What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-03-17 compared with 2022-12-20 · 107 added, 73 removed, 202 unchanged (47% of the section changed)

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energy prices;

weather, including extreme temperatures, natural disasters and general weather conditions;

credit market conditions;

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war and the prospect of war, including terrorist activity;

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

the impact of public health issues;

inflation, including wage inflation;

the ability to hire, train and retain qualified employees;

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damage to our reputation;

challenges in international markets;

challenges associated with international markets;

origin and raw material costs of suppliers;

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impact of new accounting standards;

and business interruptions.

Certain of these risks and uncertainties are discussed in more detail in the “Risk Factors” section contained in Item 1A under Part 1 of our Annual Report on Form 10-K for the year ended August 27, 2022, and these Risk Factors should be read carefully.

our ability to execute our growth initiatives;

and other business interruptions.

T hese Risk Factors should be read carefully.

Forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ from those contemplated by such forward-looking statements.

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

We began operations in 1979 and at November 19, 2022, operated 6,196 stores in the U.S., 706 stores in Mexico and 76 stores in Brazil.

We began operations in 1979 and at February 11, 2023, operated 6,226 stores in the U.S., 707 stores in Mexico and 81 stores in Brazil.

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

At November 19, 2022, in 5,459 of our domestic stores, we had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts.

At February 11, 2023, in 5,500 of our domestic stores, we had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts.

We also have commercial programs in the majority of our stores in Mexico and Brazil.

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Our websites and the information contained therein or linked thereto are not intended to be incorporated into this report.

Operating results for the twelve weeks ended November 19, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending August 26, 2023.

Operating results for the twelve and twenty-four weeks ended February 11, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending August 26, 2023.

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

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Executive Summary

Net sales increased 8.6% for the quarter ended November 19, 2022 compared to the prior year period, which was driven by an increase in domestic same store sales (sales from stores open at least one year) of 5.6%.

Net sales increased 9.5% for the quarter ended February 11, 2023 compared to the prior year period, which was driven by an increase in domestic same store sales (sales from stores open at least one year) of 5.3%.

Domestic commercial sales increased 13.1%, which represents approximately 29.5% of our domestic auto parts sales.

Operating profit decreased 4.2% to $723.0 million compared to $754.5 million.

Net income for the quarter decreased 2.9% to $539.3 million compared to $555.2 million.

Diluted earnings per share increased 6.9% to $27.45 per share from $25.69 per share.

The above results include an $81.0 million non-cash LIFO charge incurred in the current quarter.

Operating profit increased 6.9% to $670.0 million compared to $626.8 million in the prior year period.

Net income for the quarter increased 1.0% to $476.5 million compared to $471.8 million in the prior year period.

Diluted earnings per share increased 10.5% to $24.64 per share from $22.30 per share in the prior year period.

The above results include a $10.0 million non-cash LIFO charge incurred for the quarter ended February 11, 2023.

Adjusting for the non-cash LIFO charge, adjusted operating profit increased 8.5%, adjusted net income increased 2.6% and adjusted diluted earnings per share increased 12.3% compared to the prior year period.

Management believes these non-GAAP financial measures are useful in providing quarter-to-quarter comparisons of the results of our operations.

Management believes these non-GAAP financial measures are useful in providing period-to-period comparisons of the results of our operations.

Refer to the “Reconciliation of Non-GAAP Financial Measures” section for a reconciliation of these non-GAAP measures to the most comparable GAAP measure .

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

During the first quarter of fiscal 2023, failure and maintenance related categories represented the largest portion of our sales mix at approximately 86% of total sales, which is consistent with the comparable prior year period.

During the second quarter of fiscal 2023, failure and maintenance related categories represented the largest portion of our sales mix at approximately 86% of total sales, which is consistent with the comparable prior year period.

Failure related categories continue to be the largest portion of our sales mix.

We did not experience any fundamental shifts in our category sales mix as compared to the previous year.

Our sales mix can be impacted by severe or unusual weather over a short-term period.

Our sales mix can be impacted by weather over a short-term period.

Over the long-term, we believe the impact of weather on our sales mix is not significant.

