,128 )

Total other comprehensive loss

Retirement of treasury shares

( 1,706,971 )

Total other comprehensive income

Purchase of 403 shares of treasury stock

( 1,313,116 )

Issuance of common stock under stock options and stock purchase plans

Share-based compensation expense

Balance at May 4, 2019

Balance at November 23, 2019

( 1,853,883 )

11 unchanged sentences

(“AutoZone” or the “Company”) Annual Report on Form 10-K for the year ended August 29, 2020.

Operating results for the twelve and thirty-six weeks ended May 9, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 29, 2020.

Operating results for the twelve weeks ended November 21, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 28, 2021.

Each of the first three quarters of AutoZone’s fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks.

The fourth quarter of fiscal 2020 has 16 weeks and fiscal 2019 had 17 weeks.

COVID-19 Impact

The outbreak of a novel strain of the coronavirus (“COVID-19”), which was declared a global pandemic on March 11, 2020 by the World Health Organization, has led to adverse impacts on the national and global economy.

While sales were initially negatively impacted and store operating hours were reduced, virtually all our stores have remained open.

Sales have since recovered and store operating hours have been reinstated;

however, we are unable to accurately predict the ultimate impact that COVID-19 will have on our business and financial condition.

During the third quarter of 2020, the Company provided additional paid time off for both full-time and part-time eligible hourly employees.

During the quarter, we invested in supplies for the protection of our employees and customers.

These expanded benefits, supply costs and other COVID-19 related costs resulted in approximately $ 75 million of expense included in Operating, selling, general and administrative expenses in the Condensed Consolidated Statements of Income for the twelve weeks ended and thirty-six weeks ended May 9, 2020.

Additionally, to strengthen our financial position and ability to be responsive during this ever-changing environment, the Company issued $ 1.250 billion in Senior notes and closed on a new 364-day Senior unsecured revolving credit facility in the principal amount of $ 750 million.

Refer to “Note G – Financing” for details.

Recently Adopted Accounting Pronouncements:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) , and subsequently amended this update by issuing additional ASU’s that provided clarification and further guidance for areas identified as potential implementation issues.

ASU 2016-02 requires a two-fold approach for lessee accounting, under which a lessee will account for leases as finance leases or operating leases.

For all leases with original terms greater than 12 months, both lease classifications will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodologies for income statement recognition.

This guidance also requires certain quantitative and qualitative disclosures about leasing arrangements.

ASU 2016-02 and its amendments were effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption was permitted.

The ASU’s transition provisions could be applied under a modified retrospective approach to each prior reporting period presented in the financial statements or only at the beginning of the period of adoption using the alternative transition method.

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 L – Leases”.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting .

ASU 2018-07 aims to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions.

The Company adopted this standard beginning with its first quarter ending November 23, 2019.

The Company determined that the provisions of ASU 2018-07 did not have an impact on its Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.

Recently Issued Accounting Pronouncements:

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other Internal Use Software (Subtopic 350-40):

The fourth quarters of fiscal 2021 and 2020 each have 16 weeks.

Recent Accounting Pronouncements:

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 .

2 unchanged sentences

Early adoption is permitted.

The Company will adopt this standard beginning with its first quarter ending November 21, 2020.

The Company is currently evaluating the new guidance to determine the impact the adoption will have on its Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.

The Company adopted the new guidance on a prospective basis in the first quarter of fiscal 2021.

The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments which was subsequently amended in November 2018 through ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments Credit Losses .

ASU 2016-13 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 with its first quarter ending November 21, 2020.

The Company is currently evaluating the new guidance to determine the impact the adoption will have on the Company’s Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.

ASU 2016-13 requires entities to estimate all expected credit losses for financial assets measured at amortized cost basis, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

The Company adopted this guidance using the modified retrospective adoption method beginning with its first quarter ended November 21, 2020.

The adoption of this new guidance did not have a material impact on the Company's Condensed Consolidated Financial Statements and related disclosures.

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

Note B – Share-Based Payments

5 unchanged sentences

Stock Options:

The Company made stock option grants of 188,324 shares during the thirty-six week period ended May 9, 2020 and granted options to purchase 172,750 shares during the comparable prior year period.

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

The Company grants options to purchase common stock to certain of its employees under its plan at prices equal to the market value of the stock on the date of grant.

