UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the quarterly period ended | ||
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
For the transition period from _______ to ________. | ||
Commission file number |
.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol(s) |
| Name of Each Exchange on which Registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value –
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | |||
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2
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements.
AUTOZONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
February 13, | August 29, | |||||
(in thousands) | 2021 | 2020 | ||||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | |||
Accounts receivable |
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Merchandise inventories |
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Other current assets |
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Total current assets |
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Property and equipment: | ||||||
Property and equipment |
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Less: Accumulated depreciation and amortization |
| ( |
| ( | ||
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Operating lease right-of-use assets | | | ||||
Goodwill |
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Deferred income taxes |
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Other long-term assets |
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$ | | $ | | |||
Liabilities and Stockholders’ Deficit | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Current portion of operating lease liabilities | | | ||||
Current portion of debt | | | ||||
Accrued expenses and other |
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Income taxes payable |
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Total current liabilities |
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Debt, less current portion |
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Operating lease liabilities, less current portion | | | ||||
Deferred income taxes |
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Other long-term liabilities |
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Commitments and contingencies | ||||||
Stockholders’ deficit: | ||||||
Preferred stock, authorized |
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Common stock, par value $ |
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Additional paid-in capital |
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Retained deficit |
| ( |
| ( | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Treasury stock, at cost |
| ( |
| ( | ||
Total stockholders’ deficit |
| ( |
| ( | ||
$ | | $ | | |||
See Notes to Condensed Consolidated Financial Statements.
3
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Twelve Weeks Ended | Twenty-Four Weeks Ended | |||||||||||
February 13, | February 15, | February 13, | February 15, | |||||||||
(in thousands, except per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||
Net sales |
| $ | |
| $ | |
| $ | |
| $ | |
Cost of sales, including warehouse and delivery expenses | | | | | ||||||||
Gross profit | |
| | |
| | ||||||
Operating, selling, general and administrative expenses | | | | | ||||||||
Operating profit | | | | | ||||||||
Interest expense, net | | | | | ||||||||
Income before income taxes | |
| | |
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Income tax expense | | | | | ||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Weighted average shares for basic earnings per share |
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Effect of dilutive stock equivalents | | | | | ||||||||
Weighted average shares for diluted earnings per share |
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| |
| |
| | ||||
Basic earnings per share | $ | | $ | | $ | | $ | | ||||
Diluted earnings per share | $ | | $ | | $ | | $ | | ||||
See Notes to Condensed Consolidated Financial Statements.
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Twelve Weeks Ended | Twenty-Four Weeks Ended | |||||||||||
| February 13, |
| February 15, |
| February 13, |
| February 15, | |||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income: |
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Foreign currency translation adjustments |
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| |
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Unrealized (losses) gains on marketable debt securities, net of taxes |
| ( |
| |
| ( |
| ( | ||||
Net derivative activities, net of taxes |
| |
| |
| |
| | ||||
Total other comprehensive income |
| |
| |
| |
| | ||||
Comprehensive income | $ | | $ | | $ | | $ | | ||||
See Notes to Condensed Consolidated Financial Statements.
4
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Four Weeks Ended | ||||||
| February 13, | February 15, | ||||
(in thousands) | 2021 | 2020 | ||||
Cash flows from operating activities: |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization of property and equipment and intangibles |
| |
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Amortization of debt origination fees |
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Deferred income taxes |
| ( |
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Share-based compensation expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
| |
| ( | ||
Merchandise inventories |
| ( |
| ( | ||
Accounts payable and accrued expenses |
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Income taxes payable |
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Other, net |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Capital expenditures |
| ( |
| ( | ||
Purchase of marketable debt securities |
| ( |
| ( | ||
Proceeds from sale of marketable debt securities |
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(Payments) proceeds from disposal of capital assets and other, net |
| ( |
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Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities: |
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Net proceeds from commercial paper |
| — |
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Net proceeds from sale of common stock |
| |
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Purchase of treasury stock | ( | ( | ||||
Repayment of principal portion of finance lease liabilities |
| ( | ( | |||
Net cash used in financing activities |
| ( |
| ( | ||
Effect of exchange rate changes on cash |
| |
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Net decrease in cash and cash equivalents |
| ( |
| ( | ||
Cash and cash equivalents at beginning of period |
| |
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Cash and cash equivalents at end of period | $ | | $ | | ||
See Notes to Condensed Consolidated Financial Statements.
5
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
Twelve Weeks Ended February 13, 2021 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common | Additional | Other | ||||||||||||||||||
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| ||||||||
(in thousands) | Issued | Stock | Capital | Deficit | Loss | Stock | Total | |||||||||||||
Balance at November 21, 2020 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Total other comprehensive income |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Retirement of treasury shares | ( | ( | ( | ( | — | | — | |||||||||||||
Purchase of |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Issuance of common stock under stock options and stock purchase plans |
| |
| — |
| | — | — | — |
| | |||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| | ||||||
Balance at February 13, 2021 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Twelve Weeks Ended February 15, 2020 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common | Additional | Other | ||||||||||||||||||
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| ||||||||
(in thousands) | Issued | Stock | Capital | Deficit | Loss | Stock | Total | |||||||||||||
Balance at November 23, 2019 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Total other comprehensive income |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Retirement of treasury shares |
| ( |
| ( |
| ( |
| ( |
| — |
| |
| — | ||||||
Purchase of |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Issuance of common stock under stock options and stock purchase plans |
| |
| |
| | — | — | — |
| | |||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| | ||||||
Balance at February 15, 2020 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Twenty-Four Weeks Ended February 13, 2021 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common | Additional | Other | ||||||||||||||||||
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| ||||||||
(in thousands) | Issued | Stock | Capital | Deficit | Loss | Stock | Total | |||||||||||||
Balance at August 29, 2020 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Total other comprehensive income |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Retirement of treasury shares |
| ( |
| ( |
| ( |
| ( |
| — |
| |
| — | ||||||
Purchase of |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Issuance of common stock under stock options and stock purchase plans |
| |
| |
| | — | — | — |
| | |||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| | ||||||
Balance at February 13, 2021 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Twenty-Four Weeks Ended February 15, 2020 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common | Additional | Other | ||||||||||||||||||
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| ||||||||
(in thousands) | Issued | Stock | Capital | Deficit | Loss | Stock | Total | |||||||||||||
Balance at August 31, 2019 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Total other comprehensive income |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Retirement of treasury shares |
| ( |
| ( |
| ( |
| ( |
| — |
| |
| — | ||||||
Purchase of |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Issuance of common stock under stock options and stock purchase plans |
| |
| |
| | — | — | — |
| | |||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| | ||||||
Balance at February 15, 2020 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
See Notes to Condensed Consolidated Financial Statements.
6
AUTOZONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A – General
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission’s (the “SEC”) rules and regulations. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and related notes included in the AutoZone, Inc. (“AutoZone” or the “Company”) Annual Report on Form 10-K for the year ended August 29, 2020.
Operating results for the twelve and twenty-four weeks ended February 13, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 28, 2021. Each of the first three quarters of AutoZone’s fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters of fiscal 2021 and 2020 each have 16 weeks.
Recent Accounting Pronouncements:
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles – Goodwill and Other Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new guidance on a prospective basis in the first quarter of fiscal 2021. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which was subsequently amended in November 2018 through ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments Credit Losses. ASU 2016-13 requires entities to estimate all expected credit losses for financial assets measured at amortized cost basis, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The Company adopted this guidance using the modified retrospective adoption method beginning with its first quarter ended November 21, 2020. The adoption of this new guidance did not have a material impact on the Company's Condensed Consolidated Financial Statements and related disclosures. The balance for allowance for uncollectable accounts was $
Note B – Share-Based Payments
AutoZone maintains several equity incentive plans, which provide equity-based compensation to non-employee directors and eligible employees for their service to AutoZone, its subsidiaries or affiliates. The Company recognizes compensation expense for share-based payments based on the fair value of the awards at the grant date. Share-based payments include stock option grants, restricted stock grants, restricted stock unit grants, stock appreciation rights, discounts on shares sold to employees under share purchase plans and other awards. Additionally, directors’ fees are paid in restricted stock units with value equivalent to the value of shares of common stock as of the grant date. The change in fair value of liability-based stock awards is also recognized in share-based compensation expense.
