What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-10-24 compared with 2022-10-24 · 89 added, 90 removed, 318 unchanged (36% of the section changed)

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We began operations in 1979 and at August 26, 2023, operated 6,300 stores in the U.S., 740 stores in Mexico and 100 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 August 27, 2022, in 5,342 of our domestic stores, we also had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts.

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

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

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

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

At August 26, 2023, in 5,682 of our domestic stores as well as the vast majority of our stores in Mexico and Brazil, we had a commercial sales program that provided commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations, fleet owners and other accounts.

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

Additionally, we sell the ALLDATA brand of automotive diagnostic, repair, collision and shop management software through www.alldata.com.

We also provide product information on our Duralast branded products through www.duralastparts.com.

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Executive Summary

For fiscal 2022, we achieved record net income of $2.4 billion, an 11.9% increase over the prior year, and sales growth of $1.6 billion, an 11.1% increase over the prior year.

Domestic commercial sales increased 26.5%, which represents 28.8% of our domestic auto parts sales.

Both our retail sales and commercial sales grew this past year as we made progress on our initiatives aimed at improving our ability to say “Yes” to our customers more frequently and accelerating our commercial growth.

For fiscal 2023, we achieved record net income of $2.5 billion, a 4.1% increase over the prior year, and sales growth of $1.2 billion, a 7.4% increase over the prior year.

Our retail sales and commercial sales in our domestic and international markets grew this past year as we made progress on our initiatives aimed at improving our ability to say “Yes” to our customers more frequently.

Our business is impacted by various factors within the economy that affect both our consumer and our industry, including but not limited to inflation, fuel costs, wage rates, supply chain disruptions, hiring and other economic conditions.

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.

One macroeconomic factor affecting our customers and our industry during fiscal 2022 was gas prices.

During fiscal 2022, the average price per gallon of unleaded gasoline in the U.S.

was $3.83, compared to $2.62 during fiscal 2021.

One macroeconomic factor affecting our customers and our industry is gas prices.

We believe fluctuations in gas prices impact our customers’ level of disposable income.

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Given the unpredictability of gas prices, we cannot predict whether gas prices will increase or decrease, nor can we predict how any future changes in gas prices will impact our sales in future periods.

We have also experienced continued accelerated pressure on wages in the U.S.

We have also experienced continued pressure on average hourly wages in the U.S.

during fiscal 2023.

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During fiscal 2023, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 85% of total sales categories continuing to comprise our largest set of categories.

While we have not experienced any fundamental shifts in our category sales mix as compared to previous years, in our domestic stores we see a slight decrease in mix of sales of the discretionary category and a slight increase in the maintence category compared to last year.

The two statistics we believe have the closest correlation to our market growth over the long-term are miles driven and the number of seven year old or older vehicles on the road.

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While over the long-term we have seen a close correlation between our net sales and the number of miles driven, we have also seen certain time frames of minimal correlation in sales performance and miles driven.

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

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

increased by 4.6% compared to the same period in the prior year.

We believe this increase is due to the nation returning to pre-pandemic levels, but we are unable to predict if this increase will continue, due to rising fuel prices, general macroeconomic conditions, or otherwise, or the extent of the impact it will have on our business.

During the periods of minimal

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

Since the beginning of the fiscal year and through July 2023 miles driven in the U.S.

increased by 1.3% compared to the same period in the prior year based on the latest information available from the U.S.

Department of Transportation.

Seven Year Old or Older Vehicles

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We expect the aging vehicle population to continue to increase as consumers keep their cars longer in an effort to save money.

Additionally, there is increased demand for used vehicles as a result of new vehicle inventory shortages.

We estimate vehicles are driven an average of approximately 12,500 miles each year.

According to the U.S.

Department of Transportation – Federal Highway Administration, vehicles are driven an average of approximately 13,500 miles each year.

In seven years, the average miles driven equates to approximately 94,500 miles.

Our experience is that at this point in a vehicle’s life, most vehicles are not covered by warranties and increased maintenance is needed to keep the vehicle operating.

