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 12, 2022, or
☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from _______ to ________.
	Commission file number 1-10714

AUTOZONE, INC.

(Exact name of registrant as specified in its charter)

Nevada	62-1482048
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

123 South Front Street, Memphis, Tennessee	38103
(Address of principal executive offices)	(Zip Code)

(901) 495-6500

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock ($0.01 par value)	AZO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 Par Value – 19,848,868 shares outstanding as of March 11, 2022.

TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION	3
	Item 1.	Financial Statements	3
		CONDENSED CONSOLIDATED BALANCE SHEETS	3
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME	4
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	4
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	5
		CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT	6
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
		REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	15
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
	Item 4.	Controls and Procedures	25
PART II.		OTHER INFORMATION	25
	Item 1.	Legal Proceedings	25
	Item 1A.	Risk Factors	26
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
	Item 3.	Defaults Upon Senior Securities	26
	Item 4.	Mine Safety Disclosures	26
	Item 5.	Other Information	26
	Item 6.	Exhibits	26
SIGNATURES			28

2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	February 12,		August 28,
(in thousands)	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	239,423	$	1,171,335
Accounts receivable		405,585		378,392
Merchandise inventories		5,031,222		4,639,813
Other current assets		227,540		225,763
Total current assets		5,903,770		6,415,303
Property and equipment:
Property and equipment		8,965,026		8,807,178
Less: Accumulated depreciation and amortization		(4,085,947)		(3,950,287)
		4,879,079		4,856,891
Operating lease right-of-use assets		2,743,771		2,718,712
Goodwill		302,645		302,645
Deferred income taxes		40,730		41,043
Other long-term assets		208,478		181,605
		3,295,624		3,244,005
Total assets	$	14,078,473	$	14,516,199
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	6,378,606	$	6,013,924
Current portion of operating lease liabilities		268,921		236,568
Accrued expenses and other		961,898		1,039,788
Income taxes payable		75,220		79,474
Total current liabilities		7,684,645		7,369,754
Long-term debt		5,840,884		5,269,820
Operating lease liabilities, less current portion		2,641,555		2,632,842
Deferred income taxes		379,176		337,125
Other long-term liabilities		669,690		704,194
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, authorized 1,000 shares; no shares issued		—		—
Common stock, par value $.01 per share, authorized 200,000 shares; 20,650 shares issued and 19,967 shares outstanding as of February 12, 2022; 23,007 shares issued and 21,138 shares outstanding as of August 28, 2021		206		230
Additional paid-in capital		1,266,015		1,465,669
Retained deficit		(2,730,731)		(419,829)
Accumulated other comprehensive loss		(310,163)		(307,986)
Treasury stock, at cost		(1,362,804)		(2,535,620)
Total stockholders’ deficit		(3,137,477)		(1,797,536)
Total liabilities and stockholders' deficit	$	14,078,473	$	14,516,199

See Notes to Condensed Consolidated Financial Statements.

3

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Twelve Weeks Ended				Twenty-Four Weeks Ended
	February 12,		February 13,		February 12,		February 13,
(in thousands, except per share data)	2022		2021		2022		2021
Net sales	$	3,369,750	$	2,910,818	$	7,038,653	$	6,065,078
Cost of sales, including warehouse and delivery expenses		1,584,524		1,351,435		3,328,267		2,830,078
Gross profit		1,785,226		1,559,383		3,710,386		3,235,000
Operating, selling, general and administrative expenses		1,158,466		1,077,616		2,329,141		2,138,008
Operating profit		626,760		481,767		1,381,245		1,096,992
Interest expense, net		42,471		46,012		85,755		92,191
Income before income taxes		584,289		435,755		1,295,490		1,004,801
Income tax expense		112,534		89,809		268,500		216,422
Net income	$	471,755	$	345,946	$	1,026,990	$	788,379
Weighted average shares for basic earnings per share		20,513		22,648		20,750		22,935
Effect of dilutive stock equivalents		645		520		633		538
Weighted average shares for diluted earnings per share		21,158		23,168		21,383		23,473
Basic earnings per share	$	23.00	$	15.27	$	49.49	$	34.37
Diluted earnings per share	$	22.30	$	14.93	$	48.03	$	33.59

