AUTOZONE, INC.
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 theAmericas . We began operations in 1979 and atFebruary 13, 2021 operated 5,951 stores in theU.S. , 628 stores inMexico and 46 stores inBrazil . 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. AtFebruary 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 inMexico andBrazil . 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 Table of Contents Operating results for the twelve and twenty-four weeks endedFebruary 13, 2021 are not necessarily indicative of the results that may be expected for the fiscal year endingAugust 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 endedFebruary 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 endedFebruary 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
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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 theU.S. light vehicle fleet continues to trend in our industry's favor. According to the latest data provided by theAuto 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 throughDecember 2020 (latest publicly available information), miles driven in theU.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
Compared with Twelve Weeks Ended
Net sales for the twelve weeks endedFebruary 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 endedFebruary 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 endedFebruary 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 endedFebruary 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 inDecember 2020 and other COVID-19 pandemic related expenses totaling$39.9 million (137 basis points). Net interest expense for the twelve weeks endedFebruary 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 endedFebruary 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 endedFebruary 13, 2021 andFebruary 15, 2020 , respectively. Our effective income tax rate was 20.6% of pretax income for the twelve weeks endedFebruary 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 endedFebruary 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 endedFebruary 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
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Twenty-Four Weeks Ended
Compared with Twenty-Four Weeks Ended
Net sales for the twenty-four weeks endedFebruary 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 endedFebruary 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 endedFebruary 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 inDecember 2020 and other COVID-19 pandemic related expenses totaling$44.9 million (74 basis points). Net interest expense for the twenty-four weeks endedFebruary 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 endedFebruary 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 endedFebruary 13, 2021 andFebruary 15, 2020 , respectively. Our effective income tax rate was 21.5% of pretax income for the twenty-four weeks endedFebruary 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 endedFebruary 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 endedFebruary 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 endedFebruary 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 endedFebruary 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 endedFebruary 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 endedFebruary 13, 2021 andFebruary 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
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Our net cash flows used in financing activities for the twenty-four weeks endedFebruary 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 endedFebruary 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 endedFebruary 13, 2021 andFebruary 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 theU.S. ,Mexico orBrazil , 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% atFebruary 13, 2021 , compared to 105.7% atFebruary 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 endedFebruary 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 endedFebruary 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 Table of Contents Debt Facilities
We entered into a Master Extension, New Commitment and Amendment Agreement dated as ofNovember 18, 2017 (the "Extension Amendment") to the Third Amended and Restated Credit Agreement dated as ofNovember 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 fromNovember 18, 2021 untilNovember 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. OnApril 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. OnFebruary 22, 2021 , we terminated the 364-Day Credit Agreement dated as ofApril 3, 2020 between the Company as borrower, the banks party thereto, andU.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 ofFebruary 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 ofFebruary 13, 2021 , we had$25.0 million in letters of credit outstanding under the letter of credit facility, which expires inJune 2022 .
In addition to the outstanding letters of credit issued under the committed
facilities discussed above, we had
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 ofFebruary 13, 2021 , we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements. 24 Table of Contents As ofFebruary 13, 2021 , the$250 million 2.500% Senior Notes dueApril 2021 were classified as short-term in the accompanying Condensed Consolidated Balance Sheets. OnMarch 15, 2021 , we repaid the$250 million 2.500% Senior Notes dueApril 2021 which were callable at par inMarch 2021 .
As of
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
FromJanuary 1, 1998 toFebruary 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 endedFebruary 13, 2021 . OnDecember 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 ofFebruary 13, 2021 , we had$717.6 million remaining under the Board's authorization to repurchase our common stock.
Subsequent to
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 atFebruary 13, 2021 , was$163.4 million , compared with$246.9 million atAugust 29, 2020 , and our total surety bonds commitment atFebruary 13, 2021 , was$40.6 million , compared with$56.7 million at August
29, 2020. Financial Commitments As ofFebruary 13, 2021 , there were no significant changes to our contractual obligations as described in our Annual Report on Form 10-K for the year endedAugust 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
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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
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
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 Table of Contents
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
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
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
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
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(1) The fiscal year ended
The table below outlines the calculation of rent expense and reconciles rent (2) expense to total lease cost, per ASC 842, the most directly comparable GAAP
financial measure, for the trailing four quarters ended
Total lease cost, per ASC 842, for the trailing four
quarters ended
$ 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
(26,251)
Rent expense for the trailing four quarters endedFebruary 13, 2021 $
335,969
Total lease cost, per ASC 842, for the 24 weeks endedFebruary 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
188,366
Rent expense for the trailing four quarters ended February 15, 2020 $ 339,117
(3) Effective tax rate over trailing four quarters ended
(4) Average debt for the trailing four quarters ended
presented net of average excess cash of
(5) All averages are computed based on trailing five quarter balances.
(6) The Company ended the 24 weeks ended
$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 endedAugust 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 endedAugust 29, 2020 .
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