Our experience is that at this point in a vehicle’s life, most vehicles are not covered by warranties and increased maintenance and repairs are needed to keep the vehicle operating.

According to the latest data provided by the Auto Care Association, as of January 1, 2023, the average age of light vehicles on the road was 12.5 years and these vehicles account for more than 40% of U.S.

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Increase in domestic comparable store net sales (5)

Increase in international comparable store net sales (5)

Increase in international comparable store net sales (constant currency) (5)

Increase in total company comparable store net sales (5)

Increase in total company comparable store net sales (constant currency) (5)

Balance Sheet Data

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Selected Operating Data

Number of locations at beginning of year

Sold locations (7)

New locations

Closed locations

Net new locations

Relocated locations

Number of locations at end of year

Number of stores at beginning of year

Closed stores

Net new stores

Relocated stores

Number of stores at end of year

AutoZone domestic commercial programs

Inventory per location (in thousands)

Total Company Store Data

Inventory per store (in thousands)

Total AutoZone store square footage (in thousands)

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(2) The fiscal year ended August 31, 2019 consisted of 53 weeks.

(3) Fiscal 2018 was negatively impacted by pension termination charges of $130.3 million (pre-tax) recognized in the fourth quarter and asset impairments of $193.2 million (pre-tax) recognized in the second quarter of fiscal 2018.

Fiscal 2019 and 2018 also includes a benefit to net income related to the Tax Cuts and Jobs Act of $6.3 million and $132.1 million, net of repatriation tax, respectively.

(3) Fiscal 2019 includes a benefit to net income related to the Tax Cuts and Jobs Act of $6.3 million, net of repatriation tax.

(4) Fiscal 2023, 2022, 2021, 2020 and 2019 include excess tax benefits from stock option exercises of $92.2 million, $63.2 million, $56.4 million, $20.9 million, and $46.0 million, respectively.

(5) The domestic comparable sales increases are based on sales for all AutoZone domestic stores open at least one year.

(5) The domestic and international comparable sales increases are based on sales for all AutoZone stores open at least one year.

Constant currency same store sales exclude impacts from fluctuations of foreign exchange rates by converting both the current year and prior year international results at the prior year foreign currency exchange rate.

Same store sales are computed on a 52-week basis.

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(6) The Company adopted ASU 2016-02, Leases (Topic 842), beginning with its first quarter ended November 23, 2019 which resulted in the Company recognizing a right-of-use asset (“ROU asset”) and a corresponding lease liability on the balance sheet.

(7) 26 IMC branches were sold on April 4, 2018.

(7) Inclusive of excise tax of $23.7 million for the year ended August 26, 2023.

The excise tax is assessed at one percent of the fair market value of net stock repurchases after December 31, 2022.

During the third quarter of fiscal 2020, the Company temporarily suspended share repurchases under the share repurchase program in response to the COVID-19 pandemic which was restarted beginning in the first quarter of fiscal 2021.

(8) Inventory turnover is calculated as cost of sales divided by the average merchandise inventory balance over the trailing 5 quarters.

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For fiscal 2019, after-tax operating profit was adjusted for the impact of the average revaluation of deferred tax liabilities, net of repatriation tax.

For fiscal 2018, after-tax operating profit was adjusted for impairment charges, pension termination charges and the impact of the revaluation of deferred tax liabilities, net of repatriation tax.

See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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divided by net income plus interest, taxes, depreciation, amortization, rent and share-based compensation expense.

For fiscal 2018, net income was adjusted for impairment charges and pension termination charges before tax impact.

See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations

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See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(12) During the third quarter of fiscal 2020, the Company temporarily suspended share repurchases under the share repurchase program in response to COVID-19 which was restarted beginning in the first quarter of fiscal 2021.

Fiscal 2023 Compared with Fiscal 2022

For the fiscal year ended August 26, 2023, we reported net sales of $17.5 billion compared with $16.3 billion for the year ended August 27, 2022, a 7.4% increase from fiscal 2022.

This growth was driven primarily by a domestic same store sales increase of 8.4% and net sales of $290.7 million from new stores.

This growth was driven primarily by a domestic same store sales increase of 3.4% and net sales of $327.8 million from new domestic and international stores.

