What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-06-11 compared with 2021-03-19 · 106 added, 113 removed, 188 unchanged (54% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In Management’s Discussion and Analysis (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect the future results of AutoZone, Inc.

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect the future results of AutoZone, Inc.

(“AutoZone” or the “Company”).

The following MD&A discussion should be read in conjunction with our Condensed Consolidated Financial Statements, related notes to those statements and other financial information, including forward-looking statements and risk factors, that appear elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended August 29, 2020 and other filings with the SEC.

Forward-Looking Statements

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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”) and the development, efficacy, distribution and adoption rates of vaccines for COVID-19 and variants thereof;

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

the ability to hire, train and retain qualified employees;

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origin and raw material costs of suppliers;

disruption in our supply chain, due to public health epidemics or otherwise;

disruption in our supply chain;

impact of tariffs;

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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 February 13, 2021 operated 5,951 stores in the U.S., 628 stores in Mexico and 46 stores in Brazil.

We began operations in 1979 and at May 8, 2021 operated 5,975 stores in the U.S., 635 stores in Mexico and 47 stores in Brazil.

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

At February 13, 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.

At May 8, 2021 in 5,107 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.

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

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.

Operating results for the twelve and thirty-six weeks ended May 8, 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 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.

The COVID-19 pandemic continues 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 additional pandemic-related government stimulus benefitted many of our customers.

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.

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.

For fiscal 2021, we have incurred approximately $46 million in pandemic related expenses, including Emergency Time Off (“ETO”) benefit enhancements as compared to approximately $75 million in the comparable prior year period.

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 duration of the outbreak, the impact of variants of the disease, the distribution and efficacy of vaccines, the speed at which such vaccines are administered, 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.

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Executive Summary

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.

Net income for the quarter increased by 15.6% to $345.9 million compared to $299.3 million in the same period last year.

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 February 13, 2021 was driven by strong topline growth.

Net sales increased 31.4% for the quarter ended May 8, 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 28.9%.

Domestic commercial sales increased 44.4%, which represents approximately 23% of our total sales.

Operating profit increased 63.4% to $803.5 million compared to $491.7 million.

Net income for the quarter increased 73.9% to $596.2 million compared to $342.9 million.

Diluted earnings per share increased 84.0% to $26.48 per share from $14.39 per share.

The increase in net income for the quarter ended May 8, 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 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.

During the third quarter of fiscal 2021, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 82% 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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While over the long-term we have seen a close correlation between our net sales and the number of miles driven, we have also seen time frames of minimal correlation in sales performance and miles driven.

During the periods of minimal correlation between net sales and miles driven, we believe net sales have been positively impacted by other factors, including macroeconomic factors and the number of seven year old or older vehicles on the road.

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

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

The average age of the U.S.

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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 December 2020 (latest publicly available information), miles driven in the U.S.

Since the beginning of the fiscal year and through March 2021 (latest publicly available information), miles driven in the U.S.

decreased 7.2% 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 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.

however, the March 2021 data showed significant improvement in the number of miles driven.

We believe the increase in miles driven is due to the nation beginning to return to pre-pandemic levels, but we are unable to predict if the increase will continue or the extent of the impact it will have on our business.

Twelve Weeks Ended May 8, 2021

Compared with Twelve Weeks Ended May 9, 2020

Net sales for the twelve weeks ended May 8, 2021 increased $871.7 million to $3.651 billion, or 31.4% over net sales of $2.779 billion for the comparable prior year period.

Total auto parts sales increased by 31.8%, primarily driven by an increase in domestic same store sales of 28.9% and net sales of $51.5 million from new stores.

Domestic commercial sales increased $254.8 million to $828.6 million, or 44.4%, over 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.

Gross profit for the twelve weeks ended May 8, 2021 was $1.915 billion, compared with $1.491 billion during the comparable prior year period.

Gross profit, as a percentage of sales was 52.4% compared to 53.6% during the comparable prior year period.

The decrease in gross margin was primarily driven by the accelerated growth in our Commercial business and our investment in pricing initiatives.

Operating, selling, general and administrative expenses for the twelve weeks ended May 8, 2021 were $1.111 billion, or 30.4% of net sales, compared with $999.0 million, or 35.9% of net sales during the comparable prior year period.

The decrease in operating expenses, as a percentage of sales, was driven by strong sales growth and approximately $75 million in pandemic related expenses, including ETO for our AutoZoners, incurred in the prior year.

Net interest expense for the twelve weeks ended May 8, 2021 was $45.0 million compared with $47.5 million during the comparable prior year period.

The decrease was primarily due to a decrease in the weighted average borrowing rate.

Average borrowings for the twelve weeks ended May 8, 2021 were $5.351 billion, compared with $5.460 billion for the comparable prior year period.

Weighted average borrowing rates were 3.3% and 3.4% for the quarter ended May 8, 2021 and May 9, 2020, respectively.

