What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-03-19 compared with 2020-12-18 · 113 added, 87 removed, 188 unchanged (52% of the section changed)

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war and the prospect of war, including terrorist activity;

the impact of public health issues, such as the ongoing global pandemic of a novel strain of the coronavirus (“COVID-19”);

the impact of public health issues, such as the ongoing global pandemic of a novel strain of the coronavirus (“COVID-19”) and the development, efficacy, distribution and adoption rates of vaccines for COVID-19 and variants thereof;

the ability to hire, train and retain qualified employees;

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

We began operations in 1979 and at November 21, 2020, operated 5,924 stores in the U.S., 621 stores in Mexico and 45 stores in Brazil.

We began operations in 1979 and at February 13, 2021 operated 5,951 stores in the U.S., 628 stores in Mexico and 46 stores in Brazil.

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

At November 21, 2020, in 5,043 of our domestic stores, we also had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts.

At February 13, 2021 in 5,088 of our domestic stores, we also had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts.

We also have commercial programs in all stores in Mexico and Brazil.

We also sell the ALLDATA brand automotive diagnostic and repair software through www.alldata.com.

We sell the ALLDATA brand automotive diagnostic and repair software through www.alldata.com.

Additionally, we sell automotive hard parts, maintenance items, accessories and non-automotive products through www.autozone.com and our commercial customers can make purchases through www.autozonepro.com.

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We do not derive revenue from automotive repair or installation services.

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

Operating results for the twelve and twenty-four weeks ended February 13, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending August 28, 2021.

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

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COVID-19 Impact

In the first quarter of fiscal 2021, the COVID-19 pandemic has continued to impact our business.

While our sales remain at an elevated level compared to sales prior to the pandemic, we have seen a deceleration in sales growth rates throughout this quarter as we get further away from the pandemic-related government stimulus, which we believe benefitted many of our customers and normal seasonality.

In the second quarter of fiscal 2021, the COVID-19 pandemic has continued to impact numerous aspects of our business.

Our sales remain at an elevated level compared to sales prior to the pandemic, as we believe the pandemic-related government stimulus benefitted many of our customers.

We anticipate the additional stimulus recently approved by the government will further benefit our customers and will also have a positive impact on sales.

Our main priority continues to be the health, safety and well-being of our customers and employees.

We continue to invest in supplies for the protection of our employees and customers, continue the increased frequency of cleaning and disinfecting our stores and require masks when entering our facilities.

Our current operating expenses reflect the increased costs associated with personal protective equipment and more frequent cleaning of our stores, which we expect to continue for the duration of the pandemic.

Additionally, on December 8, 2020, we announced that we are providing additional Emergency Time-Off (“ETO”) benefit enhancements for both full and part-time eligible employees in the U.S.

along with extending the carryover of unused ETO and normal vacation benefits that will be recognized as an expense of approximately $50 million in our second quarter of fiscal 2021.

The long-term impact to our business remains unknown as we are unable to accurately predict the impact COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, the efficacy of a vaccine, the likelihood of a resurgence of the outbreak, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic or to stimulate the economy and other unintended consequences.

Accordingly, continued business disruption related to the COVID-19 outbreak may continue to cause significant fluctuations in our business, unusually impacting demand for our products, our store hours and our workforce availability and magnify risks associated with our business and operations.

During the second quarter of fiscal 2021, we provided Emergency Time-Off (“ETO”) benefit enhancements for both full and part-time eligible employees in the U.S.

along with extending the carryover of unused ETO and normal vacation benefits.

These benefit enhancements and other pandemic related expenses of $39.9 million have been recognized as an expense in our second quarter of fiscal 2021.

For fiscal 2021 we have incurred $44.9 million in ETO and other pandemic related expenses.

The long-term impact to our business remains unknown as we are unable to accurately predict the impact COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, the impact of variants of the disease, the availability and efficacy of vaccines, the speed at which such vaccines are administered, the likelihood of a resurgence of positive cases, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic or to stimulate the economy and other unintended consequences.

Accordingly, business disruption related to the COVID-19 outbreak may continue to cause significant fluctuations in our business, unusually impacting demand for our products, our store hours and our workforce availability and magnify risks associated with our business and operations.

