What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-10-25 compared with 2020-10-26 · 153 added, 273 removed, 783 unchanged (35% of the section changed)

20 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of AutoZone, Inc.

To the Stockholders and the Board of Directors of AutoZone, Inc.

Opinion on Internal Control Over Financial Reporting

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of AutoZone, Inc.

To the Stockholders and the Board of Directors of AutoZone, Inc.

Opinion on the Financial Statements

4 unchanged sentences

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of August 28, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October 25, 2021, expressed an unqualified opinion thereon.

Adoption of ASU 2016-02

As discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for leases on September 1, 2019 due to the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842), and related amendments.

Basis for Opinion

48 unchanged sentences

(in thousands)

Other comprehensive loss:

Pension liability adjustments, net of taxes (1)(2)

Other comprehensive gain (loss) income:

Foreign currency translation adjustments

Unrealized gains (losses) on marketable debt securities, net of taxes (3)

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

Net derivative activities, net of taxes

Total other comprehensive (loss) income

Total other comprehensive income (loss)

Comprehensive income

(1) Pension liability adjustments are presented net of taxes of $ 46,523 in 2018, which includes $ 13,122 related to the adoption of ASU 2018-02 - Income Statement - Reporting Comprehensive Income:

Reclassification of Certain Tax effects from Accumulated Other Comprehensive Income (ASU 2018-02).

(2) On December 19, 2017, the Board approved a resolution to terminate both of the Company’s pension plans, effective March 15, 2018.

During the fourth quarter of 2018, the Company completed the termination and no longer has any remaining defined benefit pension obligation.

(3) Unrealized gains on marketable debt securities are presented net of taxes of $ 336 and $ 389 in 2020 and 2019, respectively.

Unrealized losses on marketable debt securities are presented net of tax benefit of $ 234 in 2018.

(4) Net derivative activities are presented net of tax benefit of $ 6,164 in 2020.

Net derivative activities are presented net of taxes of $ 530 in 2019 and $ 1,882 in 2018, which includes $ 1,367 related to the adoption of ASU 2018-02.

See Notes to Consolidated Financial Statements.

40 unchanged sentences

( 1,450,970 )

( 1,305,347 )

Accumulated other comprehensive loss

3 unchanged sentences

( 1,797,536 )

Total liabilities and stockholders' deficit

See Notes to Consolidated Financial Statements.

8 unchanged sentences

Share-based compensation expense

Pension plan contributions

Pension termination charges (refund)

Asset impairment

Changes in operating assets and liabilities:

6 unchanged sentences

Capital expenditures

Proceeds from sale of assets

Purchase of marketable debt securities

1 unchanged sentence

Investment in tax credit equity investments

Proceeds (payments) from disposal of capital assets and other, net

Proceeds from disposal of capital assets and other, net

Net cash used in investing activities

Cash flows from financing activities:

Net (payments) proceeds of commercial paper

Net payments of commercial paper

( 1,030,000 )

10 unchanged sentences

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

14 unchanged sentences

( 1,520,355 )

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 income

3 unchanged sentences

Retirement of treasury shares

( 1,706,971 )

Issuance of common stock under stock options and stock purchase plans

Adoption of ASU 2018-02

Share-based compensation expense

3 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 income

Purchase of 826 shares of treasury stock

( 2,004,896 )

Retirement of treasury shares

4 unchanged sentences

( 1,450,970 )

( 1,403,884 )

( 1,713,851 )

Total other comprehensive income

Purchase of 2,592 shares of treasury stock

( 3,378,321 )

Retirement of treasury shares

4 unchanged sentences

( 2,535,620 )

( 1,797,536 )

See Notes to Consolidated Financial Statements.

7 unchanged sentences

The Company also had commercial programs in all stores in Mexico and Brazil.

The Company also sells the ALLDATA brand automotive diagnostic and repair software through www.alldata.com and www.alldatadiy.com.

The Company also sells the ALLDATA brand automotive diagnostic, repair and shop management software through www.alldata.com.

Additionally, the Company sells automotive hard parts, maintenance items, accessories, and non-automotive products through www.autozone.com, and its commercial customers can make purchases through www.autozonepro.com.

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As of August 28, 2021, the Company held tax credit equity investments that were deemed to be VIE’s and determined that it was not the primary beneficiary of the entities, as it did not have the power to direct the activities that most significantly impacted the entity and accounted for this investment using the equity method.

The Company’s maximum exposure to losses is limited to its net investment, which was $ 6.5 million as of August 29, 2020, and was included within the Other long-term assets caption in the accompanying Consolidated Balance Sheets.

The Company’s maximum exposure to losses is limited to its net investment, which was $ 11.8 million as of August 28, 2021 and $ 6.5 million as of August 29, 2020, and was included within the Other long-term assets caption in the accompanying Consolidated Balance Sheets.

Use of Estimates:

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Accounts Receivable:

Accounts receivable consists of receivables from commercial customers and vendors, and is presented net of an allowance for uncollectible accounts.

AutoZone routinely grants credit to certain of its commercial customers.

The risk of credit loss in its trade receivables is substantially mitigated by the Company’s credit evaluation process, short collection terms and sales to a large number of customers, as well as the low dollar value per transaction for most of its sales.

Allowances for potential credit losses are determined based on historical experience and current evaluation of the composition of accounts receivable.

Historically, credit losses have been within management’s expectations, and the balance of the allowance for uncollectible accounts was $ 10.0 million at August 29, 2020, and $ 8.5 million at August 31, 2019.

Effective in fiscal 2021, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) , which requires the Company to estimate all expected credit losses for financial assets measured at amortized cost basis, including trade receivables, based on historical experience, current market conditions and supportable forecasts.

The Company’s accounts receivable primarily consists of receivables from commercial customers.