Domestic commercial sales increased $368.0 million, or 8.7%, over domestic commercial sales for fiscal 2022.

Same store sales, or sales for our domestic and international stores open at least one year, are as follows:

Fiscal Year Ended August

Constant Currency (1)

International

Total Company

(1) Constant currency same store sales exclude impacts from fluctuations of foreign exchange rates by converting both the current year and prior year international results at the prior year foreign currency exchange rate.

At August 26, 2023, we operated 6,300 domestic stores, 740 in Mexico and 100 in Brazil, compared with 6,168 domestic stores, 703 in Mexico and 72 in Brazil at August 27, 2022.

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Gross profit for fiscal 2023 was $9.1 billion, or 52.0% of net sales, a 17 basis point decrease compared with $8.5 billion, or 52.1% of net sales for fiscal 2022.

The decrease in gross margin was primarily driven by the initiatives to accelerate growth in our commercial business.

The deleverage in gross margin was impacted by a non-cash LIFO charge of $44.0 million in fiscal 2023 versus a $15.0 million charge in fiscal 2022.

Operating, selling, general and administrative expenses for fiscal 2023 increased to $5.6 billion, or 32.1% of net sales, from $5.2 billion, or 32.0% of net sales for fiscal 2022.

The increase in operating expenses as a percentage of sales was driven by strong sales growth and a decrease in pandemic related expenses.

Interest expense, net for fiscal 2023 was $306.4 million compared with $191.6 million during fiscal 2022.

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Weighted average borrowing rates were 3.78% and 3.29% for fiscal 2023 and 2022, respectively.

Our effective income tax rate was 21.1% of pre-tax income for fiscal 2022 and fiscal 2021.

The benefit of stock options exercised for fiscal 2022 was $63.2 million compared to $56.4 million for fiscal 2021 (see “Note D – Income Taxes” in the Notes to Consolidated Financial Statements).

Our effective income tax rate was 20.2% and 21.1% of pre-tax income for fiscal 2023 and fiscal 2022, respectively.

The benefit from stock options exercised in fiscal 2023 was $92.2 million compared to $63.2 million in fiscal 2022 (see “Note D – Income Taxes” in the Notes to Consolidated Financial Statements).

Net income for fiscal 2023 increased by 4.1% to $2.5 billion, and diluted earnings per share increased 12.9% to $132.36 from $117.19 in fiscal 2022.

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The fourth quarter of fiscal year 2023 represented 32.6% of annual sales and 34.2% of net income;

the fourth quarter of fiscal year 2021 represented 33.6% of annual sales and 36.2% of net income;

the fourth quarter of fiscal year 2022 represented 32.9% of annual sales and 33.3%

of net income;

and the fourth quarter of fiscal year 2021 represented 33.6% of annual sales and 36.2% of net income.

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Continued progress on our initiatives improved our operating performance for the fiscal year.

We believe that our cash generated from operating activities, available cash reserves 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.

We believe that our cash generated from operating activities, available cash reserves 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 growth initiatives and return excess cash to shareholders in the form of share repurchases.

As of August 26, 2023, we held $277.1 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our revolving credit facility, without giving effect to commercial paper borrowings.

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Net cash provided by operating activities was $2.9 billion in 2023, $3.2 billion in 2022 and $3.5 billion in 2021.

Cash flows from operations are unfavorable compared to last year primarily due to higher inventory purchase volume.

Cash flows from operations are below last year primarily due to unfavorable changes in accounts payable and accrued expenses.

Our net cash flows used in investing activities were $876.2 million, $648.1 million and $601.8 million in fiscal 2023, 2022 and 2021, respectively.

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We invested $796.7 million, $672.4 million and $621.8 million in capital assets in fiscal 2023, 2022 and 2021, respectively.

The increase in capital expenditures from fiscal 2021 to fiscal 2022 was primarily driven by our growth initiatives, including hub and mega hub expansion projects and new stores.

The increase in capital expenditures from fiscal 2022 to fiscal 2023 was primarily driven by our growth initiatives, including new stores, hub and mega hub expansion initiatives and supply chain projects.