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

The weighted average fair value of the stock option awards granted during the thirty-six week periods ended May 9, 2020 and May 4, 2019, using the Black-Scholes-Merton multiple-option pricing valuation model, was $ 252.39 and $ 208.37 per share, respectively, using the following weighted average key assumptions:

Thirty-Six Weeks Ended

The weighted average fair value of the stock option awards granted during the twelve week periods ended November 21, 2020 and November 23, 2019, using the Black-Scholes-Merton multiple-option pricing valuation model, was $ 299.48 and $ 252.39 per share, respectively, using the following weighted average key assumptions:

Twelve Weeks Ended

Expected price volatility

3 unchanged sentences

Dividend yield

During the thirty-six week period ended May 9, 2020, 121,236 stock options were exercised at a weighted average exercise price of $ 480.39 .

During the twelve week period ended November 21, 2020, 59,990 stock options were exercised at a weighted average exercise price of $ 496.58 .

In the comparable prior year period, 18,407 stock options were exercised at a weighted average exercise price of $ 568.16 .

4 unchanged sentences

Grants of non-employee director restricted stock units are made and expensed on January 1 of each year, as they vest immediately.

As of May 9, 2020, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $ 10.1 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.9 years.

Transactions related to restricted stock units for the thirty-six weeks ended May 9, 2020 were as follows:

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

Transactions related to restricted stock units for the twelve weeks ended November 21, 2020 were as follows:

Average Grant

2 unchanged sentences

Canceled or forfeited

Nonvested at May 9, 2020

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $ 10.1 million for the twelve week period ended May 9, 2020, and $ 10.0 million for the comparable prior year period.

Total share-based compensation expense was $ 32.3 million for the thirty-six week period ended May 9, 2020, and $ 31.5 million for the comparable prior year period.

For the twelve week period ended May 9, 2020, 187,965 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive.

Nonvested at November 21, 2020

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

For the twelve week period ended November 21, 2020, 293,280 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive.

For the comparable prior year period, 107,511 anti-dilutive shares were excluded from the dilutive earnings per share computation.

There were 161,321 anti-dilutive shares excluded from the diluted earnings per share computation for the thirty-six week period ended May 9, 2020, and 149,648 anti-dilutive shares excluded for the comparable prior year period.

See AutoZone’s Annual Report on Form 10-K for the year ended August 31, 2019, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan, the 2011 Director Compensation Program and the 2014 Director Compensation Plan.

See AutoZone’s Annual Report on Form 10-K for the year ended August 29, 2020, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan and the 2020 Director Compensation Program.

Note C – Fair Value Measurements

6 unchanged sentences

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.

Financial Assets & Liabilities Measured at Fair Value on a Recurring Basis

The Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

Marketable Debt Securities Measured at Fair Value on a Recurring Basis

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

November 21, 2020

(in thousands)

1 unchanged sentence

Other long-term assets

Accrued expenses and other

August 29, 2020

2 unchanged sentences

Other long-term assets

At May 9, 2020, the fair value measurement amounts for assets and liabilities recorded in the accompanying Consolidated Balance Sheets consisted of short-term marketable debt securities of $ 34.4 million, which are included within Other current assets;

long-term marketable debt securities of $ 81.8 million, which are included in Other long-term assets;

and cash flow hedging instruments of $ 16.8 million, which are included within Accrued expenses and other.

At November 21, 2020, the fair value measurement amounts for assets and liabilities recorded in the accompanying Condensed Consolidated Balance Sheets consisted of short-term marketable debt securities, which are included within Other current assets, and long-term marketable debt securities, which are included in Other long-term assets.

The Company’s marketable debt securities are typically valued at the closing price in the principal active market as of the last business day of the quarter or through the use of other market inputs relating to the securities, including benchmark yields and reported trades.

The fair values of the marketable debt securities, by asset class, are described in “Note D – Marketable Debt Securities.” The fair values of derivative assets and liabilities traded in the over-the-counter markets are determined using quantitative models that require the use of multiple inputs including interest rates, prices and indices to generate pricing and volatility factors.

Refer to “Note E – Derivative Financial Instruments”.

The fair values of the marketable debt securities, by asset class, are described in “Note D – Marketable Debt Securities.”

