In Management's Discussion and Analysis of Financial Condition and Results of
Operations ("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 28, 2021 and other filings we
make
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 coronavirus ("COVID-19") pandemic; inflation;
the ability to hire, train and retain qualified employees; construction delays;
the compromising of confidentiality, availability or integrity of information,
including due to cyber-attacks; historic growth rate sustainability; downgrade
of our credit ratings; damage to our reputation; challenges in international
markets; failure or interruption of our information technology systems; origin
and raw material costs of suppliers; inventory availability; disruption in our
supply chain; 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 28,
2021, 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 November 20, 2021, operated 6,066 stores in the U.S., 666 stores in
Mexico and 53 stores in Brazil. Each store carries an extensive product line for
cars, sport utility vehicles, vans and light trucks, including new and
remanufactured automotive hard parts, maintenance items, accessories and
non-automotive products. At November 20, 2021, in 5,211 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, repair and shop management software through
www.alldata.com. Additionally, we sell automotive hard parts, maintenance items,
accessories and non-automotive products through www.autozone.com, and our
commercial customers can make purchases through www.autozonepro.com. 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.
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Operating results for the twelve weeks ended November 20, 2021 are not
necessarily indicative of the results that may be expected for the fiscal year
ending August 27, 2022. 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 2022 and 2021 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
The COVID-19 pandemic continues to impact the global economy and numerous
aspects of our business including our customers, employees and suppliers. Our
highest priority remains the safety and well-being of our customers and
employees. Since the beginning of the COVID-19 pandemic, we have experienced
strong same store sales growth and our sales have remained at all-time high
volumes.
The long-term impact to our business remains unknown, may magnify risks
associated with our business and operations and may continue to cause
fluctuations in demand for our products, our store hours and our workforce
availability. Other unknowns include the potential impact of any related vaccine
mandates on our workforce.
Please refer to the "Risk Factors" section of our Annual report on Form 10-K for
the year ended August 28, 2021 for additional information.
Executive Summary
Net sales increased 16.3% for the quarter ended November 20, 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 13.6%. Domestic commercial
sales increased 29.4%, which represents approximately 25% of our total sales.
Operating profit increased 22.6% to $754.5 million compared to $615.2 million.
Net income for the quarter increased 25.5% to $555.2 million compared to $442.4
million. Diluted earnings per share increased 38.1% to $25.69 per share from
$18.61 per share. The increase in net income for the quarter ended November 20,
2021 was driven by strong topline growth and operating expense leverage.
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, supply chain disruptions, hiring 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.
During the first quarter of fiscal 2022, 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. We did not experience any fundamental shifts in our category sales
mix as compared to the previous year. Our sales mix can be impacted by severe or
unusual weather over a short-term period. Over the long-term, we believe the
impact of the weather on our sales mix is not significant.
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The two statistics we believe have the closest correlation to our market growth
over the long-term are miles driven and the number of seven year old or older
vehicles on the road. 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 as the average age has exceeded 11 years since 2012, according
to the latest data provided by the Auto Care Association. As of January 1, 2021,
the average age of light vehicles on the road was 12.1 years. For September 2021
(latest publicly available information), miles driven in the U.S. increased 7.9%
compared to the same period in the prior year. We believe the increase in miles
driven is due to the nation beginning to return to pre-pandemic levels, but we
are unable to predict if the increase will continue or the extent of the impact
it will have on our business.
Twelve Weeks Ended November 20, 2021
Compared with Twelve Weeks Ended November 21, 2020
Net sales for the twelve weeks ended November 20, 2021 increased $514.6 million
to $3.7 billion, or 16.3% over net sales of $3.2 billion for the comparable
prior year period. Total auto parts sales increased by 16.2%, primarily driven
by an increase in domestic same store sales of 13.6% and net sales of $68.7
million from new stores. Domestic commercial sales increased $204.6 million to
$899.9 million, or 29.4%, over the comparable prior year period.
