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 9, 2020, 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

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 – 23,359,376 shares outstanding as of June 5, 2020.

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	21
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	31
PART II.		OTHER INFORMATION	32
	Item 1.	Legal Proceedings	32
	Item 1A.	Risk Factors	32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
	Item 3.	Defaults Upon Senior Securities	33
	Item 4.	Mine Safety Disclosures	33
	Item 5.	Other Information	33
	Item 6.	Exhibits	34
SIGNATURES			36

2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	May 9,		August 31,
(in thousands)	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	509,118	$	176,300
Accounts receivable		266,920		308,995
Merchandise inventories		4,440,602		4,319,113
Other current assets		181,353		224,277
Total current assets		5,397,993		5,028,685
Property and equipment:
Property and equipment		7,899,183		7,713,196
Less: Accumulated depreciation and amortization		(3,514,597)		(3,314,445)
		4,384,586		4,398,751
Operating lease right-of-use assets		2,613,849		—
Goodwill		302,645		302,645
Deferred income taxes		23,345		26,861
Other long-term assets		179,713		138,971
		3,119,552		468,477
	$	12,902,131	$	9,895,913
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	4,806,329	$	4,864,912
Current portion of operating lease liabilities		236,759		—
Accrued expenses and other		687,991		621,932
Income taxes payable		37,997		25,297
Total current liabilities		5,769,076		5,512,141
Long-term debt		5,418,272		5,206,344
Operating lease liabilities, less current portion		2,481,280		—
Deferred income taxes		325,919		311,980
Other long-term liabilities		540,320		579,299
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; 23,669 shares issued and 23,348 shares outstanding as of May 9, 2020; 25,445 shares issued and 24,038 shares outstanding as of August 31, 2019		237		254
Additional paid-in capital		1,259,457		1,264,448
Retained deficit		(2,191,427)		(1,305,347)
Accumulated other comprehensive loss		(344,516)		(269,322)
Treasury stock, at cost		(356,487)		(1,403,884)
Total stockholders’ deficit		(1,632,736)		(1,713,851)
	$	12,902,131	$	9,895,913

See Notes to Condensed Consolidated Financial Statements.

3

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Twelve Weeks Ended				Thirty-Six Weeks Ended
	May 9,		May 4,		May 9,		May 4,
(in thousands, except per share data)	2020		2019		2020		2019
Net sales	$	2,779,299	$	2,783,006	$	8,085,999	$	7,875,307
Cost of sales, including warehouse and delivery expenses		1,288,651		1,290,986		3,728,221		3,640,706
Gross profit		1,490,648		1,492,020		4,357,778		4,234,601
Operating, selling, general and administrative expenses		998,975		944,497		2,958,144		2,799,239
Operating profit		491,673		547,523		1,399,634		1,435,362
Interest expense, net		47,450		43,239		135,528		123,608
Income before income taxes		444,223		504,284		1,264,106		1,311,754
Income tax expense		101,327		98,335		271,591		259,762
Net income	$	342,896	$	405,949	$	992,515	$	1,051,992
Weighted average shares for basic earnings per share		23,386		24,836		23,610		25,210
Effect of dilutive stock equivalents		442		558		550		501
Weighted average shares for diluted earnings per share		23,828		25,394		24,160		25,711
Basic earnings per share	$	14.66	$	16.35	$	42.04	$	41.73
Diluted earnings per share	$	14.39	$	15.99	$	41.08	$	40.92

See Notes to Condensed Consolidated Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Twelve Weeks Ended				Thirty-Six Weeks Ended
	May 9,		May 4,		May 9,		May 4,
(in thousands)	2020		2019		2020		2019
Net income	$	342,896	$	405,949	$	992,515	$	1,051,992
Other comprehensive loss:
Foreign currency translation adjustments		(104,920)		(1,409)		(64,702)		(2,650)
Unrealized gains on marketable debt securities, net of taxes(1)		1,160		246		1,150		677
Net derivative activities, net of taxes(2)		(12,419)		388		(11,642)		1,166
Total other comprehensive loss		(116,179)		(775)		(75,194)		(807)
Comprehensive income	$	226,717	$	405,174	$	917,321	$	1,051,185

(1) Unrealized gains on marketable debt securities are presented net of taxes of $309 in fiscal 2020 and $65 in fiscal 2019 for the twelve weeks ended and $306 in fiscal 2020 and $180 in fiscal 2019 for the thirty-six weeks ended.

(2) Net derivative activities are presented net of tax benefits of $3,913 in fiscal 2020 and net of taxes of $120 in fiscal 2019 for the twelve weeks ended and net of tax benefits of $3,673 in fiscal 2020 and net of taxes of $360 in fiscal 2019 for the thirty-six weeks ended.