The Company routinely grants credit to certain commercial customers on a short-term basis consisting primarily of daily, weekly or monthly terms.

The risk of credit loss in its trade receivables is substantially mitigated by the Company’s credit evaluation process, short collection terms and sales to many customers, as well as the low dollar value for its typical sales transaction.

Receivables are presented net of an allowance for credit losses.

Allowances for expected credit losses are determined based on historical experience, the current economic environment as well as our expectations of future economic conditions and the current evaluation of the composition of accounts receivable.

The Company will apply adjustments for specific factors and current economic conditions as needed at each reporting date.

The Company’s allowance for credit losses are included in “Accounts receivable” on the accompanying Consolidated Balance Sheets as of August 28, 2021 and August 29, 2020.

The balance of the allowance for credit losses was $ 11.4 million at August 28, 2021, and $ 10.0 million at August 29, 2020.

Vendor Receivables:

The Company’s vendor receivables primarily consist of balances arising from its vendors through a variety of programs and arrangements, including rebates, allowances, promotional funds and reimbursement of specific, incremental, identifiable costs incurred by the Company in selling the vendors’ products.

The amounts to be received are prescribed by the terms of the vendor agreements and therefore collection of such amounts is generally not at risk.

The Company regularly reviews vendor receivables for collectability and assesses the need for an allowance for credit losses based on an evaluation of the vendors’ financial positions and corresponding abilities to meet financial obligations.

Management does not believe there is a reasonable likelihood that the Company will be unable to collect the receivables from vendors and did not record a reserve for expected credit losses from vendors in the Consolidated Financial Statements as of August 28, 2021 and August 29, 2020.

Merchandise Inventories:

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The Company invests a portion of its assets held by the Company’s wholly owned insurance captive in marketable debt securities and classifies them as available-for-sale.

The Company includes these debt securities within the Other current assets and Other long-term assets captions in the accompanying Consolidated Balance Sheets and records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period.

A discussion of marketable debt securities is included in “Note E – Fair Value Measurements” and “Note F – Marketable Debt Securities.”

The Company includes these marketable debt securities within the Other current assets and Other long-term assets captions in the accompanying Consolidated Balance Sheets and records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period.

(Refer to “Note E – Fair Value Measurements” and “Note F – Marketable Debt Securities” for a discussion of marketable debt securities.)

Property and Equipment:

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and leasehold improvements, over the shorter of the asset’s estimated useful life or the remaining lease term, which includes any reasonably assured renewal periods.

Depreciation and amortization include amortization of assets under finance lease.

Depreciation and amortization include amortization of assets under finance leases.

Impairment of Long-Lived Assets:

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Goodwill has not been amortized since fiscal 2001, but an analysis is performed at least annually to compare the fair value of the reporting unit to the carrying amount to determine if any impairment exists.

The Company had approximately $ 302.6 million of goodwill, which is allocated to the Auto Parts Stores operating segment at August 28, 2021 and August 29, 2020.

The Company performs its annual impairment assessment in the fourth quarter of each fiscal year, unless circumstances dictate more frequent assessments.

Refer to “Note N – Goodwill and Intangibles” for additional disclosures regarding the Company’s goodwill and impairment assessment.

Intangible Assets:

Intangible assets consist of customer relationships purchased relating to ALLDATA operations.

Amortizing intangible assets are amortized over periods ranging from 3 to 10 years .

Refer to “Note N – Goodwill and Intangibles” and “Note M – Sale of Assets” for additional disclosures regarding the Company’s intangible assets and impairment assessment.

In the fourth quarter of fiscal 2021 and 2020, the Company concluded its remaining goodwill was not impaired.

Derivative Instruments and Hedging Activities:

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All of the Company’s interest rate hedge instruments are designated as cash flow hedges.

Refer to “Note H – Derivative Financial Instruments” for additional disclosures regarding the Company’s derivative instruments and hedging activities.

Cash flows related to these instruments designated as qualifying hedges are reflected in the accompanying Consolidated Statements of Cash Flows in the same categories as the cash flows from the items being hedged.

(Refer to “Note H – Derivative Financial Instruments” for additional disclosures regarding the Company’s derivative instruments and hedging activities.) Cash flows related to these instruments designated as qualifying hedges are reflected in the accompanying Consolidated Statements of Cash Flows in the same categories as the cash flows from the items being hedged.

Accordingly, cash flows relating to the settlement of interest rate derivatives hedging the forecasted issuance of debt have been reflected upon settlement as a component of financing cash flows.

16 unchanged sentences

The Company leases certain retail stores, distribution centers and vehicles under various non-callable leases.

Leases are categorized at their commencement date and lease-related assets and liabilities are recognized for all leases with an initial term of 12 months or greater.

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 2046.

Retail leases typically have initial terms 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 typically have terms of 20 or more years.

The Company subleases certain properties that are not used in its operations.

Sublease income was not significant for the periods presented.

Lease-related assets and liabilities are recognized for all leases with an initial term of 12 months or greater.

The exercise of lease renewal options is at the Company’s sole discretion.

The Company evaluates renewal options at commencement and on an ongoing basis and includes options that are reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities.

Certain lease agreements require variable payments based upon actual costs of common-area maintenance, real estate taxes and insurance.

Lease components are not separated from the non-lease components (typically fixed common-area maintenance costs at its retail store locations) for all classes of leased assets, except vehicles which contain variable non-lease components that are expensed as incurred.

1 unchanged sentence

The Company’s incremental borrowing rate is used to determine the present value of the lease payments over the lease term for substantially all the operating and financing leases for retail stores, distribution centers and other real estate, as these leases typically do not have a stated borrowing rate.

For operating leases that commenced prior to the date of adoption of ASU 2016-02 – Leases (Topic 842), the Company used the incremental borrowing rate that corresponded to the remaining lease term as of the date of adoption.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Effective in fiscal 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842).

