AUTOZONE INC 10-Q

Item 1. Financial Statements. AUTOZONE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ November 19, ​ August 27, (in thousands) ​ 2022 ​ 2022 ​ ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ Current assets: ​ ​ ​ ​ Cash and cash equivalents ​ $ 269,790 ​ $ 264,380 Accounts receivable ​ 501,798 ​ 504,886 Merchandise inventories ​ 5,607,690 ​ 5,638,004 Other current assets ​ 253,840 ​ 220,714 Total current assets ​ 6,633,118 ​ 6,627,984 ​ ​ ​ ​ ​ ​ ​ Property and equipment: ​ ​ ​ ​ ​ ​ Property and equipment ​ 9,571,496 ​ 9,453,171 Less: Accumulated depreciation and amortization ​ ( 4,376,950 ) ​ ( 4,282,752 ) ​ ​ 5,194,546 ​ 5,170,419 ​ ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ ​ 2,922,148 ​ ​ 2,918,817 Goodwill ​ 302,645 ​ 302,645 Deferred income taxes ​ 53,444 ​ 52,047 Other long-term assets ​ 210,032 ​ 203,131 ​ ​ 3,488,269 ​ 3,476,640 Total assets ​ $ 15,315,933 ​ $ 15,275,043 ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders’ Deficit ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 7,345,981 ​ $ 7,301,347 Current portion of operating lease liabilities ​ ​ 271,667 ​ ​ 243,407 Accrued expenses and other ​ 982,560 ​ 1,008,701 Income taxes payable ​ 108,781 ​ 34,938 Total current liabilities ​ 8,708,989 ​ 8,588,393 ​ ​ ​ ​ ​ ​ ​ Long-term debt ​ 6,328,344 ​ 6,122,092 Operating lease liabilities, less current portion ​ ​ 2,838,433 ​ ​ 2,837,973 Deferred income taxes ​ 549,082 ​ 533,884 Other long-term liabilities ​ 729,008 ​ 731,614 ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ deficit: ​ ​ ​ ​ ​ ​ Preferred stock, authorized 1,000 shares; no shares issued ​ — ​ — Common stock, par value $ .01 per share, authorized 200,000 shares; 20,794 shares issued and 18,797 shares outstanding as of November 19, 2022; 20,732 shares issued and 19,126 shares outstanding as of August 27, 2022 ​ 208 ​ 207 Additional paid-in capital ​ 1,412,650 ​ 1,354,252 Retained deficit ​ ( 790,749 ) ​ ( 1,330,067 ) Accumulated other comprehensive loss ​ ( 297,265 ) ​ ( 300,536 ) Treasury stock, at cost ​ ( 4,162,767 ) ​ ( 3,262,769 ) Total stockholders’ deficit ​ ( 3,837,923 ) ​ ( 3,538,913 ) Total liabilities and stockholders' deficit ​ $ 15,315,933 ​ $ 15,275,043 See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Weeks Ended ​ ​ November 19, ​ November 20, (in thousands, except per share data) ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ Net sales $ 3,985,067 $ 3,668,904 Cost of sales, including warehouse and delivery expenses ​ ​ 1,990,445 ​ ​ 1,743,744 Gross profit ​ ​ 1,994,622 ​ 1,925,160 Operating, selling, general and administrative expenses ​ ​ 1,271,589 ​ ​ 1,170,675 Operating profit ​ ​ 723,033 ​ ​ 754,485 Interest expense, net ​ ​ 57,723 ​ ​ 43,284 Income before income taxes ​ ​ 665,310 ​ 711,201 Income tax expense ​ ​ 125,992 ​ ​ 155,966 Net income ​ $ 539,318 ​ $ 555,235 ​ ​ ​ ​ ​ ​ ​ Weighted average shares for basic earnings per share ​ 19,007 ​ 20,988 Effect of dilutive stock equivalents ​ ​ 638 ​ ​ 621 Weighted average shares for diluted earnings per share ​ 19,645 ​ 21,609 ​ ​ ​ ​ ​ ​ ​ Basic earnings per share ​ $ 28.37 ​ $ 26.45 Diluted earnings per share ​ $ 27.45 ​ $ 25.69 ​ See Notes to Condensed Consolidated Financial Statements. AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Weeks Ended ​ ​ November 19, November 20, (in thousands) 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 539,318 ​ $ 555,235 Other comprehensive income (loss): ​ ​ Foreign currency translation adjustments ​ 3,335 ​ ( 16,566 ) Unrealized losses on marketable debt securities, net of taxes ​ ( 671 ) ​ ( 430 ) Net derivative activities, net of taxes ​ 607 ​ 655 Total other comprehensive income (loss) ​ 3,271 ​ ( 16,341 ) Comprehensive income ​ $ 542,589 ​ $ 538,894 ​ See Notes to Condensed Consolidated Financial Statements. ​ 4 Table of Contents AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Weeks Ended ​ November 19, ​ November 20, (in thousands) ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ Cash flows from operating activities: ​ ​ Net income ​ $ 539,318 ​ $ 555,235 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ Depreciation and amortization of property and equipment ​ 109,253 ​ 99,590 Other non-cash ​ 81,000 ​ — Amortization of debt origination fees ​ 1,905 ​ 2,639 Deferred income taxes ​ 13,816 ​ 18,096 Share-based compensation expense ​ 19,005 ​ 14,295 