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 February 13, 2021, 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 – 22,036,780 shares outstanding as of March 12, 2021.

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	18
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
	Item 4.	Controls and Procedures	29
PART II.		OTHER INFORMATION	29
	Item 1.	Legal Proceedings	29
	Item 1A.	Risk Factors	29
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
	Item 3.	Defaults Upon Senior Securities	29
	Item 4.	Mine Safety Disclosures	30
	Item 5.	Other Information	30
	Item 6.	Exhibits	30
SIGNATURES			32

2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	February 13,		August 29,
(in thousands)	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	1,026,164	$	1,750,815
Accounts receivable		352,517		364,774
Merchandise inventories		4,736,826		4,473,282
Other current assets		211,338		223,001
Total current assets		6,326,845		6,811,872
Property and equipment:
Property and equipment		8,410,097		8,136,542
Less: Accumulated depreciation and amortization		(3,782,104)		(3,627,321)
		4,627,993		4,509,221
Operating lease right-of-use assets		2,660,667		2,581,677
Goodwill		302,645		302,645
Deferred income taxes		30,240		27,843
Other long-term assets		211,603		190,614
		3,205,155		3,102,779
	$	14,159,993	$	14,423,872
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	5,351,096	$	5,156,324
Current portion of operating lease liabilities		252,523		223,846
Current portion of debt		250,000		—
Accrued expenses and other		866,297		827,668
Income taxes payable		84,355		75,253
Total current liabilities		6,804,271		6,283,091
Debt, less current portion		5,266,396		5,513,371
Operating lease liabilities, less current portion		2,566,974		2,501,560
Deferred income taxes		358,161		354,186
Other long-term liabilities		687,764		649,641
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; 22,796 shares issued and 22,183 shares outstanding as of February 13, 2021; 23,697 shares issued and 23,376 shares outstanding as of August 29, 2020		228		237
Additional paid-in capital		1,314,424		1,283,495
Retained deficit		(1,801,764)		(1,450,970)
Accumulated other comprehensive loss		(300,839)		(354,252)
Treasury stock, at cost		(735,622)		(356,487)
Total stockholders’ deficit		(1,523,573)		(877,977)
	$	14,159,993	$	14,423,872

See Notes to Condensed Consolidated Financial Statements.

3

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Twelve Weeks Ended				Twenty-Four Weeks Ended
	February 13,		February 15,		February 13,		February 15,
(in thousands, except per share data)	2021		2020		2021		2020
Net sales	$	2,910,818	$	2,513,663	$	6,065,078	$	5,306,700
Cost of sales, including warehouse and delivery expenses		1,351,435		1,147,600		2,830,078		2,439,569
Gross profit		1,559,383		1,366,063		3,235,000		2,867,131
Operating, selling, general and administrative expenses		1,077,616		958,125		2,138,008		1,959,170
Operating profit		481,767		407,938		1,096,992		907,961
Interest expense, net		46,012		44,335		92,191		88,078
Income before income taxes		435,755		363,603		1,004,801		819,883
Income tax expense		89,809		64,321		216,422		170,263
Net income	$	345,946	$	299,282	$	788,379	$	649,620
Weighted average shares for basic earnings per share		22,648		23,570		22,935		23,722
Effect of dilutive stock equivalents		520		590		538		604
Weighted average shares for diluted earnings per share		23,168		24,160		23,473		24,326
Basic earnings per share	$	15.27	$	12.70	$	34.37	$	27.38
Diluted earnings per share	$	14.93	$	12.39	$	33.59	$	26.70

See Notes to Condensed Consolidated Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Twelve Weeks Ended				Twenty-Four Weeks Ended
	February 13,		February 15,		February 13,		February 15,
(in thousands)	2021		2020		2021		2020
Net income	$	345,946	$	299,282	$	788,379	$	649,620
Other comprehensive income:
Foreign currency translation adjustments		5,601		21,178		52,596		40,218
Unrealized (losses) gains on marketable debt securities, net of taxes		(192)		178		(501)		(10)
Net derivative activities, net of taxes		659		388		1,318		777
Total other comprehensive income		6,068		21,744		53,413		40,985
Comprehensive income	$	352,014	$	321,026	$	841,792	$	690,605

See Notes to Condensed Consolidated Financial Statements.

4

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Twenty-Four Weeks Ended
	February 13,		February 15,
(in thousands)	2021		2020
Cash flows from operating activities:
Net income	$	788,379	$	649,620
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment and intangibles		184,027		180,420
Amortization of debt origination fees		6,369		4,216
Deferred income taxes		(1,772)		11,154
Share-based compensation expense		24,178		22,107
Changes in operating assets and liabilities:
Accounts receivable		15,991		(28,897)
Merchandise inventories		(229,542)		(262,234)
Accounts payable and accrued expenses		216,540		6,571
Income taxes payable		11,180		11,124
Other, net		24,497		57,563
Net cash provided by operating activities		1,039,847		651,644
Cash flows from investing activities:
Capital expenditures		(238,644)		(190,563)
Purchase of marketable debt securities		(48,384)		(56,347)
Proceeds from sale of marketable debt securities		60,575		70,812
(Payments) proceeds from disposal of capital assets and other, net		(1,951)		1,185
Net cash used in investing activities		(228,404)		(174,913)
Cash flows from financing activities:
Net proceeds from commercial paper		—		242,700
Net proceeds from sale of common stock		66,510		48,705
Purchase of treasury stock		(1,578,323)		(764,846)
Repayment of principal portion of finance lease liabilities		(29,076)		(29,324)
Net cash used in financing activities		(1,540,889)		(502,765)
Effect of exchange rate changes on cash		4,795		2,704
Net decrease in cash and cash equivalents		(724,651)		(23,330)
Cash and cash equivalents at beginning of period		1,750,815		176,300
Cash and cash equivalents at end of period	$	1,026,164	$	152,970

See Notes to Condensed Consolidated Financial Statements.

5

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Twelve Weeks Ended February 13, 2021
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at November 21, 2020	23,761	$	238	$	1,323,037	$	(1,008,537)	$	(306,907)	$	(1,034,811)	$	(1,026,980)
Net income	—		—		—		345,946		—		—		345,946
Total other comprehensive income	—		—		—		—		6,068		—		6,068
Retirement of treasury shares	(1,044)		(10)		(60,005)		(1,139,173)		—		1,199,188		—
Purchase of 752 shares of treasury stock	—		—		—		—		—		(899,999)		(899,999)
Issuance of common stock under stock options and stock purchase plans	79		—		37,844		—		—		—		37,844
Share-based compensation expense	—		—		13,548		—		—		—		13,548
Balance at February 13, 2021	22,796	$	228	$	1,314,424	$	(1,801,764)	$	(300,839)	$	(735,622)	$	(1,523,573)

	Twelve Weeks Ended February 15, 2020
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at November 23, 2019	25,465	$	254	$	1,282,629	$	(955,009)	$	(250,081)	$	(1,853,883)	$	(1,776,090)
Net income	—		—		—		299,282		—		—		299,282
Total other comprehensive income	—		—		—		—		21,744		—		21,744
Retirement of treasury shares	(1,912)		(19)		(99,686)		(1,878,595)		—		1,978,300		—
Purchase of 267 shares of treasury stock	—		—		—		—		—		(314,847)		(314,847)
Issuance of common stock under stock options and stock purchase plans	100		2		46,477		—		—		—		46,479
Share-based compensation expense	—		—		12,313		—		—		—		12,313
Balance at February 15, 2020	23,653	$	237	$	1,241,733	$	(2,534,322)	$	(228,337)	$	(190,430)	$	(1,711,119)

	Twenty-Four Weeks Ended February 13, 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	—		—		—		788,379		—		—		788,379
Total other comprehensive income	—		—		—		—		53,413		—		53,413
Retirement of treasury shares	(1,044)		(10)		(60,005)		(1,139,173)		—		1,199,188		—
Purchase of 1,336 shares of treasury stock	—		—		—		—		—		(1,578,323)		(1,578,323)
Issuance of common stock under stock options and stock purchase plans	143		1		66,509		—		—		—		66,510
Share-based compensation expense	—		—		24,425		—		—		—		24,425
Balance at February 13, 2021	22,796	$	228	$	1,314,424	$	(1,801,764)	$	(300,839)	$	(735,622)	$	(1,523,573)

	Twenty-Four Weeks Ended February 15, 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	—		—		—		649,620		—		—		649,620
Total other comprehensive income	—		—		—		—		40,985		—		40,985
Retirement of treasury shares	(1,912)		(19)		(99,686)		(1,878,595)		—		1,978,300		—
Purchase of 670 shares of treasury stock	—		—		—		—		—		(764,846)		(764,846)
Issuance of common stock under stock options and stock purchase plans	120		2		55,299		—		—		—		55,301
Share-based compensation expense	—		—		21,672		—		—		—		21,672
Balance at February 15, 2020	23,653	$	237	$	1,241,733	$	(2,534,322)	$	(228,337)	$	(190,430)	$	(1,711,119)

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 29, 2020.

Operating results for the twelve and twenty-four weeks ended February 13, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 28, 2021. 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 2021 and 2020 each have 16 weeks.

Recent Accounting Pronouncements:

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 adopted the new guidance on a prospective basis in the first quarter of fiscal 2021. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements and related disclosures.

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 requires entities to estimate all expected credit losses for financial assets measured at amortized cost basis, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The Company adopted this guidance using the modified retrospective adoption method beginning with its first quarter ended November 21, 2020. The adoption of this new guidance did not have a material impact on the Company's Condensed Consolidated Financial Statements and related disclosures. The balance for allowance for uncollectable accounts was $11.2 million at February 13, 2021 and $10.0 million at August 29, 2020.

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.

7

Stock Options:

The Company made stock option grants of 196,161 shares during the twenty-four week period ended February 13, 2021 and granted options to purchase 188,324 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 twenty-four week periods ended February 13, 2021 and February 15, 2020, using the Black-Scholes-Merton multiple-option pricing valuation model, was $299.86 and $252.39 per share, respectively, using the following weighted average key assumptions:

	Twenty-Four Weeks Ended
	February 13,		February 15,
	2021		2020
Expected price volatility	28	%	22	%
Risk-free interest rate	0.4	%	1.4	%
Weighted average expected lives (in years)	5.6		5.5
Forfeiture rate	10	%	10	%
Dividend yield	0	%	0	%

During the twenty-four week period ended February 13, 2021, 138,705 stock options were exercised at a weighted average exercise price of $484.13. In the comparable prior year period, 105,860 stock options were exercised at a weighted average exercise price of $476.60.

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 February 13, 2021, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $13.3 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 twenty-four weeks ended February 13, 2021 were as follows:

		Weighted-
	Number	Average Grant
	of Shares	Date Fair Value
Nonvested at August 29, 2020	14,160	$	910.63
Granted	8,064		1,149.77
Vested	(5,805)		977.48
Canceled or forfeited	(78)		1,008.34
Nonvested at February 13, 2021	16,341	$	1,003.98

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $13.7 million for the twelve week period ended February 13, 2021, and $12.1 million for the comparable prior year period. Total share-based compensation expense was $24.2 million for the twenty-four week period ended February 13, 2021, and $22.1 million for the comparable prior year period.

8

For the twelve week period ended February 13, 2021, 196,280 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 188,486 anti-dilutive shares were excluded from the dilutive earnings per share computation. There were 248,578 anti-dilutive shares excluded from the diluted earnings per share computation for the twenty-four week period ended February 13, 2021, and 147,998 anti-dilutive shares excluded for the comparable prior year period.

See AutoZone’s Annual Report on Form 10-K for the year ended August 29, 2020, 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 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:

	February 13, 2021
(in thousands)	Level 1		Level 2		Level 3		Fair Value
Other current assets	$	42,741	$	2	$	—	$	42,743
Other long-term assets		74,508		17,161		—		91,669
	$	117,249	$	17,163	$	—	$	134,412

	August 29, 2020
(in thousands)	Level 1		Level 2		Level 3		Fair Value
Other current assets	$	75,651	$	467	$	—	$	76,118
Other long-term assets		58,792		12,329		—		71,121
	$	134,443	$	12,796	$	—	$	147,239

At February 13, 2021, 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 G – 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:

	February 13, 2021
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value
Corporate debt securities	$	35,515	$	701	$	—	$	36,216
Government bonds		73,237		798		—		74,035
Mortgage-backed securities		5,702		90		—		5,792
Asset-backed securities and other		18,240		129		—		18,369
	$	132,694	$	1,718	$	—	$	134,412

	August 29, 2020
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value
Corporate debt securities	$	46,652	$	970	$	(4)	$	47,618
Government bonds		44,594		1,172		—		45,766
Mortgage-backed securities		4,842		75		—		4,917
Asset-backed securities and other		48,798		143		(3)		48,938
	$	144,886	$	2,360	$	(7)	$	147,239

The debt securities held at February 13, 2021, had effective maturities ranging from less than one year to approximately six years. 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 $62.4 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 – Derivative Financial Instruments

At February 13, 2021, the Company had $29.5 million recorded in Accumulated other comprehensive loss related to realized losses associated with terminated interest rate swap and treasury rate lock derivatives, which were designated as hedging instruments. Net losses are amortized into Interest expense over the remaining life of the associated debt. During the twelve week periods ended February 13, 2021 and February 15, 2020, the Company reclassified $863 thousand and $508 thousand of net losses from Accumulated other comprehensive loss to Interest expense, respectively. During the twenty-four week period ended February 13, 2021 and the comparable prior year period, the Company reclassified $1.7 million and $1.0 million of net losses from Accumulated other comprehensive loss to Interest expense, respectively. The Company expects to reclassify $3.7 million of net losses from Accumulated other comprehensive loss to Interest expense over the next 13 periods.

Note F – 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 will be reduced upon experiencing price inflation on the Company’s merchandise purchases, was $363.3 million at February 13, 2021 and $357.0 million at August 29, 2020.

Note G – Financing

The Company’s debt consisted of the following:

	February 13,	August 29,
(in thousands)	2021	2020