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As of January 1, 2022, the average age of light vehicles on the road was 12.2 years.

For September 2022 (latest publicly available information), miles driven in the U.S.

increased 1.0% compared to the same period in the prior year.

Twelve Weeks Ended November 19, 2022

Compared with Twelve Weeks Ended November 20, 2021

Net sales for the twelve weeks ended November 19, 2022 increased $316.2 million to $4.0 billion, or 8.6% over net sales of $3.7 billion for the comparable prior year period.

Since the beginning of the fiscal year and through December 2022 (latest publicly available information), miles driven in the U.S.

were down 2.6% compared to the same period in the prior year.

Twelve Weeks Ended February 11, 2023

Compared with Twelve Weeks Ended February 12, 2022

Net sales for the twelve weeks ended February 11, 2023 increased $321.2 million to $3.7 billion, or 9.5% over net sales of $3.4 billion for the comparable prior year period.

Total auto parts sales increased by 9.6%, primarily driven by an increase in domestic same store sales of 5.3% and net sales of $75.5 million from new stores.

Domestic commercial sales increased $134.4 million to $1.0 billion, or 14.9%, over the comparable prior year period.

Gross profit for the twelve weeks ended November 19, 2022 was $2.0 billion, compared with $1.9 billion during the comparable prior year period.

Domestic commercial sales increased $110.7 million to $954.6 million, or 13.1%, over the comparable prior year period.

Gross profit for the twelve weeks ended February 11, 2023 was $1.9 billion, compared with $1.8 billion during the comparable prior year period.

Gross profit, as a percentage of sales, was 52.3% compared to 53.0% during the comparable prior year period.

The decrease in gross margin was driven by a 203 basis point ($81.0 million) non-cash

LIFO charge driven primarily by rising freight costs, with the remaining deleverage primarily from accelerated growth in our commercial business.

Operating, selling, general and administrative expenses for the twelve weeks ended November 19, 2022 were $1.3 billion compared with $1.2 billion during the comparable prior year period.

As a percentage of sales, these expenses were flat to the prior year at 31.9%.

Net interest expense for the twelve weeks ended November 19, 2022 was $57.7 million compared with $43.3 million during the comparable prior year period.

Average borrowings for the twelve weeks ended November 19, 2022 were $6.2 billion, compared with $5.3 billion for the comparable prior year period.

Weighted average borrowing rates were 3.47% and 3.30% for the quarters ended November 19, 2022 and November 20, 2021, respectively.

Our effective income tax rate was 18.9% of pretax income for the twelve weeks ended November 19, 2022, and 21.9% for the comparable prior year period.

The decrease in the tax rate was primarily attributable to an increased benefit from stock options exercised during the twelve weeks ended November 19, 2022.

The benefit of stock options exercised for the twelve weeks ended November 19, 2022 was $29.7 million compared to $11.3 million in the comparable prior year period.

Net income for the twelve week period ended November 19, 2022 decreased by $15.9 million to $539.3 million due to the factors set forth above, and diluted earnings per share increased by 6.9% to $27.45 from $25.69.

The decrease in gross margin was impacted by a 27 basis point ($10.0 million) non-cash LIFO charge driven primarily by rising freight costs, with the remaining decrease resulting primarily from supply chain costs and accelerated growth in our commercial business.

Operating, selling, general and administrative expenses for the twelve weeks ended February 11, 2023 were $1.3 billion compared with $1.2 billion during the comparable prior year period.

As a percentage of sales, these expenses were 34.1% compared with 34.4% during the comparable prior year period.

Net interest expense for the twelve weeks ended February 11, 2023, was $65.6 million compared with $42.5 million during the comparable prior year period.

Average borrowings for the twelve weeks ended February 11, 2023 were $6.9 billion, compared with $5.6 billion for the comparable prior year period.

Weighted average borrowing rates were 3.70% and 3.03% for the quarters ended February 11, 2023 and February 12, 2022, respectively.

Our effective income tax rate was 21.2% of pretax income for the twelve weeks ended February 11, 2023, and 19.3% for the comparable prior year period.

The increase in the tax rate was primarily attributable to a decreased benefit from stock options exercised during the twelve weeks ended February 11, 2023.