7
Stock Options:
The Company made stock option grants of
The weighted average fair value of the stock option awards granted during the twenty-four week periods ended February 13, 2021 and February 15, 2020, using the Black-Scholes-Merton multiple-option pricing valuation model, was $
Twenty-Four Weeks Ended | |||||
| February 13, |
| February 15, |
| |
| 2021 | 2020 | |||
Expected price volatility |
| | % | | % |
Risk-free interest rate |
| | % | | % |
Weighted average expected lives (in years) |
|
|
| ||
Forfeiture rate |
| | % | | % |
Dividend yield |
| | % | | % |
During the twenty-four week period ended February 13, 2021,
Restricted Stock Units:
Restricted stock unit awards are valued at the market price of a share of the Company’s stock on the date of grant. Grants of employee restricted stock units vest ratably on an annual basis over a
As of February 13, 2021, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $
Transactions related to restricted stock units for the twenty-four weeks ended February 13, 2021 were as follows:
Weighted- | |||||
| Number |
| Average Grant | ||
of Shares | Date Fair Value | ||||
Nonvested at August 29, 2020 |
| | $ | | |
Granted |
| | | ||
Vested |
| ( |
| | |
Canceled or forfeited |
| ( |
| | |
Nonvested at February 13, 2021 |
| | $ | | |
Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $
8
For the twelve week period ended February 13, 2021,
See AutoZone’s Annual Report on Form 10-K for the year ended August 29, 2020, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan and the 2020 Director Compensation Program.
Note C – Fair Value Measurements
The Company defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company uses the fair value hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are set forth below:
Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2 inputs—inputs other than quoted market prices included within Level 1 that are observable, either directly or indirectly, for the asset or liability.
Level 3 inputs—unobservable inputs for the asset or liability, which are based on the Company’s own assumptions as there is little, if any, observable activity in identical assets or liabilities.
Marketable Debt Securities Measured at Fair Value on a Recurring Basis
The Company’s marketable debt securities measured at fair value on a recurring basis were as follows:
February 13, 2021 | ||||||||||||
(in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||
Other current assets | $ | | $ | | $ | — | $ | | ||||
Other long-term assets |
| |
| |
| — |
| | ||||
$ | | $ | | $ | — | $ | | |||||
August 29, 2020 | ||||||||||||
(in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||
Other current assets | $ | | $ | | $ | — | $ | | ||||
Other long-term assets |
| |
| |
| — |
| | ||||
$ | | $ | | $ | — | $ | | |||||
At February 13, 2021, the fair value measurement amounts for assets and liabilities recorded in the accompanying Condensed Consolidated Balance Sheets consisted of short-term marketable debt securities, which are included within Other current assets, and long-term marketable debt securities, which are included in Other long-term assets. The Company’s marketable debt securities are typically valued at the closing price in the principal active market as of the last business day of the quarter or through the use of other market inputs relating to the securities, including benchmark yields and reported trades. The fair values of the marketable debt securities, by asset class, are described in “Note D – Marketable Debt Securities.”
9
Financial Instruments not Recognized at Fair Value
The Company has financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short maturities. A discussion of the carrying values and fair values of the Company’s debt is included in “Note G – Financing.”
Note D – Marketable Debt Securities
Marketable debt securities are carried at fair value, with unrealized gains and losses, net of income taxes, recorded in Accumulated other comprehensive loss until realized, and any credit risk related losses are recognized in net income in the period incurred. The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.”
February 13, 2021 | ||||||||||||
| Amortized |
| Gross |
| Gross |
| ||||||
Cost | Unrealized | Unrealized | Fair | |||||||||
(in thousands) | Basis | Gains | Losses | Value | ||||||||
Corporate debt securities | $ | | $ | | $ | — | $ | | ||||
Government bonds |
| |
| |
| — |
| | ||||
Mortgage-backed securities |
| |
| |
| — |
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Asset-backed securities and other |
| |
| |
| — |
| | ||||
$ | | $ | | $ | — | $ | | |||||
August 29, 2020 | ||||||||||||
| Amortized |
| Gross |
| Gross |
| ||||||
Cost | Unrealized | Unrealized | Fair | |||||||||
(in thousands) | Basis | Gains | Losses | Value | ||||||||
Corporate debt securities | $ | | $ | | $ | ( | $ | | ||||
Government bonds |
| |
| |
| — |
| | ||||
Mortgage-backed securities |
| |
| |
| — |
| | ||||
Asset-backed securities and other |
| |
| |
| ( |
| | ||||
$ | | $ | | $ | ( | $ | | |||||
The debt securities held at February 13, 2021, had effective maturities ranging from
Included above in total available-for-sale marketable debt securities are $
10
Note E – Derivative Financial Instruments
At February 13, 2021, the Company had $
Note F – Merchandise Inventories
Merchandise inventories include related purchasing, storage and handling costs. Inventory cost has been determined using the last-in, first-out (“LIFO”) method stated at the lower of cost or net realizable value for domestic inventories and the weighted average cost method stated at the lower of cost or net realizable value for Mexico and Brazil inventories. Due to historical price deflation on the Company’s merchandise purchases, the Company has exhausted its LIFO reserve balance. The Company’s policy is not to write up inventory in excess of replacement cost. The difference between LIFO cost and replacement cost, which will be reduced upon experiencing price inflation on the Company’s merchandise purchases, was $
Note G – Financing
The Company’s debt consisted of the following:
| February 13, |
| August 29, | |||
(in thousands) | 2021 | 2020 | ||||
$ | | $ | | |||
| |
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Total debt before discounts and debt issuance costs |
| |
| | ||
Less: Current portion of debt | | — | ||||
Less: Discounts and debt issuance costs |
| |
| | ||
Debt, less current portion | $ | | $ | | ||
As of February 13, 2021, the $
As of February 13, 2021, the Company had $
11
The Company entered into a Master Extension, New Commitment and Amendment Agreement dated as of November 18, 2017 (the “Extension Amendment”) to the Third Amended and Restated Credit Agreement dated as of November 18, 2016, as amended, modified, extended or restated from time to time (the “Revolving Credit Agreement”). Under the Extension Amendment: (i) the Company’s borrowing capacity under the Revolving Credit Agreement was increased from $
On April 3, 2020, the Company entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) to augment the Company’s access to liquidity due to current macroeconomic conditions, specifically the pandemic, and to supplement the Company’s existing Revolving Credit Agreement. The 364-Day Credit Agreement provided for loans in the aggregate principal amount of up to $
Effective February 22, 2021, the Company terminated the 364-Day Credit Agreement dated as of April 3, 2020 between the Company as borrower, the banks party thereto, and U.S. Bank National Association as administrative agent. There were
As of February 13, 2021, the Company had
Under the Company’s revolving credit agreements, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances.
The fair value of the Company’s debt was estimated at $
All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned are downgraded (as defined in the agreements). Further, the Senior Notes contain a provision that repayment may be accelerated if the Company experiences a change in control (as defined in the agreements). The Company’s borrowings under its Senior Notes contain minimal covenants, primarily restrictions on liens, sale and leaseback transactions and consolidations, mergers and the sale of assets. All of the repayment obligations under its borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs.
As of February 13, 2021, the Company was in compliance with all covenants and expects to remain in compliance with all covenants under its borrowing arrangements.