We had net new store openings of 197, 176 and 218 for fiscal 2023, 2022 and 2021, respectively.

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We had proceeds from the sale of marketable debt securities of $58.4 million, $53.9 million and $95.4 million in fiscal 2023, 2022 and 2021, respectively.

Net cash used in financing activities was $3.5 billion in fiscal 2022 and fiscal 2021 and $643.6 million in fiscal 2020.

The net cash used in financing activities reflected purchases of treasury stock, which totaled $4.4 billion, $3.4 billion and $930.9 million for fiscal 2022, 2021 and 2020, respectively.

Net cash used in financing activities was $2.1 billion in fiscal 2023 and $3.5 billion in fiscal 2022 and fiscal 2021.

The net cash used in financing activities reflected purchases of treasury stock, which totaled $3.7 billion, $4.4 billion and $3.4 billion for fiscal 2023, 2022 and 2021, respectively.

The treasury stock purchases in fiscal 2023, 2022 and 2021 were primarily funded by cash flows from operations.

During the year ended August 27, 2022, we repaid our $500 million 3.700% Senior Notes due April 2022 and issued $750 million of new debt compared to none in 2021 and $1.850 billion in 2020.

During the year ended August 26, 2023, we repaid our $300 million 2.875% Senior Notes due January 2023 and our $500 million 3.125% Senior Notes due July 2023 and issued $1.8 billion of new debt compared to $750 million in 2022 and none in 2021.

In fiscal years 2023 and 2022 the proceeds from the issuance of debt were used for general corporate purposes.

The Company had net proceeds from the issuance of commercial paper and short term borrowing of $603.4 million during fiscal 2022.

We did not have any commercial paper or short term borrowing activity during fiscal 2021 and the Company had net repayments of commercial paper and short term borrowings of $1.0 billion for 2020.

The Company had net proceeds from the issuance of commercial paper and short term borrowing of $606.2 million and $603.4 million during fiscal 2023 and fiscal 2022, respectively.

We did not have any commercial paper or short-term borrowing activity during fiscal 2021.

During fiscal 2024, we expect to increase the investment in our business as compared to fiscal 2023.

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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.

During fiscal 2022, 2021 and 2020 our capital expenditures increased by approximately 8% and 36% and decreased 8%, respectively.

Fiscal 2021 capital expenditures increased due to delays in capital spending for the third and fourth quarter of fiscal 2020 related to COVID-19.

During fiscal 2023, 2022 and 2021 our capital expenditures increased by approximately 18%, 8% and 36%, respectively.

Fiscal 2021 capital expenditures increased due to delays in capital spending for the third and fourth quarter of fiscal 2020 related to the COVID-19 pandemic.

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

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and were generally utilized to support the liquidity needs in our foreign operations.

For the fiscal year ended August 27, 2022, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 52.9% as compared to 41.0% for the comparable prior year period.

For the fiscal year ended August 26, 2023, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 55.4% as compared to 52.9% for the prior year.

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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Debt Facilities

On November 15, 2021, we amended and restated our existing revolving credit facility (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.

The Revolving Credit Agreement will terminate, and all amounts borrowed will be due and payable, on November 15, 2026, but we may make up to two requests to extend the termination date for an additional period of one year each.

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

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, 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 .

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 our 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.

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

As of August 27, 2022, our $603.4 million of 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 facility.

As of August 26, 2023, the $1.2 billion of commercial paper borrowings and the $300 million 3.125% Senior Notes due April 2024 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 facility.

As of August 26, 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 July 17, 2023, we repaid the $500 million 3.125% Senior Notes due July 2023.

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

On January 18, 2022, we repaid the $500 million 3.700% Senior Notes due April 2022, which were callable at par in January 2022.

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

On August 1, 2022, we issued $750 million in 4.750% Senior Notes due August 2032 under our automatic shelf registration statement on Form S-3, filed with the SEC on July 19, 2022 (File No.

On July 21, 2023, we issued $450 million in 5.050% Senior Notes due July 2026 and $300 million in 5.200% Senior Notes due August 2033 under our automatic shelf registration statement on Form S-3, filed with the SEC on July 19, 2022 (File No.