The benefit of stock options exercised for the twelve week period ended February 11, 2023 was $13.4 million compared to $23.4 million in the comparable prior year period.

Net income for the twelve weeks ended February 11, 2023 increased by $4.8 million to $476.5 million due to the factors set forth above, and diluted earnings per share increased by 10.5% to $24.64 from $22.30.

Excluding the non-cash LIFO charge, adjusted net income increased 2.6% to $484.2 million, and adjusted diluted earnings per share increased 12.3% to $25.04.

The impact on current quarter diluted earnings per share from stock repurchases since the end of the comparable prior year period was an increase of $0.42.

Twenty-Four Weeks Ended February 11, 2023

Compared with Twenty-Four Weeks Ended February 12, 2022

Net sales for the twenty-four weeks ended February 11, 2023 increased $637.4 million to $7.7 billion, or 9.1% over net sales of $7.0 billion for the comparable prior year period.

Total auto parts sales increased by 9.1%, primarily driven by an increase in domestic same store sales of 5.5% and net sales of $147.1 million from new stores.

Domestic commercial sales increased $245.1 million to $2.0 billion, or 14.1%, over the comparable prior year period.

Gross profit for the twenty-four weeks ended February 11, 2023 was $3.9 billion, compared with $3.7 billion during the comparable prior year period.

Gross profit, as a percentage of sales, was 51.1% compared to 52.7% during the comparable prior year period.

The decrease in gross margin was driven by a 119 basis point ($91.0 million) non-cash LIFO charge driven primarily by rising freight costs, with the remaining decrease resulting primarily from supply chain costs and accelerated growth in our commercial business.

Operating, selling, general and administrative expenses for the twenty-four weeks ended February 11, 2023, were $2.5 billion compared with $2.3 billion during the comparable prior year period.

As a percentage of sales, these expenses were 33.0% compared with 33.1% during the comparable prior year period.

Net interest expense for the twenty-four weeks ended February 11, 2023, was $123.3 million compared with $85.8 million during the comparable prior year period.

Average borrowings for the twenty-four weeks ended February 11, 2023 were $6.5 billion, compared with $5.4 billion for the comparable prior year period.

Weighted average borrowing rates were 3.58% and 3.17% for the twenty-four week periods ended February 11, 2023 and February 12, 2022, respectively.

Our effective income tax rate was 20.0% of pretax income for the twenty-four weeks ended February 11, 2023, and 20.7% for the comparable prior year period.

The decrease in the tax rate was primarily attributable to an increased benefit from stock options exercised during the twenty-four weeks ended February 11, 2023.

The benefit of stock

options exercised for the twenty-four weeks period ended February 11, 2023 was $43.1 million compared to $34.7 million in the comparable prior year period.

Net income for the twenty-four weeks ended February 11, 2023 decreased by $11.1 million to $1.0 billion due to the factors set forth above, and diluted earnings per share increased by 8.5% to $52.12 from $48.03.

Excluding the non-cash LIFO charge, adjusted net income increased 5.7% to $1.1 billion, and adjusted diluted earnings per share increased 16.0% to $55.70.

The impact on current year to date diluted earnings per share from stock repurchases since the end of the comparable prior year period was an increase of $1.12.

Liquidity and Capital Resources

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We believe that our cash generated from operating activities and available credit, supplemented with our long-term borrowings will provide ample liquidity to fund our operations while allowing us to make strategic investments to support long-term growth initiatives and return excess cash to shareholders in the form of share repurchases.

As of November 19, 2022, we held $269.8 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our Revolving Credit Agreement, before giving effect to commercial paper borrowings.

As of February 11, 2023, we held $301.3 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our Revolving Credit Agreement, before giving effect to commercial paper borrowings.

We believe our sources of liquidity will continue to be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due and fund our share repurchases over the short-term and long-term.

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However, decreased demand for our products or changes in customer buying patterns would negatively impact our ability to generate cash from operating activities.

Decreased demand or changes in buying patterns could also impact our ability to meet our debt covenants of our credit agreements and, therefore, negatively impact the funds available under our Revolving Credit Agreement.

