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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

   

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended May 7, 2022, or

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 1-10714

Graphic

AUTOZONE, INC.

(Exact name of registrant as specified in its charter)

Nevada

62-1482048

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

123 South Front Street, Memphis, Tennessee

38103

(Address of principal executive offices)

(Zip Code)

(901) 495-6500

(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

Common Stock ($0.01 par value)

AZO

New York Stock Exchange

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. Yes No

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). Yes No

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.

Large accelerated filer

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 No

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 – 19,487,599 shares outstanding as of June 3, 2022.

TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

CONDENSED CONSOLIDATED BALANCE SHEETS

3

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

4

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

5

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

15

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

25

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

26

SIGNATURES

28

2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

May 7,

August 28,

(in thousands)

2022

2021

Assets

 

  

Current assets:

 

  

Cash and cash equivalents

$

263,044

$

1,171,335

Accounts receivable

 

439,820

 

378,392

Merchandise inventories

 

5,313,114

 

4,639,813

Other current assets

 

238,743

 

225,763

Total current assets

 

6,254,721

 

6,415,303

Property and equipment:

Property and equipment

 

9,139,576

 

8,807,178

Less: Accumulated depreciation and amortization

 

(4,167,950)

 

(3,950,287)

 

4,971,626

 

4,856,891

Operating lease right-of-use assets

2,764,631

2,718,712

Goodwill

 

302,645

 

302,645

Deferred income taxes

 

40,707

 

41,043

Other long-term assets

 

186,235

 

181,605

 

3,294,218

 

3,244,005

Total assets

$

14,520,565

$

14,516,199

Liabilities and Stockholders’ Deficit

Current liabilities:

Accounts payable

$

6,793,205

$

6,013,924

Current portion of operating lease liabilities

268,975

236,568

Accrued expenses and other

 

925,271

 

1,039,788

Income taxes payable

 

76,625

 

79,474

Total current liabilities

 

8,064,076

 

7,369,754

Long-term debt

 

6,057,444

 

5,269,820

Operating lease liabilities, less current portion

2,659,535

2,632,842

Deferred income taxes

 

418,869

 

337,125

Other long-term liabilities

 

707,871

 

704,194

Commitments and contingencies

Stockholders’ deficit:

Preferred stock, authorized 1,000 shares; no shares issued

 

 

Common stock, par value $.01 per share, authorized 200,000 shares; 20,707 shares issued and 19,576 shares outstanding as of May 7, 2022; 23,007 shares issued and 21,138 shares outstanding as of August 28, 2021

 

207

 

230

Additional paid-in capital

 

1,315,717

 

1,465,669

Retained deficit

 

(2,138,160)

 

(419,829)

Accumulated other comprehensive loss

 

(302,191)

 

(307,986)

Treasury stock, at cost

 

(2,262,803)

 

(2,535,620)

Total stockholders’ deficit

 

(3,387,230)

 

(1,797,536)

Total liabilities and stockholders' deficit

$

14,520,565

$

14,516,199

See Notes to Condensed Consolidated Financial Statements.

3

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Twelve Weeks Ended

Thirty-Six Weeks Ended

May 7,

May 8,

May 7,

May 8,

(in thousands, except per share data)

2022

2021

2022

2021

Net sales

    

$

3,865,222

    

$

3,651,023

    

$

10,903,875

    

$

9,716,101

Cost of sales, including warehouse and delivery expenses

1,858,808

1,736,077

5,187,075

4,566,155

Gross profit

2,006,414

 

1,914,946

5,716,800

 

5,149,946

Operating, selling, general and administrative expenses

1,220,744

1,111,441

3,549,885

3,249,449

Operating profit

785,670

803,505

2,166,915

1,900,497

Interest expense, net

41,888

45,026

127,642

137,217

Income before income taxes

743,782

 

758,479

2,039,273

 

1,763,280

Income tax expense

151,211

162,315

419,712

378,737

Net income

$

592,571

$

596,164

$

1,619,561

$

1,384,543

Weighted average shares for basic earnings per share

 

19,798

 

21,956

 

20,433

 

22,609

Effect of dilutive stock equivalents

616

559

627

545

Weighted average shares for diluted earnings per share

 

20,414

 

22,515

 

21,060

 

23,154

Basic earnings per share

$

29.93

$

27.15

$

79.26

$

61.24

Diluted earnings per share

$

29.03

$

26.48

$

76.90

$

59.80

See Notes to Condensed Consolidated Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Twelve Weeks Ended