Changes in operating assets and liabilities: ​ ​ ​ Accounts receivable ​ 4,100 ​ ( 1,576 ) Merchandise inventories ​ ( 39,308 ) ​ ( 136,988 ) Accounts payable and accrued expenses ​ 6,574 ​ 89,268 Income taxes ​ 73,954 ​ 107,411 Other, net ​ ( 16,030 ) ​ 29,960 Net cash provided by operating activities ​ 793,587 ​ 777,930 ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ Capital expenditures ​ ( 114,397 ) ​ ( 102,269 ) Purchase of marketable debt securities ​ ( 11,989 ) ​ ( 7,026 ) Proceeds from sale of marketable debt securities ​ 4,893 ​ 3,709 Investment in tax credit equity investments ​ ​ ( 2,474 ) ​ ​ — Proceeds from disposal of capital assets and other, net ​ 10,080 ​ 14,625 Net cash used in investing activities ​ ( 113,887 ) ​ ( 90,961 ) ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ Net proceeds from commercial paper ​ ​ 204,900 ​ ​ — Net proceeds from sale of common stock ​ 40,828 ​ 21,100 Purchase of treasury stock ​ ​ ( 899,998 ) ​ ​ ( 899,997 ) Repayment of principal portion of finance lease liabilities ​ ( 20,598 ) ​ ​ ( 13,687 ) Other, net ​ ( 783 ) ​ ( 3,362 ) Net cash used in financing activities ​ ( 675,651 ) ​ ( 895,946 ) ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash ​ 1,361 ​ ( 1,233 ) ​ ​ ​ ​ ​ ​ ​ Net increase/(decrease) in cash and cash equivalents ​ 5,410 ​ ( 210,210 ) Cash and cash equivalents at beginning of period ​ 264,380 ​ 1,171,335 Cash and cash equivalents at end of period ​ $ 269,790 ​ $ 961,125 See Notes to Condensed Consolidated Financial Statements. ​ 5 Table of Contents AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Weeks Ended November 19, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common ​ ​ ​ ​ Additional ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ Shares Common Paid-in Retained Comprehensive Treasury ​ ​ (in thousands) ​ Issued ​ Stock ​ Capital ​ Deficit ​ Loss ​ Stock ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at August 27, 2022 20,732 ​ $ 207 ​ $ 1,354,252 ​ $ ( 1,330,067 ) ​ $ ( 300,536 ) ​ $ ( 3,262,769 ) ​ $ ( 3,538,913 ) Net income — ​ — ​ — ​ 539,318 ​ — ​ — ​ 539,318 Total other comprehensive income — ​ — ​ — ​ — ​ 3,271 ​ — ​ 3,271 Purchase of 392 shares of treasury stock — ​ — ​ — ​ — ​ — ​ ( 899,998 ) ​ ( 899,998 ) Issuance of common stock under stock options and stock purchase plans 62 ​ 1 ​ 40,828 ​ ​ — ​ ​ — ​ ​ — ​ 40,829 Share-based compensation expense — ​ — ​ 17,570 ​ — ​ — ​ — ​ 17,570 Balance at November 19, 2022 20,794 ​ $ 208 ​ $ 1,412,650 ​ $ ( 790,749 ) ​ $ ( 297,265 ) ​ $ ( 4,162,767 ) ​ $ ( 3,837,923 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Weeks Ended November 20, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Common ​ ​ ​ ​ Additional ​ Retained ​ Other ​ ​ ​ ​ ​ ​ ​ Shares Common Paid-in (Deficit)/ Comprehensive Treasury ​ ​ (in thousands) ​ Issued ​ Stock ​ Capital ​ Earnings ​ Loss ​ Stock ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at August 28, 2021 23,007 ​ $ 230 ​ $ 1,465,669 ​ $ ( 419,829 ) ​ $ ( 307,986 ) ​ $ ( 2,535,620 ) ​ $ ( 1,797,536 ) Net income — ​ — ​ — ​ 555,235 ​ — ​ — ​ 555,235 Total other comprehensive loss — ​ — ​ — ​ — ​ ( 16,341 ) ​ — ​ ( 16,341 ) Purchase of 515 shares of treasury stock — ​ — ​ — ​ — ​ — ​ ( 899,997 ) ​ ( 899,997 ) Issuance of common stock under stock options and stock purchase plans 50 ​ 1 ​ 21,100 ​ ​ — ​ ​ — ​ ​ — ​ 21,101 Share-based compensation expense — ​ — ​ 12,788 ​ — ​ — ​ — ​ 12,788 Balance at November 20, 2021 23,057 ​ $ 231 ​ $ 1,499,557 ​ $ 135,406 ​ $ ( 324,327 ) ​ $ ( 3,435,617 ) ​ $ ( 2,124,750 ) See Notes to Condensed Consolidated Financial Statements. 6 Table of Contents AUTOZONE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A – General The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission’s (the “SEC”) rules and regulations. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and related notes included in the AutoZone, Inc. (“AutoZone” or the “Company”) Annual Report on Form 10-K for the year ended August 27, 2022. Operating results for the twelve weeks ended November 19, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 26, 2023. Each of the first three quarters of AutoZone’s fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters of fiscal 2023 and 2022 each have 16 weeks. Recently Adopted Accounting Pronouncements In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance , which requires annual disclosures for entities receiving governmental assistance to provide more transparency. This ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted this ASU with its first quarter ended November 19, 2022 on a prospective basis. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures. Recently Issued Accounting Pronouncements In September 2022, the FASB issued ASU 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50) . The update requires that a buyer in a supplier finance program disclose sufficient qualitative and quantitative information about the program to allow a reader of the financial statements to understand the program’s nature, activity during the period, changes from period to period and the program’s potential magnitude. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those years, except for the disclosure of rollforward information which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company will adopt this standard beginning with its first quarter ending November 18, 2023. The Company is currently evaluating the new guidance to determine the impact the adoption will have on the Company's consolidated financial statements and related disclosures. R Note B – Share-Based Payments AutoZone maintains several equity incentive plans, which provide equity-based compensation to non-employee directors and eligible employees for their service to AutoZone, its subsidiaries or affiliates. The Company recognizes compensation expense for share-based payments based on the fair value of the awards at the grant date. Share-based payments include stock option grants, restricted stock grants, restricted stock unit grants, stock appreciation rights, discounts on shares sold to employees under share purchase plans and other awards. Additionally, directors’ fees are paid in restricted stock units with value equivalent to the value of shares of common stock as of the grant date. The change in fair value of liability-based stock awards is also recognized in share-based compensation expense. 7 Table of Contents Stock Options: The Company made stock option grants of 157,113 shares during the twelve week period ended November 19, 2022 and granted options to purchase 163,786 shares during the comparable prior year period. The Company grants options to purchase common stock to certain of its employees under its equity incentive plans at prices equal to the market value of the stock on the date of grant. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The weighted average fair value of the stock option awards granted during the twelve week periods ended November 19, 2022 and November 20, 2021, using the Black-Scholes-Merton multiple-option pricing valuation model, was $ 760.82 and $ 462.80 per share, respectively, using the following weighted average key assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Weeks Ended ​ ​ November 19, November 20, ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ Expected price volatility 29 % 28 % Risk-free interest rate 3.8 % 1.1 % Weighted average expected lives (in years) 5.4 5.6 Forfeiture rate 10 % 10 % Dividend yield 0 % 0 % ​ During the twelve week period ended November 19, 2022, 57,092 stock options were exercised at a weighted average exercise price of $ 725.86 . In the comparable prior year period, 47,705 stock options were exercised at a weighted average exercise price of $ 549.86 . As of November 19, 2022, total unrecognized share-based expense related to stock options, net of estimated forfeitures, was approximately $ 158.1 million, before income taxes, which we expect to recognize over an estimated weighted average period of 3.5 years. Restricted Stock Units: Restricted stock unit awards are valued at the market price of a share of the Company’s stock on the date of grant. Grants of employee restricted stock units vest ratably on an annual basis over a four-year service period and are payable in shares of common stock on the vesting date. Compensation expense for grants of employee restricted stock units is recognized on a straight-line basis over the four-year service period, less estimated forfeitures, which are consistent with stock option forfeiture assumptions. Grants of non-employee director restricted stock units are made and expensed on January 1 of each year, as they vest immediately. As of November 19, 2022, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $ 13.7 