Gross profit for the twelve weeks ended November 20, 2021 was $1.9 billion,
compared with $1.7 billion during the comparable prior year period. Gross
profit, as a percentage of sales was 52.5% compared to 53.1% during the
comparable prior year period. The decrease in gross margin was primarily driven
by initiatives to accelerate commercial business growth.
Operating, selling, general and administrative expenses for the twelve weeks
ended November 20, 2021 were $1.2 billion, or 31.9% of net sales, compared with
$1.1 billion, or 33.6% of net sales during the comparable prior year period. The
decrease in operating expenses, as a percentage of sales, was driven by strong
sales growth.
Net interest expense for the twelve weeks ended November 20, 2021 was $43.3
million compared with $46.2 million during the comparable prior year period.
Average borrowings for the twelve weeks ended November 20, 2021 were $5.3
billion, compared with $5.5 billion for the comparable prior year period.
Weighted average borrowing rates were 3.30% and 3.27% for the quarter ended
November 20, 2021 and November 21, 2020, respectively.
Our effective income tax rate was 21.9% of pretax income for the twelve weeks
ended November 20, 2021, and 22.2% for the comparable prior year period. The
decrease in the tax rate was primarily attributable to an increased benefit from
stock options exercised during the twelve weeks ended November 20, 2021. The
benefit of stock options exercised for the twelve weeks ended November 20, 2021
was $11.3 million compared to $7.6 million in the comparable prior year period.
Net income for the twelve week period ended November 20, 2021 increased by
$112.8 million to $555.2 million from $442.4 million in the comparable prior
year period, and diluted earnings per share increased by 38.1% to $25.69 from
$18.61. 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
$2.33.
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Liquidity and Capital Resources
The primary source of our liquidity is our cash flows realized through the sale
of automotive parts, products and accessories. Our cash flow results benefitted
from the quarters strong sales and continued progress on our initiatives. We
believe that our cash generated from operating activities, available cash
reserves and available credit, supplemented with our long-term borrowings will
provide ample liquidity to fund our operations while allowing us to make
strategic investments to support long-term growth initiatives and return excess
cash to shareholders in the form of share repurchases. As of November 20, 2021,
we held $961.1 million of cash and cash equivalents, as well as $2.2 billion in
undrawn capacity on our revolving credit facility. We believe our sources of
liquidity will continue to be adequate to fund our operations and investments to
grow our business, repay our debt as it becomes due and fund our share
repurchases over the short-term and long-term. In addition, we believe we have
the ability to obtain alternative sources of financing, if necessary. However,
decreased demand for our products or changes in customer buying patterns would
negatively impact our ability to generate cash from operating activities.
Decreased demand or changes in buying patterns could also impact our ability to
meet our debt covenants of our credit agreements and, therefore, negatively
impact the funds available under our revolving credit facility. In the event our
liquidity is insufficient, we may be required to limit our spending.
For the twelve weeks ended November 20, 2021, our net cash flows from operating
activities provided $777.9 million compared with $683.5 million provided during
the comparable prior year period. The increase is primarily due to growth in net
income due to accelerated sales growth and a result of favorable changes in
accounts payable, driven by higher sustained inventory purchase volume in the
current period as compared to the same period in the prior year. These favorable
changes were partially offset by a smaller increase in accrued benefits and
withholdings in the current period, as compared to the same period in the prior
year due to the ability to defer certain payroll tax payments in the prior year
under the Coronavirus Aid, Relief, and Economic Security Act.
Our net cash flows used in investing activities for the twelve weeks ended
November 20, 2021 were $91.0 million as compared with $110.2 million in the
comparable prior year period. Capital expenditures for the twelve weeks ended
November 20, 2021 were $102.3 million compared to $113.0 million in the
comparable prior year period. The decrease is primarily driven by decreased
store openings. During the twelve week period ended November 20, 2021 and
November 21, 2020, we opened 18 and 41 net new stores, respectively. Investing
cash flows were impacted by our wholly owned captive, which purchased $7.0
million and sold $3.7 million in marketable debt securities during the twelve
weeks ended November 20, 2021. During the comparable prior year period, the
captive purchased $46.0 million in marketable debt securities and sold $51.2
million.