Financial Instruments not Recognized at Fair Value

3 unchanged sentences

Note D – 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:

Marketable debt securities are carried at fair value, with unrealized gains and losses, net of income taxes, recorded in Accumulated other comprehensive loss until realized, and any credit risk related losses are recognized in net income in the period incurred.

The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.” The Company’s available-for-sale marketable debt securities consisted of the following:

November 21, 2020

(in thousands)

3 unchanged sentences

Asset-backed securities and other

August 29, 2020

(in thousands)

3 unchanged sentences

Asset-backed securities and other

The debt securities held at May 9, 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 the thirty-six week period ended May 9, 2020.

The Company holds six securities that are in an unrealized loss position of approximately $ 102 thousand at May 9, 2020.

The Company has the intent and ability to hold these investments until recovery of fair value or maturity and does not deem the investments to be impaired on an other than temporary basis.

The debt securities held at November 21, 2020, had effective maturities ranging from less than one year to approximately three years .

At November 21, 2020, the Company held eight securities that are in an unrealized loss position.

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

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

Included above in total available-for-sale marketable debt securities are $ 62.3 million of marketable debt securities transferred by the Company’s insurance captive to a trust account to secure its obligations to an insurance company related to future workers’ compensation and casualty losses.

Note E – Derivative Financial Instruments

During the third quarter of fiscal 2020, the Company entered into two treasury rate locks, each with a notional amount of $ 300 million.

These agreements were cash flow hedges used to manage our exposure to interest rate volatility associated with anticipated debt financing.

The fixed rates for both treasury rate locks are 1.0 % and are benchmarked based on the 10-year U.S.

treasury notes.

These outstanding cash flow derivative instruments are designed as cash flow hedges and deemed highly effective both at inception and at May 9, 2020.

Both treasury rate locks expire on August 6, 2020.

During the quarter ended May 9, 2020, the Company recorded $ 16.8 million of pre-tax losses in unrealized losses on derivative activity on our condensed consolidated statements of comprehensive loss related to the change in fair value since inception.

At May 9, 2020, $ 12.8 million was recorded in accrued expenses and other on our condensed consolidated balance sheets related to these instruments.

At May 9, 2020, the Company had $ 4.1 million recorded in Accumulated other comprehensive loss related to realized losses associated with terminated interest rate swap and treasury rate lock derivatives, which were designated as hedging instruments.

At November 21, 2020, the Company had $ 30.4 million recorded in Accumulated other comprehensive loss related to realized losses associated with terminated interest rate swap and treasury rate lock derivatives, which were designated as hedging instruments.

Net losses are amortized into Interest expense over the remaining life of the associated debt.

During the twelve week period ended May 9, 2020, the Company reclassified $ 509 thousand of net losses from Accumulated other comprehensive loss to Interest expense.

During the comparable prior year period, the Company reclassified $ 508 thousand of net losses from Accumulated other comprehensive loss to Interest expense.

During the thirty-six week period ended May 9, 2020, and the comparable prior year period, the Company reclassified $ 1.5 million of net losses from Accumulated other comprehensive loss to Interest expense.

During the twelve week periods ended November 21, 2020 and November 23, 2019, the Company reclassified $ 863 thousand and $ 509 thousand of net losses from Accumulated other comprehensive loss to Interest expense, respectively.

The Company expects to reclassify $ 3.7 million of net losses from Accumulated other comprehensive loss to Interest expense over the next 12 months.

Note F – Merchandise Inventories

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

Merchandise inventories include related purchasing, storage and handling costs.

Inventory cost has been determined using the last-in, first-out (“LIFO”) method for domestic inventories and the weighted average cost method for Mexico and Brazil inventories.

Inventory cost has been determined using the last-in, first-out (“LIFO”) method stated at the lower of cost or net realizable value for domestic inventories and the weighted average cost method stated at the lower of cost or net realizable value for Mexico and Brazil inventories.

Due to historical price deflation on the Company’s merchandise purchases, the Company has exhausted its LIFO reserve balance.

The Company’s policy is not to write up inventory in excess of replacement cost, which is based on average cost.

The difference between LIFO cost and replacement cost, which has been reduced due to recent price inflation on the Company’s merchandise purchases, was $ 348.1 million at May 9, 2020 and $ 404.9 million at August 31, 2019.