333-266209) (the “2022 Shelf Registration Statement”).

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Proceeds from the debt issuance were used for general corporate purposes.

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

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

The 2019 Shelf Registration Statement allows us 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, we 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 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 under the 2022 Shelf Registration Statement.

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

On August 1, 2022, we issued $750 million in 4.750% Senior Notes due August 2032 under the 2022 Shelf Registration Statement.

Proceeds from the debt issuance were used for general corporate purposes.

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

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As of August 26, 2023, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.

For the fiscal year ended August 27, 2022, our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.1:1 as compared to 2.0:1 as of

the comparable prior year end.

For the fiscal year ended August 26, 2023, our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.3:1 as compared to 2.1:1 as of the comparable prior year end.

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

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During 1998, we announced a program permitting us to repurchase a portion of our outstanding shares not to exceed a dollar maximum established by our Board of Directors (the “Board”).

On March 23, 2021, the Board voted to increase the repurchase authorization from $24.7 to $26.2 billion.

The Board voted to increase the repurchase authorization by $1.5 billion on October 5, 2021, $1.5 billion on December 15, 2021 and $2.0 billion on March 22, 2022, bringing the total authorization to $31.2 billion.

The Board voted to increase the repurchase authorization by $1.5 billion on October 5, 2021, $1.5 billion on December 15, 2021, $2.0 billion on March 22, 2022, $2.5 billion on October 4, 2022 and $2.0 billion on June 14, 2023, bringing the total authorization to $35.7 billion.

From January 1998 to August 26, 2023, we have repurchased a total of 154.0 million shares at an aggregate cost of $33.8 billion.

We repurchased 2.2 million, 2.6 million and 826 thousand shares of common stock at an aggregate cost of $4.4 billion, $3.4 billion and $930.9 million during fiscal 2022, 2021 and 2020, respectively.

The increase in purchases of treasury stock for fiscal 2021 compared to fiscal 2020 was due to the temporary suspension of the share repurchase program during fiscal 2020 in order to preserve cash as a result of the uncertainty related to the pandemic.

Purchases under the program resumed beginning in the first quarter of fiscal 2022.

We repurchased 1.5 million, 2.2 million and 2.6 million shares of common stock at an aggregate cost of $3.7 billion (inclusive of excise tax of $23.7 million), $4.4 billion and $3.4 billion during fiscal 2023, 2022 and 2021, respectively.

The excise tax is assessed at one percent of the fair market value of net stock repurchases after December 31, 2022.

Considering cumulative repurchases as of August 26, 2023 we had $1.8 billion remaining under the Board’s authorization to repurchase our common stock.

We will continue to evaluate current and expected business conditions and adjust the level of share repurchases under our share repurchase program as we deem appropriate.

For the fiscal year ended August 27, 2022, cash flow before share repurchases and changes in debt was $2.6 billion as compared to $3.0 billion during the comparable prior year period.

We will continue to evaluate current and expected business conditions and adjust the level of share repurchases under our share repurchase program in a manner that is consistent with our capital allocation strategy or as we otherwise deem appropriate.

Cash flow before share repurchases and changes in debt was $2.2 billion, $2.6 billion and $3.0 billion for the fiscal year ended August 26, 2023, August 27, 2022 and August 28, 2021, respectively.

Cash flow before share repurchases and changes in debt is calculated as the net increase or decrease in cash and cash equivalents less net increases or decreases in debt (excluding deferred financing costs) plus share repurchases.

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

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.

Since the inception of the repurchase program in 1998, the Board has authorized $33.7 billion in share repurchases.

Subsequent to August 26, 2023 and through October 16, 2023, we have repurchased 200,303 shares of common stock at an aggregate cost of $512.4 million.

Considering the cumulative repurchases and the increase in authorization subsequent to August 27, 2022 and through October 17, 2022, we have $3.1 billion remaining under the Board’s authorization to repurchase its common stock.

Considering the cumulative repurchases through October 16, 2023, we have $1.3 billion remaining under the Board’s authorization to repurchase its common stock.

Financial Commitments

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Accordingly, we reflect the net present value of these obligations in our Consolidated Balance Sheets.

(5) Represents commitments to make additional capital contributions to certain tax credit equity investments upon achievement of project milestones.

Our tax liability for uncertain tax positions, including interest and penalties, was $51.0 million at August 26, 2023.

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Cash flow before share repurchases and changes in debt

(1) During the third quarter of fiscal 2020, the Company temporarily suspended share repurchases under the share repurchase program in response to COVID-19.

(1) During the third quarter of fiscal 2020, the Company temporarily suspended share repurchases under the share repurchase program in response to the COVID-19 pandemic.

Reconciliation of Non-GAAP Financial Measure:

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(in thousands, except percentage)

Impairment before tax

Pension termination charges before tax

Interest expense

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(in thousands, except ratio)

Impairment before tax

Pension termination charges before tax

Interest expense

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

(2) For fiscal 2018, after-tax operating profit was adjusted for impairment charges and pension settlement charges.

(2) Effective September 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), the new lease accounting standard that required the Company to recognize operating lease assets and liabilities in the balance sheet.

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August 28, 2021

August 29, 2020

Total lease cost, per ASC 842

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(3) For fiscal 2023, 2022, 2021 and 2020, the effective tax rate was 20.2%, 21.1%, 21.1% and 21.8%, respectively.

The effective tax rate during fiscal 2018 was 24.2% for impairment, 28.1% for pension termination and 26.2% for interest and rent expense.

(5) For fiscal 2019 and fiscal 2018 after-tax operating profit was adjusted for the impact of the revaluation of deferred tax liabilities, net of repatriation tax.

(4) For fiscal 2019 after-tax operating profit was adjusted for the impact of the revaluation of deferred tax liabilities, net of repatriation tax.

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

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Actual results could differ under different assumptions or conditions.

Our senior management has identified the critical accounting policies for the areas that are materially impacted by estimates and assumptions and have discussed such policies with the Audit Committee of our Board.

The following items in our Consolidated Financial Statements represent our critical accounting policies that require significant estimation or judgment by management:

Our senior management has identified self-insurance reserves as a critical accounting estimate that is materially impacted by assumptions while income taxes and valuation allowances have been identified as critical accounting policies.

These policies have been discussed with the Audit Committee of our Board.

The following items in our Consolidated Financial Statements represent our critical accounting policies and estimates by management:

Self-Insurance Reserves

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The actuarial methods develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet date.

When estimating these liabilities, we consider factors, such as the severity, duration and frequency of claims, legal costs associated with claims, healthcare trends

and projected inflation of related factors.

In recent history, our methods for determining our exposure have remained consistent, and our historical trends have been appropriately factored into our reserve estimates.

When estimating these liabilities, we consider factors, such as the severity, duration and frequency of claims, legal costs associated with claims, healthcare trends and projected inflation of related factors.

In recent history, our methods for determining our exposure have remained

consistent, and our historical trends have been appropriately factored into our reserve estimates.

As we obtain additional information and refine our methods regarding the assumptions and estimates we use to recognize liabilities incurred, we will adjust our reserves accordingly.

2 unchanged sentences

For example, changes in our assumptions about healthcare costs, the severity of accidents and the incidence of illness, the average size of claims and other factors could cause actual claim costs to vary from our assumptions and estimates, causing our reserves to be overstated or understated.

For instance, a 10% change in our self-insurance liability would have affected net income by approximately $18.2 million for fiscal 2022.

A 10% change in our self-insurance liability would have affected net income by approximately $19.3 million for fiscal 2023.

Our liabilities for workers’ compensation, general and product liability, property and vehicle claims do not have scheduled maturities;

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Therefore, we record receivables for funding earned but not yet received as we purchase inventory.

During the year, we regularly review the receivables from vendors to ensure vendors are able to meet their obligations.

During the year, we regularly review the receivables from vendors to ensure vendors are able to meet their

We generally have not recorded a reserve against these receivables as we have not experienced significant losses and typically have a legal right of offset with our vendors for payments owed them.

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 7. Management’s Discussion and Analysis