12
Note H – Stock Repurchase Program
From January 1, 1998 to February 13, 2021, the Company has repurchased a total of
During the twenty-four week period ended February 13, 2021, the Company retired
Subsequent to February 13, 2021, the Company has repurchased
Note I – Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss includes foreign currency translation adjustments, activity for interest rate swaps and treasury rate locks that qualify as cash flow hedges and unrealized gains (losses) on available-for-sale debt securities. Changes in Accumulated other comprehensive loss for the twelve week periods ended February 13, 2021 and February 15, 2020 consisted of the following:
Net | ||||||||||||
Foreign | Unrealized | |||||||||||
Currency and | Gain (Loss) | |||||||||||
(in thousands) |
| Other(2) |
| on Securities | Derivatives | Total | ||||||
Balance at November 21, 2020 | $ | ( | $ | | $ | ( | $ | ( | ||||
Other comprehensive income (loss) before reclassifications(1) |
| |
| ( | (3) |
| — |
| | |||
Amounts reclassified from Accumulated other comprehensive loss |
| — |
| | (3) |
| | (3) |
| | ||
Balance at February 13, 2021 | $ | ( | $ | | $ | ( | $ | ( | ||||
Net | ||||||||||||
Foreign | Unrealized | |||||||||||
Currency and | Gain (Loss) | |||||||||||
(in thousands) |
| Other(2) |
| on Securities | Derivatives | Total | ||||||
Balance at November 23, 2019 | $ | ( | $ | | $ | ( | $ | ( | ||||
Other comprehensive income before reclassifications |
| |
| | (3) |
| — |
| | |||
Amounts reclassified from Accumulated other comprehensive income (loss)(1) |
| — |
| ( | (3) |
| | (3) |
| | ||
Balance at February 15, 2020 | $ | ( | $ | | $ | ( | $ | ( | ||||
13
Changes in Accumulated other comprehensive loss for the twenty-four week periods ended February 13, 2021 and February 15, 2020 consisted of the following:
Net | ||||||||||||
Foreign | Unrealized | |||||||||||
Currency and | Gain (Loss) | |||||||||||
(in thousands) |
| Other(2) |
| on Securities | Derivatives | Total | ||||||
Balance at August 29, 2020 | $ | ( | $ | | $ | ( | $ | ( | ||||
Other comprehensive income (loss) before reclassifications(1) |
| |
| ( | (3) |
| — |
| | |||
Amounts reclassified from Accumulated other comprehensive loss |
| — |
| | (3) |
| | (3) |
| | ||
Balance at February 13, 2021 | $ | ( | $ | | $ | ( | $ | ( | ||||
Net | ||||||||||||
Foreign | Unrealized | |||||||||||
Currency and | Gain (Loss) | |||||||||||
(in thousands) |
| Other(2) |
| on Securities | Derivatives | Total | ||||||
Balance at August 31, 2019 | $ | ( | $ | | $ | ( | $ | ( | ||||
Other comprehensive income (loss) before reclassifications(1) |
| |
| ( | (3) |
| — |
| | |||
Amounts reclassified from Accumulated other comprehensive loss |
| — |
| | (3) |
| | (3) |
| | ||
Balance at February 15, 2020 | $ | ( | $ | | $ | ( | $ | ( | ||||
| (1) | Amounts in parentheses indicate debits to Accumulated other comprehensive loss. |
| (2) | Foreign currency is shown net of U.S. tax to account for foreign currency impacts of certain undistributed non-U.S. subsidiaries earnings. Other foreign currency is not shown net of additional U.S. tax as other basis differences of non-U.S. subsidiaries are intended to be permanently reinvested. |
| (3) | Amounts shown are net of taxes/tax benefits. |
Note J – Litigation
The Company is involved in various legal proceedings incidental to the conduct of its business, including, but not limited to, several lawsuits containing class-action allegations in which the plaintiffs are current and former hourly and salaried employees who allege various wage and hour violations and unlawful termination practices. While the resolution of these matters cannot be predicted with certainty, management does not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to the Company’s Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.
Note K – Leases
The Company’s leases primarily relate to its retail stores, distribution centers and vehicles under various non-callable leases.
14
Lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet are as follows:
|
| February 13, |
| August 29, | ||||
(in thousands) |
| Classification |
| 2021 | 2020 | |||
Assets: |
|
|
|
| ||||
Operating |
| Operating lease right-of-use assets | $ | | $ | | ||
Finance |
| Property and equipment |
| |
| | ||
Total lease assets |
|
| $ | | $ | | ||
Liabilities: |
|
|
|
|
| |||
Current: | ||||||||
Operating |
| Current portion of operating lease liabilities | $ | | $ | | ||
Finance |
| Accrued expenses and other |
| |
| | ||
Noncurrent: |
|
|
|
|
| |||
Operating |
| Operating lease liabilities, less current portion |
| |
| | ||
Finance |
| Other long-term liabilities |
| |
| | ||
Total lease liabilities |
|
| $ | | $ | | ||
Accumulated amortization related to finance lease assets was $
Lease costs for finance and operating leases for the twelve weeks ended February 13, 2021 are as follows:
|
| Twelve Weeks Ended | ||||||
February 13, | February 15, | |||||||
(in thousands) | Statement of Income Location | 2021 | 2020 | |||||
Finance lease cost: |
|
|
|
|
|
| ||
Amortization of lease assets |
| Depreciation and amortization | $ | | $ | | ||
Interest on lease liabilities |
| Interest expense, net |
| |
| | ||
Operating lease cost(1) |
| Selling, general and administrative expenses |
| |
| | ||
Total lease cost | $ | | $ | | ||||
Lease costs for finance and operating leases for the twenty-four weeks ended February 13, 2021 are as follows:
|
| Twenty-Four Weeks Ended | ||||||
February 13, | February 15, | |||||||
(in thousands) | Statement of Income Location | 2021 | 2020 | |||||
Finance lease cost: |
|
|
|
|
|
| ||
Amortization of lease assets |
| Depreciation and amortization | $ | | $ | | ||
Interest on lease liabilities |
| Interest expense, net |
| |
| | ||
Operating lease cost(1) |
| Selling, general and administrative expenses |
| |
| | ||
Total lease cost | $ | | $ | | ||||
| (1) | Includes short-term leases, variable lease costs and sublease income, which are immaterial. |
15
The following table summarizes the Company’s lease term and discount rate assumptions:
| February 13, |
| |
2021 | |||
Weighted-average remaining lease term in years, inclusive of renewal options that are reasonably certain to be exercised: |
|
| |
Finance leases – real estate |
| ||
Finance leases – vehicles |
| ||
Operating leases |
| ||
Weighted-average discount rate: |
|
| |
Finance leases – real estate |
| % | |
Finance leases – vehicles |
| % | |
Operating leases |
| % |
The following table summarizes the other information related to the Company’s lease liabilities:
Twenty-Four Weeks Ended | ||||||
February 13, | February 15, | |||||
(in thousands) | 2021 |
| 2020 | |||
Cash paid for amounts included in the measurement of lease liabilities – operating cash flows from operating leases | $ | | $ | | ||
Leased assets obtained in exchange for new finance lease liabilities |
| | | |||
Leased assets obtained in exchange for new operating lease liabilities |
| | | |||
As of February 13, 2021, the Company has entered into additional leases which have not yet commenced and are therefore not part of the right-of-use asset and liability. These leases have undiscounted future payments of approximately $
Note L – Segment Reporting
The Company’s operating segments (Domestic Auto Parts, Mexico and Brazil) are aggregated as
The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s
The Other category reflects business activities of
16
The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. Segment results for the periods presented were as follows:
Twelve Weeks Ended | Twenty-Four Weeks Ended | ||||||||||||
| February 13, |
| February 15, |
| February 13, |
| February 15, |
| |||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||
Net Sales |
|
|
|
|
|
|
|
|
| ||||
Auto Parts Stores | $ | | $ | | $ | | $ | | |||||
Other |
| |
| |
| |
| | |||||
Total | $ | | $ | | $ | | $ | | |||||
Segment Profit |
|
|
|
|
|
|
|
| |||||
Auto Parts Stores | $ | | $ | | $ | | $ | | |||||
Other |
| |
| |
| |
| | |||||
Gross profit |
| |
| |
| |
| | |||||
Operating, selling, general and administrative expenses |
| ( |
| ( |
| ( |
| ( | |||||
Interest expense, net |
| ( |
| ( |
| ( |
| ( | |||||
Income before income taxes | $ | | $ | | $ | | $ | | |||||
17
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
AutoZone, Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of AutoZone, Inc. (the Company) as of February 13, 2021, the related condensed consolidated statements of income, comprehensive income and stockholders’ deficit for the twelve and twenty-four week periods ended February 13, 2021 and February 15, 2020, the condensed consolidated statements of cash flows for the twenty-four week periods ended February 13, 2021 and February 15, 2020, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of August 29, 2020, the related consolidated statements of income, comprehensive income, stockholders’ deficit and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated October 26, 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August 29, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
Memphis, Tennessee
March 19, 2021
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In Management’s Discussion and Analysis (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect the future results of AutoZone, Inc. (“AutoZone” or the “Company”). The following MD&A discussion should be read in conjunction with our Condensed Consolidated Financial Statements, related notes to those statements and other financial information, including forward-looking statements and risk factors, that appear elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended August 29, 2020 and other filings with the SEC.