See Notes to Condensed Consolidated Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Twelve Weeks Ended				Twenty-Four Weeks Ended
	February 12,		February 13,		February 12,		February 13,
(in thousands)	2022		2021		2022		2021
Net income	$	471,755	$	345,946	$	1,026,990	$	788,379
Other comprehensive income (loss):
Foreign currency translation adjustments		14,315		5,601		(2,251)		52,596
Unrealized losses on marketable debt securities, net of taxes		(870)		(192)		(1,300)		(501)
Net derivative activities, net of taxes		719		659		1,374		1,318
Total other comprehensive income (loss)		14,164		6,068		(2,177)		53,413
Comprehensive income	$	485,919	$	352,014	$	1,024,813	$	841,792

See Notes to Condensed Consolidated Financial Statements.

4

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Twenty-Four Weeks Ended
	February 12,		February 13,
(in thousands)	2022		2021
Cash flows from operating activities:
Net income	$	1,026,990	$	788,379
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment and intangibles		199,282		184,027
Amortization of debt origination fees		5,373		6,369
Deferred income taxes		40,983		(1,772)
Share-based compensation expense		30,738		24,178
Changes in operating assets and liabilities:
Accounts receivable		(27,385)		15,991
Merchandise inventories		(393,459)		(229,542)
Accounts payable and accrued expenses		278,833		216,540
Income taxes payable		12,774		11,180
Other, net		(34,383)		24,497
Net cash provided by operating activities		1,139,746		1,039,847
Cash flows from investing activities:
Capital expenditures		(208,143)		(238,644)
Purchase of marketable debt securities		(22,632)		(48,384)
Proceeds from sale of marketable debt securities		13,908		60,575
Investment in tax credit equity investments		(20,656)		—
Proceeds (payments) from disposal of capital assets and other, net		26,210		(1,951)
Net cash used in investing activities		(211,313)		(228,404)
Cash flows from financing activities:
Net proceeds from commercial paper		1,068,100		—
Repayment of debt		(500,000)		—
Net proceeds from sale of common stock		66,457		66,510
Purchase of treasury stock		(2,459,995)		(1,578,323)
Repayment of principal portion of finance lease liabilities		(31,100)		(29,076)
Other, net		(3,362)		—
Net cash used in financing activities		(1,859,900)		(1,540,889)
Effect of exchange rate changes on cash		(445)		4,795
Net decrease in cash and cash equivalents		(931,912)		(724,651)
Cash and cash equivalents at beginning of period		1,171,335		1,750,815
Cash and cash equivalents at end of period	$	239,423	$	1,026,164

See Notes to Condensed Consolidated Financial Statements.

5

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Twelve Weeks Ended February 12, 2022
								Accumulated
	Common			Additional		Retained		Other
	Shares	Common		Paid-in		Earnings		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		(Deficit)		Loss		Stock		Total
Balance at November 20, 2021	23,057	$	231	$	1,499,557	$	135,406	$	(324,327)	$	(3,435,617)	$	(2,124,750)
Net income	—		—		—		471,755		—		—		471,755
Total other comprehensive income	—		—		—		—		14,164		—		14,164
Retirement of treasury shares	(2,484)		(25)		(294,894)		(3,337,892)		—		3,632,811		—
Purchase of 783 shares of treasury stock	—		—		—		—		—		(1,559,998)		(1,559,998)
Issuance of common stock under stock options and stock purchase plans	77		—		45,356		—		—		—		45,356
Share-based compensation expense	—		—		15,996		—		—		—		15,996
Balance at February 12, 2022	20,650	$	206	$	1,266,015	$	(2,730,731)	$	(310,163)	$	(1,362,804)	$	(3,137,477)

	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)

	Twenty-Four Weeks Ended February 12, 2022
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at August 28, 2021	23,007	$	230	$	1,465,669	$	(419,829)	$	(307,986)	$	(2,535,620)	$	(1,797,536)
Net income	—		—		—		1,026,990		—		—		1,026,990
Total other comprehensive loss	—		—		—		—		(2,177)		—		(2,177)
Retirement of treasury shares	(2,484)		(25)		(294,894)		(3,337,892)		—		3,632,811		—
Purchase of 1,298 shares of treasury stock	—		—		—		—		—		(2,459,995)		(2,459,995)
Issuance of common stock under stock options and stock purchase plans	127		1		66,456		—		—		—		66,457
Share-based compensation expense	—		—		28,784		—		—		—		28,784
Balance at February 12, 2022	20,650	$	206	$	1,266,015	$	(2,730,731)	$	(310,163)	$	(1,362,804)	$	(3,137,477)

	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)

See Notes to Condensed Consolidated Financial Statements.