See “Risk Factors—The ongoing outbreak of COVID-19 has been declared a pandemic by the World Health Organization, continues to spread within the United States and many other parts of the world and may have a material adverse effect on our business operations, financial condition, liquidity and cash flow” in our Annual Report on Form 10-K for additional information.

Executive Summary

Net sales increased 12.9% for the quarter ended November 21, 2020 compared to the prior year period, which was driven by an increase in domestic same store sales (sales from stores open at least one year) of 12.3%.

Domestic commercial sales increased 11.9% compared to the prior year period, which represents 22.0% of our total sales.

Net sales increased 15.8% for the quarter ended February 13, 2021 compared to the prior year period, which was driven by an increase in domestic same store sales (sales from stores open at least one year) of 15.2%.

Domestic commercial sales increased 14.7% compared to the prior year period, which represents approximately 22% of our total sales.

Operating profit increased by 18.1% to $481.8 million compared to $407.9 million in the same period last year.

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Diluted earnings per share increased by 20.5% to $14.93 per share from $12.39 per share in the comparable prior year period.

The increase in net income for the quarter ended November 21, 2020 was driven by strong topline growth.

The increase in net income for the quarter ended February 13, 2021 was driven by strong topline growth.

Our business is impacted by various factors within the economy that affect both our consumer and our industry, including but not limited to fuel costs, wage rates and other economic conditions, including the effects of, and responses to, COVID-19.

Given the nature of these macroeconomic factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.

During the first quarter of fiscal 2021, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 84% of total sales, which is consistent with the comparable prior year period, with failure related categories continuing to be the largest portion of our sales mix.

During the second quarter of fiscal 2021, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 84% of total sales, which is consistent with the comparable prior year period, with failure related categories continuing to be the largest portion of our sales mix.

While we have not experienced any fundamental shifts in our category sales mix as compared to the previous year, in our domestic stores we continue to experience a slight increase in mix of sales of the discretionary category as compared to previous quarters.

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According to the latest data provided by the Auto Care Association in the 2021 Auto Care Factbook, for the ninth consecutive year, the average age of vehicles on the road has exceeded 11 years.

Since the beginning of the fiscal year and through September 2020 (latest publicly available information), miles driven in the U.S.

Since the beginning of the fiscal year and through December 2020 (latest publicly available information), miles driven in the U.S.

decreased 9.9% compared to the same period in the prior year.

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

Twelve Weeks Ended November 21, 2020

Compared with Twelve Weeks Ended November 23, 2019

Net sales for the twelve weeks ended November 21, 2020 increased $361.2 million to $3.154 billion, or 12.9% over net sales of $2.793 billion for the comparable prior year period.

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

Twelve Weeks Ended February 13, 2021

Compared with Twelve Weeks Ended February 15, 2020

Net sales for the twelve weeks ended February 13, 2021 increased $397.2 million to $2.911 billion, or 15.8% over net sales of $2.514 billion for the comparable prior year period.

Total auto parts sales increased by 16.0%, primarily driven by an increase in domestic same store sales of 15.2% and net sales of $40.8 million from new stores.

Domestic commercial sales increased $82.0 million to $638.9 million, or 14.7%, over the comparable prior year period.

Gross profit for the twelve weeks ended November 21, 2020 was $1.676 billion, compared with $1.501 billion during the comparable prior year period.

Gross profit, as a percentage of sales was 53.1% for the twelve weeks ended November 21, 2020 compared to 53.7% during the comparable prior year period.

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

Operating, selling, general and administrative expenses for the twelve weeks ended November 21, 2020 were $1.060 billion, or 33.6% of net sales, compared with $1.001 billion, or 35.8% of net sales during the comparable prior year period.

The decrease in operating expenses, as a percentage of sales, was primarily due to leverage from higher sales growth.

Net interest expense for the twelve weeks ended November 21, 2020 was $46.2 million compared with $43.7 million during the comparable prior year period.

The increase was primarily due to higher debt levels.

Average borrowings for the twelve weeks ended November 21, 2020 were $5.514 billion, compared with $5.190 billion for the comparable prior year period.

Weighted average borrowing rates were 3.3% and 3.1% for the quarter ended November 21, 2020 and November 23, 2019, respectively.

Our effective income tax rate was 22.2% of pretax income for the twelve weeks ended November 21, 2020, and 23.2% for the comparable prior year period.