The Company’s policy is not to write up inventory in excess of replacement cost.

The difference between LIFO cost and replacement cost, which will be reduced upon experiencing price inflation on the Company’s merchandise purchases, was $ 362.5 million at November 21, 2020 and $ 357.0 million at August 29, 2020.

Note G – Financing

1 unchanged sentence

(in thousands)

4.000 % Senior Notes due November 2020 , effective interest rate of 4.43 %

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

9 unchanged sentences

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

Commercial paper, weighted average interest rate of 2.28 % at August 31, 2019

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

Total debt before discounts and debt issuance costs

1 unchanged sentence

Long-term debt

As of May 9, 2020, the $ 500 million 4.000 % Senior Notes due November 2020 and 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 them on a long-term basis through available capacity in its revolving credit facilities.

As of May 9, 2020, the Company had $ 2.747 billion of availability under its $ 2.75 billion revolving credit facilities which would allow the Company to replace these short-term obligations with long-term financing facilities.

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 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.

As of November 21, 2020, the $ 250 million 2.500 % Senior Notes due April 2021 are classified as long-term in the accompanying Condensed Consolidated Balance Sheets as the Company has the ability and intent to refinance them on a long-term basis through available capacity in its revolving credit agreements.

As of November 21, 2020, the Company had $ 2.748 billion of availability 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 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”).

1 unchanged sentence

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

(ii) the Company’s option to increase its borrowing capacity under the Revolving Credit Agreement was “refreshed” and the amount of such option remained at $ 400 million;

(iii) the maximum borrowing under the Revolving Credit Agreement may, at the Company’s option, subject to lenders approval, be increased from $ 2.0 billion to $ 2.4 billion;

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

and (v) 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.

(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.

1 unchanged sentence

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 supplements the Company’s existing Revolving Credit Agreement.

On April 3, 2020, the Company entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) to augment the Company’s access to liquidity due to current macroeconomic conditions, specifically the pandemic, and to supplement the Company’s existing Revolving Credit Agreement.

The 364-Day Credit Agreement provides for loans in the aggregate principal amount of up to $ 750 million.

1 unchanged sentence

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 May 9, 2020, the Company had no outstanding borrowings under each of the revolving credit facilities and $ 3.2 million of outstanding letters of credit under the Revolving Credit Agreement.

The fair value of the Company’s debt was estimated at $ 5.723 billion as of May 9, 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 $ 304.9 million at May 9, 2020, which reflects their face amount, adjusted for any unamortized debt issuance costs and discounts.

At August 31, 2019, the fair value was greater than the carrying value of debt by $ 212.7 million.

All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned to the Senior Notes are downgraded (as defined in the agreements).

Further, the Senior Notes contain a provision that repayment of the Senior Notes may be accelerated if the Company experiences a change in control (as defined in the agreements).

The Company’s borrowings under its Senior Notes contain minimal covenants, primarily restrictions on liens.

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

As of November 21, 2020, the Company had no outstanding borrowings under either of the revolving credit agreements and $ 1.7 million of outstanding letters of credit under the Revolving Credit Agreement.

Under the Company’s revolving credit agreements, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances.

The fair value of the Company’s debt was estimated at $ 6.055 billion as of November 21, 2020, and $ 6.081 billion as of August 29, 2020, based on the quoted market prices for the same or similar issues or on the current rates available to the Company for debt of the same terms (Level 2).

Such fair value is greater than the carrying value of debt by $ 540.1 million and $ 567.5 million at November 21, 2020 and August 29, 2020, respectively, which reflects their face amount, adjusted for any unamortized debt issuance costs and discounts.

All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned are downgraded (as defined in the agreements).

Further, the Senior Notes contain a provision that repayment may be accelerated if the Company experiences a change in control (as defined in the agreements).

The Company’s borrowings under its Senior Notes contain minimal covenants, primarily restrictions on liens, sale and leaseback transactions and consolidations, mergers and the sale of assets.

All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs.

As of May 9, 2020, the Company was in compliance with all covenants and expects to remain in compliance with all covenants under its borrowing arrangements.

As of November 21, 2020, the Company was in compliance with all covenants and expects to remain in compliance with all covenants under its borrowing arrangements.