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically use words such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “seek,” “may,” “could,” and similar expressions. These are based on assumptions and assessments made by our management in light of experience and perception of historical trends, current conditions, expected future developments and other factors that we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including without limitation: product demand; energy prices; weather; competition; credit market conditions; cash flows; access to available and feasible financing; future stock repurchases; the impact of recessionary conditions; consumer debt levels; changes in laws or regulations; risks associated with self -insurance; war and the prospect of war, including terrorist activity; the impact of public health issues, such as the ongoing global pandemic of a novel strain of the coronavirus (“COVID-19”) and the development, efficacy, distribution and adoption rates of vaccines for COVID-19 and variants thereof; inflation; the ability to hire, train and retain qualified employees; construction delays; the compromising of confidentiality, availability or integrity of information, including cyber-attacks; historic growth rate sustainability; downgrade of our credit ratings; damages to our reputation; challenges in international markets; failure or interruption of our information technology systems; origin and raw material costs of suppliers; disruption in our supply chain, due to public health epidemics or otherwise; impact of tariffs; anticipated 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 29, 2020, and these Risk Factors should be read carefully. Forward-looking statements are not guarantees of future performance, actual results, developments and business decisions may differ from those contemplated by such forward-looking statements, and events described above and in the “Risk Factors” could materially and adversely affect our business. However, it should be understood that it is not possible to identify or predict all such risks and other factors that could affect these forward-looking statements. Forward-looking statements speak only as of the date made. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are the leading retailer, and a leading distributor, of automotive replacement parts and accessories in the Americas. We began operations in 1979 and at February 13, 2021 operated 5,951 stores in the U.S., 628 stores in Mexico and 46 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 February 13, 2021 in 5,088 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 sell the ALLDATA brand automotive diagnostic and repair 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. We also provide product information on our Duralast branded products through www.duralastparts.com. We do not derive revenue from automotive repair or installation services.
19
Operating results for the twelve and twenty-four weeks ended February 13, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending August 28, 2021. Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters of fiscal 2021 and 2020 each have 16 weeks. Our business is somewhat seasonal in nature, with the highest sales generally occurring during the months of February through September, and the lowest sales generally occurring in the months of December and January.
COVID-19 Impact
In the second quarter of fiscal 2021, the COVID-19 pandemic has continued to impact numerous aspects of our business. Our sales remain at an elevated level compared to sales prior to the pandemic, as we believe the pandemic-related government stimulus benefitted many of our customers. We anticipate the additional stimulus recently approved by the government will further benefit our customers and will also have a positive impact on sales. Our main priority continues to be the health, safety and well-being of our customers and employees. We continue to invest in supplies for the protection of our employees and customers, continue the increased frequency of cleaning and disinfecting our stores and require masks when entering our facilities. During the second quarter of fiscal 2021, we provided Emergency Time-Off (“ETO”) benefit enhancements for both full and part-time eligible employees in the U.S. along with extending the carryover of unused ETO and normal vacation benefits. These benefit enhancements and other pandemic related expenses of $39.9 million have been recognized as an expense in our second quarter of fiscal 2021. For fiscal 2021 we have incurred $44.9 million in ETO and other pandemic related expenses.
The long-term impact to our business remains unknown as we are unable to accurately predict the impact COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, the impact of variants of the disease, the availability and efficacy of vaccines, the speed at which such vaccines are administered, the likelihood of a resurgence of positive cases, actions that may be taken by governmental authorities intended to minimize the spread of the pandemic or to stimulate the economy and other unintended consequences. Accordingly, business disruption related to the COVID-19 outbreak may continue to cause significant fluctuations in our business, unusually impacting demand for our products, our store hours and our workforce availability and magnify risks associated with our business and operations. See “Risk Factors—The ongoing outbreak of COVID-19 has been declared a pandemic by the World Health Organization, continues to spread within the United States and many other parts of the world and may have a material adverse effect on our business operations, financial condition, liquidity and cash flow” in our Annual Report on Form 10-K for additional information.
Executive Summary
Net sales increased 15.8% for the quarter ended February 13, 2021 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 15.2%. Domestic commercial sales increased 14.7% compared to the prior year period, which represents approximately 22% of our total sales. Operating profit increased by 18.1% to $481.8 million compared to $407.9 million in the same period last year. Net income for the quarter increased by 15.6% to $345.9 million compared to $299.3 million in the same period last year. Diluted earnings per share increased by 20.5% to $14.93 per share from $12.39 per share in the comparable prior year period. The increase in net income for the quarter ended February 13, 2021 was driven by strong topline growth.
Our business is impacted by various factors within the economy that affect both our consumer and our industry, including but not limited to fuel costs, wage rates and other economic conditions, including the effects of, and responses to, COVID-19. 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.
20
During the second quarter of fiscal 2021, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 84% of total sales, which is consistent with the comparable prior year period, with failure related categories continuing to be the largest portion of our sales mix. While we have not experienced any fundamental shifts in our category sales mix as compared to the previous year, in our domestic stores we continue to experience a slight increase in mix of sales of the discretionary category as compared to previous quarters. We believe the improvement in this sales category continues to benefit from the pandemic as many of our customers spent more time and money to work on projects.
The two statistics we believe have the most positive 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. 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 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. The average age of the U.S. light vehicle fleet continues to trend in our industry’s favor. According to the latest data provided by the Auto Care Association in the 2021 Auto Care Factbook, for the ninth consecutive year, the average age of vehicles on the road has exceeded 11 years. Since the beginning of the fiscal year and through December 2020 (latest publicly available information), miles driven in the U.S. decreased 9.9% compared to the same period in the prior year. We believe the decrease is a result of the COVID-19 pandemic, but we are unable to predict if the decline will continue or the extent of the impact it will have on our business.
Twelve Weeks Ended February 13, 2021
Compared with Twelve Weeks Ended February 15, 2020
Net sales for the twelve weeks ended February 13, 2021 increased $397.2 million to $2.911 billion, or 15.8% over net sales of $2.514 billion for the comparable prior year period. Total auto parts sales increased by 16.0%, primarily driven by an increase in domestic same store sales of 15.2% and net sales of $40.8 million from new stores. Domestic commercial sales increased $82.0 million to $638.9 million, or 14.7%, over the comparable prior year period.
Gross profit for the twelve weeks ended February 13, 2021 was $1.559 billion, compared with $1.366 billion during the comparable prior year period. Gross profit, as a percentage of sales was 53.6% for the twelve weeks ended February 13, 2021 compared to 54.3% during the comparable prior year period. The decrease in gross profit percent was attributable to increased supply chain costs, pricing initiatives, accelerated loyalty program participation and a shift in mix.
Operating, selling, general and administrative expenses for the twelve weeks ended February 13, 2021 were $1.078 billion, or 37.0% of net sales, compared with $958.1 million, or 38.1% of net sales during the comparable prior year period. The decrease in operating expenses, as a percentage of sales, was primarily due to leverage from higher sales growth, offset by additional ETO benefits offered in December 2020 and other COVID-19 pandemic related expenses totaling $39.9 million (137 basis points).