The decrease in the tax rate was primarily attributable to a higher benefit from stock options exercised during the twelve weeks ended November 21, 2020 compared to the comparable prior year period.

The benefit of stock options exercised for the twelve weeks ended November 21, 2020 was $7.6 million compared to $1.5 million in the comparable prior year period.

Net income for the twelve week period ended November 21, 2020 increased by $92.1 million to $442.4 million from $350.3 million in the comparable prior year period, and diluted earnings per share increased by 30.1% to $18.61 from $14.30 in the comparable prior year period.

Gross profit for the twelve weeks ended February 13, 2021 was $1.559 billion, compared with $1.366 billion during the comparable prior year period.

Gross profit, as a percentage of sales was 53.6% for the twelve weeks ended February 13, 2021 compared to 54.3% during the comparable prior year period.

The decrease in gross profit percent was attributable to increased supply chain costs, pricing initiatives, accelerated loyalty program participation and a shift in mix.

Operating, selling, general and administrative expenses for the twelve weeks ended February 13, 2021 were $1.078 billion, or 37.0% of net sales, compared with $958.1 million, or 38.1% of net sales during the comparable prior year period.

The decrease in operating expenses, as a percentage of sales, was primarily due to leverage from higher sales growth, offset by additional ETO benefits offered in December 2020 and other COVID-19 pandemic related expenses totaling $39.9 million (137 basis points).

Net interest expense for the twelve weeks ended February 13, 2021 was $46.0 million compared with $44.3 million during the comparable prior year period.

The increase was primarily due to an increase in the weighted average borrowing rate over the comparable prior year period.

Average borrowings for the twelve weeks ended February 13, 2021 were $5.516 billion, compared with $5.464 billion for the comparable prior year period.

Weighted average borrowing rates were 3.3% and 3.0% for the quarter ended February 13, 2021 and February 15, 2020, respectively.

Our effective income tax rate was 20.6% of pretax income for the twelve weeks ended February 13, 2021, and 17.7% for the comparable prior year period.

The increase in the tax rate was primarily attributable to a reduced benefit from stock options exercised during the twelve weeks ended February 13, 2021, in addition to various nonrecurring tax benefits recognized during the comparable prior year period.

The benefit of stock options exercised for the twelve weeks ended February 13, 2021 was $11.6 million compared to $15.0 million in the comparable prior year period.

Net income for the twelve week period ended February 13, 2021 increased by $46.7 million to $345.9 million from $299.3 million in the comparable prior year period, and diluted earnings per share increased by 20.5% to $14.93 from

$12.39 in the comparable prior year period.

The impact on current quarter diluted earnings per share from stock repurchases since the end of the comparable prior year period was an increase of $0.76.

Twenty-Four Weeks Ended February 13, 2021

Compared with Twenty-Four Weeks Ended February 15, 2020

Net sales for the twenty-four weeks ended February 13, 2021 increased $758.4 million to $6.065 billion, or 14.3%, over net sales of $5.307 billion for the comparable prior year period.

Total auto parts sales increased by 14.5%, primarily driven by an increase in domestic same store sales of 13.6% and net sales of $81.9 million from new stores.

Domestic commercial sales increased by $155.8 million, or 13.2%, to $1.334 billion over the comparable prior year period.

Gross profit for the twenty-four weeks ended February 13, 2021 was $3.235 billion, or 53.3% of net sales, compared with $2.867 billion, or 54.0% of net sales, during the comparable prior year period.

The decrease in gross margin was primarily driven by pricing initiatives, accelerated loyalty program participation, increased supply chain costs and a shift in mix.

Operating, selling, general and administrative expenses for the twenty-four weeks ended February 13, 2021 were $2.138 billion, or 35.3% of net sales, compared with $1.959 billion, or 36.9% of net sales, during the comparable prior year period.

Net interest expense for the twenty-four weeks ended February 13, 2021 was $92.2 million compared with $88.1 million during the comparable prior year period.

The increase was primarily due to an increase in the weighted average borrowing rate over the comparable prior year period.

Average borrowings for the twenty-four weeks ended February 13, 2021 were $5.515 billion, compared with $5.327 billion for the comparable prior year period.

Weighted average borrowing rates were 3.3% and 3.1% for the twenty-four week periods ended February 13, 2021 and February 15, 2020, respectively.