Note H – Stock Repurchase Program

From January 1, 1998 to May 9, 2020, the Company has repurchased a total of 147.7 million shares of its common stock at an aggregate cost of $ 22.354 billion, including 826,002 shares of its common stock at an aggregate cost of $ 930.9 million during the thirty-six week period ended May 9, 2020.

On October 7, 2019, the Board voted to increase the repurchase authorization by $ 1.25 billion.

This raised the total value of shares authorized to be repurchased to $ 23.15 billion.

Considering the cumulative repurchases as of May 9, 2020, the Company had $ 795.9 million remaining under the Board’s authorization to repurchase its common stock.

During the thirty-six week period ended May 9, 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 the twelve week period ended May 9, 2020, the Company temporarily ceased share repurchases under its share repurchase program to conserve liquidity in response to the uncertainty related to COVID-19, and the Company will continue to evaluate current and expected business conditions and resume share repurchases under its share repurchase program when the Company deems appropriate.

From January 1, 1998 to November 21, 2020, the Company has repurchased a total of 148.3 million shares of its common stock at an aggregate cost of $ 23.032 billion, including 584,379 shares of its common stock at an aggregate cost of $ 678.3 million during the twelve week period ended November 21, 2020.

Considering the cumulative repurchases as of November 21, 2020, the Company had $ 117.6 million remaining under the Board’s authorization to repurchase its common stock.

On December 15, 2020, the Board voted to increase the authorization by $ 1.5 billion to raise the cumulative share repurchase authorization from $ 23.15 billion to $ 24.65 billion.

Subsequent to November 21, 2020, the Company has repurchased 97,140 shares of its common stock at an aggregate cost of $ 110.0 million.

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

Note I – Accumulated Other Comprehensive Loss

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

Changes in Accumulated other comprehensive loss for the twelve week periods ended May 9, 2020 and May 4, 2019 consisted of the following:

(in thousands)

on Securities

Balance at February 15, 2020

Other comprehensive (loss) income before reclassifications (1)

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

Balance at May 9, 2020

(in thousands)

on Securities

Balance at February 9, 2019

Other comprehensive (loss) income before reclassifications (1)

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

Balance at May 4, 2019

(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 $ 12 for the twelve weeks ended May 9, 2020, and $ 8 for the twelve weeks ended May 4, 2019, which is recorded in Operating, selling general and administrative expenses on the Condensed Consolidated Statements of Income.

See “Note D – Marketable Debt Securities” for further discussion.

(4) Represents losses on derivatives, net of tax benefit of $ 120 for the twelve weeks ended May 9, 2020 and for the twelve weeks ended May 4, 2019, which is recorded in Interest expense, net, on the Condensed Consolidated Statements of Income.

See “Note E – Derivative Financial Instruments” for further discussion.

(5) Represents change in fair value for derivatives, net of tax benefit of $ 4,034 for the twelve weeks ended May 9, 2020.

Changes in Accumulated other comprehensive loss for the thirty-six week periods ended May 9, 2020 and May 4, 2019 consisted of the following:

Changes in Accumulated other comprehensive loss for the twelve week periods ended November 21, 2020 and November 23, 2019 consisted of the following:

(in thousands)

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Balance at August 29, 2020

Other comprehensive (loss) income before reclassifications (1)

Other comprehensive income (loss) before reclassifications (1)

Amounts reclassified from Accumulated other comprehensive loss

Balance at May 9, 2020

Balance at November 21, 2020

(in thousands)

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Balance at August 31, 2019

Other comprehensive (loss) income before reclassifications (1)

Other comprehensive income (loss) before reclassifications (1)

Amounts reclassified from Accumulated other comprehensive loss

Balance at May 4, 2019

Balance at November 23, 2019

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

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subsidiaries are intended to be permanently reinvested.

(3) Represents realized gains on marketable debt securities, net of taxes of $ 24 for the thirty-six weeks ended May 9, 2020 and $ 8 for thirty-six weeks ended May 4, 2019, which is recorded in Operating, selling general and administrative expenses on the Condensed Consolidated Statements of Income.

See “Note D – Marketable Debt Securities” for further discussion.

(4) Represents losses on derivatives, net of tax benefits of $ 360 for the thirty-six weeks ended May 9, 2020 and for thirty-six weeks ended May 4, 2019, which is recorded in Interest expense, net, on the Condensed Consolidated Statements of Income.