Refer to “Note A – Recently Adopted Accounting Pronouncements”.

Prior to the adoption of Topic 842, the Company accounted for leases under Topic 840 and recognized rent expense on a straight-line basis over the course of the lease term, which included any reasonably assured renewal periods, beginning on the date the Company took physical possession of the property.

Differences between the calculated expense and cash payments was recorded as a liability within the Accrued expenses and other and Other long-term liabilities captions in the accompanying Consolidated Balance Sheets, based on the terms of the lease.

Deferred rent approximated $ 159.9 million as of August 31, 2019.

Refer to Note O – Leases for additional disclosures regarding the Company’s leases.

(Refer to “Note M – Leases” for additional disclosures regarding the Company’s leases.)

Financial Instruments:

1 unchanged sentence

The carrying amounts of these financial instruments approximate fair value because of their short maturities.

A discussion of the carrying values and fair values of the Company’s debt is included in “Note I – Financing,” marketable debt securities is included in “Note F – Marketable Debt Securities,” and derivatives is included in “Note H – Derivative Financial Instruments.”

(Refer to “Note I – Financing” for a discussion of the carrying values and fair values of the Company’s debt, “Note F – Marketable Debt Securities” for additional disclosures related to marketable debt securities and “Note H – Derivative Financial Instruments” for additional information regarding derivatives.)

Income Taxes:

9 unchanged sentences

The Company classifies interest related to income tax liabilities, and if applicable, penalties, as a component of Income tax expense.

The income tax liabilities and accrued interest and penalties that are expected to be payable within one year of the balance sheet date are presented within the Accrued expenses and other caption in the accompanying Consolidated Balance Sheets.

The income tax liabilities and accrued interest and penalties are expected to be payable within one year of the balance sheet date are presented within the Accrued expenses and other caption in the accompanying Consolidated Balance Sheets.

The remaining portion of the income tax liabilities and accrued interest and penalties are presented within the Other long-term liabilities caption in the accompanying Consolidated Balance Sheets because payment of cash is not anticipated within one year of the balance sheet date.

22 unchanged sentences

Revenue from these services are recognized over the life of the contract.

See “Note R – Revenue Recognition” for further discussion.

A portion of the Company’s transactions include the sale of auto parts that contain a core component.

4 unchanged sentences

The Company does not recognize sales or cost of sales for the core component of these transactions when a used part is returned or expected to be returned from the customer.

There were no material contract assets, liabilities or deferred costs recorded on the Consolidated Balance Sheet as of August 28, 2021 and August 29, 2020.

Revenue related to unfulfilled performance obligations as of August 28, 2021 and August 29, 2020 is not significant.

(Refer to “Note P – Segment Reporting” for additional information related to revenue recognized during the period.)

Vendor Allowances and Advertising Costs:

29 unchanged sentences

These obligations, which are often funded by vendor allowances, are recorded within the Accrued expenses and other caption in the Consolidated Balance Sheets.

For vendor allowances that are in excess of the related estimated warranty expense for the vendor’s products, the excess is recorded in inventory and recognized as a reduction to cost of sales as the related inventory is sold.

For vendor allowances in excess of the related estimated warranty expense for the vendor’s products, the excess is recorded in inventory and recognized as a reduction to cost of sales as the related inventory is sold.

Shipping and Handling Costs:

12 unchanged sentences

The value of restricted stock is based on the stock price of the award on the grant date.

See “Note B – Share-Based Payments” for further discussion.

(Refer to “Note B – Share-Based Payments” for further discussion.)

Risk and Uncertainties:

2 unchanged sentences

Recently Adopted Accounting Pronouncements:

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

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

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

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

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

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

The Company adopted this standard and its amendments as of September 1, 2019, using the modified retrospective transition method.

Under this method, existing leases were recorded at the adoption date, comparative periods were not restated and prior period amounts were not adjusted and continue to be reported under the accounting standards in effect for the prior periods.

In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the carry forward of prior lease identification under Accounting Standards Codification (“ASC”) Topic 840.

The Company made the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term.

The Company also elected the practical expedient to not separate lease components from the non-lease components (typically fixed common-area maintenance costs at its retail store locations) for all classes of leased assets, except vehicles.

The Company chose not to elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases.

Adoption of the leasing standard resulted in operating lease right-of-use assets of approximately $ 2.5 billion and operating lease liabilities of approximately $ 2.7 billion as of September 1, 2019.

Existing prepaid and deferred rent were netted and recorded as an offset to our gross operating lease right-of-use assets.

There was no adjustment to the opening balance of retained earnings upon adoption.

The standard did not have a material impact on the Company’s Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Cash Flows or covenant compliance under its existing credit agreement.

Refer to “Note O – Leases”.

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

Improvements to Nonemployee Share-Based Payment Accounting.

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

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

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

Recently Issued Accounting Pronouncements:

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

2 unchanged sentences

ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption is permitted.

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

The Company does not expect a material effect on its Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.

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 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 its first quarter ending November 21, 2020.

The Company does not expect a material effect on its Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.

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 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 Consolidated Financial Statements and related disclosures.

Note B – Share-Based Payments

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The Amended 2011 Equity Plan imposes a maximum limit on the compensation, measured as the sum of any cash compensation and the aggregate grant date fair value of awards granted under the Amended 2011 Equity Plan, which may be paid to non-employee directors for such service during any calendar year.

The Amended 2011 Equity Plan also applies a ten-year term on the Amended 2011 Equity Plan through December 16, 2025 and extends the Company’s ability to grant incentive stock options through October 7, 2025.

AutoZone, Inc.

2020 Omnibus Incentive Award Plan

On December 16, 2020, the Company’s stockholders approved the AutoZone, Inc.