Net interest expense for the twelve weeks ended February 13, 2021 was $46.0 million compared with $44.3 million during the comparable prior year period. The increase was primarily due to an increase in the weighted average borrowing rate over the comparable prior year period. Average borrowings for the twelve weeks ended February 13, 2021 were $5.516 billion, compared with $5.464 billion for the comparable prior year period. Weighted average borrowing rates were 3.3% and 3.0% for the quarter ended February 13, 2021 and February 15, 2020, respectively.
Our effective income tax rate was 20.6% of pretax income for the twelve weeks ended February 13, 2021, and 17.7% for the comparable prior year period. The increase in the tax rate was primarily attributable to a reduced benefit from stock options exercised during the twelve weeks ended February 13, 2021, in addition to various nonrecurring tax benefits recognized during the comparable prior year period. The benefit of stock options exercised for the twelve weeks ended February 13, 2021 was $11.6 million compared to $15.0 million in the comparable prior year period.
Net income for the twelve week period ended February 13, 2021 increased by $46.7 million to $345.9 million from $299.3 million in the comparable prior year period, and diluted earnings per share increased by 20.5% to $14.93 from
21
$12.39 in the comparable prior year period. 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 $0.76.
Twenty-Four Weeks Ended February 13, 2021
Compared with Twenty-Four Weeks Ended February 15, 2020
Net sales for the twenty-four weeks ended February 13, 2021 increased $758.4 million to $6.065 billion, or 14.3%, over net sales of $5.307 billion for the comparable prior year period. Total auto parts sales increased by 14.5%, primarily driven by an increase in domestic same store sales of 13.6% and net sales of $81.9 million from new stores. Domestic commercial sales increased by $155.8 million, or 13.2%, to $1.334 billion over the comparable prior year period.
Gross profit for the twenty-four weeks ended February 13, 2021 was $3.235 billion, or 53.3% of net sales, compared with $2.867 billion, or 54.0% of net sales, during the comparable prior year period. The decrease in gross margin was primarily driven by pricing initiatives, accelerated loyalty program participation, increased supply chain costs and a shift in mix.
Operating, selling, general and administrative expenses for the twenty-four weeks ended February 13, 2021 were $2.138 billion, or 35.3% of net sales, compared with $1.959 billion, or 36.9% of net sales, during the comparable prior year period. The decrease in operating expenses, as a percentage of sales, was primarily due to leverage from higher sales growth, offset by additional ETO benefits offered in December 2020 and other COVID-19 pandemic related expenses totaling $44.9 million (74 basis points).
Net interest expense for the twenty-four weeks ended February 13, 2021 was $92.2 million compared with $88.1 million during the comparable prior year period. The increase was primarily due to an increase in the weighted average borrowing rate over the comparable prior year period. Average borrowings for the twenty-four weeks ended February 13, 2021 were $5.515 billion, compared with $5.327 billion for the comparable prior year period. Weighted average borrowing rates were 3.3% and 3.1% for the twenty-four week periods ended February 13, 2021 and February 15, 2020, respectively.
Our effective income tax rate was 21.5% of pretax income for the twenty-four weeks ended February 13, 2021, and 20.8% for the comparable prior year period. The increase in the tax rate was primarily attributable to various nonrecurring tax benefits recognized during the comparable prior year period. The benefit of stock options exercised for the twenty-four week period ended February 13, 2021 was $19.2 million compared to $16.5 million in the comparable prior year period.
Net income for the twenty-four week period ended February 13, 2021 increased by $138.8 million to $788.4 million due to the factors set forth above, and diluted earnings per share increased by 25.8% to $33.59 from $26.70 in the comparable prior year period. The impact on current year to date diluted earnings per share from stock repurchases since the end of the comparable prior year period resulted in an increase of $0.92 per share.
Liquidity and Capital Resources
The primary source of our liquidity is our cash flows realized through the sale of automotive parts, products and accessories. For the twenty-four weeks ended February 13, 2021, our net cash flows from operating activities provided $1.040 billion as compared with $651.6 million provided during the comparable prior year period. The increase is primarily due to favorable changes in inventories, accounts payable and growth in net income due to accelerated sales growth as a result of the COVID-19 pandemic.
Our net cash flows used in investing activities for the twenty-four weeks ended February 13, 2021 were $228.4 million as compared with $174.9 million in the comparable prior year period. Capital expenditures for the twenty-four weeks ended February 13, 2021 were $238.6 million compared to $190.6 million for the comparable prior year period. The increase is primarily driven by increased store openings compared to the comparable prior year period. During the twenty-four week period ended February 13, 2021 and February 15, 2020, we opened 76 and 50 net new stores, respectively. Investing cash flows were impacted by our wholly owned captive, which purchased $48.4 million and sold
22
$60.6 million in marketable debt securities during the twenty-four weeks ended February 13, 2021. During the comparable prior year period, the captive purchased $56.3 million in marketable debt securities and sold $70.8 million.
Our net cash flows used in financing activities for the twenty-four weeks ended February 13, 2021 were $1.541 billion compared to $502.8 million in the comparable prior year period. We did not have any commercial paper activity during the twenty-four week period ended February 13, 2021 as compared to $242.7 million in net proceeds in the comparable prior year period. Stock repurchases were $1.578 billion in the current twenty-four week period as compared with $764.8 million 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 13, 2021 and February 15, 2020 provided $66.5 million and $48.7 million, respectively.
During fiscal 2021, we expect to increase the investment in our business as compared to fiscal 2020. The expected increase is driven by delays in capital spending for the third and fourth quarter of fiscal 2020 related to the COVID-19 pandemic. Our investments continue to be directed primarily to new stores, supply chain infrastructure, technology and enhancements to existing stores. The amount of our investments in our new stores is impacted by different factors, including such factors as whether the building and land are purchased (requiring higher investment) or leased (generally lower investment), 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. 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. Accounts payable, as a percentage of gross inventory, was 113.0% at February 13, 2021, compared to 105.7% at February 15, 2020.
Depending on the timing and magnitude of our future investments (either in the form of leased or purchased properties or acquisitions), we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures, working capital requirements and stock repurchases. The balance may be funded through new borrowings. 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 February 13, 2021, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 41.5% as compared to 35.3% for the comparable prior year period. We use adjusted ROIC to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance. For the trailing four quarters ended February 13, 2021, ROIC was presented net of average excess cash of $834.3 million. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.
23
Debt Facilities
We entered into a Master Extension, New Commitment and Amendment Agreement dated as of November 18, 2017 (the “Extension Amendment”) to the Third Amended and Restated Credit Agreement dated as of November 18, 2016, as amended, modified, extended or restated from time to time (the “Revolving Credit Agreement”). Under the Extension Amendment: (i) our borrowing capacity under the Revolving Credit Agreement was increased from $1.6 billion to $2.0 billion; (ii) the maximum borrowing under the Revolving Credit Agreement may, at our option, subject to lenders approval, be increased from $2.0 billion to $2.4 billion; (iii) the termination date of the Revolving Credit Agreement was extended from November 18, 2021 until November 18, 2022; and (iv) we have the option to make one additional written request of the lenders to extend the termination date then in effect for an additional year. Under the Revolving Credit Agreement, we may borrow funds consisting of Eurodollar loans, base rate loans or a combination of both. Interest accrues on Eurodollar loans at a defined Eurodollar rate, defined as LIBOR plus the applicable percentage, as defined in the Revolving Credit Agreement, depending upon our senior, unsecured, (non-credit enhanced) long-term debt ratings. Interest accrues on base rate loans as defined in the Revolving Credit Agreement.
On April 3, 2020, we entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) to augment our access to liquidity due to macroeconomic conditions and supplements our existing Revolving Credit Agreement. The 364-Day Credit Agreement provided for loans in the aggregate principal amount of up to $750 million. The 364-Day Credit Agreement had a termination date of, and any amounts borrowed under the 364-Day Credit Agreement were due and payable on, April 2, 2021. Revolving loans under the 364-Day Credit Agreement could be base rate loans, Eurodollar loans, or a combination of both, at our election.