Decreased demand or changes in buying patterns could also impact our ability to meet the debt covenants of our credit agreements and, therefore, negatively impact the funds available under our Revolving Credit Agreement.

In the event our liquidity is insufficient, we may be required to limit our spending.

For the twelve weeks ended November 19, 2022, our net cash flows from operating activities provided $793.6 million compared with $777.9 million during the comparable prior year period.

The increase is primarily driven by reduced inventory growth, net of accounts payable in the current year.

Our net cash flows used in investing activities for the twelve weeks ended November 19, 2022 were $113.9 million as compared with $91.0 million in the comparable prior year period.

Capital expenditures for the twelve weeks ended November 19, 2022 were $114.4 million compared to $102.3 million in the comparable prior year period.

Investing cash flows were impacted by our wholly owned captive, which purchased $12.0 million and sold $4.9 million in marketable debt securities during the twelve weeks ended November 19, 2022.

For each of the twenty-four week periods ended February 11, 2023 and February 12, 2022, our net cash flows from operating activities provided $1.1 billion.

Our net cash flows used in investing activities for the twenty-four weeks ended February 11, 2023 were $270.0 million as compared with $211.3 million in the comparable prior year period.

Capital expenditures for the twenty-four weeks ended February 11, 2023 were $259.2 million compared to $208.1 million in the comparable prior year period.

The increase in capital expenditures was primarily driven by our growth initiatives, including hub and mega hub expansion projects, new distribution centers and new stores.

During the twenty-four week period ended February 11, 2023 and February 12, 2022, we opened 71 and 48 net new stores, respectively.

Investing cash flows were impacted by our wholly owned captive, which purchased $14.0 million and sold $3.5 million in marketable debt securities during the twenty-four weeks ended February 11, 2023.

During the comparable prior year period, the captive purchased $22.6 million in marketable debt securities and sold $13.9 million.

Our net cash flows used in financing activities for the twelve weeks ended November 19, 2022 were $675.6 million compared to $895.9 million in the comparable prior year period.

Stock repurchases were $900.0 million in the current

twelve week period and in the prior year period.

Our net cash flows used in financing activities for the twenty-four weeks ended February 11, 2023 were $844.7 million compared to $1.9 billion in the comparable prior year period.

During the twenty-four weeks ended February 11, 2023, we received $1.0 billion in debt issuances and repaid our $300 million 2.875% senior notes due January 2023.

During the comparable prior year period, no debt was issued and we repaid our $500 million 3.700% Senior Notes due April 2022.

Stock repurchases were $1.8 billion in the current twenty-four week period as compared with $2.5 billion in the comparable prior year period.

The treasury stock repurchases were primarily funded by cash flows from operations.

For the twelve week period ended November 19, 2022, our commercial paper activity resulted in $204.9 million in net proceeds from commercial paper compared to no commercial paper borrowings in the prior year period.

Proceeds from the sale of common stock and exercises of stock options for the twelve weeks ended November 19, 2022 and November 20, 2021 provided $40.8 million and $21.1 million, respectively.

For the twenty-four week period ended February 11, 2023, our commercial paper activity resulted in $227.6 million in net proceeds from commercial paper compared to $1.1 billion commercial paper net proceeds in the comparable prior year period.

Proceeds from the sale of common stock and exercises of stock options for the twenty-four weeks ended February 11, 2023 and February 12, 2022 provided $72.8 million and $66.5 million, respectively.

During fiscal 2023, we expect to increase the investment in our business as compared to fiscal 2022.

Our investments are expected to be directed primarily to our supply chain initiatives, which includes expanded hub and mega hubs, as well as new distribution centers, distribution center expansions and new stores.

The amount of investments in our new stores is impacted by different factors, including whether the building and land are purchased (requiring higher investment) or leased (generally lower investment) and whether such buildings are located in the U.S., Mexico or Brazil, or located in urban or rural areas.

Our investments are expected to be directed primarily to our supply chain initiatives, which includes expanded hub and mega hubs, as well as new distribution centers and new stores.

The amount of investments in our new stores is impacted by different factors,

including whether the building and land are purchased (requiring higher investment) or leased (generally lower investment) and whether such buildings are located in the U.S., Mexico or Brazil, or located in urban or rural areas.