Our effective income tax rate was 21.4% of pretax income for the twelve weeks ended May 8, 2021, and 22.8% for the comparable prior year period.

The decrease in the tax rate was primarily attributable to an increased benefit from stock options exercised during the twelve weeks ended May 8, 2021.

The benefit of stock options exercised for the twelve weeks ended May 8, 2021 was $16.0 million compared to $1.1 million in the comparable prior year period.

Net income for the twelve week period ended May 8, 2021 increased by $253.3 million to $596.2 million from $342.9 million in the comparable prior year period, and diluted earnings per share increased by 84.0% to $26.48 from $14.39.

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 $1.77.

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.

Thirty-Six Weeks Ended May 8, 2021

Compared with Thirty-Six Weeks Ended May 9, 2020

Net sales for the thirty-six weeks ended May 8, 2021 increased $1.630 million to $9.716 billion, or 20.2%, over net sales of $8.086 billion for the comparable prior year period.

Total auto parts sales increased by 20.4%, primarily driven by an increase in domestic same store sales of 19.0% and net sales of $133.4 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.

Domestic commercial sales increased by $410.6 million, or 23.4%, to $2.163 billion.

Gross profit for the thirty-six weeks ended May 8, 2021 was $5.150 billion, or 53.0% of net sales, compared with $4.358 billion, or 53.9% of net sales, during the comparable prior year period.

The decrease in gross margin was primarily driven by the accelerated growth in our Commercial business and our investment in pricing initiatives.

Operating, selling, general and administrative expenses for the thirty-six weeks ended May 8, 2021 were $3.249 billion, or 33.4% of net sales, compared with $2.958 billion, or 36.6% of net sales, during the comparable prior year period.

The decrease in operating expenses, as a percentage of sales, was primarily driven by strong sales growth.

Total pandemic related expenses, including ETO were approximately $46 million for the thirty-six week period ended May 8, 2021 compared to approximately $75 million during the comparable prior year period.

Net interest expense for the thirty-six weeks ended May 8, 2021 was $137.2 million compared with $135.5 million during the comparable prior year period.

The increase was primarily due to an increase in the weighted average borrowing rate.

Average borrowings for the thirty-six weeks ended May 8, 2021 were $5.460 billion, compared with $5.371 billion for the comparable prior year period.

Weighted average borrowing rates were 3.3% and 3.2% for the thirty-six week periods ended May 8, 2021 and May 9, 2020, respectively.

Our effective income tax rate was 21.5% of pretax income for the thirty-six weeks ended May 8, 2021, which was flat to the comparable prior year period.

The benefit of stock options exercised for the thirty-six week period ended May 8, 2021 was $35.2 million compared to $17.6 million in the comparable prior year period.

Net income for the thirty-six week period ended May 8, 2021 increased by $392.0 million to $1.385 billion due to the factors set forth above, and diluted earnings per share increased by 45.6% to $59.80 from $41.08 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 $2.18 per share.

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

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 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.

For the thirty-six weeks ended May 8, 2021, our net cash flows from operating activities provided $2.230 billion compared with $1.303 billion provided during the comparable prior year period.

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

Our net cash flows used in investing activities for the thirty-six weeks ended May 8, 2021 were $358.7 million as compared with $247.9 million in the comparable prior year period.

Capital expenditures for the thirty-six weeks ended May 8, 2021 were $375.7 million compared to $273.9 million.

The increase is primarily driven by increased store openings.

During the thirty-six week period ended May 8, 2021 and May 9, 2020, we opened 108 and 73 net new stores, respectively.

Investing cash flows were impacted by our wholly owned captive, which purchased $52.6 million and sold $72.3 million in marketable debt securities during the thirty-six weeks ended May 8, 2021.

During the comparable prior year period, the captive purchased $82.5 million in marketable debt securities and sold $106.7 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.

Our net cash flows used in financing activities for the thirty-six weeks ended May 8, 2021 were $2.651 billion compared to $712.2 million in the comparable prior year period.

During the thirty-six weeks ended May 8, 2021, we repaid our $250 million 2.500% Senior Notes due April 2021, which were callable at par in March 2021.

In the comparable prior year period, we received $500 million from the issuance of 3.625% Senior Notes due April 2025 and received $750 million from the issuance of 4.000% Senior Notes due April 2030.

We did not have any commercial paper activity during the thirty-six week period ended May 8, 2021 as compared to $1.030 billion in net proceeds in the comparable prior year period.

Stock repurchases were $2.478 billion in the current thirty-six week period as compared with $930.9 million in the prior year period.

Proceeds from the sale of common stock and exercises of stock options for the thirty-six weeks ended May 8, 2021 and May 9, 2020 provided $121.9 million and $56.3 million, respectively.