Our effective income tax rate was 21.5% of pretax income for the twenty-four weeks ended February 13, 2021, and 20.8% for the comparable prior year period.

The increase in the tax rate was primarily attributable to various nonrecurring tax benefits recognized during the comparable prior year period.

The benefit of stock options exercised for the twenty-four week period ended February 13, 2021 was $19.2 million compared to $16.5 million in the comparable prior year period.

Net income for the twenty-four week period ended February 13, 2021 increased by $138.8 million to $788.4 million due to the factors set forth above, and diluted earnings per share increased by 25.8% to $33.59 from $26.70 in the comparable prior year period.

The impact on current year to date diluted earnings per share from stock repurchases since the end of the comparable prior year period resulted in an increase of $0.92 per share.

Liquidity and Capital Resources

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

For the twelve weeks ended November 21, 2020, our net cash flows from operating activities provided $683.5 million as compared with $447.1 million provided during the comparable prior year period.

The increase is

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

Our net cash flows used in investing activities for the twelve weeks ended November 21, 2020 were $110.2 million as compared with $90.7 million in the comparable prior year period.

Capital expenditures for the twelve weeks ended November 21, 2020 were $113.0 million compared to $101.4 million for the comparable prior year period.

For the twenty-four weeks ended February 13, 2021, our net cash flows from operating activities provided $1.040 billion as compared with $651.6 million provided during the comparable prior year period.

The increase is primarily due to favorable changes in inventories, accounts payable and growth in net income due to accelerated sales growth as a result of the COVID-19 pandemic.

Our net cash flows used in investing activities for the twenty-four weeks ended February 13, 2021 were $228.4 million as compared with $174.9 million in the comparable prior year period.

Capital expenditures for the twenty-four weeks ended February 13, 2021 were $238.6 million compared to $190.6 million for the comparable prior year period.

The increase is primarily driven by increased store openings compared to the comparable prior year period.

During the twelve week period ended November 21, 2020 and November 23, 2019, we opened 41 and 22 net new stores, respectively.

Investing cash flows were impacted by our wholly owned captive, which purchased $46.0 million and sold $51.2 million in marketable debt securities during the twelve weeks ended November 21, 2020.

During the twenty-four week period ended February 13, 2021 and February 15, 2020, we opened 76 and 50 net new stores, respectively.

Investing cash flows were impacted by our wholly owned captive, which purchased $48.4 million and sold

$60.6 million in marketable debt securities during the twenty-four weeks ended February 13, 2021.

During the comparable prior year period, the captive purchased $56.3 million in marketable debt securities and sold $70.8 million.

Our net cash flows used in financing activities for the twelve weeks ended November 21, 2020 were $663.4 million compared to $375.8 million in the comparable prior year period.

We did not have any commercial paper activity during the twelve week period ended November 21, 2020 as compared to $79.7 million in net proceeds in the comparable prior year period.

Stock repurchases were $678.3 million in the current twelve week period as compared with $450.0 million in the comparable prior year period.

For the twelve weeks ended November 21, 2020, proceeds from the sale of common stock and exercises of stock options provided $28.7 million.

In the comparable prior year period, proceeds from the sale of common stock and exercises of stock options provided $8.8 million.

Our net cash flows used in financing activities for the twenty-four weeks ended February 13, 2021 were $1.541 billion compared to $502.8 million in the comparable prior year period.

We did not have any commercial paper activity during the twenty-four week period ended February 13, 2021 as compared to $242.7 million in net proceeds in the comparable prior year period.

Stock repurchases were $1.578 billion in the current twenty-four week period as compared with $764.8 million in the comparable prior year period.

Proceeds from the sale of common stock and exercises of stock options for the twenty-four weeks ended February 13, 2021 and February 15, 2020 provided $66.5 million and $48.7 million, respectively.

During fiscal 2021, we expect to increase the investment in our business as compared to fiscal 2020.

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Extended payment terms from our vendors have allowed us to continue our high accounts payable to inventory ratio.

Accounts payable, as a percentage of gross inventory, was 114.1% at November 21, 2020, compared to 110.3% at November 23, 2019.

Accounts payable, as a percentage of gross inventory, was 113.0% at February 13, 2021, compared to 105.7% at February 15, 2020.

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

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

For the trailing four quarters ended November 21, 2020, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 40.3% as compared to 35.5% for the comparable prior year period.