Our net cash flows used in financing activities for the twelve weeks ended
November 20, 2021 were $895.9 million compared to $663.4 million in the
comparable prior year period. Stock repurchases were $900.0 million in the
current twelve week period as compared with $678.3 million in the prior year
period. The treasury stock repurchases were primarily funded by cash flows from
operations. Proceeds from the sale of common stock and exercises of stock
options for the twelve weeks ended November 20, 2021 and November 21, 2020
provided $21.1 million and $28.7 million, respectively.
During fiscal 2022, we expect to increase the investment in our business as
compared to fiscal 2021. Our investments are expected to be directed primarily
to expansion of our store base and supply chain to fuel the growth of our
domestic and international businesses, which includes new stores, including mega
hubs, as well as distribution center expansions and remodels. The amount of
investments in our new stores is impacted by different factors, including
whether the building and land are purchased (requiring higher investment) or
leased (generally lower investment) and whether such buildings are located in
the U.S., Mexico or Brazil, or located in urban or rural areas.
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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 129.4% at
November 20, 2021, compared to 114.1% at November 21, 2020. The increase from
the comparable prior year period was primarily due to increased purchases with
favorable vendor terms and higher inventory turns.
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 November 20, 2021, our adjusted after-tax
return on invested capital ("ROIC"), which is a non-GAAP measure, was 44.7% as
compared to 36.0% for the comparable prior year period. Adjusted ROIC is
calculated as after-tax operating profit (excluding rent charges) divided by
invested capital (which includes a factor to capitalize operating leases). 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. Refer to the "Reconciliation of Non-GAAP Financial Measures"
section for further details of our calculation.
Debt Facilities
On November 15, 2021, we amended and restated our existing revolving credit
facility (the "Revolving Credit Agreement") pursuant to which our borrowing
capacity under the Revolving Credit Agreement was increased from $2.0 billion to
$2.25 billion and the maximum borrowing under the Revolving Credit Agreement
may, at our option, subject to lenders approval, be increased from $2.25 billion
to $3.25 billion. The Revolving Credit Agreement will terminate, and all amounts
borrowed will be due and payable, on November 15, 2026, but we may make up to
two requests to extend the termination date for an additional period of one year
each. Revolving borrowings under the Revolving Credit Agreement may be base rate
loans, Eurodollar loans, or a combination of both, at our election. The
Revolving Credit Agreement includes (i) a $75 million sublimit for swingline
loans, (ii) a $50 million individual issuer letter of credit sublimit and (iii)
a $250 million aggregate sublimit for all letters of credit.
Under our Revolving Credit Agreement, covenants include restrictions on liens, a
maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a
change of control provision that may require acceleration of the repayment
obligations under certain circumstances.
As of November 20, 2021, we had no outstanding borrowings, $1.8 million of
outstanding letters of credit and $2.2 billion of availability under our
Revolving Credit Agreement.
We also maintain a letter of credit facility that allows us to request the
participating bank to issue letters of credit on our behalf up to an aggregate
amount of $25 million. The letter of credit facility is in addition to the
letters of credit that may be issued under the Revolving Credit Agreement. As of
November 20, 2021, we had $25.0 million in letters of credit outstanding under
the letter of credit facility, which expires in June 2022.
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In addition to the outstanding letters of credit issued under the committed
facilities discussed above, we had $143.8 million in letters of credit
outstanding as of November 20, 2021. These letters of credit have various
maturity dates and were issued on an uncommitted basis.
As of November 20, 2021, the $500 million 3.700% Senior Notes due April 2022 are
classified as current in the Consolidated Balance Sheets as the Company has the
intent to utilize operating cash to fund the repayment.