million, before income taxes, which we expect to recognize over an estimated weighted average period of 3.0 years. Transactions related to restricted stock units for the twelve weeks ended November 19, 2022 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Number Average Grant ​ ​ of Shares ​ Date Fair Value ​ ​ ​ ​ ​ ​ Nonvested at August 27, 2022 12,731 ​ $ 1,223.61 Granted 2,595 ​ ​ 2,205.03 Vested ( 5,646 ) ​ ​ 1,074.44 Forfeited ( 588 ) ​ ​ 1,461.94 Nonvested at November 19, 2022 9,092 ​ $ 1,580.94 ​ 8 Table of Contents Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $ 19.0 million for the twelve week period ended November 19, 2022, and $ 14.3 million for the comparable prior year period. For the twelve week period ended November 19, 2022, 87,696 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 97,942 anti-dilutive stock options were excluded from the dilutive earnings per share computation. See AutoZone’s Annual Report on Form 10-K for the year ended August 27, 2022 and other filings with the SEC, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan, the AutoZone, Inc. 2020 Omnibus Incentive Award Plan and the Director Compensation Program. Note C – Fair Value Measurements The Company defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with ASC 820, Fair Value Measurements and Disclosures , the Company uses the fair value hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are set forth below: Level 1 inputs —unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date. Level 2 inputs —inputs other than quoted market prices included within Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 3 inputs —unobservable inputs for the asset or liability, which are based on the Company’s own assumptions as there is little, if any, observable activity in identical assets or liabilities. Marketable Debt Securities Measured at Fair Value on a Recurring Basis The Company’s marketable debt securities measured at fair value on a recurring basis were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ November 19, 2022 (in thousands) Level 1 Level 2 Level 3 Fair Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other current assets ​ $ 51,786 ​ $ 13 ​ $ — ​ $ 51,799 Other long-term assets ​ 56,212 ​ ​ 10,775 ​ — ​ 66,987 ​ ​ $ 107,998 ​ $ 10,788 ​ $ — ​ $ 118,786 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ August 27, 2022 (in thousands) Level 1 Level 2 Level 3 Fair Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other current assets ​ $ 49,659 ​ $ 109 ​ $ — ​ $ 49,768 Other long-term assets ​ 57,301 ​ 5,476 ​ — ​ 62,777 ​ ​ $ 106,960 ​ $ 5,585 ​ $ — ​ $ 112,545 ​ At November 19, 2022, the fair value measurement amounts for assets and liabilities recorded in the accompanying Condensed Consolidated Balance Sheets consisted of short-term marketable debt securities, which are included within Other current assets, and long-term marketable debt securities, which are included in Other long-term assets. The Company’s marketable debt securities are typically valued at the closing price in the principal active market as of the last business day of the quarter or through the use of other market inputs relating to the securities, including benchmark 9 Table of Contents yields and reported trades. The fair values of the marketable debt securities, by asset class, are described in “Note D – Marketable Debt Securities.” Financial Instruments not Recognized at Fair Value The Company has financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short maturities. A discussion of the carrying values and fair values of the Company’s debt is included in “Note F – Financing.” Note D – Marketable Debt Securities Marketable debt securities are carried at fair value, with unrealized gains and losses, net of income taxes, recorded in Accumulated other comprehensive loss until realized, and any credit risk related losses are recognized in net income in the period incurred. The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.” ​ The Company’s available-for-sale marketable debt securities consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ November 19, 2022 ​ Amortized Gross Gross ​ ​ ​ Cost ​ Unrealized ​ Unrealized ​ Fair (in thousands) ​ Basis ​ Gains ​ Losses ​ Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities ​ $ 13,467 ​ $ — ​ $ ( 388 ) ​ $ 13,079 Government bonds ​ 84,854 ​ — ​ ( 2,613 ) ​ 82,241 Mortgage-backed