See “Note E – Derivative Financial Instruments” for further discussion.

(5) Represents the change in fair value for derivatives, net of tax benefit of $ 4,034 for the thirty-six weeks ended May 9, 2020.

Note J – Goodwill and Intangibles

As of May 9, 2020, there were no changes to the carrying amount of goodwill as described in our Annual Report on Form 10-K for the year ended August 31, 2019.

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

(in thousands)

Amortizing intangible assets:

Customer relationships

Total intangible assets other than goodwill

Amortization expense of intangible assets for the twelve and thirty-six week periods ended May 9, 2020 and May 4, 2019 were $ 1.0 million and $ 2.9 million, respectively.

Note K – Litigation

(3) Amounts shown are net of taxes/tax benefits.

Note J – Litigation

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

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

Note L – 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 elected the practical expedient to not separate lease components from the non-lease components, which includes fixed common-area maintenance costs at its retail store locations, for all classes of leased assets, except vehicles.

The Company’s vehicle leases typically include variable non-lease components, such as maintenance and fuel charges, which contain observable standalone prices.

The Company has elected to exclude these variable non-lease components from vehicle lease payments for the purpose of calculating the right-of-use assets and liabilities.

These variable lease payments are expensed as incurred.

Note K – Leases

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, we use the Company’s incremental borrowing rate at commencement or modification date is used 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:

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Total lease liabilities

Accumulated amortization related to finance lease assets was $ 101.6 million as of May 9, 2020.

Lease costs for finance and operating leases for the twelve and thirty-six weeks ended May 9, 2020 are as follows:

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

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

Twelve Weeks Ended

(in thousands)

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(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 May 9, 2020 having initial or remaining lease terms in excess of one year are as follows:

(in thousands)

Total lease payments

Present value of lease liabilities

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

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

Twelve Weeks Ended

(in thousands)

2 unchanged sentences

Leased assets obtained in exchange for new operating lease liabilities

As of May 9, 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 $ 14.2 million and will commence when the Company obtains possession of the underlying leased asset.

As of November 21, 2020, the Company has entered into additional leases which have not yet commenced and are therefore not part of the right-of-use asset and liability.

These leases have undiscounted future payments of approximately $ 36.8 million for real estate and $85.0 million for vehicles, of which the majority will replace existing leased vehicles, and will commence when the Company obtains possession of the underlying leased asset.

Commencement dates are expected to be from fiscal 2021 to fiscal 2022 .

Note M – Segment Reporting

Note L – Segment Reporting

The Company’s operating segments (Domestic Auto Parts, Mexico and Brazil) are aggregated as one reportable segment:

2 unchanged sentences

The accounting policies of the Company’s reportable segment are the same as those described in “Note A – Significant Accounting Policies” in its Annual Report on Form 10-K for the year ended August 29, 2020.

The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s 6,484 stores in the U.S., Mexico and Brazil.

The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s 6,590 locations in the U.S., Mexico and Brazil.

Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products.

4 unchanged sentences

Twelve Weeks Ended

Thirty-Six Weeks Ended

(in thousands)

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Income before income taxes

Note M – Subsequent Events

On December 8, 2020, the Company announced that its Board of Directors approved an additional week of Emergency Time-Off for eligible employees and extended the current carryover period for Paid Time-Off in response to the coronavirus (“COVID-19”).

The Company estimates this will result in approximately $ 50.0 million of expense that will be recorded in the second quarter of this fiscal year.

Report of Independent Registered Public Accounting Firm

3 unchanged sentences

We have reviewed the accompanying condensed consolidated balance sheet of AutoZone, Inc.

(the Company) as of May 9, 2020, the related condensed consolidated statements of income, comprehensive income and stockholders’ deficit for the twelve and thirty-six week periods ended May 9, 2020 and May 4, 2019, the condensed consolidated statements of cash flows for the thirty-six week periods ended May 9, 2020 and May 4, 2019, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”).

(the Company) as of November 21, 2020, the related condensed consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for the twelve week periods ended November 21, 2020 and November 23, 2019, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”).

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S.

13 unchanged sentences

Memphis, Tennessee

June 12, 2020

December 18, 2020

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

What changed 10-Q

Item 1. Financial Statements