Thirty-Six Weeks Ended

    

May 7,

    

May 8,

    

May 7,

    

May 8,

(in thousands)

2022

2021

2022

2021

Net income

$

592,571

$

596,164

$

1,619,561

$

1,384,543

Other comprehensive income (loss):

 

  

 

  

 

  

 

  

Foreign currency translation adjustments

 

8,531

 

(3,865)

 

6,280

 

48,731

Unrealized losses on marketable debt securities, net of taxes

 

(1,138)

 

(337)

 

(2,438)

 

(838)

Net derivative activities, net of taxes

 

579

 

659

 

1,953

 

1,977

Total other comprehensive income (loss)

 

7,972

 

(3,543)

 

5,795

 

49,870

Comprehensive income

$

600,543

$

592,621

$

1,625,356

$

1,434,413

See Notes to Condensed Consolidated Financial Statements.

4

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Thirty-Six Weeks Ended

    

May 7,

May 8,

(in thousands)

2022

2021

Cash flows from operating activities:

 

  

 

  

Net income

$

1,619,561

$

1,384,543

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization of property and equipment and intangibles

 

301,365

 

278,044

Amortization of debt origination fees

 

7,826

 

9,326

Deferred income taxes

 

80,778

 

6,047

Share-based compensation expense

 

49,058

 

38,061

Changes in operating assets and liabilities:

 

 

  

Accounts receivable

 

(61,361)

 

8,335

Merchandise inventories

 

(671,087)

 

(162,271)

Accounts payable and accrued expenses

 

655,227

 

635,058

Income taxes payable

 

13,883

 

22,989

Other, net

 

(12,136)

 

10,215

Net cash provided by operating activities

 

1,983,114

 

2,230,347

Cash flows from investing activities:

 

  

 

  

Capital expenditures

 

(369,350)

 

(375,653)

Purchase of marketable debt securities

 

(46,540)

 

(52,553)

Proceeds from sale of marketable debt securities

 

37,918

 

72,268

Investment in tax credit equity investments

(21,398)

(3,908)

Proceeds from disposal of capital assets and other, net

 

38,651

 

1,183

Net cash used in investing activities

 

(360,719)

 

(358,663)

Cash flows from financing activities:

 

  

 

  

Net proceeds from commercial paper

1,283,310

Repayment of debt

(500,000)

(250,000)

Net proceeds from sale of common stock

 

98,090

 

121,924

Purchase of treasury stock

(3,359,994)

(2,478,322)

Repayment of principal portion of finance lease liabilities

 

(48,867)

(44,844)

Other, net

 

(3,362)

 

Net cash used in financing activities

 

(2,530,823)

 

(2,651,242)

Effect of exchange rate changes on cash

 

137

 

4,389

Net decrease in cash and cash equivalents

 

(908,291)

 

(775,169)

Cash and cash equivalents at beginning of period

 

1,171,335

 

1,750,815

Cash and cash equivalents at end of period

$

263,044

$

975,646

See Notes to Condensed Consolidated Financial Statements.

5

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

Twelve Weeks Ended May 7, 2022

Accumulated

Common

Additional

Other

    

Shares

    

Common

    

Paid-in

    

Retained

    

Comprehensive

    

Treasury

    

(in thousands)

Issued

Stock

Capital

Deficit

Loss

Stock

Total

Balance at February 12, 2022

 

20,650

$

206

$

1,266,015

$

(2,730,731)

$

(310,163)

$

(1,362,804)

$

(3,137,477)

Net income

 

 

 

 

592,571

 

 

 

592,571

Total other comprehensive income

 

 

 

 

 

7,972

 

 

7,972

Purchase of 449 shares of treasury stock

 

 

 

 

 

 

(899,999)

 

(899,999)

Issuance of common stock under stock options and stock purchase plans

 

57

 

1

 

31,628

 

31,629

Share-based compensation expense

 

 

 

18,074

 

 

 

 

18,074

Balance at May 7, 2022

 

20,707

$

207

$

1,315,717

$

(2,138,160)

$

(302,191)

$

(2,262,803)

$

(3,387,230)

Twelve Weeks Ended May 8, 2021

Accumulated

Common

Additional

Other

    

Shares

    

Common

    

Paid-in

    

Retained

    

Comprehensive

    

Treasury

    

(in thousands)

Issued

Stock

Capital

Deficit

Loss

Stock

Total

Balance at February 13, 2021

 