See Notes to Condensed Consolidated Financial Statements.

4

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Thirty-Six Weeks Ended
	May 9,		May 4,
(in thousands)	2020		2019
Cash flows from operating activities:
Net income	$	992,515	$	1,051,992
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment and intangibles		272,115		251,118
Amortization of debt origination fees		6,572		5,506
Deferred income taxes		24,281		17,111
Share-based compensation expense		32,251		31,529
Changes in operating assets and liabilities:
Accounts receivable		36,843		(21,616)
Merchandise inventories		(175,284)		(384,883)
Accounts payable and accrued expenses		20,907		259,629
Income taxes payable		12,334		10,585
Other, net		80,574		65,664
Net cash provided by operating activities		1,303,108		1,286,635
Cash flows from investing activities:
Capital expenditures		(273,888)		(313,847)
Purchase of marketable debt securities		(82,525)		(38,855)
Proceeds from sale of marketable debt securities		106,690		61,052
Proceeds from disposal of capital assets and other, net		1,800		6,358
Net cash used in investing activities		(247,923)		(285,292)
Cash flows from financing activities:
Net payments of commercial paper		(1,030,000)		(348,500)
Proceeds from issuance of debt		1,250,000		750,000
Repayment of debt		—		(250,000)
Net proceeds from sale of common stock		56,306		164,927
Purchase of treasury stock		(930,903)		(1,313,116)
Repayment of principal portion of finance lease liabilities		(43,776)		(38,428)
Other, net		(13,779)		(8,360)
Net cash used in financing activities		(712,152)		(1,043,477)
Effect of exchange rate changes on cash		(10,215)		(1,632)
Net increase (decrease) in cash and cash equivalents		332,818		(43,766)
Cash and cash equivalents at beginning of period		176,300		217,824
Cash and cash equivalents at end of period	$	509,118	$	174,058

See Notes to Condensed Consolidated Financial Statements.

5

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Twelve Weeks Ended May 9, 2020
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at February 15, 2020	23,653	$	237	$	1,241,734	$	(2,534,323)	$	(228,337)	$	(190,430)	$	(1,711,119)
Net income	—		—		—		342,896		—		—		342,896
Total other comprehensive loss	—		—		—		—		(116,179)		—		(116,179)
Purchase of 156 shares of treasury stock	—		—		—		—		—		(166,057)		(166,057)
Issuance of common stock under stock options and stock purchase plans	16		—		7,599		—		—		—		7,599
Share-based compensation expense	—		—		10,124		—		—		—		10,124
Balance at May 9, 2020	23,669	$	237	$	1,259,457	$	(2,191,427)	$	(344,516)	$	(356,487)	$	(1,632,736)

	Twelve Weeks Ended May 4, 2019
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at February 9, 2019	25,259	$	253	$	1,163,831	$	(2,276,525)	$	(235,837)	$	(246,084)	$	(1,594,362)
Net income	—		—		—		405,949		—		—		405,949
Total other comprehensive income	—		—		—		—		(775)		—		(775)
Purchase of 472 shares of treasury stock	—		—		—		—		—		(466,019)		(466,019)
Issuance of common stock under stock options and stock purchase plans	126		1		57,347		—		—		—		57,348
Share-based compensation expense	—		—		8,346		—		—		—		8,346
Balance at May 4, 2019	25,385	$	254	$	1,229,524	$	(1,870,576)	$	(236,612)	$	(712,103)	$	(1,589,513)

	Thirty-Six Weeks Ended May 9, 2020
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at August 31, 2019	25,445	$	254	$	1,264,448	$	(1,305,347)	$	(269,322)	$	(1,403,884)	$	(1,713,851)
Net income	—		—		—		992,515		—		—		992,515
Total other comprehensive loss	—		—		—		—		(75,194)		—		(75,194)
Retirement of treasury shares	(1,912)		(19)		(99,686)		(1,878,595)		—		1,978,300		—
Purchase of 826 shares of treasury stock	—		—		—		—		—		(930,903)		(930,903)
Issuance of common stock under stock options and stock purchase plans	136		2		62,899		—		—		—		62,901
Share-based compensation expense	—		—		31,796		—		—		—		31,796
Balance at May 9, 2020	23,669	$	237	$	1,259,457	$	(2,191,427)	$	(344,516)	$	(356,487)	$	(1,632,736)

	Thirty-Six Weeks Ended May 4, 2019
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at August 25, 2018	27,530	$	275	$	1,155,426	$	(1,208,824)	$	(235,805)	$	(1,231,427)	$	(1,520,355)
Cumulative effect of adoption of ASU 2014-09	—		—		—		(6,773)		—		—		(6,773)
Balance at August 25, 2018, as adjusted	27,530	$	275	$	1,155,426	$	(1,215,597)	$	(235,805)	$	(1,231,427)	$	(1,527,128)
Net income	—		—		—		1,051,992		—		—		1,051,992
Total other comprehensive loss	—		—		—		—		(807)		—		(807)
Retirement of treasury shares	(2,563)		(26)		(125,443)		(1,706,971)		—		1,832,440		—
Purchase of 1,548 shares of treasury stock	—		—		—		—		—		(1,313,116)		(1,313,116)
Issuance of common stock under stock options and stock purchase plans	418		5		171,289		—		—		—		171,294
Share-based compensation expense	—		—		28,252		—		—		—		28,252
Balance at May 4, 2019	25,385	$	254	$	1,229,524	$	(1,870,576)	$	(236,612)	$	(712,103)	$	(1,589,513)

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 31, 2019.

Operating results for the twelve and thirty-six weeks ended May 9, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 29, 2020. 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 quarter of fiscal 2020 has 16 weeks and fiscal 2019 had 17 weeks.

COVID-19 Impact

The outbreak of a novel strain of the coronavirus (“COVID-19”), which was declared a global pandemic on March 11, 2020 by the World Health Organization, has led to adverse impacts on the national and global economy. While sales were initially negatively impacted and store operating hours were reduced, virtually all our stores have remained open. Sales have since recovered and store operating hours have been reinstated; however, we are unable to accurately predict the ultimate impact that COVID-19 will have on our business and financial condition.

During the third quarter of 2020, the Company provided additional paid time off for both full-time and part-time eligible hourly employees. During the quarter, we invested in supplies for the protection of our employees and customers. These expanded benefits, supply costs and other COVID-19 related costs resulted in approximately $75 million of expense included in Operating, selling, general and administrative expenses in the Condensed Consolidated Statements of Income for the twelve weeks ended and thirty-six weeks ended May 9, 2020.

Additionally, to strengthen our financial position and ability to be responsive during this ever-changing environment, the Company issued $1.250 billion in Senior notes and closed on a new 364-day Senior unsecured revolving credit facility in the principal amount of $750 million. Refer to “Note G – Financing” for details.

Recently Adopted Accounting Pronouncements:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), and subsequently amended this update by issuing additional ASU’s that provided clarification and further guidance for areas identified as potential implementation issues. ASU 2016-02 requires a two-fold approach for lessee accounting, under which a lessee will account for leases as finance leases or operating leases. For all leases with original terms greater than 12 months, both lease classifications will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodologies for income statement recognition. This guidance also requires certain quantitative and qualitative disclosures about leasing arrangements. ASU 2016-02 and its amendments were effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption was permitted. The ASU’s transition provisions could be applied under a modified retrospective approach to each prior reporting period presented in the financial statements or only at the beginning of the period of adoption using the alternative transition method.

7

The Company adopted this standard and its amendments as of September 1, 2019, using the modified retrospective transition method. Under this method, existing leases were recorded at the adoption date, comparative periods were not restated and prior period amounts were not adjusted and continue to be reported under the accounting standards in effect for the prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the carry forward of prior lease identification under Accounting Standards Codification (“ASC”) Topic 840. The Company made the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term. The Company also elected the practical expedient to not separate lease components from the non-lease components (typically fixed common-area maintenance costs at its retail store locations) for all classes of leased assets, except vehicles. The Company chose not to elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. Adoption of the leasing standard resulted in operating lease right-of-use assets of approximately $2.5 billion and operating lease liabilities of approximately $2.7 billion as of September 1, 2019. Existing prepaid and deferred rent were netted and recorded as an offset to our gross operating lease right-of-use assets. There was no adjustment to the opening balance of retained earnings upon adoption. The standard did not have a material impact on the Company’s Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Cash Flows or covenant compliance under its existing credit agreement. Refer to “Note L – Leases”.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 aims to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The Company adopted this standard beginning with its first quarter ending November 23, 2019. The Company determined that the provisions of ASU 2018-07 did not have an impact on its Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.

Recently Issued Accounting Pronouncements:

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this standard beginning with its first quarter ending November 21, 2020. The Company is currently evaluating the new guidance to determine the impact the adoption will have on its Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which was subsequently amended in November 2018 through ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments Credit Losses. ASU 2016-13 will require entities to estimate lifetime expected credit losses for trade and other receivables, net investments in leases, financial receivables, debt securities, and other instruments, which will result in earlier recognition of credit losses.

Further, the new credit loss model will affect how entities estimate their allowance for loss receivables that are current with respect to their payment terms. ASU 2016-13 will be effective for the Company at the beginning of its fiscal 2021 year. The Company will adopt this standard beginning with its first quarter ending November 21, 2020. The Company is currently evaluating the new guidance to determine the impact the adoption will have on the Company’s Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.

8

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 188,324 shares during the thirty-six week period ended May 9, 2020 and granted options to purchase 172,750 shares during the comparable prior year period. The Company grants options to purchase common stock to certain of its employees under its plan 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.

The weighted average fair value of the stock option awards granted during the thirty-six week periods ended May 9, 2020 and May 4, 2019, using the Black-Scholes-Merton multiple-option pricing valuation model, was $252.39 and $208.37 per share, respectively, using the following weighted average key assumptions:

	Thirty-Six Weeks Ended
	May 9,		May 4,
	2020		2019
Expected price volatility	22	%	21	%
Risk-free interest rate	1.4	%	3.0	%
Weighted average expected lives (in years)	5.5		5.6
Forfeiture rate	10	%	10	%
Dividend yield	0	%	0	%

During the thirty-six week period ended May 9, 2020, 121,236 stock options were exercised at a weighted average exercise price of $480.39. In the comparable prior year period, 408,657 stock options were exercised at a weighted average exercise price of $412.75.

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 9, 2020, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $10.1 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.9 years.

9

Transactions related to restricted stock units for the thirty-six weeks ended May 9, 2020 were as follows:

		Weighted-
	Number	Average Grant
	of Shares	Date Fair Value
Nonvested at August 31, 2019	10,049	$	773.61
Granted	8,735		1,086.61
Vested	(4,183)		945.58
Canceled or forfeited	(313)		938.64
Nonvested at May 9, 2020	14,288	$	911.01

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $10.1 million for the twelve week period ended May 9, 2020, and $10.0 million for the comparable prior year period. Total share-based compensation expense was $32.3 million for the thirty-six week period ended May 9, 2020, and $31.5 million for the comparable prior year period.

For the twelve week period ended May 9, 2020, 187,965 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 4,177 anti-dilutive shares were excluded from the dilutive earnings per share computation. There were 161,321 anti-dilutive shares excluded from the diluted earnings per share computation for the thirty-six week period ended May 9, 2020, and 149,648 anti-dilutive shares excluded for the comparable prior year period.

See AutoZone’s Annual Report on Form 10-K for the year ended August 31, 2019, 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 2011 Director Compensation Program and the 2014 Director Compensation Plan.

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.

10

Financial Assets & Liabilities Measured at Fair Value on a Recurring Basis

The Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

	May 9, 2020
(in thousands)	Level 1		Level 2		Level 3		Fair Value
Other current assets	$	34,381	$	—	$	—	$	34,381
Other long-term assets		70,726		11,110		—		81,836
	$	105,107	$	11,110	$	—	$	116,217
Accrued expenses and other	$	—	$	(16,842)	$	—	$	(16,842)

	August 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Fair Value
Other current assets	$	65,344	$	2,614	$	—	$	67,958
Other long-term assets		65,573		5,395		—		70,968
	$	130,917	$	8,009	$	—	$	138,926

At May 9, 2020, the fair value measurement amounts for assets and liabilities recorded in the accompanying Consolidated Balance Sheets consisted of short-term marketable debt securities of $34.4 million, which are included within Other current assets; long-term marketable debt securities of $81.8 million, which are included in Other long-term assets; and cash flow hedging instruments of $16.8 million, which are included within Accrued expenses and other. 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.” The fair values of derivative assets and liabilities traded in the over-the-counter markets are determined using quantitative models that require the use of multiple inputs including interest rates, prices and indices to generate pricing and volatility factors. Refer to “Note E – Derivative Financial Instruments”.

Financial Instruments not Recognized at Fair Value

The Company has financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short maturities. A discussion of the carrying values and fair values of the Company’s debt is included in “Note G – Financing.”

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Note D – Marketable Debt Securities

The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.” Unrealized gains (losses) on marketable debt securities are recorded in Accumulated other comprehensive loss. The Company’s available-for-sale marketable debt securities consisted of the following:

	May 9, 2020
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value
Corporate debt securities	$	52,423	$	715	$	(28)	$	53,110
Government bonds		45,683		1,468		(13)		47,138
Mortgage-backed securities		2,958		58		—		3,016
Asset-backed securities and other		12,944		70		(61)		12,953
	$	114,008	$	2,311	$	(102)	$	116,217
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value
Corporate debt securities	$	36,998	$	29	$	(19)	$	37,008
Government bonds		45,741		763		—		46,504
Mortgage-backed securities		2,089		2		(15)		2,076
Asset-backed securities and other		53,345		—		(7)		53,338
	$	138,173	$