securities ​ 4,257 ​ — ​ ( 295 ) ​ 3,962 Asset-backed securities and other ​ 19,845 ​ — ​ ( 341 ) ​ 19,504 ​ ​ $ 122,423 ​ $ — ​ $ ( 3,637 ) ​ $ 118,786 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ August 27, 2022 ​ Amortized Gross Gross ​ ​ ​ Cost ​ Unrealized ​ Unrealized ​ Fair (in thousands) ​ Basis ​ Gains ​ Losses ​ Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities ​ $ 15,293 ​ $ 1 ​ $ ( 298 ) ​ $ 14,996 Government bonds ​ 88,903 ​ — ​ ( 1,963 ) ​ 86,940 Mortgage-backed securities ​ 4,600 ​ — ​ ( 243 ) ​ 4,357 Asset-backed securities and other ​ 6,531 ​ — ​ ( 279 ) ​ 6,252 ​ ​ $ 115,327 ​ $ 1 ​ $ ( 2,783 ) ​ $ 112,545 ​ The debt securities held at November 19, 2022, had effective maturities ranging from less than one year to approximately three years . Securities maturing in less than one year totaled $ 51.8 million and $ 49.7 million at November 19, 2022 and August 27, 2022, respectively. Securities maturing between one and three years totaled $ 67.0 million and $ 62.8 million at November 19, 2022 and August 27, 2022, respectively. At November 19, 2022, the Company held 75 securities that are in an unrealized loss position of approximately $ 3.6 million. In evaluating whether a credit loss exists for the 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 until recovery of fair value. An allowance for credit losses was deemed unnecessary given consideration of the factors above. ​ Included above in total available-for-sale marketable debt securities are $ 102.9 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. 10 Table of Contents Note E – Merchandise Inventories Merchandise inventories include related purchasing, storage and handling costs. Inventory cost has been determined using the last-in, first-out (“LIFO”) method stated at the lower of cost or net realizable value for domestic inventories and the weighted average cost method stated at the lower of cost or net realizable value for Mexico and Brazil inventories. The Company’s policy is not to write up inventory in excess of replacement cost. Due to recent price inflation on the Company’s merchandise purchases, primarily driven by increased freight costs, the Company’s LIFO credit reserve balance was $ 96.0 million at November 19, 2022, and $ 15.0 million at August 27, 2022. Increases to the Company’s LIFO credit reserve balance are recorded as a non-cash charge to cost of sales. ​ Note F – Financing The Company’s debt consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ November 19, August 27, (in thousands) ​ 2022 ​ 2022 ​ ​ ​ ​ ​ ​ ​ 2.875 % Senior Notes due January 2023 , effective interest rate of 3.21 % ​ $ 300,000 ​ $ 300,000 3.125 % Senior Notes due July 2023 , effective interest rate of 3.26 % ​ 500,000 ​ 500,000 3.125 % Senior Notes due April 2024 , effective interest rate 3.32 % ​ 300,000 ​ 300,000 3.250 % Senior Notes due April 2025 , effective interest rate 3.36 % ​ 400,000 ​ 400,000 3.625 % Senior Notes due April 2025 , effective interest rate 3.78 % ​ ​ 500,000 ​ ​ 500,000 3.125 % Senior Notes due April 2026 , effective interest rate of 3.28 % ​ 400,000 ​ 400,000 3.750 % Senior Notes due June 2027 , effective interest rate of 3.83 % ​ 600,000 ​ 600,000 3.750 % Senior Notes due April 2029 , effective interest rate of 3.86 % ​ 450,000 ​ 450,000 4.000 % Senior Notes due April 2030 , effective interest rate 4.09 % ​ ​ 750,000 ​ ​ 750,000 1.650 % Senior Notes due January 2031 , effective interest rate of 2.19 % ​ ​ 600,000 ​ ​ 600,000 4.750 % Senior Notes due August 2032 , effective interest rate of 4.76 % ​ ​ 750,000 ​ ​ 750,000 Commercial paper, weighted average interest rate of 3.96 % and 2.43 % at November 19, 2022 and August 27, 2022, respectively ​ 808,300 ​ 603,400 Total debt before discounts and debt issuance costs ​ 6,358,300 ​ 6,153,400 Less: Discounts and debt issuance costs ​ ​ 29,956 ​ 31,308 Long-term Debt ​ $ 6,328,344 ​ $ 6,122,092 ​ On November 15, 2021, the Company amended and restated its existing revolving credit facility (as amended from time to time, the “Revolving Credit Agreement”) pursuant to which the Company’s borrowing capacity was increased from $ 2.0 billion to $ 2.25 billion and the maximum borrowing under the Revolving Credit Agreement may, at the Company’s option, subject to lenders approval, be increased from $ 2.25 billion to $ 3.25 billion. On November 15, 2022, the Company amended the