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 8, 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 – 21,544,752 shares outstanding as of June 4, 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	16
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
	Item 4.	Controls and Procedures	27
PART II.		OTHER INFORMATION	27
	Item 1.	Legal Proceedings	27
	Item 1A.	Risk Factors	27
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
	Item 3.	Defaults Upon Senior Securities	27
	Item 4.	Mine Safety Disclosures	28
	Item 5.	Other Information	28
	Item 6.	Exhibits	28
SIGNATURES			29

2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	May 8,		August 29,
(in thousands)	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	975,646	$	1,750,815
Accounts receivable		359,669		364,774
Merchandise inventories		4,665,477		4,473,282
Other current assets		223,604		223,001
Total current assets		6,224,396		6,811,872
Property and equipment:
Property and equipment		8,538,854		8,136,542
Less: Accumulated depreciation and amortization		(3,855,705)		(3,627,321)
		4,683,149		4,509,221
Operating lease right-of-use assets		2,694,846		2,581,677
Goodwill		302,645		302,645
Deferred income taxes		30,366		27,843
Other long-term assets		202,544		190,614
		3,230,401		3,102,779
	$	14,137,946	$	14,423,872
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	5,778,222	$	5,156,324
Current portion of operating lease liabilities		256,382		223,846
Accrued expenses and other		884,377		827,668
Income taxes payable		94,268		75,253
Total current liabilities		7,013,249		6,283,091
Long-term debt		5,267,896		5,513,371
Operating lease liabilities, less current portion		2,594,506		2,501,560
Deferred income taxes		366,497		354,186
Other long-term liabilities		659,190		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; 22,897 shares issued and 21,620 shares outstanding as of May 8, 2021; 23,697 shares issued and 23,376 shares outstanding as of August 29, 2020		229		237
Additional paid-in capital		1,381,982		1,283,495
Retained deficit		(1,205,600)		(1,450,970)
Accumulated other comprehensive loss		(304,382)		(354,252)
Treasury stock, at cost		(1,635,621)		(356,487)
Total stockholders’ deficit		(1,763,392)		(877,977)
	$	14,137,946	$	14,423,872

See Notes to Condensed Consolidated Financial Statements.

3

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Twelve Weeks Ended				Thirty-Six Weeks Ended
	May 8,		May 9,		May 8,		May 9,
(in thousands, except per share data)	2021		2020		2021		2020
Net sales	$	3,651,023	$	2,779,299	$	9,716,101	$	8,085,999
Cost of sales, including warehouse and delivery expenses		1,736,077		1,288,651		4,566,155		3,728,221
Gross profit		1,914,946		1,490,648		5,149,946		4,357,778
Operating, selling, general and administrative expenses		1,111,441		998,975		3,249,449		2,958,144
Operating profit		803,505		491,673		1,900,497		1,399,634
Interest expense, net		45,026		47,450		137,217		135,528
Income before income taxes		758,479		444,223		1,763,280		1,264,106
Income tax expense		162,315		101,327		378,737		271,591
Net income	$	596,164	$	342,896	$	1,384,543	$	992,515
Weighted average shares for basic earnings per share		21,956		23,386		22,609		23,610
Effect of dilutive stock equivalents		559		442		545		550
Weighted average shares for diluted earnings per share		22,515		23,828		23,154		24,160
Basic earnings per share	$	27.15	$	14.66	$	61.24	$	42.04
Diluted earnings per share	$	26.48	$	14.39	$	59.80	$	41.08

See Notes to Condensed Consolidated Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Twelve Weeks Ended				Thirty-Six Weeks Ended
	May 8,		May 9,		May 8,		May 9,
(in thousands)	2021		2020		2021		2020
Net income	$	596,164	$	342,896	$	1,384,543	$	992,515
Other comprehensive (loss) income:
Foreign currency translation adjustments		(3,865)		(104,920)		48,731		(64,702)
Unrealized (losses) gains on marketable debt securities, net of taxes		(337)		1,160		(838)		1,150
Net derivative activities, net of taxes		659		(12,419)		1,977		(11,642)
Total other comprehensive (loss) income		(3,543)		(116,179)		49,870		(75,194)
Comprehensive income	$	592,621	$	226,717	$	1,434,413	$	917,321

See Notes to Condensed Consolidated Financial Statements.

4

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Thirty-Six Weeks Ended
	May 8,		May 9,
(in thousands)	2021		2020
Cash flows from operating activities:
Net income	$	1,384,543	$	992,515
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment and intangibles		278,044		272,115
Amortization of debt origination fees		9,326		6,572
Deferred income taxes		6,047		24,281
Share-based compensation expense		38,061		32,251
Changes in operating assets and liabilities:
Accounts receivable		8,335		36,843
Merchandise inventories		(162,271)		(175,284)
Accounts payable and accrued expenses		635,058		20,907
Income taxes payable		22,989		12,334
Other, net		10,215		80,574
Net cash provided by operating activities		2,230,347		1,303,108
Cash flows from investing activities:
Capital expenditures		(375,653)		(273,888)
Purchase of marketable debt securities		(52,553)		(82,525)
Proceeds from sale of marketable debt securities		72,268		106,690
Investment in tax credit equity investments		(3,908)		—
Proceeds from disposal of capital assets and other, net		1,183		1,800
Net cash used in investing activities		(358,663)		(247,923)
Cash flows from financing activities:
Net payments of commercial paper		—		(1,030,000)
Proceeds from issuance of debt		—		1,250,000
Repayment of debt		(250,000)		—
Net proceeds from sale of common stock		121,924		56,306
Purchase of treasury stock		(2,478,322)		(930,903)
Repayment of principal portion of finance lease liabilities		(44,844)		(43,776)
Other, net		—		(13,779)
Net cash used in financing activities		(2,651,242)		(712,152)
Effect of exchange rate changes on cash		4,389		(10,215)
Net (decrease) increase in cash and cash equivalents		(775,169)		332,818
Cash and cash equivalents at beginning of period		1,750,815		176,300
Cash and cash equivalents at end of period	$	975,646	$	509,118

See Notes to Condensed Consolidated Financial Statements.

5

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Twelve Weeks Ended May 8, 2021
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at February 13, 2021	22,796	$	228	$	1,314,424	$	(1,801,764)	$	(300,839)	$	(735,622)	$	(1,523,573)
Net income	—		—		—		596,164		—		—		596,164
Total other comprehensive income	—		—		—		—		(3,543)		—		(3,543)
Purchase of 663 shares of treasury stock	—		—		—		—		—		(899,999)		(899,999)
Issuance of common stock under stock options and stock purchase plans	101		1		55,413		—		—		—		55,414
Share-based compensation expense	—		—		12,145		—		—		—		12,145
Balance at May 8, 2021	22,897	$	229	$	1,381,982	$	(1,205,600)	$	(304,382)	$	(1,635,621)	$	(1,763,392)

	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 income	—		—		—		—		(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)

	Thirty-Six Weeks Ended May 8, 2021
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at August 29, 2020	23,697	$	237	$	1,283,495	$	(1,450,970)	$	(354,252)	$	(356,487)	$	(877,977)
Net income	—		—		—		1,384,543		—		—		1,384,543
Total other comprehensive income	—		—		—		—		49,870		—		49,870
Retirement of treasury shares	(1,044)		(10)		(60,005)		(1,139,173)		—		1,199,188		—
Purchase of 1,999 shares of treasury stock	—		—		—		—		—		(2,478,322)		(2,478,322)
Issuance of common stock under stock options and stock purchase plans	244		2		121,922		—		—		—		121,924
Share-based compensation expense	—		—		36,570		—		—		—		36,570
Balance at May 8, 2021	22,897	$	229	$	1,381,982	$	(1,205,600)	$	(304,382)	$	(1,635,621)	$	(1,763,392)

	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 income	—		—		—		—		(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)

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 thirty-six weeks ended May 8, 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 $11.1 million at May 8, 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 196,520 shares during the thirty-six week period ended May 8, 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 equity incentive plans at prices equal to the market value of the stock on the date of grant. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date.

The weighted average fair value of the stock option awards granted during the thirty-six week periods ended May 8, 2021 and May 9, 2020, using the Black-Scholes-Merton multiple-option pricing valuation model, was $299.99 and $252.39 per share, respectively, using the following weighted average key assumptions:

	Thirty-Six Weeks Ended
	May 8,		May 9,
	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 thirty-six week period ended May 8, 2021, 239,177 stock options were exercised at a weighted average exercise price of $513.51. In the comparable prior year period, 121,236 stock options were exercised at a weighted average exercise price of $480.39.

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 8, 2021, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $12.1 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.6 years.

Transactions related to restricted stock units for the thirty-six weeks ended May 8, 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	(367)		1,025.45
Nonvested at May 8, 2021	16,052	$	1,003.38

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $13.9 million for the twelve week period ended May 8, 2021, and $10.1 million for the comparable prior year period. Total share-based compensation expense was $38.1 million for the thirty-six week period ended May 8, 2021, and $32.3 million for the comparable prior year period.

8

For the twelve week period ended May 8, 2021, 142,660 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 187,965 anti-dilutive shares were excluded from the dilutive earnings per share computation. There were 166,456 anti-dilutive shares excluded from the diluted earnings per share computation for the thirty-six week period ended May 8, 2021, and 161,321 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 and other filings with the SEC, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan, the AutoZone, Inc. 2020 Omnibus Incentive Award Plan and the 2020 Director Compensation Program.

Note C – Fair Value Measurements

The Company defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company uses the fair value hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are set forth below:

Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.

Level 2 inputs—inputs other than quoted market prices included within Level 1 that are observable, either directly or indirectly, for the asset or liability.

Level 3 inputs—unobservable inputs for the asset or liability, which are based on the Company’s own assumptions as there is little, if any, observable activity in identical assets or liabilities.

Marketable Debt Securities Measured at Fair Value on a Recurring Basis

The Company’s marketable debt securities measured at fair value on a recurring basis were as follows:

	May 8, 2021
(in thousands)	Level 1		Level 2		Level 3		Fair Value
Other current assets	$	50,579	$	—	$	—	$	50,579
Other long-term assets		58,015		17,857		—		75,872
	$	108,594	$	17,857	$	—	$	126,451

	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 May 8, 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:

	May 8, 2021
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value
Corporate debt securities	$	31,660	$	546	$	—	$	32,206
Government bonds		69,237		580		—		69,817
Mortgage-backed securities		4,912		64		—		4,976
Asset-backed securities and other		19,361		104		(13)		19,452
	$	125,170	$	1,294	$	(13)	$	126,451

	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 May 8, 2021, had effective maturities ranging from less than one year to approximately four years. At May 8, 2021, the Company held eight securities that are in an unrealized loss position of approximately $13 thousand. 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 May 8, 2021, the Company had $28.6 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 May 8, 2021 and May 9, 2020, the Company reclassified $863 thousand and $509 thousand of net losses from Accumulated other comprehensive loss to Interest expense, respectively. During the thirty-six week period ended May 8, 2021 and the comparable prior year period, the Company reclassified $2.6 million and $1.5 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 12 months.

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 $363.7 million at May 8, 2021 and $357.0 million at August 29, 2020.

Note G – Financing

The Company’s debt consisted of the following:

	May 8,		August 29,
(in thousands)	2021		2020
2.500% Senior Notes due April 2021, effective interest rate of 2.62%	$	—	$	250,000
3.700% Senior Notes due April 2022, effective interest rate of 3.85%		500,000		500,000