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 November 20, 2021,
we were in compliance with all covenants and expect to remain in compliance with
all covenants under our borrowing arrangements.
Our adjusted debt to earnings before interest, taxes, depreciation,
amortization, rent and share-based compensation expense ("EBITDAR") ratio was
2.0:1 as of November 20, 2021 and was 2.3:1 as of November 21, 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.
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. Management expects the ratio
of adjusted debt to EBITDAR to return to pre-pandemic levels in the future,
increasing debt levels. Once the target ratio is achieved, to the extent
adjusted EBITDAR increases, we expect our debt levels to increase; conversely,
if adjusted EBITDAR decreases, 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 November 20, 2021, we have repurchased a total of 150.8
million shares of our common stock at an aggregate cost of $26.6 billion,
including 514,534 shares of our common stock at an aggregate cost of $900.0
million during the twelve week period ended November 20, 2021.
On October 5, 2021, the Board voted to authorize the repurchase of an additional
$1.5 billion of our common stock in connection with our ongoing share repurchase
program. Since the inception of the repurchase program in 1998, the Board has
authorized $27.7 billion in share repurchases. Considering the cumulative
repurchases as of November 20, 2021, we had $1.0 billion remaining under the
Board's authorization to repurchase our common stock.
Subsequent to November 20, 2021 and through December 10, 2021, we have
repurchased 63,909 shares of our common stock at an aggregate cost of $120.0
million. On December 14, 2021, the Board voted to increase the authorization by
$1.5 billion to raise the cumulative share repurchase authorization to $29.2
billion. Considering the cumulative repurchases subsequent to November 20, 2021
and through December 10, 2021 and the December 14, 2021 additional
authorization, we have $2.4 billion remaining under the Board's authorization to
repurchase our common stock.
Off-Balance Sheet Arrangements
Since our fiscal year end, we have canceled, issued and modified stand-by
letters of credit that are primarily renewed on an annual basis to cover
deductible payments to our casualty insurance carriers. Our total stand-by
letters of credit commitment at November 20, 2021, was $170.6 million, compared
with $162.4 million at August 28, 2021, and our total surety bonds commitment at
November 20, 2021, was $36.8 million, compared with $35.4 million at August
28,
2021.
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Financial Commitments
Except for the previously discussed Revolving Credit Agreement, as of November
20, 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 28, 2021.
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 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.
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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 November 20, 2021 and November 21, 2020.
A B A-B=C D C+D
Fiscal Year Twelve Forty Twelve Trailing Four
Ended Weeks Ended Weeks Ended Weeks Ended Quarters Ended
August 28, November 21, August 28, November 20, November 20,
(in thousands, except
percentage) 2021 2020 2021 2021 2021
Net income $ 2,170,314 $ 442,433 $ 1,727,881 $ 555,235 $ 2,283,116
Adjustments:
Interest expense 195,337 46,179 149,158 43,284 192,442
Rent expense(1) 345,380 78,027 267,353 82,327 349,680
Tax effect(2) (113,551) (26,083) (87,468) (26,378) (113,846)
Adjusted after-tax return $ 2,597,480 $ 540,556 $ 2,056,924
$ 654,468 $ 2,711,392
Average debt(3) $ 5,368,050
Average stockholders'
deficit(3) (1,647,246)
Add: Rent x 6(1) 2,098,080
Average finance lease
liabilities(3) 247,537
Invested capital $ 6,066,421
Adjusted after-tax ROIC 44.7 %
A B A-B=C D C+D
Fiscal Year Twelve Forty Twelve Trailing Four
Ended Weeks Ended Weeks Ended Weeks Ended Quarters Ended
August 29, November 23, August 29, November 21, November 21,
(in thousands, except
percentage) 2020 2019 2020 2020 2020
Net income $ 1,732,972 $ 350,338 $ 1,382,634 $ 442,433 $ 1,825,067
Adjustments:
Interest expense 201,165 43,743 157,422 46,179 203,601
Rent expense(1) 329,783 75,592 254,191 78,027 332,218
Tax effect(2) (114,685) (25,776) (88,909)
(26,828) (115,737)
Adjusted after-tax return $ 2,149,235 $ 443,897 $ 1,705,338 $ 539,811 $ 2,245,149
Average debt(3) $ 5,437,062
Average stockholders'
deficit(3) (1,404,980)
Add: Rent x 6(1) 1,993,308
Average finance lease
liabilities(3) 214,601
Invested capital $ 6,239,991
Adjusted after-tax ROIC 36.0 %
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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 November 20, 2021 and November 21, 2020.
A B A-B=C D C+D
Fiscal Year Twelve Forty Twelve Trailing Four
Ended Weeks Ended Weeks Ended Weeks Ended Quarters Ended
August 28, November 21, August 28, November 20, November 20,
(in thousands, except ratio) 2021 2020 2021 2021 2021
Net income $ 2,170,314 $ 442,433 $ 1,727,881 $ 555,235 $ 2,283,116
Add: Interest expense 195,337 46,179 149,158 43,284 192,442
Income tax expense 578,876 126,613 452,263 155,966 608,229
EBIT 2,944,527 615,225 2,329,302 754,485 3,083,787
Add: Depreciation and
amortization expense 407,683 89,551 318,132 99,590 417,722
Rent expense(1) 345,380 78,027 267,353 82,327 349,680
Share-based expense 56,112 10,508 45,604 14,295 59,899
Adjusted EBITDAR $ 3,753,702 $ 793,311 $ 2,960,391 $ 950,697 $ 3,911,088
Debt $ 5,271,266
Financing lease liabilities 274,703
Add: Rent x 6(1) 2,098,080
Adjusted debt $ 7,644,049
Adjusted debt to EBITDAR
2.0
A B A-B=C D C+D
Fiscal Year Twelve Forty Twelve Trailing Four
Ended Weeks Ended Weeks Ended Weeks Ended Quarters Ended
August 29, November 23, August 29, November 21, November 21,
(in thousands, except ratio) 2020 2019 2020 2020 2020
Net income $ 1,732,972 $ 350,338 $ 1,382,634 $ 442,433 $ 1,825,067
Add: Interest expense 201,165 43,743 157,422 46,179 203,601
Income tax expense 483,542 105,942 377,600 126,613 504,213
EBIT 2,417,679 500,023 1,917,656 615,225 2,532,881
Add: Depreciation and
amortization expense 397,466 89,750 307,716 89,551 397,267
Rent expense(1) 329,783 75,592 254,191 78,027 332,218
Share-based expense 44,835 9,996 34,839 10,508 45,347
Adjusted EBITDAR $ 3,189,763 $ 675,361 $ 2,514,402 $ 793,311 $ 3,307,713
Debt $ 5,514,874
Financing lease liabilities
232,921
Add: Rent x 6(1) 1,993,308
Adjusted debt $ 7,741,103
Adjusted debt to EBITDAR 2.3
The table below outlines the calculation of rent expense and reconciles rent
(1) expense to total lease cost, per ASC 842, the most directly comparable GAAP
financial measure, for the trailing four quarters ended November 20, 2021 and
November 21, 2020 (in thousands):
Trailing Four Quarters Ended
(in thousands) November 20, 2021 November 21,2020
Total lease cost, per ASC 842, for the
trailing four quarters $ 436,488 $
413,790
Less: Finance lease interest and amortization (61,102)
(56,256)
Less: Variable operating lease components,
related to insurance and common area
maintenance (25,706)
(25,316)
Rent expense for the trailing four quarters $ 349,680 $
332,218
(2) Effective tax rate over trailing four quarters ended November 20, 2021 and
November 21, 2020 is 21.0% and 21.6%, respectively.
(3) All averages are computed based on trailing five quarter balances.
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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 28, 2021. 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 28, 2021.
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