22,796

$

228

$

1,314,424

$

(1,801,764)

$

(300,839)

$

(735,622)

$

(1,523,573)

Net income

 

 

 

 

596,164

 

 

 

596,164

Total other comprehensive loss

 

 

 

 

 

(3,543)

 

 

(3,543)

Purchase of 663 shares of treasury stock

 

 

 

 

 

 

(899,999)

 

(899,999)

Issuance of common stock under stock options and stock purchase plans

 

101

 

1

 

55,413

 

55,414

Share-based compensation expense

 

 

 

12,145

 

 

 

 

12,145

Balance at May 8, 2021

 

22,897

$

229

$

1,381,982

$

(1,205,600)

$

(304,382)

$

(1,635,621)

$

(1,763,392)

Thirty-Six Weeks Ended May 7, 2022

Accumulated

Common

Additional

Other

    

Shares

    

Common

    

Paid-in

    

Retained

    

Comprehensive

    

Treasury

    

(in thousands)

Issued

Stock

Capital

Deficit

Loss

Stock

Total

Balance at August 28, 2021

 

23,007

$

230

$

1,465,669

$

(419,829)

$

(307,986)

$

(2,535,620)

$

(1,797,536)

Net income

 

 

 

 

1,619,561

 

 

 

1,619,561

Total other comprehensive income

 

 

 

 

 

5,795

 

 

5,795

Retirement of treasury shares

 

(2,484)

 

(25)

 

(294,894)

 

(3,337,892)

 

 

3,632,811

 

Purchase of 1,746 shares of treasury stock

 

 

 

 

 

 

(3,359,994)

 

(3,359,994)

Issuance of common stock under stock options and stock purchase plans

 

184

 

2

 

98,084

 

98,086

Share-based compensation expense

 

 

 

46,858

 

 

 

 

46,858

Balance at May 7, 2022

 

20,707

$

207

$

1,315,717

$

(2,138,160)

$

(302,191)

$

(2,262,803)

$

(3,387,230)

Thirty-Six Weeks Ended May 8, 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

 

23,697

$

237

$

1,283,495

$

(1,450,970)

$

(354,252)

$

(356,487)

$

(877,977)

Net income

 

 

 

 

1,384,543

 

 

 

1,384,543

Total other comprehensive income

 

 

 

 

 

49,870

 

 

49,870

Retirement of treasury shares

 

(1,044)

 

(10)

 

(60,005)

 

(1,139,173)

 

 

1,199,188

 

Purchase of 1,999 shares of treasury stock

 

 

 

 

 

 

(2,478,322)

 

(2,478,322)

Issuance of common stock under stock options and stock purchase plans

 

244

 

2

 

121,922

 

121,924

Share-based compensation expense

 

 

 

36,570

 

 

 

 

36,570

Balance at May 8, 2021

 

22,897

$

229

$

1,381,982

$

(1,205,600)

$

(304,382)

$

(1,635,621)

$

(1,763,392)

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 28, 2021.

Operating results for the twelve and thirty-six weeks ended May 7, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 27, 2022. 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 2022 and 2021 each have 16 weeks.

Recently Issued Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance. The update increases the disclosures for entities receiving governmental assistance for more transparency. ASU 2021-10 is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company will adopt this standard beginning with its first quarter ending November 19, 2022. The Company is currently evaluating the new guidance to determine the impact the adoption will have on the Company's consolidated financial statements and related disclosures.

R

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.

Stock Options:

The Company made stock option grants of 164,262 shares during the thirty-six week period ended May 7, 2022 and granted options to purchase 196,520 shares during the comparable prior year period. The Company grants options to purchase common stock to certain of its employees under its equity incentive plans at prices equal to the market value of the stock on the date of grant. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date.

7

The weighted average fair value of the stock option awards granted during the thirty-six week periods ended May 7, 2022 and May 8, 2021, using the Black-Scholes-Merton multiple-option pricing valuation model, was $463.09 and $299.99 per share, respectively, using the following weighted average key assumptions:

Thirty-Six Weeks Ended

    

May 7,

    

May 8,

    

    

2022

2021

Expected price volatility

 

28

%  

28

%

Risk-free interest rate

 

1.1

%  

0.4

%

Weighted average expected lives (in years)

 

5.6

 

5.6

 

Forfeiture rate

 

10

%  

10

%

Dividend yield

 

0

%  

0

%

During the thirty-six week period ended May 7, 2022, 179,440 stock options were exercised at a weighted average exercise price of $574.79. In the comparable prior year period, 239,177 stock options were exercised at a weighted average exercise price of $513.51.

As of May 7, 2022, total unrecognized share-based expense related to stock options, net of estimated forfeitures, was approximately $77.3 million, before income taxes, which we expect to recognize over an estimated weighted average period of 3.3 years.

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 four-year service period and are payable in shares of common stock on the vesting date. Compensation expense for grants of employee restricted stock units is recognized on a straight-line basis over the four-year service period, less estimated forfeitures, which are consistent with stock option forfeiture assumptions. Grants of non-employee director restricted stock units are made and expensed on January 1 of each year, as they vest immediately.

As of May 7, 2022, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $12.3 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.9 years.

Transactions related to restricted stock units for the thirty-six weeks ended May 7, 2022 were as follows:

Weighted-

    

Number

    

Average Grant

of Shares

Date Fair Value

Nonvested at August 28, 2021

 

15,751

$

1,005.41

Granted

 

5,551

1,740.19

Vested

 

(6,572)

 

1,159.53

Canceled or forfeited

 

(1,698)

 

1,145.06

Nonvested at May 7, 2022

 

13,032

$

1,222.55

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $18.3 million for the twelve week period ended May 7, 2022, and $13.9 million for the comparable prior year period. Total share-based compensation expense was $49.1 million for the thirty-six week period ended May 7, 2022, and $38.1 million for the comparable prior year period.

8

For the twelve and thirty-six week periods ended May 7, 2022, 120,515 and 136,994, respectively, stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year periods, 142,660 and 166,456 anti-dilutive stock options were excluded from the dilutive earnings per share computation.

See AutoZone’s Annual Report on Form 10-K for the year ended August 28, 2021 and other filings with the SEC, 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, the AutoZone, Inc. 2020 Omnibus 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:

May 7, 2022

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

Other current assets

$

57,927

$

335

$

$

58,262

Other long-term assets

 

49,213

 

11,934

 

 

61,147

$

107,140

$

12,269

$

$

119,409

August 28, 2021

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

Other current assets

$

46,007

$

$

$

46,007

Other long-term assets

 

54,105

 

13,806

 

 

67,911

$

100,112

$

13,806

$

$

113,918

At May 7, 2022, 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 F – 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.”

The Company’s available-for-sale marketable debt securities consisted of the following:

May 7, 2022

    

Amortized

    

Gross

    

Gross

    

Cost

Unrealized

Unrealized

Fair

(in thousands)

Basis

Gains

Losses

Value

Corporate debt securities

$

16,724

$

11

$

(264)

$

16,471

Government bonds

 

82,988

 

12

 

(1,672)

 

81,328

Mortgage-backed securities

 

5,120

 

18

 

(227)

 

4,911

Asset-backed securities and other

 

16,958

 

1

 

(260)

 

16,699

$

121,790

$

42

$

(2,423)

$

119,409

August 28, 2021

    

Amortized

    

Gross

    

Gross

    

Cost

Unrealized

Unrealized

Fair

(in thousands)

Basis

Gains

Losses

Value

Corporate debt securities

$

23,650

$

329

$

(2)

$

23,977

Government bonds

 

65,416

 

338

 

(2)

 

65,752

Mortgage-backed securities

 

6,552

 

58

 

(8)

 

6,602

Asset-backed securities and other

 

17,551

 

43

 

(7)

 

17,587

$

113,169

$

768

$

(19)

$

113,918

The debt securities held at May 7, 2022, had effective maturities ranging from less than one year to approximately three years. At May 7, 2022, the Company held 65 securities that are in an unrealized loss position of approximately $2.4 million. In evaluating whether a credit loss exists for the securities, the Company considers factors such as the severity of the loss position, the credit worthiness of the investee, the term to maturity and the intent and ability to hold the investments until maturity or until recovery of fair value. An allowance for credit losses was deemed unnecessary given consideration of the factors above.

Included above in total available-for-sale marketable debt securities are $91.2 million of marketable debt securities transferred by the Company’s insurance captive to a trust account to secure its obligations to an insurance company related to future workers’ compensation and casualty losses.

10

Note E – 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 has been reduced due to price inflation on the Company’s merchandise purchases, was $91.3 million at May 7, 2022 and $335.3 million at August 28, 2021.

Note F – Financing

The Company’s debt consisted of the following: