What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-10-28 compared with 2023-10-24 · 79 added, 107 removed, 300 unchanged (38% of the section changed)

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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.

At August 31, 2024, in 5,898 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 prompt delivery of parts and other products and commercial credit 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.

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Executive Summary

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 is gas prices.

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

With approximately 11 billion gallons of unleaded gas consumption each month across the U.S., each $1 increase at the pump reduces approximately $11 billion of additional spending capacity to consumers each month.

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 pressure on average hourly wages in the U.S.

during fiscal 2023.

Some of this is attributed to regulatory changes in certain states and municipalities, while the larger portion is being driven by general market pressures and some specific actions taken recently by other retailers.

The regulatory changes are expected to continue, as evidenced by the areas that have passed legislation to increase employees’ wages substantially over the next few years.

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 maintenance category compared to last year.

For fiscal 2024, net sales increased to $18.5 billion, a 5.9% increase over the prior year.

Our retail sales and commercial sales in our domestic and international markets grew as we continue to make progress on our growth initiatives aimed at improving parts availability and providing WOW!

Customer Service.

Operating profit increased 9.1% to $3.8 billion, net income increased 5.3% to $2.7 billion and diluted earnings per share increased 13.0% to $149.55 for the year.

During fiscal 2024, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 86% of total sales.

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 decrease in mix of sales of the discretionary category and a slight increase in the maintenance and failure categories compared to last year.

Our business is impacted by various factors within the economy that affect both our consumer and our industry, including but not limited to inflation, interest rates, levels of consumer debt, fuel and energy costs, prevailing wage rates, foreign exchange rate fluctuations, supply chain disruptions, hiring and other economic conditions.

Given the nature of these macroeconomic factors, which are generally outside of our control, 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.

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.

We believe as the number of miles driven increases, consumers’ vehicles are more likely to need service and maintenance, resulting in an increase in the need for automotive hard parts and maintenance items.

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 2024 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.

increased 1.2% compared to the same period in the prior year based on the latest information available from the U.S.

Department of Transportation.

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As the number of seven-year-old or older vehicles on the road increases, we expect an increase in demand for the products we sell.

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

We expect the aging vehicle population to continue to increase as consumers keep their cars longer.

According to the latest data provided by S&P Global Mobility, the average age of light vehicles on the road was 12.6 years and these vehicles account for approximately 38% of U.S.

According to the U.S.

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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.

The average age of light vehicles has exceeded 12 years since 2012.

Results of Operations

The following table highlights selected financial information over the past 5 years:

The following table highlights selected financial information over the past five years:

Fiscal Year Ended August

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Increase in domestic comparable store net sales (4)

Increase in international comparable store net sales (5)

Increase (decrease) in international comparable store net sales (4)

Increase in international comparable store net sales (constant currency) (4)

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Number of shares repurchased (in thousands) (5)

(1) The 52 weeks ended August 28, 2021 and August 29, 2020 were negatively impacted by pandemic related expenses, including Emergency Time-Off of approximately $43.0 million (pre-tax) and $83.9 million (pre-tax), respectively.

(1) The fiscal year ended August 31, 2024 consisted of 53 weeks.

(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.

(2) The 52 weeks ended August 28, 2021 and August 29, 2020 were negatively impacted by pandemic related expenses, including Emergency Time-Off of approximately $43.0 million (pre-tax) and $83.9 million (pre-tax), respectively.

(3) Fiscal 2024, 2023, 2022, 2021 and 2020 include excess tax benefits from stock option exercises of $81.4 million, $92.2 million, $63.2 million, $56.4 million, and $20.9 million, respectively.

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All sales through our www.autozone.com website, including consumer direct ship-to-home sales, are also included in the computation.

(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) 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.

(5) 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.

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(7) After-tax return on invested capital is defined as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize leases).

For fiscal 2019, after-tax operating profit was adjusted for the impact of the average 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.

(8) Adjusted debt to EBITDAR is defined as the sum of total debt, finance lease obligations and annual rents times six;

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

(10) Share repurchases are inclusive of excise tax in fiscal 2024 and 2023.

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

Fiscal 2024 Compared with Fiscal 2023

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 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:

For the fiscal year ended August 31, 2024, we had net sales of $18.5 billion compared with $17.5 billion for the year ended August 26, 2023, an increase of 5.9%.

This growth was driven primarily by the additional 53 rd week sales of $365.9 million, net sales of $292.4 million from new domestic and international stores and a n increase in total company same store sales of 1.4% on a constant currency basis.

Domestic commercial sales increased $284.3 million, or 6.2%, over domestic commercial sales for fiscal 2023, driven in part by the additional 53 rd week sales of $95.7 million.

Same store sales, or sales for our domestic and international stores open at least one year, are computed on a 52-week basis and are as follows:

Fiscal Year Ended August

Constant Currency (1)

International

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We reported a total auto parts segment (domestic, Mexico and Brazil) sales increase of 5.9% for fiscal 2024.

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 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.

Gross profit for fiscal 2024 was $9.8 billion, or 53.1% of net sales, a 114 basis point increase compared with $9.1 billion, or 52.0% of net sales for fiscal 2023.

The increase in gross margin was driven by higher merchandise margins and 47 basis points ($84.0 million net) from non-cash LIFO favorability.

Operating, selling, general and administrative expenses for fiscal 2024 increased to $6.0 billion, or 32.6% of net sales, from $5.6 billion, or 32.1% of net sales for fiscal 2023.

The increase in operating expenses as a percentage of sales was primarily driven by domestic store payroll.

Interest expense, net for fiscal 2024 was $451.6 million compared with $306.4 million during fiscal 2023.

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Weighted average borrowing rates were 4.39% and 3.78% for fiscal 2024 and 2023, respectively.

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).

Our effective income tax rate was 20.2% of pre-tax income for both fiscal 2024 and fiscal 2023.

The benefit from stock options exercised in fiscal 2024 was $81.4 million compared to $92.2 million in fiscal 2023 (see “Note E – Income Taxes” in the Notes to Consolidated Financial Statements).

Net income for fiscal 2024 increased by 5.3% to $2.7 billion, and diluted earnings per share increased 13.0% to $149.55 from $132.36 in fiscal 2023.

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Quarterly Periods

Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consisted of 16 weeks in 2023, 2022 and 2021.

Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consisted of 17 weeks in 2024 and 16 weeks in 2023 and 2022.

Because the fourth quarter contains seasonally high sales volume and consists of 16 or 17 weeks, compared with 12 weeks for each of the first three quarters, our fourth quarter represents a disproportionate share of our annual net sales and net income.

The fourth quarter of fiscal year 2024 represented 33.6% of annual sales and 33.9% of net income;

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

of net income;

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

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

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

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 growth initiatives and return excess cash to shareholders in the form of share repurchases.

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Net cash provided by operating activities was $3.0 billion in 2024, $2.9 billion in 2023 and $3.2 billion in 2022.

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.

Cash flows from operations are favorable compared to last year primarily due to higher net income partially due to the additional week of sales in the current year.

Our net cash flows used in investing activities were $1.3 billion, $876.2 million and $648.1 million in fiscal 2024, 2023 and 2022, respectively.

The increase in net cash used in investing activities in fiscal 2024 was primarily due to an increase in capital expenditures.

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 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 invested $1.1 billion, $796.7 million and $672.4 million in capital assets in fiscal 2024, 2023 and 2022, respectively.

The increase in capital expenditures from fiscal 2023 to fiscal 2024 was primarily driven by our growth initiatives, including investments in new distribution centers and stores to be opened in subsequent periods as well as stores opened in the current year.

We had net new store openings of 213, 197 and 176 for fiscal 2024, 2023 and 2022, respectively.

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We had proceeds from the sale of marketable debt securities of $40.8 million, $58.4 million and $53.9 million in fiscal 2024, 2023 and 2022, respectively.

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

Our investment in tax credit equity investments was $227.5 million, $98.0 million and $31.5 million in fiscal 2024, 2023 and 2022, respectively.

Net cash used in financing activities was $1.7 billion, $2.1 billion and $3.5 billion in fiscal 2024, 2023 and 2022, respectively.

The net cash used in financing activities reflected purchases of treasury stock, which totaled $3.1 billion, $3.7 billion and $4.4 billion for fiscal 2024, 2023 and 2022, respectively.

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

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.

The treasury stock purchases in fiscal 2024, 2023 and 2022 were primarily funded by cash flows from operations and increased borrowings.

During the year ended August 31, 2024, we repaid our $300 million 3.125% Senior Notes due April 2024 and issued $2.3 billion of new debt compared to $1.8 billion in 2023 and $750 million in 2022.

In fiscal year 2024 the proceeds from the issuance of debt were used to repay a portion of our commercial paper borrowings and for general corporate purposes.

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 $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.

The Company had net repayments of commercial paper and short-term borrowing of $629.6 million during fiscal 2024, and net proceeds from the issuance of commercial paper and short-term borrowings of $606.2 million and $603.4 million during fiscal 2023 and 2022, respectively.

During fiscal 2025, we expect to increase the investment in our business as compared to fiscal 2024.

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

Our investments are expected to be directed primarily to our supply chain initiatives, which include new distribution centers and new stores, including expanded hub stores and mega hub 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.

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.

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

Historically, we have negotiated extended payment terms from suppliers, reducing the working capital required and resulting in a high accounts payable to inventory ratio.

We plan to continue leveraging our inventory purchases;

however, our ability to do so may be limited by our vendors’ capacity to factor their receivables from us.

Certain vendors participate in arrangements with financial institutions whereby they factor their AutoZone receivables, allowing them to receive early payment from the financial institution on our invoices at a discounted rate.

The terms of these agreements are between the vendor and the financial institution.

Upon request from the vendor, we confirm to the vendor’s financial institution the balances owed to the vendor, the due date and agree to waive any right of offset to the confirmed balances.

A downgrade in our credit or changes in the financial markets may limit the financial institutions’ willingness to participate in these arrangements, which may result in the vendor wanting to renegotiate payment terms.

A reduction in payment terms would increase the working capital required to fund future inventory investments.

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

however, our ability to do so may be limited by our suppliers’ ability to factor their receivables from us.

T he Company has arrangements with third-party financial institutions to confirm invoice balances owed by the Company to certain suppliers and pay the financial institutions the confirmed amounts on the invoice due dates.

These arrangements allow the Company’s inventory suppliers, at their sole discretion, to enter into agreements with these financial institutions to finance the Company’s obligations to the suppliers at terms negotiated between the suppliers and the financial institutions.

Supplier participation is optional and our obligations to our suppliers, including the amount and dates due, are not impacted by our suppliers’ decision to enter into an agreement with a third-party financial institution.

A downgrade in our credit ratings or changes in the financial markets could limit the financial institutions’ and our suppliers’ willingness to participate in these arrangements.

We plan to continue negotiating extended terms with our suppliers, benefitting our working capital and resulting in a high accounts payable to inventory ratio.

We had an accounts payable to inventory ratio of 119.5% at August 31, 2024 and 124.9% at August 26, 2023.

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On May 16, 2022, we amended and restated the letter of credit facility to, among other things, extend the facility through June 2025.

As of August 26, 2023, we had $25 million in letters of credit outstanding under the letter of credit facility.

As of August 31, 2024, we had no letters of credit outstanding under the letter of credit facility.

In addition to the outstanding letters of credit issued under the committed facility discussed above, we had $141.6 million in letters of credit outstanding as of August 31, 2024.

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

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 31, 2024, the $580 million of commercial paper borrowings, the $400 million 3.250% Senior Notes due April 2025 and the $500 million 3.625% Senior Notes due April 2025 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 31, 2024, 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 April 18, 2024, we repaid the $300 million 3.125% Senior Notes due April 2024.

On July 17, 2023, we repaid the $500 million 3.125% Senior Notes due July 2023.

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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 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.

On June 28, 2024, we issued $600 million in 5.100% Senior Notes due July 2029 and $700 million 5.400% Senior Notes due July 2034 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”).

The 2022 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 or distribution center openings, stock repurchases and acquisitions.

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

On October 25, 2023, we issued $500 million in 6.250% Senior Notes due November 2028 and $500 million 6.550% Senior Notes due November 2033 under the 2022 Shelf Registration Statement.

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

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 the 2022 Shelf Registration Statement.

Proceeds from the debt issuance were used for 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.

Proceeds from the debt issuance were used for 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.

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We target our debt levels to a specified ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings and believe this is important information for the management of our debt levels.

Management expects the ratio of adjusted debt to EBITDAR to return to pre-pandemic levels in the future, increasing debt levels.

Once the target ratio is achieved, to the extent adjusted EBITDAR increases, we expect our debt levels to increase;

To the extent adjusted EBITDAR increases, we expect our debt levels to increase;

conversely, if adjusted EBITDAR decreases, we would expect our debt levels to decrease.

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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”).

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.

The Board voted to increase the repurchase authorization by $2.0 billion on December 20, 2023 and $1.5 billion on June 19, 2024, bringing the total authorization to $39.2 billion.

Previously, the Board voted to increase the authorization by $4.5 billion in fiscal 2023 and $5.0 billion in fiscal 2022.

From January 1998 to August 31, 2024, we have repurchased a total of 155.2 million shares at an aggregate cost of $37.0 billion.