2020 Omnibus Incentive Award Plan (the “2020 Omnibus Plan”), which serves as the successor to the Amended 2011 Equity Plan.

The 2020 Omnibus Plan provides equity-based compensation to our non-employee directors and employees for their service to AutoZone or our subsidiaries or affiliates.

Under the 2020 Omnibus Plan, participants may receive equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, deferred stock, stock payments, performance based awards, cash based awards and other incentive awards structured by the Compensation Committee and the Board within parameters set forth in the 2020 Omnibus Plan.

AutoZone, Inc.

Director Compensation Program

During fiscal 2020, the Company adopted the 2020 Director Compensation Program (the “Program”), which states that non-employee directors will receive their compensation in awards of restricted stock units under the 2018 Equity Incentive Award Plan, with an option for a certain portion of a director’s compensation to be paid in cash at the non-employee director’s election.

During fiscal 2020, the Company adopted the 2020 Director Compensation Program (the “Program”), which states that non-employee directors will receive their compensation in awards of restricted stock units under the Amended 2011 Equity Plan (or beginning January 1, 2021, the 2020 Omnibus Plan), with an option for a certain portion of a director’s compensation to be paid in cash at the non-employee director’s election.

The Program replaced the 2018 Director Compensation Program.

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Stock Appreciation Rights

At August 29, 2020, the Company had $ 5.7 million and at August 31, 2019, the Company had $ 11.2 million of accrued compensation expense related to 4,822 and 10,206 outstanding units, respectively, issued under the 2003 Comp Plan and prior plans.

At August 28, 2021 and August 29, 2020, the Company had $ 7.5 million and $ 5.7 million, respectively of accrued compensation expense.

There were 4,822 outstanding units issued under the 2003 Comp Plan and prior plans.

As directors retire, this balance will be reduced.

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The Company maintains certain levels for stop-loss coverage for each self-insured plan in order to limit its liability for large claims.

The retained limits per claim type are $ 2.0 million for workers’ compensation, $ 5.0 million for auto liability, $ 21.5 million for property, $ 0.7 million for employee health, and $ 1.0 million for general and product liability.

The retained limits per claim type are $ 2.0 million for workers’ compensation, $ 5.0 million for auto liability, $ 21.5 million for property and $ 1.0 million for general and product liability.

Note D – Income Taxes

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State income taxes, net

Transition tax

Share-based compensation

Impact of tax reform

Global intangible lower-taxed income (“GILTI”)

Global intangible lower-taxed income ("GILTI")

Foreign Tax Credits

Effective tax rate

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform”) was enacted into law.

Tax Reform significantly revises the U.S.

federal corporate income tax by, among other things, lowering the statutory federal corporate rate from 35 % to 21 %, eliminating certain deductions, imposing a mandatory one-time transition tax on accumulated earnings of foreign subsidiaries, and changing how foreign earnings are subject to U.S.

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

118 (“SAB 118”) to address the application of GAAP in situations when the registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of Tax Reform.

During the year ended August 25, 2018, the Company recorded provisional tax benefit of $ 131.5 million related to Tax Reform, comprised of $ 157.3 million remeasurement of its net DTA, offset by $ 25.8 million of transition tax.

During the year ended August 31, 2019, the Company completed its analysis of Tax Reform and recorded adjustments to the previously-recorded provisional amounts, resulting in an $ 8.8 million tax benefit, primarily related to transition tax.

For the year ended August 28, 2021, August 29, 2020, and August 31, 2019, the Company recognized excess tax benefits from stock option exercises of $ 56.4 million, $ 20.9 million, and $ 46.0 million, respectively.

Beginning with the year ending August 31, 2019, the Company is subject to GILTI which is imposed on foreign earnings.

Beginning with the year ended August 31, 2019, the Company is subject to a new tax on global intangible low-taxed income (“GILTI”) which is imposed on foreign earnings.

The Company has made the election to record this tax as a period cost, thus has not adjusted the deferred tax assets or liabilities of its foreign subsidiaries for the new tax.

Net impacts for GILTI are included in the provision for income taxes for the years ended August 31, 2019 and August 29, 2020.

Net impacts for GILTI are included in the provision for income taxes for the years ending August 28, 2021, August 29, 2020 and August 31, 2019.

Significant components of the Company's deferred tax assets and liabilities were as follows:

11 unchanged sentences

Operating lease assets

Total deferred tax liabilities

Deferred tax liabilities

( 1,149,173 )

( 1,114,423 )

Net deferred tax liabilities

For the year ended August 31, 2019, the Company held the assertion, with few exceptions, that current and accumulated earnings from foreign operations were not indefinitely reinvested.

During the year ended August 29, 2020, the Company asserted indefinite reinvestment for other basis differences and accumulated earnings through fiscal 2020 between its Luxembourg parent and Mexico subsidiaries.

In addition, the Company has maintained its assertion of indefinite reinvestment of earnings between its Dutch parent and Puerto Rican subsidiary.

Where necessary, withholding tax provisions resulting from foreign distributions of current and accumulated earnings have been considered in the Company’s provision for income taxes.

The Company maintains its assertion related to other basis differences in foreign subsidiaries.

It is impracticable for the Company to determine the amount of unrecognized deferred tax liability on these indefinitely reinvested basis differences.

At August 29, 2020 and August 31, 2019, the Company had deferred tax assets of $ 32.2 million and $ 29.9 million, respectively, from net operating loss (“NOL”) carryforwards available to reduce future taxable income totaling approximately $ 247.1 million and $ 226.3 million, respectively.

During the year ended August 29, 2020, the Company asserted indefinite reinvestment for basis differences and accumulated earnings through fiscal 2020 with respect to its foreign subsidiaries.

For the year ended August 28, 2021, the Company does not assert permanent reinvestment of current year earnings with respect to its Mexican subsidiaries while maintaining its assertion of indefinite reinvestment of earnings of other foreign subsidiaries.