On February 22, 2021, we terminated the 364-Day Credit Agreement dated as of April 3, 2020 between the Company as borrower, the banks party thereto, and U.S. Bank, National Association, as administrative agent. There were no borrowings outstanding under this revolving credit agreement. We entered into this credit agreement to augment our access to liquidity due to macroeconomic conditions existing at the time, and we have determined the additional access to liquidity is no longer necessary.
As of February 13, 2021, we had no outstanding borrowings under either of our revolving credit facilities and $1.7 million of outstanding letters of credit under the Revolving Credit Agreement.
Under our revolving credit agreements, 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.
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 February 13, 2021, we had $25.0 million in letters of credit outstanding under the letter of credit facility, which expires in June 2022.
In addition to the outstanding letters of credit issued under the committed facilities discussed above, we had $136.8 million in letters of credit outstanding as of February 13, 2021. These letters of credit have various maturity dates and were issued on an uncommitted basis.
All Senior Notes are subject to an interest rate adjustment if the debt ratings assigned are downgraded (as defined in the agreements). Further, the Senior Notes contain a provision that repayment may be accelerated if we experience a change in control (as defined in the agreements). Our borrowings under our Senior Notes contain minimal covenants, primarily restrictions on liens, sale and leaseback transactions and consolidations, mergers and the sale of assets. All of the repayment obligations under our 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 February 13, 2021, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.
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As of February 13, 2021, the $250 million 2.500% Senior Notes due April 2021 were classified as short-term in the accompanying Condensed Consolidated Balance Sheets. On March 15, 2021, we repaid the $250 million 2.500% Senior Notes due April 2021 which were callable at par in March 2021.
As of February 13, 2021, we had $2.748 billion of availability under our $2.750 billion revolving credit agreements.
Our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.0:1 as of February 13, 2021 and was 2.6:1 as of February 15, 2020. We calculate adjusted debt as the sum of total debt, financing lease liabilities and rent times six; and we calculate adjusted EBITDAR by adding interest, taxes, depreciation, amortization, rent, and share-based compensation expense to net income. Adjusted debt to EBITDAR is calculated on a trailing four quarter basis. For the trailing four quarters ended February 13, 2021, debt was presented net of excess cash of $831.4 million. We target our debt levels to a ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings. We believe this is important information for the management of our debt levels. To the extent EBITDAR continues to grow in future years, we expect our debt levels to increase; conversely, if EBITDAR declines, we would expect our debt levels to decrease. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.
Stock Repurchases
From January 1, 1998 to February 13, 2021, we have repurchased a total of 149.0 million shares of our common stock at an aggregate cost of $23.932 billion, including 1.3 million shares of our common stock at an aggregate cost of $1.578 billion during the twenty-four week period ended February 13, 2021.
On December 15, 2020, the Board voted to increase the repurchase authorization by $1.5 billion. This raised the total value of shares authorized to be repurchased to $24.65 billion. Considering cumulative repurchases as of February 13, 2021, we had $717.6 million remaining under the Board’s authorization to repurchase our common stock.
Subsequent to February 13, 2021 we have repurchased 169,396 shares of our common stock at an aggregate cost of $203.0 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 February 13, 2021, was $163.4 million, compared with $246.9 million at August 29, 2020, and our total surety bonds commitment at February 13, 2021, was $40.6 million, compared with $56.7 million at August 29, 2020.
Financial Commitments
As of February 13, 2021, there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year ended August 29, 2020.
Reconciliation of Non-GAAP Financial Measures
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain financial measures not derived in accordance with GAAP. These non-GAAP financial measures 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.
Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. However, we have presented non-GAAP financial measures, as we believe they provide additional information that is useful to investors as it indicates more clearly our comparative year-to-year operating results. Furthermore, our management and the Compensation Committee of the Board use these non-GAAP financial measures to analyze and compare our underlying
25
operating results and use select measurements to determine payments of performance-based compensation. We have included a reconciliation of this information to the most comparable GAAP measures in the following reconciliation tables.
Reconciliation of Non-GAAP Financial Measure: Adjusted After-Tax ROIC
The following tables calculate the percentages of adjusted ROIC for the trailing four quarters ended February 13, 2021 and February 15, 2020.
A | B | A-B=C | D | C+D | ||||||||||||
| Fiscal Year | Twenty-Four | Twenty-Eight | Twenty-Four | Trailing Four |
| ||||||||||
Ended | Weeks Ended | Weeks Ended | Weeks Ended | Quarters Ended | ||||||||||||
August 29, | February 15, | August 29, | February 13, | February 13, | ||||||||||||
(in thousands, except percentage) | 2020 |
| 2020 |
| 2020 |
| 2021 |
| 2021 | |||||||
Net income |
| $ | 1,732,972 |
| $ | 649,620 |
| $ | 1,083,352 |
| $ | 788,379 |
| $ | 1,871,731 |
|
Adjustments: |
|
|
|
|
|
|
|
|
| |||||||
Interest expense |
| 201,165 |
| 88,078 |
| 113,087 |
| 92,191 |
| 205,278 | ||||||
Rent expense(2) |
| 329,783 |
| 150,751 |
| 179,032 |
| 156,937 |
| 335,969 | ||||||
Tax effect(3) |
| (117,340) |
| (52,781) |
| (64,559) |
| (55,057) |
| (119,616) | ||||||
Adjusted after-tax return | $ | 2,146,580 | $ | 835,668 | $ | 1,310,912 | $ | 982,450 | $ | 2,293,362 | ||||||
Average debt(4)(5) | $ | 4,648,593 | ||||||||||||||
Average stockholders’ deficit(5) |
| (1,354,477) | ||||||||||||||
Add: Rent x 6(2) |
| 2,015,814 | ||||||||||||||
Average finance lease liabilities(5) |
| 220,550 | ||||||||||||||
Invested capital | $ | 5,530,480 | ||||||||||||||
Adjusted after-tax ROIC |
| 41.5 | % | |||||||||||||
A | B | A-B=C | D | C+D | ||||||||||||
| Fiscal Year | Twenty-Four | Twenty-Nine | Twenty-Four | Trailing Four | |||||||||||
Ended | Weeks Ended | Weeks Ended | Weeks Ended | Quarters Ended | ||||||||||||
August 31, | February 9, | August 31, | February 15, | February 15, | ||||||||||||
(in thousands, except percentage) | 2019(1) |
| 2019 |
| 2019 |
| 2020 |
| 2020 | |||||||
Net income |
| $ | 1,617,221 |
| $ | 646,044 |
| $ | 971,177 |
| $ | 649,620 |
| $ | 1,620,797 | |
Adjustments: |
|
|
|
|
|
| ||||||||||
Interest expense |
| 184,804 |
| 80,369 |
| 104,435 |
| 88,078 |
| 192,513 | ||||||
Rent expense(2) |
| 332,726 |
| 144,360 |
| 188,366 |
| 150,751 |
| 339,117 | ||||||
Tax effect(3) |
| (107,129) |
| (46,519) |
| (60,610) |
| (49,438) |
| (110,048) | ||||||
Deferred tax liabilities, net of repatriation tax |
| (6,340) |
| (6,340) |
| — |
| — |
| — | ||||||
Adjusted after-tax return | $ | 2,021,282 | $ | 817,914 | $ | 1,203,368 | $ | 839,011 | $ | 2,042,379 | ||||||
Average debt(5) | $ | 5,241,651 | ||||||||||||||
Average stockholders' deficit(5) |
| (1,676,987) | ||||||||||||||
Add: Rent x 6(2) |
| 2,034,702 | ||||||||||||||
Average finance lease liabilities(5) |
| 178,416 | ||||||||||||||
Invested capital | $ | 5,777,782 | ||||||||||||||
Adjusted after-tax ROIC |
| 35.3 | % | |||||||||||||
26
Reconciliation of Non-GAAP Financial Measure: Adjusted Debt to EBITDAR
The following tables calculate the ratio of adjusted debt to EBITDAR for the trailing four quarters ended February 13, 2021 and February 15, 2020.
A | B | A-B=C | D | C+D | ||||||||||||
| Fiscal Year | Twenty Four | Twenty-Eight | Twenty-Four | Trailing Four |
| ||||||||||
Ended | Weeks Ended | Weeks Ended | Weeks Ended | Quarters Ended | ||||||||||||
August 29, | February 15, | August 29, | February 13, | February 13, | ||||||||||||
(in thousands, except ratio) | 2020 |
| 2020 |
| 2020 |
| 2021 |
| 2021 | |||||||
Net income |
| $ | 1,732,972 |
| $ | 649,620 |
| $ | 1,083,352 |
| $ | 788,379 |
| $ | 1,871,731 |
|
Add: Interest expense |
| 201,165 |
| 88,078 |
| 113,087 |
| 92,191 |
| 205,278 | ||||||
Income tax expense | 483,542 | 170,263 | 313,279 | 216,422 | 529,701 | |||||||||||
Adjusted EBIT |
| 2,417,679 |
| 907,961 |
| 1,509,718 |
| 1,096,992 |
| 2,606,710 | ||||||
Add: Depreciation and amortization expense |
| 397,466 |
| 180,420 |
| 217,046 |
| 184,027 |
| 401,073 | ||||||
Rent expense(2) |
| 329,783 |
| 150,751 |
| 179,032 |
| 156,937 |
| 335,969 | ||||||
Share-based expense |
| 44,835 |
| 22,107 |
| 22,728 |
| 24,178 |
| 46,906 | ||||||
Adjusted EBITDAR | $ | 3,189,763 | $ | 1,261,239 | $ | 1,928,524 | $ | 1,462,134 | $ | 3,390,658 | ||||||
Debt(6) | $ | 4,684,979 | ||||||||||||||
Financing lease liabilities | 225,411 | |||||||||||||||
Add: Rent x 6(2) |
| 2,015,814 | ||||||||||||||
Adjusted debt | $ | 6,926,204 | ||||||||||||||
| ||||||||||||||||
Adjusted debt to EBITDAR | 2.0 | |||||||||||||||
A | B | A-B=C | D | C+D | |||||||||||
Fiscal Year | Twenty-Four | Twenty-Nine | Twenty-Four | Trailing Four | |||||||||||
Ended | Weeks Ended | Weeks Ended | Weeks Ended | Quarters Ended | |||||||||||
August 31, | February 9, | August 31, | February 15, | February 15, | |||||||||||
(in thousands, except ratio) | 2019(1) |
| 2019 |
| 2019 |
| 2020 |
| 2020 | ||||||
Net income |
| $ | 1,617,221 |
| $ | 646,044 |
| $ | 971,177 |
| $ | 649,620 |
| $ | 1,620,797 |
Add: Interest expense |
| 184,804 |
| 80,369 |
| 104,435 |
| 88,078 |
| 192,513 | |||||
Income tax expense | 414,112 | 161,426 | 252,686 | 170,263 | 422,949 | ||||||||||
Adjusted EBIT |
| 2,216,137 |
| 887,839 |
| 1,328,298 |
| 907,961 |
| 2,236,259 | |||||
Add: Depreciation and amortization expense |
| 369,957 |
| 166,230 |
| 203,727 |
| 180,420 |
| 384,147 | |||||
Rent expense(2) |
| 332,726 |
| 144,360 |
| 188,366 |
| 150,751 |
| 339,117 | |||||
Share-based expense |
| 43,255 |
| 21,558 |
| 21,697 |
| 22,107 |
| 43,804 | |||||
Adjusted EBITDAR | $ | 2,962,075 | $ | 1,219,987 | $ | 1,742,088 | $ | 1,261,239 | $ | 3,003,327 | |||||
Debt | $ | 5,451,471 | |||||||||||||
Financing lease liabilities |
| 196,047 | |||||||||||||
Add: Rent x 6(2) | 2,034,702 | ||||||||||||||
Adjusted debt | $ | 7,682,220 | |||||||||||||
Adjusted debt to EBITDAR | 2.6 | ||||||||||||||
27
| (1) | The fiscal year ended August 31, 2019 consists of 53 weeks. |
| (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 trailing four quarters ended February 13, 2021 and February 15, 2020 (in thousands): |
Total lease cost, per ASC 842, for the trailing four quarters ended February 13, 2021 |
| $ | 418,100 |
Less: Finance lease interest and amortization |
| (55,880) | |
Less: Variable operating lease components, related to insurance and common area maintenance for the trailing four quarters ended February 13, 2021 |
| (26,251) | |
Rent expense for the trailing four quarters ended February 13, 2021 | $ | 335,969 | |
Total lease cost, per ASC 842, for the 24 weeks ended February 15, 2020 |
| $ | 190,390 |
Less: Finance lease interest and amortization |
| (28,195) | |
Less: Variable operating lease components, related to insurance and common area maintenance |
| (11,444) | |
Rent expense for the 24 weeks ended February 15, 2020 | $ | 150,751 | |
Add: Rent expense for the 29 weeks ended August 31, 2019 as previously reported prior to the adoption of ASC 842 | 188,366 | ||
Rent expense for the trailing four quarters ended February 15, 2020 | $ | 339,117 |
| (3) | Effective tax rate over trailing four quarters ended February 13, 2021 and February 15, 2020 is 22.1% and 20.7%, respectively. |
| (4) | Average debt for the trailing four quarters ended February 13, 2021 is presented net of average excess cash of $834.3 million. |
| (5) | All averages are computed based on trailing five quarter balances. |
| (6) | The Company ended the 24 weeks ended February 13, 2021 with excess cash of $831.4 million. Debt is presented net of excess cash. |
Recent Accounting Pronouncements
Refer to Note A of the Notes to Condensed Consolidated Financial Statements for the discussion of recent accounting pronouncements.
Critical Accounting Policies and Estimates
Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended August 29, 2020. There have been no significant changes to our critical accounting policies since the filing of our Annual Report on Form 10-K for the year ended August 29, 2020.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
At February 13, 2021, we had no material change to our instruments and positions that is sensitive to market risk since the disclosures in our Annual Report on Form 10-K for the year ended August 29, 2020.
The fair value of our debt was estimated at $6.007 billion as of February 13, 2021, and $6.081 billion as of August 29, 2020, based on the quoted market prices for the same or similar debt issues or on the current rates available to us for debt having the same remaining maturities. Such fair value was greater than the carrying value of debt by $490.9 million and $567.5 million at February 13, 2021 and August 29, 2020, respectively. We did not have any variable rate debt outstanding at February 13, 2021. The carrying value of debt reflects its face amount adjusted for any unamortized debt issuance costs and discounts. We had outstanding fixed rate debt of $5.516 billion, net of unamortized debt issuance costs of $33.6 million at February 13, 2021 and $5.513 billion, net of unamortized debt issuance costs of $36.6 million at August 29, 2020. A one percentage point increase in interest rates would have reduced the fair value of our fixed rate debt by $290.8 million at February 13, 2021.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of February 13, 2021, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of February 13, 2021.
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the quarter ended February 13, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this filing, there have been no additional material legal proceedings or material developments in the legal proceedings disclosed in Part 1, Item 3, of our Annual Report in Form 10-K for the fiscal year ended August 29, 2020.
Item 1A. Risk Factors
As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended August 29, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Shares of common stock repurchased by the Company during the quarter ended February 13, 2021 were as follows:
Issuer Repurchases of Equity Securities
|
|
| Total Number of |
| Maximum Dollar | |||||
Shares Purchased as | Value that May Yet | |||||||||
Total Number | Average | Part of Publicly | Be Purchased Under | |||||||
of Shares | Price Paid | Announced Plans or | the Plans or | |||||||
Period | Purchased | per Share | Programs | Programs | ||||||
November 22, 2020 to December 19, 2020 |
| 103,621 | $ | 1,133.94 |
| 103,621 | $ | 1,500,066,354 | ||
December 20, 2020 to January 16, 2021 |
| 235,626 |
| 1,212.39 |
| 235,626 |
| 1,214,395,896 | ||
January 17, 2021 to February 13, 2021 |
| 412,757 |
| 1,203.68 |
| 412,757 |
| 717,566,745 | ||
Total |
| 752,004 | $ | 1,196.80 |
| 752,004 | $ | 717,566,745 | ||
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. This program was most recently amended on December 15, 2020 to increase the repurchase authorization by $1.5 billion. This brings the total value of shares to be repurchased to $24.65 billion. All of the above repurchases were part of this program.