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.

We repurchased 1.1 million, 1.5 million and 2.2 million shares of common stock at an aggregate cost of $3.2 billion, $3.7 billion and $4.4 billion during fiscal 2024, 2023 and 2022, respectively.

Considering cumulative repurchases as of August 31, 2024 we had $2.2 billion remaining under the Board’s authorization to repurchase our common stock.

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Subsequent to August 31, 2024 and through October 21, 2024, we have repurchased 67,677 shares of common stock at an aggregate cost of $212.0 million.

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

Considering the cumulative repurchases through October 21, 2024, we have $2.0 billion remaining under the Board’s authorization to repurchase our 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.

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

Our tax liability for uncertain tax positions, including interest and penalties, was $45.4 million at August 31, 2024.

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Effect of exchange rate changes on cash

Net (decrease)/increase in cash and cash equivalents

Net increase/(decrease) in cash and cash equivalents

increase/(decrease) in debt, excluding deferred financing costs

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Tax effect (3)

Deferred tax liabilities, net of repatriation tax (4)

Adjusted after-tax return

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(1) The fiscal year ended August 31, 2024, consisted of 53 weeks.

(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.

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 52 weeks ended, August 26, 2023, August 27, 2022 and August 28, 2021.

(2) The table below outlines the calculation of rent expense and reconciles rent expense to total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the 53 weeks ended, August 31, 2024, and the 52 weeks ended August 26, 2023, August 27,2022, August 28, 2021 and August 29, 2020.

For the year ended

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August 28, 2021

August 29, 2020

Total lease cost, per ASC 842

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(3) For fiscal 2024, 2023, 2022, 2021 and 2020, the effective tax rate was 20.2%, 20.2%, 21.1%, 21.1% and 21.8%, respectively.

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

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

(5) Rent is multiplied by a factor of six to capitalize operating leases in the determination of pre-tax invested capital.

Reconciliation of Non-GAAP Financial Measure:

Fiscal 2024 Results Excluding Impact of 53rd Week:

The following table summarizes the impact of the additional week to the 53 week fiscal year ended August 31, 2024.

(in thousands, except per share)

Results of Operations

Results of Operations for 53rd Week

Results of Operations Excluding 53rd Week

Cost of sales

Operating, selling, general and administrative expenses

Interest expense, net

Income before taxes

Income tax expense

Diluted earnings per share

Recent Accounting Pronouncements

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Actual results could differ under different assumptions or conditions.

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:

Our senior management has identified self-insurance reserves as a critical accounting estimate that is materially impacted by assumptions and has discussed this policy with the Audit Committee of our Board.

Self-Insurance Reserves

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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.

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.

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If the discount rate used to calculate the present value of these reserves changed by 25 basis points, net income would have been affected by approximately $1.2 million for fiscal 2024.

Our income tax returns are audited by state, federal and foreign tax authorities, and we are typically engaged in various tax examinations at any given time.

Tax contingencies often arise due to uncertainty or differing interpretations of the application of tax rules throughout the various jurisdictions in which we operate.

The contingencies are influenced by items such as tax audits, changes in tax laws, litigation, appeals and prior experience with similar tax positions.

We regularly review our tax reserves for these items and assess the adequacy of the amount we have recorded.

As of August 26, 2023, we had approximately $51.0 million reserved for uncertain tax positions.

We evaluate exposures associated with our various tax filings by estimating a liability for uncertain tax positions based on a two-step process.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.

We believe our estimates to be reasonable and have not experienced material adjustments to our reserves in the previous three years;

however, actual results could differ from our estimates, and we may be exposed to gains or losses.

Specifically, management has used judgment and made assumptions to estimate the likely outcome of uncertain tax positions.

Additionally, to the extent we prevail in matters for which a liability has been established, or must pay in excess of recognized reserves, our effective tax rate in any particular period could be affected.

Vendor Allowances

We receive various payments and allowances from our vendors through a variety of programs and arrangements, including allowances for warranties, advertising and general promotion of vendor products.

Vendor allowances are treated as a reduction of the cost of inventory, unless they are provided as a reimbursement of specific, incremental, identifiable costs incurred by the Company in selling the vendor’s products.

Approximately 88% of the vendor funds received during fiscal 2023 were recorded as a reduction of the cost of inventories and recognized as a reduction to cost of sales as these inventories are sold.

Based on our vendor agreements, a significant portion of vendor funding we receive is earned as we purchase inventory.

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

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.

We have had write-offs less than $1 million in each of the last three years.

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