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"); inflation; the ability to hire, train and retain qualified
employees; construction delays; the compromising of confidentiality,
availability or integrity of information, including cyber-attacks; historic
growth rate sustainability; downgrade of our credit ratings; damages to our
reputation; challenges in international markets; failure or interruption of our
information technology systems; origin and raw material costs of suppliers;
disruption in our supply chain, due to public health epidemics or otherwise;
impact of tariffs; anticipated impact of new accounting standards; and business
interruptions. Certain of these risks and uncertainties are discussed in more
detail in the "Risk Factors" section contained in Item 1A under Part 1 of our
Annual Report on Form 10-K for the year ended August 29, 2020 , and these Risk
Factors should be read carefully. Forward-looking statements are not guarantees
of future performance, actual results, developments and business decisions may
differ from those contemplated by such forward-looking statements, and events
described above and in the "Risk Factors" could materially and adversely affect
our business. However, it should be understood that it is not possible to
identify or predict all such risks and other factors that could affect these
forward-looking statements. Forward-looking statements speak only as of the date
made. Except as required by applicable law, we undertake no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
Overview
We are the leading retailer, and a leading distributor, of automotive
replacement parts and accessories in the Americas . We began operations in 1979
and at November 21, 2020 , operated 5,924 stores in the U.S. , 621 stores in
Mexico and 45 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 21, 2020 , in 5,043 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 also 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.
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Operating results for the twelve weeks ended November 21, 2020 are not
necessarily indicative of the results that may be expected for the fiscal year
ending August 28, 2021 . Each of the first three quarters of our fiscal year
consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The
fourth quarters of fiscal 2021 and 2020 each have 16 weeks. Our business is
somewhat seasonal in nature, with the highest sales generally occurring during
the months of February through September, and the lowest sales generally
occurring in the months of December and January.
COVID-19 Impact
In the first quarter of fiscal 2021, the COVID-19 pandemic has continued to impact our business. While our sales remain at an elevated level compared to sales prior to the pandemic, we have seen a deceleration in sales growth rates throughout this quarter as we get further away from the pandemic-related government stimulus, which we believe benefitted many of our customers and normal seasonality. 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. Our current operating expenses reflect the increased costs associated with personal protective equipment and more frequent cleaning of our stores, which we expect to continue for the duration of the pandemic. Additionally, onDecember 8, 2020 , we announced that we are providing additional Emergency Time-Off ("ETO") benefit enhancements for both full and part-time eligible employees in theU.S. along with extending the carryover of unused ETO and normal vacation benefits that will be recognized as an expense of approximately$50 million in our second quarter of fiscal 2021. 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 efficacy of a vaccine, the likelihood of a resurgence of the outbreak, 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, continued 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 theWorld Health Organization , continues to spread withinthe 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 12.9% for the quarter endedNovember 21, 2020 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 12.3%. Domestic commercial sales increased 11.9% compared to the prior year period, which represents 22.0% of our total sales. Operating profit increased by 23.0% to$615.2 million compared to$500.0 million in the same period last year. Net income for the quarter increased by 26.3% to$442.4 million compared to$350.3 million in the same period last year. Diluted earnings per share increased by 30.1% to$18.61 per share from$14.30 per share in the comparable prior year period. The increase in net income for the quarter endedNovember 21, 2020 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. During the first 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. 19
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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 throughSeptember 2020 (latest publicly available information), miles driven in theU.S. decreased 8.6% 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 does continue, the extent of the impact will have on our business.
Twelve Weeks Ended
Compared with Twelve Weeks Ended
Net sales for the twelve weeks endedNovember 21, 2020 increased$361.2 million to$3.154 billion , or 12.9% over net sales of$2.793 billion for the comparable prior year period. Total auto parts sales increased by 13.1%, primarily driven by an increase in domestic same store sales of 12.3% and net sales of$41.1 million from new stores. Domestic commercial sales increased$73.9 million to$695.3 million , or 11.9%, over the comparable prior year period. Gross profit for the twelve weeks endedNovember 21, 2020 was$1.676 billion , compared with$1.501 billion during the comparable prior year period. Gross profit, as a percentage of sales was 53.1% for the twelve weeks endedNovember 21, 2020 compared to 53.7% during the comparable prior year period. The decrease in gross profit percent was primarily attributable to one-time COVID-19 pandemic related charges, increased loyalty program participation resulting from increased purchase frequency from existing customers, and a shift in mix. Operating, selling, general and administrative expenses for the twelve weeks endedNovember 21, 2020 were$1.060 billion , or 33.6% of net sales, compared with$1.001 billion , or 35.8% 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. Net interest expense for the twelve weeks endedNovember 21, 2020 was$46.2 million compared with$43.7 million during the comparable prior year period. The increase was primarily due to higher debt levels. Average borrowings for the twelve weeks endedNovember 21, 2020 were$5.514 billion , compared with$5.190 billion for the comparable prior year period. Weighted average borrowing rates were 3.3% and 3.1% for the quarter endedNovember 21, 2020 andNovember 23, 2019 , respectively. Our effective income tax rate was 22.2% of pretax income for the twelve weeks endedNovember 21, 2020 , and 23.2% for the comparable prior year period. The decrease in the tax rate was primarily attributable to a higher benefit from stock options exercised during the twelve weeks endedNovember 21, 2020 compared to the comparable prior year period. The benefit of stock options exercised for the twelve weeks endedNovember 21, 2020 was$7.6 million compared to$1.5 million in the comparable prior year period. Net income for the twelve week period endedNovember 21, 2020 increased by$92.1 million to$442.4 million from$350.3 million in the comparable prior year period, and diluted earnings per share increased by 30.1% to$18.61 from$14.30 in the comparable prior year period. The impact on current quarter diluted earnings per share from stock repurchases since the end of the comparable prior year period was an increase of$0.48 .
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 twelve weeks endedNovember 21, 2020 , our net cash flows from operating activities provided$683.5 million as compared with$447.1 million provided during the comparable prior year period. The increase is 20
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primarily due to growth in net income due to accelerated sales growth as a result of the COVID-19 pandemic and the timing of accrued payments.
Our net cash flows used in investing activities for the twelve weeks endedNovember 21, 2020 were$110.2 million as compared with$90.7 million in the comparable prior year period. Capital expenditures for the twelve weeks endedNovember 21, 2020 were$113.0 million compared to$101.4 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 twelve week period endedNovember 21, 2020 andNovember 23, 2019 , we opened 41 and 22 net new stores, respectively. Investing cash flows were impacted by our wholly owned captive, which purchased$46.0 million and sold$51.2 million in marketable debt securities during the twelve weeks endedNovember 21, 2020 . During the comparable prior year period, the captive purchased$35.4 million in marketable debt securities and sold$45.8 million . Our net cash flows used in financing activities for the twelve weeks endedNovember 21, 2020 were$663.4 million compared to$375.8 million in the comparable prior year period. We did not have any commercial paper activity during the twelve week period endedNovember 21, 2020 as compared to$79.7 million in net proceeds in the comparable prior year period. Stock repurchases were$678.3 million in the current twelve week period as compared with$450.0 million in the comparable prior year period. For the twelve weeks endedNovember 21, 2020 , proceeds from the sale of common stock and exercises of stock options provided$28.7 million . In the comparable prior year period, proceeds from the sale of common stock and exercises of stock options provided$8.8 million . 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 114.1% atNovember 21, 2020 , compared to 110.3% atNovember 23, 2019 . 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 endedNovember 21, 2020 , our adjusted after-tax return on invested capital ("ROIC"), which is a non-GAAP measure, was 40.3% as compared to 35.5% 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 endedNovember 21, 2020 , ROIC was presented net of average excess cash of$668.0 million . Refer to the "Reconciliation of Non-GAAP Financial Measures" section for further details of our calculation. 21 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 provides for loans in the aggregate principal amount of up to$750 million . The 364-Day Credit Agreement will terminate, and all amounts borrowed under the 364-Day Credit Agreement will be due and payable, onApril 2, 2021 . Revolving loans under the 364-Day Credit Agreement may be base rate loans, Eurodollar loans, or a combination of both, at our election. As ofNovember 21, 2020 , 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 ofNovember 21, 2020 , 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 ofNovember 21, 2020 , we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements. As ofNovember 21, 2020 , the$250 million 2.500% Senior Notes dueApril 2021 are classified as long-term in the Condensed Consolidated Balance Sheets as we have the ability and intent to refinance them on a long-term basis through available capacity in our revolving credit agreements. As ofNovember 21, 2020 , we had$2.748 billion of availability under our$2.750 billion revolving credit agreements, which would allow us to replace these short-term obligations with long-term financing facilities. 22
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Our adjusted debt to earnings before interest, taxes, depreciation,
amortization, rent and share-based compensation expense ("EBITDAR") ratio was
1.9:1 as of November 21, 2020 and was 2.5:1 as of November 23, 2019 . We
calculate adjusted debt as the sum of total debt, finance 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 November 21, 2020 , debt was presented net
of excess cash of $1.469 billion . 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 toNovember 21, 2020 , we have repurchased a total of 148.3 million shares of our common stock at an aggregate cost of$23.032 billion , including 584,379 shares of our common stock at an aggregate cost of$678.3 million during the twelve week period endedNovember 21, 2020 . Considering cumulative repurchases as ofNovember 21, 2020 , we had$117.6 million remaining under the Board's authorization to repurchase our common stock.
On
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 atNovember 21, 2020 , was$250.9 million , compared with$246.9 million atAugust 29, 2020 , and our total surety bonds commitment atNovember 21, 2020 , was$40.7 million , compared with$56.7 million at August
29, 2020. Financial Commitments As ofNovember 21, 2020 , 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 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
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
percentages) 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(2) 329,783 75,592 254,191 78,027 332,218
Tax effect(3) (114,685) (25,776)
(88,909) (26,828) (115,737)
Adjusted after-tax return
Average debt(4)(5)$ 4,769,061 Average stockholders' deficit(5) (1,404,980) Add: Rent x 6(2) 1,993,308 Average finance lease liabilities(5) 214,601 Invested capital$ 5,571,990 Adjusted after-tax ROIC 40.3 % A B A-B=C D C+D Fiscal Year Twelve Forty-One Twelve Trailing Four Ended Weeks Ended Weeks Ended Weeks Ended Quarters Ended August 31, November 17, August 31, November 23, November 23, (in thousands, except percentages) 2019(1) 2018 2019 2019 2019 Net income$ 1,617,221 $ 351,406 $ 1,265,815 $ 350,338 $ 1,616,153 Adjustments: Interest expense 184,804 39,006 145,798 43,743 189,541 Rent expense(2) 332,726 71,216 261,510 75,592 337,102 Tax effect(3) (107,129) (22,816) (84,313) (24,702) (109,015) Deferred tax liabilities, net of repatriation tax (6,340) - (6,340) - (6,340) Adjusted after-tax return$ 2,021,282 $ 438,812 $ 1,582,470 $ 444,971 $ 2,027,441 Average debt(5)$ 5,182,565 Average stockholders' deficit(5) (1,666,486) Add: Rent x 6(2) 2,022,612 Average finance lease liabilities(5) 170,863 Invested capital$ 5,709,554 Adjusted after-tax ROIC 35.5 % 24 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 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 ratios) 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
Adjusted 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(2) 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(6) $ 4,045,681
Financing lease liabilities 232,921
Add: Rent x 6(2) 1,993,308
Adjusted debt $ 6,271,910
Adjusted debt to EBITDAR 1.9
A B A-B=C D C+D
Fiscal Year Twelve Forty-One Twelve Trailing Four
Ended Weeks Ended Weeks Ended Weeks Ended Quarters Ended
August 31, November 17, August 31, November 23, November 23,
(in thousands, except ratio) 2019(1) 2018 2019 2019 2019
Net income $ 1,617,221 $ 351,406 $ 1,265,815 $ 350,338 $ 1,616,153
Add: Interest expense 184,804 39,006 145,798 43,743 189,541
Income tax expense 414,112 97,406 316,706 105,942 422,648
Adjusted EBIT 2,216,137 487,818 1,728,319 500,023 2,228,342
Add: Depreciation and
amortization expense 369,957 82,452 287,505 89,750 377,255
Rent expense(2) 332,726 71,216 261,510 75,592 337,102
Share-based expense 43,255 10,527 32,728 9,996 42,724
Adjusted EBITDAR $ 2,962,075 $ 652,013 $ 2,310,062 $ 675,361 $ 2,985,423
Debt $ 5,287,324
Finance lease liabilities 195,663
Add: Rent x 6(2) 2,022,612
Adjusted debt $ 7,505,599
Adjusted debt to EBITDAR 2.5
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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 52 weeks ended
ended
Total lease cost, per ASC 842, for the 52 weeks ended
$ 413,790
Less: Finance lease interest and amortization
(56,256)
Less: Variable operating lease components, related to
insurance and common area maintenance for the 52 weeks
ended
(25,316)
Rent expense for the 52 weeks ended
Total lease cost, per ASC 842, for the 12 weeks endedNovember 23, 2019 $
95,840
Less: Finance lease interest and amortization
(14,041)
Less: Variable operating lease components, related to
insurance and common area maintenance for the 12 weeks
ended
(6,207)
Rent expense for the 12 weeks ended
261,510
Rent expense for the 53 weeks ended
(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 5 quarter balances.
(6) The Company ended the 12 weeks ended
$1.469 billion . 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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