6

AUTOZONE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A – General

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission’s (the “SEC”) rules and regulations. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and related notes included in the AutoZone, Inc. (“AutoZone” or the “Company”) Annual Report on Form 10-K for the year ended August 28, 2021.

Operating results for the twelve and twenty-four weeks ended February 12, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 27, 2022. Each of the first three quarters of AutoZone’s fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters of fiscal 2022 and 2021 each have 16 weeks.

Recently Issued Accounting Pronouncements

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

R

Note B – Share-Based Payments

AutoZone maintains several equity incentive plans, which provide equity-based compensation to non-employee directors and eligible employees for their service to AutoZone, its subsidiaries or affiliates. The Company recognizes compensation expense for share-based payments based on the fair value of the awards at the grant date. Share-based payments include stock option grants, restricted stock grants, restricted stock unit grants, stock appreciation rights, discounts on shares sold to employees under share purchase plans and other awards. Additionally, directors’ fees are paid in restricted stock units with value equivalent to the value of shares of common stock as of the grant date. The change in fair value of liability-based stock awards is also recognized in share-based compensation expense.

Stock Options:

The Company made stock option grants of 164,262 shares during the twenty-four week period ended February 12, 2022 and granted options to purchase 196,161 shares during the comparable prior year period. The Company grants options to purchase common stock to certain of its employees under its equity incentive plans at prices equal to the market value of the stock on the date of grant. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date.

7

The weighted average fair value of the stock option awards granted during the twenty-four week periods ended February 12, 2022 and February 13, 2021, using the Black-Scholes-Merton multiple-option pricing valuation model, was $463.09 and $299.86 per share, respectively, using the following weighted average key assumptions:

	Twenty-Four Weeks Ended
	February 12,		February 13,
	2022		2021
Expected price volatility	28	%	28	%
Risk-free interest rate	1.1	%	0.4	%
Weighted average expected lives (in years)	5.6		5.6
Forfeiture rate	10	%	10	%
Dividend yield	0	%	0	%

During the twenty-four week period ended February 12, 2022, 123,216 stock options were exercised at a weighted average exercise price of $584.81. In the comparable prior year period, 138,705 stock options were exercised at a weighted average exercise price of $484.13.

As of February 12, 2022, total unrecognized share-based expense related to stock options, net of estimated forfeitures, was approximately $85.2 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.1 years.

Restricted Stock Units:

Restricted stock unit awards are valued at the market price of a share of the Company’s stock on the date of grant. Grants of employee restricted stock units vest ratably on an annual basis over a four-year service period and are payable in shares of common stock on the vesting date. Compensation expense for grants of employee restricted stock units is recognized on a straight-line basis over the four-year service period, less estimated forfeitures, which are consistent with stock option forfeiture assumptions. Grants of non-employee director restricted stock units are made and expensed on January 1 of each year, as they vest immediately.

As of February 12, 2022, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $14.1 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.7 years.

Transactions related to restricted stock units for the twenty-four weeks ended February 12, 2022 were as follows:

		Weighted-
	Number	Average Grant
	of Shares	Date Fair Value
Nonvested at August 28, 2021	15,751	$	1,005.41
Granted	5,325		1,732.57
Vested	(6,346)		1,132.46
Canceled or forfeited	(1,071)		1,106.02
Nonvested at February 12, 2022	13,659	$	1,221.98

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $16.4 million for the twelve week period ended February 12, 2022, and $13.7 million for the comparable prior year period. Total share-based compensation expense was $30.7 million for the twenty-four week period ended February 12, 2022, and $24.2 million for the comparable prior year period.

8

For the twelve week period ended February 12, 2022, 162,955 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 196,280 anti-dilutive stock options were excluded from the dilutive earnings per share computation. There were 128,399 anti-dilutive shares excluded from the diluted earnings per share computation for the twenty-four week period ended February 12, 2022, and 248,578 anti-dilutive shares excluded for the comparable prior year period.

See AutoZone’s Annual Report on Form 10-K for the year ended August 28, 2021 and other filings with the SEC, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan, the AutoZone, Inc. 2020 Omnibus Incentive Award Plan and the 2020 Director Compensation Program.

Note C – Fair Value Measurements

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

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

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

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

Marketable Debt Securities Measured at Fair Value on a Recurring Basis

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

	February 12, 2022
(in thousands)	Level 1		Level 2		Level 3		Fair Value
Other current assets	$	40,810	$	44	$	—	$	40,854
Other long-term assets		67,853		12,264		—		80,117
	$	108,663	$	12,308	$	—	$	120,971

	August 28, 2021
(in thousands)	Level 1		Level 2		Level 3		Fair Value
Other current assets	$	46,007	$	—	$	—	$	46,007
Other long-term assets		54,105		13,806		—		67,911
	$	100,112	$	13,806	$	—	$	113,918

At February 12, 2022, the fair value measurement amounts for assets and liabilities recorded in the accompanying Condensed Consolidated Balance Sheets consisted of short-term marketable debt securities, which are included within Other current assets, and long-term marketable debt securities, which are included in Other long-term assets. The Company’s marketable debt securities are typically valued at the closing price in the principal active market as of the last business day of the quarter or through the use of other market inputs relating to the securities, including benchmark yields and reported trades. The fair values of the marketable debt securities, by asset class, are described in “Note D – Marketable Debt Securities.”

9

Financial Instruments not Recognized at Fair Value

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

Note D – Marketable Debt Securities

Marketable debt securities are carried at fair value, with unrealized gains and losses, net of income taxes, recorded in Accumulated other comprehensive loss until realized, and any credit risk related losses are recognized in net income in the period incurred. The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.”

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

	February 12, 2022
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value
Corporate debt securities	$	19,325	$	79	$	(87)	$	19,317
Government bonds		77,914		57		(773)		77,198
Mortgage-backed securities		5,656		25		(113)		5,568
Asset-backed securities and other		18,997		11		(120)		18,888
	$	121,892	$	172	$	(1,093)	$	120,971

	August 28, 2021
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value
Corporate debt securities	$	23,650	$	329	$	(2)	$	23,977
Government bonds		65,416		338		(2)		65,752
Mortgage-backed securities		6,552		58		(8)		6,602
Asset-backed securities and other		17,551		43		(7)		17,587
	$	113,169	$	768	$	(19)	$	113,918

The debt securities held at February 12, 2022, had effective maturities ranging from less than one year to approximately four years. At February 12, 2022, the Company held 38 securities that are in an unrealized loss position of approximately $1.1 million. In evaluating whether a credit loss exists for the securities, the Company considers factors such as the severity of the loss position, the credit worthiness of the investee, the term to maturity and the intent and ability to hold the investments until maturity or until recovery of fair value. An allowance for credit losses was deemed unnecessary given consideration of the factors above.

Included above in total available-for-sale marketable debt securities are $92.0 million of marketable debt securities transferred by the Company’s insurance captive to a trust account to secure its obligations to an insurance company related to future workers’ compensation and casualty losses.

10

Note E – Merchandise Inventories

Merchandise inventories include related purchasing, storage and handling costs. Inventory cost has been determined using the last-in, first-out (“LIFO”) method stated at the lower of cost or net realizable value for domestic inventories and the weighted average cost method stated at the lower of cost or net realizable value for Mexico and Brazil inventories. Due to historical price deflation on the Company’s merchandise purchases, the Company has exhausted its LIFO reserve balance. The Company’s policy is not to write up inventory in excess of replacement cost. The difference between LIFO cost and replacement cost, which will be reduced upon experiencing price inflation on the Company’s merchandise purchases, was $237.3 million at February 12, 2022 and $335.3 million at August 28, 2021.

Note F – Financing

The Company’s debt consisted of the following:

	February 12,	August 28,
(in thousands)	2022