For the trailing four quarters ended February 13, 2021, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 41.5% as compared to 35.3% for the comparable prior year period.

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

For the trailing four quarters ended November 21, 2020, ROIC was presented net of average excess cash of $668.0 million.

For the trailing four quarters ended February 13, 2021, ROIC was presented net of average excess cash of $834.3 million.

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

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On April 3, 2020, we entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) to augment our access to liquidity due to macroeconomic conditions and supplements our existing Revolving Credit Agreement.

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

The 364-Day Credit Agreement will terminate, and all amounts borrowed under the 364-Day Credit Agreement will be due and payable, on April 2, 2021.

Revolving loans under the 364-Day Credit Agreement may be base rate loans, Eurodollar loans, or a combination of both, at our election.

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

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

The 364-Day Credit Agreement had a termination date of, and any amounts borrowed under the 364-Day Credit Agreement were due and payable on, April 2, 2021.

Revolving loans under the 364-Day Credit Agreement could be base rate loans, Eurodollar loans, or a combination of both, at our election.

On February 22, 2021, we terminated the 364-Day Credit Agreement dated as of April 3, 2020 between the Company as borrower, the banks party thereto, and U.S.

Bank, National Association, as administrative agent.

There were no borrowings outstanding under this revolving credit agreement.

We entered into this credit agreement to augment our access to liquidity due to macroeconomic conditions existing at the time, and we have determined the additional access to liquidity is no longer necessary.

As of February 13, 2021, we had no outstanding borrowings under either of our revolving credit facilities and $1.7 million of outstanding letters of credit under the Revolving Credit Agreement.

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

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

As of November 21, 2020, we had $25.0 million in letters of credit outstanding under the letter of credit facility, which expires in June 2022.

In addition to the outstanding letters of credit issued under the committed facilities discussed above, we had $224.3 million in letters of credit outstanding as of November 21, 2020.

As of February 13, 2021, we had $25.0 million in letters of credit outstanding under the letter of credit facility, which expires in June 2022.

In addition to the outstanding letters of credit issued under the committed facilities discussed above, we had $136.8 million in letters of credit outstanding as of February 13, 2021.

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

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

As of November 21, 2020, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.

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

As of November 21, 2020, we had $2.748 billion of availability under our $2.750 billion revolving credit agreements, which would allow us to replace these short-term obligations with long-term financing facilities.

Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 1.9:1 as of November 21, 2020 and was 2.5:1 as of November 23, 2019.

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

As of February 13, 2021, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.

As of February 13, 2021, the $250 million 2.500% Senior Notes due April 2021 were classified as short-term in the accompanying Condensed Consolidated Balance Sheets.

On March 15, 2021, we repaid the $250 million 2.500% Senior Notes due April 2021 which were callable at par in March 2021.

As of February 13, 2021, we had $2.748 billion of availability under our $2.750 billion revolving credit agreements.

Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.0:1 as of February 13, 2021 and was 2.6:1 as of February 15, 2020.

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

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

Adjusted debt to EBITDAR is calculated on a trailing four quarter basis.

For the trailing four quarters ended November 21, 2020, debt was presented net of excess cash of $1.469 billion.

For the trailing four quarters ended February 13, 2021, debt was presented net of excess cash of $831.4 million.

We target our debt levels to a ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings.

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Stock Repurchases

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

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

On 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, we have repurchased 97,140 shares of our common stock at an aggregate cost of $110.0 million.

Considering the cumulative repurchases and the increase in authorization subsequent to November 21, 2020, we have $1.508 billion remaining under the Board’s authorization to repurchase our common stock.

From January 1, 1998 to February 13, 2021, we have repurchased a total of 149.0 million shares of our common stock at an aggregate cost of $23.932 billion, including 1.3 million shares of our common stock at an aggregate cost of $1.578 billion during the twenty-four week period ended February 13, 2021.

On December 15, 2020, the Board voted to increase the repurchase authorization by $1.5 billion.

This raised the total value of shares authorized to be repurchased to $24.65 billion.

Considering cumulative repurchases as of February 13, 2021, we had $717.6 million remaining under the Board’s authorization to repurchase our common stock.

Subsequent to February 13, 2021 we have repurchased 169,396 shares of our common stock at an aggregate cost of $203.0 million.