Revolving Credit Agreement, extending the termination date by one year. As amended, the Revolving Credit Agreement will terminate, and all amounts borrowed will be due and payable on November 15, 2027 , but AutoZone may make one additional request to extend the termination date for an additional period of one year . Revolving borrowings under the Revolving Credit Agreement may be base rate loans, Term Secured Overnight Financing Rate (“SOFR”) loans, or a combination of both, at AutoZone’s election. The Revolving Credit Agreement includes (i) a $ 75 million sublimit for swingline loans, (ii) a $ 50 million individual issuer letter of credit sublimit and (iii) a $ 250 million aggregate sublimit for all letters of credit. 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. As of November 19, 2022, the Company had no outstanding borrowings and $ 1.8 million of outstanding letters of credit under the Revolving Credit Agreement. 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 11 Table of Contents credit that may be issued under the Revolving Credit Agreement. As of November 19, 2022, the Company had $ 25.0 million in letters of credit outstanding under the letter of credit facility, which expires in June 2025. In addition to the outstanding letters of credit issued under the committed facilities discussed above, the Company had $ 107.2 million in letters of credit outstanding as of November 19, 2022. These letters of credit have various maturity dates and were issued on an uncommitted basis. As of November 19, 2022, the commercial paper borrowings, the $ 300 million 2.875 % Senior Notes due January 2023 and the $ 500 million 3.125 % Senior Notes due July 2023 were classified as long-term in the accompanying Consolidated Balance Sheets as the Company currently has the ability and intent to refinance them on a long-term basis through available capacity under its Revolving Credit Agreement. As of November 19, 2022, the Company had $ 2.2 billion of availability under its Revolving Credit Agreement, without giving effect to commercial paper borrowings, which would allow it to replace these short-term obligations with a long-term financing facility. The Senior Notes contain a provision that repayment may be accelerated if the Company experiences a change in control (as defined in the agreements). The Company’s borrowings under its Senior Notes contain minimal covenants, primarily restrictions on liens. 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 the Senior Notes is paid on a semi-annual basis. ​ The fair value of the Company’s debt was estimated at $ 6.0 billion as of November 19, 2022, and $ 5.9 billion as of August 27, 2022, 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 less than the carrying value of debt by $ 341.1 million and $ 182.8 million at November 19, 2022 and August 27, 2022, respectively, which reflects their face amount, adjusted for any unamortized debt issuance costs and discounts. As of November 19, 2022, the Company was in compliance with all covenants and expects to remain in compliance with all covenants under its borrowing arrangements. Note G – Stock Repurchase Program From January 1, 1998 to November 19, 2022, the Company has repurchased a total of 152.9 million shares of its common stock at an aggregate cost of $ 31.0 billion, including 392.2 thousand shares of its common stock at an aggregate cost of $ 900.0 million during the twelve week period ended November 19, 2022. On October 4, 2022, the Board voted to authorize the repurchase of an additional $ 2.5 billion of the Company’s common stock in connection with its ongoing share repurchase program, which raised the total value of shares authorized to be repurchased to $ 33.7 billion. Considering the cumulative repurchases as of November 19, 2022, the Company had $ 2.7 billion remaining under the Board’s authorization to repurchase its common stock. Subsequent to November 19, 2022 and through December 9, 2022, the Company has repurchased 42.9 thousand shares of its common stock at an aggregate cost of $ 108.0 million. ​ 12 Table of Contents Note H – Accumulated Other Comprehensive Loss Accumulated other comprehensive loss includes foreign currency translation adjustments, activity for interest rate swaps and treasury rate locks that qualified as cash flow hedges and unrealized gains (losses) on available-for-sale marketable debt securities. ​ Changes in Accumulated other comprehensive loss for the twelve week periods ended November 19, 2022 and November 20, 2021 consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ ​ ​ ​ ​ ​ ​ ​ Foreign ​ Unrealized ​ ​ ​ ​ ​ ​ ​ ​ Currency and ​ Gain (Loss) ​ ​ ​ ​ ​ ​ (in thousands) Other (1) on Securities ​ Derivatives ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at August 27, 2022 ​ $ ( 280,190 ) ​ $ ( 2,171 ) ​ $ ( 18,175 ) ​ $ ( 300,536 ) Other comprehensive income (loss) before reclassifications (2)(3) ​ 3,335 ​ ( 671 ) ​ — ​ 2,664 Amounts reclassified from Accumulated other comprehensive loss (3) ​ — ​ — ​ 607 ​ 607 Balance at November 19, 2022 ​ $ ( 276,855 ) ​ $ ( 2,842 ) ​ $ ( 17,568 ) ​ $ ( 297,265 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ ​ ​ ​ ​ ​ ​ ​ Foreign ​ Unrealized ​ ​ ​ ​ ​ ​ ​ ​ Currency and ​ Gain (Loss) ​ ​ ​ ​ ​ ​ (in thousands) Other (1) on Securities ​ Derivatives ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at August 28, 2021 ​ $ ( 287,638 ) ​ $ 589 ​ $ ( 20,937 ) ​ $ ( 307,986 ) Other comprehensive loss before reclassifications (2)(3) ​ ( 16,566 ) ​ ( 430 ) ​ — ​ ( 16,996 ) Amounts reclassified from Accumulated other comprehensive loss (3) ​ — ​ — ​ 655 ​ 655 Balance at November 20, 2021 ​ $ ( 304,204 ) ​ $ 159 ​ $ ( 20,282 ) ​ $ ( 324,327 ) ​ (1) Foreign currency is shown net of U.S. tax to account for foreign currency impacts of certain undistributed non-U.S. subsidiaries’ earnings. Other foreign currency is not shown net of additional U.S. tax as other basis differences of non-U.S. subsidiaries are intended to be permanently reinvested. (2) Amounts in parentheses indicate debits to Accumulated Other Comprehensive Loss. (3) Amounts shown are net of tax . Note I – Litigation The Company is involved in various legal proceedings incidental to the conduct of its business, including, but not limited to, several lawsuits containing class-action allegations in which the plaintiffs are current and former hourly and salaried employees who allege various wage and hour violations and unlawful termination practices. While the resolution of these matters cannot be predicted with certainty, management does not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to the Company’s Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows. Note J – 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” in its Annual Report on Form 10-K for the year ended August 27, 2022. 13 Table of Contents The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s 6,978 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 automotive diagnostic, repair and shop management 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. ​ The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. Segment results for the periods presented were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Weeks Ended ​ November 19, November 20, (in thousands) ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ Net Sales ​ ​ Auto Parts Stores ​ $ 3,915,907 ​ $ 3,605,508 Other ​ 69,160 ​ 63,396 Total ​ $ 3,985,067 ​ $ 3,668,904 ​ ​ ​ ​ ​ ​ ​ Segment Profit ​ ​ Auto Parts Stores ​ $ 1,953,728 ​ $ 1,887,453 Other ​ 40,894 ​ 37,707 Gross profit ​ 1,994,622 ​ 1,925,160 Operating, selling, general and administrative expenses ​ ( 1,271,589 ) ​ ( 1,170,675 ) Interest expense, net ​ ( 57,723 ) ​ ( 43,284 ) Income before income taxes ​ $ 665,310 ​ $ 711,201 ​ ​ ​ ​ ​ ​ 14 Table of Contents Report of Independent Registered Public Accounting Firm ​ ​ To the Stockholders and Board of Directors of AutoZone, Inc. ​ Results of Review of Interim Financial Statements We have reviewed the accompanying condensed consolidated balance sheet of AutoZone, Inc. (the Company) as of November 19, 2022, the related condensed consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for the twelve week periods ended November 19, 2022 and November 20, 2021, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles. ​ We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of August 27, 2022, the related consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated October 24, 2022, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August 27, 2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ​ Basis for Review Results These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. ​ /s/ Ernst & Young LLP ​ ​ Memphis, Tennessee December 20, 2022 ​ ​ 15 Table of Contents