In addition to the building and land costs, our new stores require working capital, predominantly for inventories.

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

Accounts payable, as a percentage of gross inventory, was 131.0% at November 19, 2022, compared to 129.4% at November 20, 2021.

Accounts payable, as a percentage of gross inventory, was 127.7% at February 11, 2023, compared to 126.8% at February 12, 2022.

The increase from the comparable prior year period was primarily due to recent price inflation.

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

For the trailing four quarters ended November 19, 2022, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 54.3% as compared to 44.7% for the comparable prior year period.

For the trailing four quarters ended February 11, 2023, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 54.7% as compared to 49.4% for the comparable prior year period.

Adjusted ROIC is calculated as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating leases).

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On November 15, 2021, we amended and restated our existing revolving credit facility (as amended from time to time, the “Revolving Credit Agreement”) pursuant to which our borrowing capacity under the Revolving Credit Agreement was increased from $2.0 billion to $2.25 billion and the maximum borrowing under the Revolving Credit Agreement may, at our 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.

On November 15, 2022, we 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 we may make one additional request to extend the termination date for an additional period of one year.

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

As of November 19, 2022, we had no outstanding borrowings and $1.8 million of outstanding letters of credit under our Revolving Credit Agreement.

As of February 11, 2023, we had no outstanding borrowings and $1.8 million of outstanding letters of credit under our Revolving Credit Agreement.

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

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

As of November 19, 2022, we 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, we had $107.2 million in letters of credit outstanding as of November 19, 2022.

The letter of credit facility is in addition to the letters of credit that may

be issued under the Revolving Credit Agreement.

As of February 11, 2023, we 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, we had $107.2 million in letters of credit outstanding as of February 11, 2023.

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 Consolidated Balance Sheets, as we have the current ability and intent to refinance them on a long-term basis through available capacity in our Revolving Credit Agreement.

As of November 19, 2022, we had $2.2 billion of availability under our Revolving Credit Agreement, without giving effect to commercial paper borrowings, which would allow us to replace these short-term obligations with a long-term financing facility.

The Senior Notes contain a provision that repayment may be accelerated if we experience a change in control (as defined in the agreements).

As of February 11, 2023, the $831.0 million commercial paper borrowings and the $500 million 3.125% Senior Notes due July 2023 were classified as long-term in the Consolidated Balance Sheets, as we have the current ability and intent to refinance them on a long-term basis through available capacity in our Revolving Credit Agreement.

As of February 11, 2023, we had $2.2 billion of availability under our Revolving Credit Agreement, without giving effect to commercial paper borrowings, which would allow us to replace these short-term obligations with a long-term financing facility.

On January 17, 2023, we repaid the $300 million 2.875% Senior Notes due January 2023.

On January 27, 2023, we issued $450 million in 4.500% Senior Notes due February 2028 and $550 million in 4.750% Senior Notes due February 2033.

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

The Senior Notes contain a provision that repayment may be accelerated if we experience both a change of control (as defined in the agreements) and a rating event (as defined in the agreements).

The Company’s borrowings under our 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 applicable scheduled payment date if covenants are breached or an event of default occurs.

As of November 19, 2022, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.

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

Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.2:1 as of November 19, 2022 and was 2.0:1 as of November 20, 2021.

As of February 11, 2023, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements

Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.3:1 as of February 11, 2023 and was 2.0:1 as of February 12, 2022.

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

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Stock Repurchases

From January 1, 1998 to November 19, 2022, we have repurchased a total of 152.9 million shares of our common stock at an aggregate cost of $31.0 billion, including 392.2 thousand shares of our common stock at an aggregate cost of $900.0 million during the twelve week period ended November 19, 2022.

From January 1, 1998 to February 11, 2023, we have repurchased a total of 153.3 million shares of our common stock at an aggregate cost of $31.9 billion, including 764.3 thousand shares of our common stock at an aggregate cost of $1.8 billion during the twenty-four week period ended February 11, 2023.

On October 4, 2022, the Board voted to authorize the repurchase of an additional $2.5 billion of our common stock in connection with our 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, we had $2.7 billion remaining under the Board’s authorization to repurchase our common stock.