Where necessary, taxes resulting from foreign distributions of current and accumulated earnings (e.g., withholding taxes) have been considered in the Company’s provision for income taxes.

As of August 28, 2021, we have not recorded incremental income taxes for outside basis differences of $ 443.3 million in our investments in foreign subsidiaries, as these amounts are indefinitely reinvested in foreign operations.

Determining the amount of unrecognized deferred tax liability related to the outside basis differences in these entities is not practicable.

At August 28, 2021 and August 29, 2020, the Company had net operating loss (“NOL”) carryforwards totaling $ 259.1 million ($ 35.9 million tax effected) and $ 247.1 million ($ 32.2 million tax effected), respectively.

Certain NOLs have no expiration date and others will expire, if not utilized, in various years from fiscal 2022 through 2041 .

At August 29, 2020 and August 31, 2019, the Company had deferred tax assets for income tax credit carryforwards of $ 9.2 million and $ 13.0 million, respectively.

At August 28, 2021 and August 29, 2020, the Company had deferred tax assets for income tax credit carryforwards of $ 6.0 and $ 9.2 million, respectively.

Income tax credit carryforwards will expire, if not utilized, in various years from fiscal 2022 through 2037 .

73 unchanged sentences

Asset-backed securities and other

The marketable debt securities held at August 29, 2020, had effective maturities ranging from less than one year to approximately three years .

The marketable debt securities held at August 28, 2021, had effective maturities ranging from less than one year to approximately four years .

The Company did not realize any material gains or losses on its marketable debt securities during fiscal 2021, 2020 or 2019.

In evaluating whether a credit loss exists for the marketable debt securities, the Company considers factors such as the 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 recovery of fair value.

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

Included above in total marketable debt securities are $ 62.5 million and $ 30.1 million of marketable debt securities transferred by the Company’s insurance captive to a trust account to secure its obligations to an insurance company related to future workers’ compensation and casualty losses as of August 28, 2021 and August 29, 2020, respectively.

Note G – Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss includes certain adjustments to pension liabilities, foreign currency translation adjustments, certain activity for interest rate swaps and treasury rate locks that qualify as cash flow hedges and unrealized gains (losses) on available-for-sale debt securities.

Accumulated Other Comprehensive Loss includes certain adjustments to foreign currency translation adjustments, certain activity for interest rate swaps and treasury rate locks that qualify as cash flow hedges and unrealized gains (losses) on available-for-sale marketable debt securities.

Changes in Accumulated Other Comprehensive Loss consisted of the following:

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Other Comprehensive (Loss) Income before reclassifications

Amounts reclassified from Accumulated Other Comprehensive Loss (1)

Amounts reclassified from Accumulated Other Comprehensive Income (Loss) (2)(3)

Balance at August 29, 2020

Other Comprehensive (Loss) income before reclassifications

Amounts reclassified from Accumulated Other Comprehensive Loss (1)

Other Comprehensive Income (Loss) before reclassifications

Amounts reclassified from Accumulated Other Comprehensive (Loss) Income (2)(3)

Balance at August 28, 2021

(1) Amounts in parentheses indicate debits to Accumulated Other Comprehensive Loss.

(1) Foreign currency is shown net of U.S.

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subsidiaries are intended to be permanently reinvested

(3) Represents realized gains on marketable debt securities, net of taxes of $ 38 in fiscal 2020 and realized gains on marketable debt securities, net of tax benefit of $ 9 in fiscal 2019, which is recorded in Operating, selling, general, and administrative expenses on the Consolidated Statements of Income.

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

(4) Represents gains and losses on derivatives, net of tax benefit of $ 6,164 in fiscal 2020 and net of taxes of $ 530 in fiscal 2019, which is recorded in Interest expense, net, on the Consolidated Statements of Income.

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

(2) Amounts in parentheses indicate debits to Accumulated Other Comprehensive Loss.

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

Note H – Derivative Financial Instruments

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During fiscal 2021, the Company reclassified $ 3.7 million of net losses from Accumulated Other Comprehensive Loss to Interest expense.

During 2019, the Company reclassified $ 2.2 million of net losses from Accumulated Other Comprehensive Loss to Interest expense.

During fiscal 2020, the Company reclassified $ 2.6 million of net losses from Accumulated Other Comprehensive Loss to Interest expense.

The Company expects to reclassify $ 3.6 million of net losses from Accumulated Other Comprehensive Loss to Interest expense over the next 12 months.

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(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 %

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

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

Total debt before discounts and debt issuance costs

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

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

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

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

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

As of August 29, 2020, the Company had no outstanding borrowings under each of the revolving credit agreements and $ 1.7 million of outstanding letters of credit under the Revolving Credit Agreement.

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

As of August 28, 2021, the Company had no outstanding borrowings and $ 1.7 million of outstanding letters of credit under the Revolving Credit Agreement.

The Company intends to amend and restate its Revolving Credit Agreement and anticipates closing the agreement during the first quarter of fiscal year 2022.

Under the Company’s 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.

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

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The Company’s consolidated interest coverage ratio as of August 28, 2021 was 6.9 :1.

As of August 29, 2020, the $ 250 million 2.500 % Senior Notes due April 2021 are classified as long-term in the accompanying Consolidated Balance Sheets as the Company has the ability and intent to refinance the notes on a long-term basis through available capacity in its revolving credit agreements.

As of August 29, 2020, the Company had $ 2.748 billion of availability, before giving effect to commercial paper borrowings, under its $ 2.750 billion revolving credit agreements which would allow the Company to replace these short-term obligations with long-term financing facilities.

The Company also maintains a letter of credit facility that allows it to request the participating bank to issue letters of credit on its behalf up to an aggregate amount of $ 25 million.