Subsequent to February 13, 2021, we have repurchased 169,396 shares of our common stock at an aggregate cost of $203.0 million.
Item 3. Defaults Upon Senior Securities
Not applicable.
29
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The following exhibits are being filed herewith:
3.1 |
| |
3.2 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5* | ||
15.1 | ||
31.1 | ||
31.2 | ||
32.1* | ||
32.2* | ||
101. INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
30
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104. | The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended February 13, 2021, has been formatted in Inline XBRL. |
* | Furnished herewith. |
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AUTOZONE, INC. | ||
By: | /s/ JAMERE JACKSON | |
Jamere Jackson | ||
Chief Financial Officer and Executive Vice President | ||
Finance and Store Development | ||
(Principal Financial Officer) | ||
By: | /s/ CHARLIE PLEAS, III | |
Charlie Pleas, III | ||
Senior Vice President, Controller | ||
(Principal Accounting Officer) | ||
Dated: March 19, 2021 | ||
32
Exhibit 10.5
AUTOZONE, INC.
DIRECTOR COMPENSATION PROGRAM
ARTICLE 1. PURPOSE
The purpose of this document is to set forth the general terms and conditions applicable to the AutoZone, Inc. Director Compensation Program (as amended, the “Program”) established by the Board of Directors of AutoZone Inc. (the “Company”) pursuant to the Company’s 2020 Omnibus Incentive Award Plan (the “Plan”). The Program is intended to carry out the purposes of the Plan and provide a means to reinforce objectives for sustained long-term performance and value creation by awarding each Non-Employee Director of the Company with stock awards, subject to the restrictions and other provisions of the Program and the Plan. The Program shall be effective as of January 1, 2020 (the “Effective Date”).
| 2.3 | “Plan Year” shall mean a calendar year. The first Plan Year shall be calendar year |
2020.
RETAINERS; RESTRICTED STOCK UNITS
| 3.1 | Retainers. |
| (a) | Subject to Section 3.1(d), effective as of January 1, 2020, Non-Employee |
Directors will become entitled to receive annual retainers in the following amounts, pro-rated for any partial fiscal year:
Chairman, $15,000; and
Exhibit 10.5
Each of (ii) - (vi) is referred to as an “Additional Fee” and, together with the Annual Retainer, the “Director Compensation”.
| 3.2 | Terms of Restricted Stock Units. |
Exhibit 10.5
| (ii) | solely on the date of such Non-Employee Director’s Separation from |
Service.
If a Non-Employee Director does not affirmatively make a payment election (or fails to make a timely election) with respect to the Restricted Stock Units, then such Restricted Stock Units will be settled in Common Stock on the earlier to occur of the fifth (5th) anniversary of the Retainer Date or the date of the Non-Employee Director’s Separation from Service.
| (ii) | such subsequent election may not take effect until at least twelve |
(12) months after the date on which the election is made;
Any date on which a Non-Employee Director timely elects to defer payment of the Restricted Stock Units, in accordance with Section 409A of the Code and this Section 3.2(d), is referred to as a “Deferred Payment Date.”
Exhibit 10.5
shall be credited, as of the dividend payment date, with dividend equivalents equal to the amount of the dividends which would have been payable to such holder if the holder held a number of shares of Common Stock equal to the number of vested Restricted Stock Units so deferred. Such dividend equivalents shall be deemed reinvested in the Common Stock on the dividend payment date and shall be paid by the Company in shares of Common Stock on the Deferred Payment Date. Such dividend equivalents shall constitute Dividend Equivalents under Section 9.1 of the Plan.
MISCELLANEOUS
| 4.5 | Nontransferability. |
(ii) by applicable laws of descent and distribution, (iii) pursuant to a DRO.
Exhibit 10.5
Notwithstanding any provision of this Program to the contrary, in the event that following the grant of any Restricted Stock Units, the Committee determines that any Award does or may violate any of the requirements of Code Section 409A, the Committee may adopt such amendments to the Program and any affected Award or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Program and any such Award from the application of Code Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Code Section
Exhibit 10.5
409A; provided, however, that this paragraph shall not create an obligation on the part of the Committee to adopt any such amendment, policy or procedure or take any such other action. Notwithstanding anything in this Program or any deferral election form to the contrary, with respect to any Non-Employee Director who is a “specified employee” at the time of such Non- Employee Director’s Separation from Service, the payment of such Non-Employee Director’s Restricted Stock Units upon such Separation from Service shall, to the extent that such distribution upon a Separation from Service would be a prohibited distribution under Section 409A(a)(2)(b)(i) of the Code, be delayed until the date which is six months and one day after the date on which such Separation from Service occurs (or, if earlier, the date of the Non-Employee Director’s death).
Exhibit 15.1
The Board of Directors and Stockholders
AutoZone, Inc.
We are aware of the incorporation by reference in the following Registration Statements:
Registration Statement (Form S-8 No. 333-139559) pertaining to the AutoZone, Inc. 2006 Stock Option Plan
Registration Statement (Form S-8 No. 333-103665) pertaining to the AutoZone, Inc. 2003 Director Compensation Award Plan
Registration Statement (Form S-8 No. 333-42797) pertaining to the AutoZone, Inc. Amended and Restated Employee Stock Purchase Plan
Registration Statement (Form S-8 No. 333-88241) pertaining to the AutoZone, Inc. Amended and Restated Director Compensation Plan
Registration Statement (Form S-8 No. 333-75140) pertaining to the AutoZone, Inc. Executive Stock Purchase Plan
Registration Statement (Form S-3ASR No. 333-152592) pertaining to a shelf registration to sell debt securities
Registration Statement (Form S-8 No. 333-171186) pertaining to the AutoZone, Inc. 2011 Equity Incentive Award Plan
Registration Statement (Form S-3ASR No. 333-180768) pertaining to a shelf registration to sell debt securities
Registration Statement (Form S-3ASR No. 333-203439) pertaining to a shelf registration to sell debt securities
Registration Statement (Form S-3ASR No. 333-230719) pertaining to a shelf registration to sell debt securities
Registration Statement (Form S-8 No. 333-251506) pertaining to the AutoZone, Inc. 2020 Omnibus Incentive Award Plan
and in the related Prospectuses of our report dated March 19, 2021, relating to the unaudited condensed consolidated interim financial statements of AutoZone, Inc. that are included in its Form 10-Q for the quarter ended February 13, 2021.
Memphis, Tennessee
March 19, 2021
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William C. Rhodes, III, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of AutoZone, Inc. (“registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
March 19, 2021 | |
| |
| /s/ WILLIAM C. RHODES, III |
| William C. Rhodes, III |
| Chairman, President and Chief Executive Officer |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jamere Jackson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of AutoZone, Inc. (“registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
March 19, 2021 | |
| |
| /s/ JAMERE JACKSON |
| Jamere Jackson |
| Chief Financial Officer and Executive Vice President |
| Finance and Store Development |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AutoZone, Inc. (the “Company”) on Form 10-Q for the period ended February 13, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William C. Rhodes, III, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(i) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
March 19, 2021 | |
| |
| /s/ WILLIAM C. RHODES, III |
| William C. Rhodes, III |
| Chairman, President and Chief Executive Officer |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AutoZone, Inc. (the “Company”) on Form 10-Q for the period ended February 13, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jamere Jackson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(i) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
March 19, 2021 | |
| |
| /s/ JAMERE JACKSON |
| Jamere Jackson |
| Chief Financial Officer and Executive Vice President |
| Finance and Store Development |
| (Principal Financial Officer) |