Off-Balance Sheet Arrangements

Since our fiscal year end, we have canceled, issued and modified stand-by letters of credit that are primarily renewed on an annual basis to cover deductible payments to our casualty insurance carriers.

Our total stand-by letters of credit commitment at November 21, 2020, was $250.9 million, compared with $246.9 million at August 29, 2020, and our total surety bonds commitment at November 21, 2020, was $40.7 million, compared with $56.7 million at August 29, 2020.

Our total stand-by letters of credit commitment at February 13, 2021, was $163.4 million, compared with $246.9 million at August 29, 2020, and our total surety bonds commitment at February 13, 2021, was $40.6 million, compared with $56.7 million at August 29, 2020.

Financial Commitments

As of November 21, 2020, there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 29, 2020.

As of February 13, 2021, there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 29, 2020.

Reconciliation of Non-GAAP Financial Measures

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However, we have presented non-GAAP financial measures, as we believe they provide additional information that is useful to investors as it indicates more clearly our comparative year-to-year operating results.

Furthermore, our management and the Compensation Committee of the Board use these non-GAAP financial measures to analyze and compare our underlying operating results and use select measurements to determine payments of performance-based compensation.

Furthermore, our management and the Compensation Committee of the Board use these non-GAAP financial measures to analyze and compare our underlying

operating results and use select measurements to determine payments of performance-based compensation.

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

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Adjusted After-Tax ROIC

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

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended February 13, 2021 and February 15, 2020.

Trailing Four

Quarters Ended

(in thousands, except percentages)

(in thousands, except percentage)

Interest expense

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Quarters Ended

(in thousands, except percentages)

(in thousands, except percentage)

Interest expense

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Adjusted Debt to EBITDAR

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

The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended February 13, 2021 and February 15, 2020.

Trailing Four

Quarters Ended

(in thousands, except ratios)

(in thousands, except ratio)

Interest expense

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Adjusted EBITDAR

Finance lease liabilities

Financing lease liabilities

Adjusted debt

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(1) The fiscal year ended August 31, 2019 consists of 53 weeks.

(2) The table below outlines the calculation of rent expense and reconciles rent expense to total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the 52 weeks ended November 21, 2020 and 53 weeks ended November 23, 2019 (in thousands):

Total lease cost, per ASC 842, for the 52 weeks ended November 21, 2020

(2) The table below outlines the calculation of rent expense and reconciles rent expense to total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the trailing four quarters ended February 13, 2021 and February 15, 2020 (in thousands):

Total lease cost, per ASC 842, for the trailing four quarters ended February 13, 2021

Finance lease interest and amortization

Variable operating lease components, related to insurance and common area maintenance for the 52 weeks ended November 21, 2020

Rent expense for the 52 weeks ended November 21, 2020

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

Variable operating lease components, related to insurance and common area maintenance for the trailing four quarters ended February 13, 2021

Rent expense for the trailing four quarters ended February 13, 2021

Total lease cost, per ASC 842, for the 24 weeks ended February 15, 2020

Finance lease interest and amortization

Variable operating lease components, related to insurance and common area maintenance for the 12 weeks ended November 23, 2019

Rent expense for the 12 weeks ended November 23, 2019

Variable operating lease components, related to insurance and common area maintenance

Rent expense for the 24 weeks ended February 15, 2020

Rent expense for the 29 weeks ended August 31, 2019 as previously reported prior to the adoption of ASC 842

Rent expense for the 53 weeks ended November 23, 2019

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

(4) Average debt for the trailing four quarters ended November 21, 2020 is presented net of average excess cash of $668.0 million.

(5) All averages are computed based on trailing 5 quarter balances.

(6) The Company ended the 12 weeks ended November 21, 2020 with excess cash of $1.469 billion.

Rent expense for the trailing four quarters ended February 15, 2020

(3) Effective tax rate over trailing four quarters ended February 13, 2021 and February 15, 2020 is 22.1% and 20.7%, respectively.

(4) Average debt for the trailing four quarters ended February 13, 2021 is presented net of average excess cash of $834.3 million.

(5) All averages are computed based on trailing five quarter balances.

(6) The Company ended the 24 weeks ended February 13, 2021 with excess cash of $831.4 million.

Debt is presented net of excess cash.

5 unchanged sentences

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 2. Management’s Discussion and Analysis