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

As of August 29, 2020, the Company had $ 25.0 million in letters of credit outstanding under the letter of credit facility which expires in June 2022.

In addition to the outstanding letters of credit issued under the committed facilities discussed above, the Company had $ 220.3 million in letters of credit outstanding as of August 29, 2020.

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

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

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 the Company’s election.

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

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

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

As of August 28, 2021, the $ 500 million 3.700 % Senior Notes due April 2022 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 Agreement.

As of August 28, 2021, the Company had $ 1.998 billion of availability under its $ 2.0 billion Revolving Credit Agreement, which would allow the Company to replace these short-term obligations with a long-term financing facility.

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

On August 14, 2020, the Company issued $ 600 million in 1.650 % Senior Notes due January 2031 under its automatic shelf registration statement on Form S-3, filed with the SEC on April 4, 2019 (File No.

333-230719) (the “2019 Shelf Registration”).

The 2019 Shelf Registration allows the Company to sell an indeterminate amount in debt securities to fund general corporate purposes, including repaying, redeeming or repurchasing outstanding debt and for working capital, capital expenditures, new store openings, stock repurchases and acquisitions.

333-230719) (the “2019 Shelf Registration Statement”).

The 2019 Shelf Registration Statement allows the Company to sell an indeterminate amount in debt securities to fund general corporate purposes, including repaying, redeeming or repurchasing outstanding debt and for working capital, capital expenditures, new store openings, stock repurchases and acquisitions.

Proceeds from the debt issuance were used for general corporate purposes, including the repayment of the $ 500 million in 4.000 % Senior Notes due in November 2020 that were callable at par in August 2020.

On March 30, 2020, the Company issued $ 500 million in 3.625 % Senior Notes due April 2025 and $ 750 million in 4.000 % Senior Notes due April 2030 under the 2019 Shelf Registration.

On March 30, 2020, the Company issued $ 500 million in 3.625 % Senior Notes due April 2025 and $ 750 million in 4.000 % Senior Notes due April 2030 under the 2019 Shelf Registration Statement.

Proceeds from the debt issuance were used to repay a portion of the outstanding commercial paper borrowings and for other general corporate purposes.

On April 18, 2019, the Company issued $ 300 million in 3.125 % Senior Notes due April 2024 and $ 450 million in 3.750 % Senior Notes due April 2029 under the 2019 Shelf Registration.

On April 18, 2019, the Company issued $ 300 million in 3.125 % Senior Notes due April 2024 and $ 450 million in 3.750 % Senior Notes due April 2029 under the 2019 Shelf Registration Statement.

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

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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.

Interest for Senior Notes is paid on a semi-annual basis.

The Company also maintains a letter of credit facility that allows it to request the participating bank to issue letters of credit on its behalf up to an aggregate amount of $ 25 million.

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

As of August 28, 2021, the Company had $ 23.9 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 facility discussed above, the Company had $ 136.8 million in letters of credit outstanding as of August 28, 2021.

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

As of August 28, 2021, the Company was in compliance with all covenants related to its borrowing arrangements.

The fair value of the Company’s debt was estimated at $ 5.683 billion as of August 28, 2021, 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 $ 413.1 million and $ 567.5 million at August 28, 2021 and August 29, 2020, respectively.

This amount reflects face amount, adjusted for any unamortized debt issuance costs and discounts.

All of the Company’s debt is unsecured.

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Discount and debt issuance costs

The fair value of the Company’s debt was estimated at $ 6.081 billion as of August 29, 2020, and $ 5.419 billion as of August 31, 2019, based on the quoted market prices for the same or similar issues or on the current rates available to the Company for debt of the same terms (Level 2).

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

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

Note J – Interest Expense

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Note K – Stock Repurchase Program

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

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

Since the inception of the repurchase program in 1998, the Board has authorized $ 23.15 billion in share repurchases.

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

The share repurchase program was amended on December 15, 2020 to increase the repurchase authorization to $ 24.65 billion from $ 23.15 billion and on March 23, 2021 to increase the repurchase authorization to $ 26.15 billion.

The Company has $ 417.6 million remaining under the Board’s authorization to repurchase its common stock.

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During the comparable prior year period, the Company retired 1.9 million shares of treasury stock, which increased Retained deficit by $ 1.879 billion and decreased Additional paid-in capital by $ 99.7 million.

During fiscal 2020, the Company temporarily ceased share repurchases to conserve liquidity in response to the uncertainty related to COVID-19.

While the Company restarted share repurchases during the first quarter of fiscal year 2021, the Company will continue to evaluate current and expected business conditions and adjust the level of share repurchases as the Company deems appropriate.

Subsequent to August 29, 2020, the Company has repurchased 269,795 shares of common stock at an aggregate cost of $ 314.4 million.

Considering the cumulative repurchases subsequent to August 29, 2020, the Company has $ 481.5 million remaining under the Board’s authorization to repurchase its common stock.

Note L – Pension and Savings Plans

Prior to January 1, 2003, substantially all full-time employees were covered by a defined benefit pension plan.

The benefits under the plan were based on years of service and the employee’s highest consecutive five-year average compensation.

On January 1, 2003, the plan was frozen, resulting in pension plan participants earning no new benefits under the plan formula and no new participants joining the pension plan.

On January 1, 2003, the Company’s supplemental defined benefit pension plan for certain highly compensated employees was also frozen, resulting in pension plan participants earning no new benefits under the plan formula and no new participants joining the pension plan.

On December 19, 2017, the Board of Directors approved a resolution to terminate both of the Company’s pension plans, effective March 15, 2018.

The Company offered plan participants the option to receive an annuity purchased from an insurance carrier or a lump-sum cash payment based on a number of factors.

During the fourth quarter of 2018, the Company contributed $ 11.4 million to the pension plans to ensure that sufficient assets were available for the lump-sum payments and annuity purchases, completed the transfer of all lump sum payments, transferred all remaining benefit obligations related to the pension plans to a highly rated insurance company, and recognized $ 130.3 million of non-cash pension termination charges in Operating, selling, general and administrative expenses in the Consolidated Statements of Income.

During fiscal 2019, the Company received a refund of $ 6.8 million related primarily to annuity purchase overpayments, recorded in Operating, selling, general and administrative expenses, net within the Consolidated statements of income.

No refunds or expenses related to pension termination occurred in fiscal 2020.

There are no actuarial assumptions reflected in any pension plans estimates.

The Company will no longer have any remaining defined pension benefit obligation and thus no periodic pension benefit expense.

Net periodic benefit expense consisted of the following:

(in thousands)

Interest cost

Expected return on plan assets

Recognized net actuarial losses

Settlement loss

Net periodic benefit expense

(1) The pension plans were terminated in fiscal 2018.

Beginning in the first quarter of fiscal 2021, the Company restarted share repurchases under its share repurchase program, which had been temporarily suspended during fiscal 2020 in response to the uncertainty surrounding the COVID-19 pandemic.

The Company will continue to evaluate current and expected business conditions and adjust the level of share repurchases under its share repurchase program as it deems appropriate.

On October 5, 2021, the Board voted to authorize the repurchase of an additional $ 1.5 billion of the Company’s common stock in connection with the Company’s ongoing share repurchase program.

Since the inception of the repurchase program in 1998, the Board has authorized $ 27.65 billion in share repurchases.

Subsequent to August 28, 2021 and through October 18, 2021, the Company has repurchased 220,022 shares of common stock at an aggregate cost of $ 362.8 million.

Considering the cumulative repurchases and the increase in authorization subsequent to August 28, 2021, the Company has $ 1.555 billion remaining under the Board’s authorization to repurchase its common stock.

Note L – 401(k) Savings Plan

The Company has a 401(k) plan that covers all domestic employees who meet the plan’s participation requirements.

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The Company made matching contributions to employee accounts in connection with the 401(k) plan of $ 34.1 million in fiscal 2021, $ 29.8 million in fiscal 2020 and $ 25.8 million in fiscal 2019.

Note M – Sale of Assets

During the second quarter of fiscal 2018, the Company determined that the approximate fair value less costs to sell its IMC and AutoAnything businesses was significantly lower than the carrying value of the net assets based on recent offers received and recorded impairment charges totaling $ 193.2 million within Operating, selling, general and administrative expenses in its Condensed Consolidated Statements of Income.

The Company recorded an impairment charge of $ 93.6 million for its IMC business, which was reflected as a component of Auto Parts Locations in its segment reporting in fiscal 2018.

Impairment charges for AutoAnything, which were reflected as a component of the Other category in the Company’s segment reporting, totaled $ 99.6 million in fiscal 2018.

During the third quarter of fiscal 2018, the Company completed the IMC and AutoAnything sales for total consideration that approximated the remaining net book value at the closing date.

Note N – Goodwill and Intangibles

The Company had approximately $ 302.6 million of goodwill, which is allocated to the Auto Parts Locations operating segment at August 29, 2020 and August 31, 2019.

The Company performs its annual goodwill and intangibles impairment test in the fourth quarter of each fiscal year.

In the fourth quarter of fiscal 2020 and 2019, the Company concluded its remaining goodwill was not impaired.

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

August 29, 2020

(in thousands)

Amortizing intangible assets:

Customer relationships

Total intangible assets other than goodwill

August 31, 2019

(in thousands)

Amortizing intangible assets:

Customer relationships

Total intangible assets other than goodwill

Amortization expense of intangible assets for the years ended August 29, 2020 and August 31, 2019 was $ 4.2 million, respectively.

Total future amortization expense for intangible assets that have finite lives, based on the existing intangible assets and their current estimated useful lives as of August 29, 2020, is estimated to be $ 1.4 million for fiscal 2021 and none thereafter.

Note O – Leases

The Company adopted ASU 2016-02, Leases (Topic 842), beginning with its first quarter ended November 23, 2019 which requires leases to be recognized on the balance sheet.

Leases with an original term of 12 months or less are not recognized in the Company’s Condensed Consolidated Balance Sheets, and the lease expense related to these short-term leases is recognized over the lease term.

The Company aggregates lease and non-lease components, which includes fixed common-area maintenance costs at its retail store locations, for all classes of leased assets, except vehicles.

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

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

These variable lease payments are expensed as incurred.

The Company’s leases primarily relate to its retail stores, distribution centers and vehicles under various non-callable leases.

Leases are categorized at their commencement date, which is the date the Company takes possession or control of the underlying asset.

Most of the Company’s leases are operating leases;

however, certain land and vehicles are leased under finance leases.

The leases have varying terms and expire at various dates through 2040.

Retail leases typically have initial terms of between one and 20 years, with one to six optional renewal periods of one to five years each.

Finance leases for vehicles typically have original terms between one and five years , and finance leases for real estate leases typically have terms of 20 or more years.

The exercise of lease renewal options is at the Company’s sole discretion.

The Company evaluates renewal options at lease commencement and on an ongoing basis and includes options that are reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities.

The Company subleases certain properties that are not used in its operations.

Sublease income was not significant for the periods presented.

Certain lease agreements require variable payments based upon actual costs of common-area maintenance, real estate taxes and insurance.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company’s finance leases for vehicles have a stated borrowing rate which it uses in determining the present value of the lease payments over the lease term.

Substantially all the operating leases and finance leases for real estate do not provide a stated borrowing rate.

Accordingly, the Company uses its incremental borrowing rate at commencement or modification date in determining the present value of lease payments over the lease term.

For operating leases that commenced prior to the date of adoption of the new standard, the Company used the incremental borrowing rate that corresponded to the remaining lease term as of the date of adoption.

Lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet are as follows:

Note M – Leases

Lease-related assets and liabilities recorded on the Consolidated Balance Sheets are as follows:

(in thousands)

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August 28, 2021

August 29, 2020

Operating lease right-of-use assets

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Total lease liabilities

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

Lease costs for finance and operating leases are as follows:

For year ended

Accumulated amortization related to finance lease assets was $ 107.0 million as of August 28, 2021 and $ 107.3 million as of August 29, 2020.

Lease costs for finance and operating leases for the 52 weeks ended August 28, 2021 and August 29, 2020 are as follows:

For the year ended

(in thousands)

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August 28, 2021

August 29, 2020

Finance lease cost:

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Operating leases

Cash paid for amounts included in the measurement of operating lease liabilities of $ 352.9 million was reflected in cash flows from operating activities in the consolidated statement of cash flows for fiscal 2020.

Cash paid for amounts included in the measurement of operating lease liabilities of $ 300.6 million and $ 352.9 million was reflected in cash flows from operating activities in the consolidated statement of cash flows for fiscal years 2021 and 2020, respectively.

As of August 28, 2021, the Company has entered into additional leases which have not yet commenced and are therefore not part of the right-of-use asset and liability.

These leases are generally for real estate and have undiscounted future payments of approximately $ 16.7 million and will commence when the Company obtains possession of the underlying leased asset.

These leases have undiscounted future payments of approximately $ 40.1 million and $ 69.2 million for real estate and vehicles, respectively, and will commence when the Company obtains possession of the underlying leased asset.

Commencement dates are expected to be from fiscal 2022 to fiscal 2023 .

Note P – Commitments and Contingencies

Note N – Commitments and Contingencies

Construction commitments, primarily for new stores, totaled approximately $ 48.2 million at August 28, 2021.

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The standby letters of credit and surety bonds arrangements have automatic renewal clauses.

Note Q – Litigation

Note O – Litigation

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

The Company does not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to the Company’s financial condition, results of operations or cash flows.

Note R – Revenue Recognition

The Company adopted ASU 2014-09, Revenue from Contracts with Customers using the modified retrospective method beginning with our first quarter ending in fiscal 2019, November 17, 2018.

The cumulative effect of initially applying ASU 2014-09 resulted in an increase to the opening retained deficit balance of $ 6.8 million, net of taxes at August 26, 2018, and a related adjustment to accounts receivable, other current assets, other long-term assets, other current liabilities and deferred income taxes as of that date.

Revenue for periods prior to August 26, 2018 were not adjusted and continue to be reported under the accounting standards in effect for the prior periods.

There were no material contract assets, liabilities or deferred costs recorded on the Consolidated Balance Sheet as of August 29, 2020.

Revenue related to unfulfilled performance obligations as of August 29, 2020 and August 31, 2019 is not significant.

Refer to “Note S – Segment Reporting” for additional information related to revenue recognized during the period.

Note S – Segment Reporting

The Company’s operating segments (Domestic Auto Parts, Mexico and Brazil;

and IMC results through April 4, 2018) are aggregated as one reportable segment:

Auto Parts Locations.

Note P – Segment Reporting

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

Auto Parts Stores.

The criteria the Company used to identify the reportable segment are primarily the nature of the products the Company sells and the operating results that are regularly reviewed by the Company’s chief operating decision maker to make decisions about the resources to be allocated to the business units and to assess performance.

The accounting policies of the Company’s reportable segment are the same as those described in “Note A – Significant Accounting Policies.”

The Auto Parts Locations segment is a retailer and distributor of automotive parts and accessories through the Company’s 6,549 locations in the U.S., Mexico and Brazil.

Each location carries an extensive product line for cars,

sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products.

The Other category reflects business activities of three operating segments that are not separately reportable due to the materiality of these operating segments.

The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s 6,767 stores 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.

The Other category reflects business activities of two operating segments that are not separately reportable due to the materiality of these operating segments.

The operating segments include ALLDATA, which produces, sells and maintains diagnostic and repair information software used in the automotive repair industry and E-commerce, which includes direct sales to customers through www.autozone.com for sales that are not fulfilled by local stores.

and AutoAnything, which includes direct sales to customers through www.autoanything.com, prior to the Company’s sale of substantially all of its assets on February 26, 2018.

The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit.

1 unchanged sentence

(in thousands)

Auto Parts Locations

Auto Parts Stores

Segment Profit

Auto Parts Locations

Auto Parts Stores

Operating, selling, general and administrative expenses

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Segment Assets:

Auto Parts Locations

Auto Parts Stores

Capital Expenditures:

Auto Parts Locations

Auto Parts Locations Sales by Product Grouping:

Auto Parts Stores

Auto Parts Stores Sales by Product Grouping:

Maintenance items

Discretionary

Auto Parts Locations net sales

(1) Operating, selling, general and administrative expenses for fiscal 2018 include $ 130.3 million related to pension termination charges and $ 193.2 million related to impairment charges .

Note T – Quarterly Summary (1)

Twelve Weeks Ended

(in thousands, except per share data)

Operating profit

Income before income taxes

Basic earnings per share

Diluted earnings per share

Twelve Weeks Ended

(in thousands, except per share data)

Operating profit

Income before income taxes

Net income (3)

Basic earnings per share

Diluted earnings per share

(1) The sum of quarterly amounts may not equal the annual amounts reported due to rounding.

In addition, the earnings per share amounts are computed independently for each quarter while full year is based on the annual weighted average shares outstanding.

(2) The fourth quarter for fiscal 2020 is based on a 16-week period while fiscal 2019 is based on a 17-week period.

All other quarters presented are based on a 12-week period.

Auto Parts Stores net sales

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data