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

The expected increase is driven by delays in capital spending for the third and fourth quarter of fiscal 2020 related to the COVID-19 pandemic.

The expected increase is driven by delays in capital spending for the third and fourth quarter of fiscal 2020 related to the uncertainties surrounding the COVID-19 pandemic.

Our investments continue to be directed primarily to new stores, supply chain infrastructure, technology and enhancements to existing stores.

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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 113.0% at February 13, 2021, compared to 105.7% at February 15, 2020.

Accounts payable, as a percentage of gross inventory, was 123.9% at May 8, 2021, compared to 108.2% at May 9, 2020.

The increase from the comparable prior year period was primarily due to increased accounts payable purchases with favorable vendor terms and higher inventory turns.

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 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.

For the trailing four quarters ended May 8, 2021, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 40.2% as compared to 34.0% 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 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.

Debt Facilities

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 May 8, 2021, the $500 million 3.700% Senior Notes due April 2022 were classified as long-term in the Consolidated Balance Sheets as we had the ability and intent to refinance them on a long-term basis through available capacity in our revolving credit facilities.

As of May 8, 2021, we had $1.998 billion of availability under our $2.0 billion Revolving Credit Agreement.

We entered into a Master Extension, New Commitment and Amendment Agreement dated as of November 18, 2017 (the “Extension Amendment”) to the Third Amended and Restated Credit Agreement dated as of November 18, 2016, as amended, modified, extended or restated from time to time (the “Revolving Credit Agreement”).

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Interest accrues on base rate loans as defined in the Revolving Credit Agreement.

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

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

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

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

On February 22, 2021, we terminated the 364-Day 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.

As of May 8, 2021, we had no outstanding borrowings and $1.7 million of outstanding letters of credit under the Revolving Credit Agreement.

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

We also maintain a letter of credit facility that allows us to request the participating bank to issue letters of credit on our behalf up to an aggregate amount of $25 million.

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

As of February 13, 2021, 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.

As of May 8, 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 $136.9 million in letters of credit outstanding as of May 8, 2021.

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

On April 3, 2020, we entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) to supplement our existing Revolving Credit Agreement.

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

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

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

Effective February 22, 2021, we terminated the 364-Day Credit Agreement.

There were no borrowings outstanding under the 364-Day Credit Agreement.

We entered into the 364-Day Credit Agreement to augment our access to liquidity due to macroeconomic conditions existing at the time, and we determined the additional access to liquidity was no longer necessary.

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

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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 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.

As of May 8, 2021, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.

Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.0:1 as of May 8, 2021 and was 2.6:1 as of May 9, 2020.

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

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

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

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

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Stock Repurchases

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.

From January 1, 1998 to May 8, 2021, we have repurchased a total of 149.7 million shares of our common stock at an aggregate cost of $24.832 billion, including 2.0 million shares of our common stock at an aggregate cost of $2.478 billion during the thirty-six week period ended May 8, 2021.

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

On March 23, 2021, the Board voted to increase the repurchase authorization by an additional $1.5 billion.

This raised the total value of shares authorized to be repurchased to $26.15 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.

Considering cumulative repurchases as of May 8, 2021, we had $1.318 billion remaining under the Board’s authorization to repurchase our common stock.

Subsequent to May 8, 2021 we have repurchased 119,391 shares of our common stock at an aggregate cost of $174.8 million.

Off-Balance Sheet Arrangements

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

Our total stand-by letters of credit commitment at February 13, 2021, 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.

Our total stand-by letters of credit commitment at May 8, 2021, was $163.5 million, compared with $246.9 million at August 29, 2020, and our total surety bonds commitment at May 8, 2021, was $41.9 million, compared with $56.7 million at August 29, 2020.

Financial Commitments

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.

Except for the previously discussed termination of the 364-Day Credit Agreement and the repayment of the $250 million 2.500% Senior Notes due April 2021, as of May 8, 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 February 13, 2021 and February 15, 2020.

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended May 8, 2021 and May 9, 2020.

Trailing Four

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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 February 13, 2021 and February 15, 2020.

The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended May 8, 2021 and May 9, 2020.

Trailing Four

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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 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

All other presented fiscal years are based on 52 weeks.

Total lease cost, per ASC 842, for the trailing four quarters ended May 8, 2021

Finance lease interest and amortization

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

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

Rent expense for the trailing four quarters ended May 8, 2021

Total lease cost, per ASC 842, for the 36 weeks ended May 9, 2020

Finance lease interest and amortization

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 36 weeks ended May 9, 2020

Rent expense for the 17 weeks ended August 31, 2019 as previously reported prior to the adoption of ASC 842

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.

Rent expense for the trailing four quarters ended May 9, 2020

(3) Effective tax rate over trailing four quarters ended May 8, 2021 and May 9, 2020 is 21.8% and 21.5%, respectively.

(4) 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.

Recent Accounting Pronouncements

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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