Subsequent to November 19, 2022 and through December 9, 2022, we have repurchased 42.9 thousand shares of our common stock at an aggregate cost of $108.0 million.

Considering the cumulative repurchases as of February 11, 2023, we had $1.8 billion remaining under the Board’s authorization to repurchase our common stock.

Subsequent to February 11, 2023 and through March 10, 2023, we have repurchased 83.5 thousand shares of our common stock at an aggregate cost of $210.0 million.

Off-Balance Sheet Arrangements

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

Our total stand-by letters of credit commitment at November 19, 2022, was $133.9 million, compared with $130.5 million at August 27, 2022, and our total surety bonds commitment at November 19, 2022, was $47.0 million, compared with $46.0 million at August 27, 2022.

Our total stand-by letters of credit commitment at February 11, 2023, was $133.9 million, compared with $130.5 million at August 27, 2022, and our total surety bonds commitment at February 11, 2023, was $45.9 million, compared with $46.0 million at August 27, 2022.

Financial Commitments

Except for the previously discussed Revolving Credit Agreement, there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 27, 2022.

Except for the previously discussed Revolving Credit Agreement, the $550 million 4.750% Senior Notes due February 2023 and $450 million 4.500% Senior Notes due February 2028 debt issuances, and the $300 million 2.875% Senior Notes debt repayment, there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 27, 2022.

Reconciliation of Non-GAAP Financial Measures

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Additionally, our management uses these non-GAAP financial measures to review and assess our underlying operating results and the Compensation Committee of the Board uses select measures to determine payments of performance-based compensation against pre-established targets.

Adjusted operating profit, Adjusted net income and Adjusted diluted earnings per share present our financial results excluding the non-cash LIFO charge, which vary from period to period, and assist in comparing our current operating results with past periods and with the operational performance of other companies in our industry.

Adjusted operating profit, Adjusted net income and Adjusted diluted earnings per share present our financial results excluding the non-cash LIFO charges, which vary from period to period, and assist in comparing our current operating results with past periods and with the operational performance of other companies in our industry.

Adjusted After-Tax ROIC and Adjusted Debt to EBITDAR provide additional information for determining our optimal capital structure and are used to assist management in evaluating performance and in making appropriate business decisions to maximize stockholders’ value.

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

Reconciliation of Non-GAAP Financial Measure:

Reconciliation of Non-GAAP Financial Measures:

Adjusted operating profit, Adjusted net income and Adjusted diluted earnings per share

The following tables reconcile operating profit, net income, and diluted EPS to adjusted operating profit, adjusted net income and adjusted diluted earnings per share, which are presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the twelve weeks ended November 19, 2022 and November 20, 2021.

The following tables reconcile operating profit, net income, and diluted earnings per share to adjusted operating profit, adjusted net income and adjusted diluted earnings per share, which are presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the twelve and twenty-four week periods ended February 11, 2023 and February 12, 2022.

Twelve Weeks Ended

Twenty-Four Weeks Ended

(in thousands, except per share data)

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Adjusted net income (Non-GAAP)

Weighted average shares for basic earnings per share

Effect of dilutive stock equivalents

Weighted average shares for diluted earnings per share

Diluted earnings per share (GAAP)

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Adjusted After-Tax ROIC

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended November 19, 2022 and November 20, 2021.

The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended February 11, 2023 and February 12, 2022.

Trailing Four

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Adjusted Debt to EBITDAR

The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended February 11, 2023 and February 12, 2022.

Trailing Four

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Adjusted debt to EBITDAR

(1) The table below outlines the calculation of rent expense and reconciles rent expense to total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the trailing four quarters ended November 19, 2022 and November 20, 2021 .

Trailing Four Quarters Ended

(in thousands)

November 19, 2022

November 20, 2021

February 11, 2023

February 12, 2022

Total lease cost, per ASC 842

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

(2) Effective tax rate over trailing four quarters ended November 19, 2022 and November 20, 2021 is 20.4% and 21.0%, respectively.

(2) Effective tax rate over trailing four quarters ended February 11, 2023 and February 12, 2022 was 20.8%.

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

5 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis