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 6, 2023, 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 – 18,155,969 shares outstanding as of June 2, 2023.

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	17
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
	Item 4.	Controls and Procedures	28
PART II.		OTHER INFORMATION	28
	Item 1.	Legal Proceedings	28
	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	29
	Item 5.	Other Information	29
	Item 6.	Exhibits	29
SIGNATURES			31

2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	May 6,		August 27,
(in thousands)	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	274,916	$	264,380
Accounts receivable		471,009		504,886
Merchandise inventories		5,703,688		5,638,004
Other current assets		259,259		220,714
Total current assets		6,708,872		6,627,984
Property and equipment:
Property and equipment		9,937,300		9,453,171
Less: Accumulated depreciation and amortization		(4,603,277)		(4,282,752)
		5,334,023		5,170,419
Operating lease right-of-use assets		2,959,488		2,918,817
Goodwill		302,645		302,645
Deferred income taxes		62,043		52,047
Other long-term assets		230,851		203,131
		3,555,027		3,476,640
Total assets	$	15,597,922	$	15,275,043
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	7,215,566	$	7,301,347
Current portion of operating lease liabilities		281,964		243,407
Accrued expenses and other		906,415		1,008,701
Income taxes payable		61,002		34,938
Total current liabilities		8,464,947		8,588,393
Long-term debt		7,340,484		6,122,092
Operating lease liabilities, less current portion		2,862,152		2,837,973
Deferred income taxes		538,264		533,884
Other long-term liabilities		693,652		731,614
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; 18,900 shares issued and 18,225 shares outstanding as of May 6, 2023; 20,732 shares issued and 19,126 shares outstanding as of August 27, 2022		189		207
Additional paid-in capital		1,425,515		1,354,252
Retained deficit		(3,824,119)		(1,330,067)
Accumulated other comprehensive loss		(227,475)		(300,536)
Treasury stock, at cost		(1,675,687)		(3,262,769)
Total stockholders’ deficit		(4,301,577)		(3,538,913)
Total liabilities and stockholders' deficit	$	15,597,922	$	15,275,043

See Notes to Condensed Consolidated Financial Statements.

3

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Twelve Weeks Ended				Thirty-Six Weeks Ended
	May 6,		May 7,		May 6,		May 7,
(in thousands, except per share data)	2023		2022		2023		2022
Net sales	$	4,090,541	$	3,865,222	$	11,766,591	$	10,903,875
Cost of sales, including warehouse and delivery expenses		1,944,415		1,858,808		5,695,840		5,187,075
Gross profit		2,146,126		2,006,414		6,070,751		5,716,800
Operating, selling, general and administrative expenses		1,287,645		1,220,744		3,819,261		3,549,885
Operating profit		858,481		785,670		2,251,490		2,166,915
Interest expense, net		74,313		41,888		197,645		127,642
Income before income taxes		784,168		743,782		2,053,845		2,039,273
Income tax expense		136,445		151,211		390,260		419,712
Net income	$	647,723	$	592,571	$	1,663,585	$	1,619,561
Weighted average shares for basic earnings per share		18,389		19,798		18,700		20,433
Effect of dilutive stock equivalents		594		616		622		627
Weighted average shares for diluted earnings per share		18,983		20,414		19,322		21,060
Basic earnings per share	$	35.22	$	29.93	$	88.96	$	79.26
Diluted earnings per share	$	34.12	$	29.03	$	86.10	$	76.90

See Notes to Condensed Consolidated Financial Statements.

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Twelve Weeks Ended				Thirty-Six Weeks Ended
	May 6,		May 7,		May 6,		May 7,
(in thousands)	2023		2022		2023		2022
Net income	$	647,723	$	592,571	$	1,663,585	$	1,619,561
Other comprehensive income:
Foreign currency translation adjustments		41,657		8,531		67,052		6,280
Unrealized gains (losses) on marketable debt securities, net of taxes		923		(1,138)		800		(2,438)
Net derivative activities, net of taxes		(743)		579		5,209		1,953
Total other comprehensive income		41,837		7,972		73,061		5,795
Comprehensive income	$	689,560	$	600,543	$	1,736,646	$	1,625,356

See Notes to Condensed Consolidated Financial Statements.

4

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Thirty-Six Weeks Ended
	May 6,		May 7,
(in thousands)	2023		2022
Cash flows from operating activities:
Net income	$	1,663,585	$	1,619,561
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment		339,087		301,365
Other non-cash charges		74,000		—
Amortization of debt origination fees		6,065		7,826
Deferred income taxes		(3,424)		80,778
Share-based compensation expense		62,389		49,058
Changes in operating assets and liabilities:
Accounts receivable		38,317		(61,361)
Merchandise inventories		(93,163)		(671,087)
Accounts payable and accrued expenses		(239,900)		655,227
Income taxes		64,041		13,883
Other, net		(38,221)		(12,136)
Net cash provided by operating activities		1,872,776		1,983,114
Cash flows from investing activities:
Capital expenditures		(430,441)		(369,350)
Purchase of marketable debt securities		(48,445)		(46,540)
Proceeds from sale of marketable debt securities		37,544		37,918
Investment in tax credit equity investments		(50,685)		(21,398)
Proceeds from disposal of capital assets and other, net		13,051		38,651
Net cash used in investing activities		(478,976)		(360,719)
Cash flows from financing activities:
Net proceeds from commercial paper		524,000		1,283,310
Proceeds from issuance of debt		1,000,000		—
Repayment of debt		(300,000)		(500,000)
Net proceeds from sale of common stock		154,863		98,090
Purchase of treasury stock		(2,699,996)		(3,359,994)
Repayment of principal portion of finance lease liabilities		(60,927)		(48,867)
Other, net		(6,247)		(3,362)
Net cash used in financing activities		(1,388,307)		(2,530,823)
Effect of exchange rate changes on cash		5,043		137
Net increase/(decrease) in cash and cash equivalents		10,536		(908,291)
Cash and cash equivalents at beginning of period		264,380		1,171,335
Cash and cash equivalents at end of period	$	274,916	$	263,044

See Notes to Condensed Consolidated Financial Statements.

5

AUTOZONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Twelve Weeks Ended May 6, 2023
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at February 11, 2023	18,786	$	188	$	1,324,258	$	(4,471,842)	$	(269,312)	$	(767,462)	$	(4,184,170)
Net income	—		—		—		647,723		—		—		647,723
Total other comprehensive income	—		—		—		—		41,837		—		41,837
Purchase of 356 shares of treasury stock	—		—		—		—		—		(908,225)		(908,225)
Issuance of common stock under stock options and stock purchase plans	114		1		82,104		—		—		—		82,105
Share-based compensation expense	—		—		19,153		—		—		—		19,153
Balance at May 6, 2023	18,900	$	189	$	1,425,515	$	(3,824,119)	$	(227,475)	$	(1,675,687)	$	(4,301,577)

	Twelve Weeks Ended May 7, 2022
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at February 12, 2022	20,650	$	206	$	1,266,015	$	(2,730,731)	$	(310,163)	$	(1,362,804)	$	(3,137,477)
Net income	—		—		—		592,571		—		—		592,571
Total other comprehensive income	—		—		—		—		7,972		—		7,972
Purchase of 449 shares of treasury stock	—		—		—		—		—		(899,999)		(899,999)
Issuance of common stock under stock options and stock purchase plans	57		1		31,628		—		—		—		31,629
Share-based compensation expense	—		—		18,074		—		—		—		18,074
Balance at May 7, 2022	20,707	$	207	$	1,315,717	$	(2,138,160)	$	(302,191)	$	(2,262,803)	$	(3,387,230)

	Thirty-Six Weeks Ended May 6, 2023
								Accumulated
	Common			Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(in thousands)	Issued	Stock		Capital		Deficit		Loss		Stock		Total
Balance at August 27, 2022	20,732	$	207	$	1,354,252	$	(1,330,067)	$	(300,536)	$	(3,262,769)	$	(3,538,913)
Net income	—		—		—		1,663,585		—		—		1,663,585
Total other comprehensive income	—		—		—		—		73,061		—		73,061
Retirement of treasury shares	(2,051)		(20)		(143,440)		(4,157,637)		—		4,301,097		—
Purchase of 1,120 shares of treasury stock	—		—		—		—		—		(2,714,015)		(2,714,015)
Issuance of common stock under stock options and stock purchase plans	219		2		154,861		—		—		—		154,863
Share-based compensation expense	—		—		59,842		—		—		—		59,842
Balance at May 6, 2023	18,900	$	189	$	1,425,515	$	(3,824,119)	$	(227,475)	$	(1,675,687)	$	(4,301,577)

	Thirty-Six Weeks Ended May 7, 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	—		—		—		1,619,561		—		—		1,619,561
Total other comprehensive income	—		—		—		—		5,795		—		5,795
Retirement of treasury shares	(2,484)		(25)		(294,894)		(3,337,892)		—		3,632,811		—
Purchase of 1,746 shares of treasury stock	—		—		—		—		—		(3,359,994)		(3,359,994)
Issuance of common stock under stock options and stock purchase plans	184		2		98,084		—		—		—		98,086
Share-based compensation expense	—		—		46,858		—		—		—		46,858
Balance at May 7, 2022	20,707	$	207	$	1,315,717	$	(2,138,160)	$	(302,191)	$	(2,262,803)	$	(3,387,230)

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 27, 2022.

Operating results for the twelve and thirty-six weeks ended May 6, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 26, 2023. 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 2023 and 2022 each have 16 weeks.

Recently Adopted Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance, which requires annual disclosures for entities receiving governmental assistance to provide more transparency. This ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted this ASU with its first quarter ended November 19, 2022 on a prospective basis. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In September 2022, the FASB issued ASU 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50). This ASU requires buyers in a supplier finance program to disclose sufficient qualitative and quantitative information about the program to allow a reader of the financial statements to understand the program’s nature, activity during the period, changes from period to period and the program’s potential magnitude. This ASU is effective for all companies for fiscal years beginning after December 15, 2022, including interim periods within those years, and requires retrospective adoption. Early adoption is permitted. The Company expects to adopt this standard beginning with its first quarter ending November 18, 2023. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.

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 for 161,510 shares during the thirty-six week period ended May 6, 2023 and granted options to purchase 164,262 shares during the comparable prior year period. The Company grants options to

7

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 6, 2023 and May 7, 2022, using the Black-Scholes-Merton multiple-option pricing valuation model, was $764.68 and $463.09 per share, respectively, using the following weighted average key assumptions:

	Thirty-Six Weeks Ended
	May 6,		May 7,
	2023		2022
Expected price volatility	29	%	28	%
Risk-free interest rate	3.8	%	1.1	%
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 6, 2023, and the comparable prior year period, 208,482 and 179,440 stock options, respectively, were exercised at a weighted average exercise price of $705.52 and $574.79, respectively.

As of May 6, 2023, total unrecognized share-based expense related to stock options, net of estimated forfeitures, was approximately $117.5 million, before income taxes, which we expect to recognize over an estimated weighted average period of 3.1 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 May 6, 2023, 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 2.6 years.

Transactions related to restricted stock units for the thirty-six weeks ended May 6, 2023 were as follows:

		Weighted-
	Number	Average Grant
	of Shares	Date Fair Value
Nonvested at August 27, 2022	12,731	$	1,223.61
Granted	3,584		2,267.40
Vested	(6,643)		1,276.32
Forfeited	(1,338)		1,565.85
Nonvested at May 6, 2023	8,334	$	1,575.55

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) for the twelve and thirty-six week periods ended May 6, 2023, was $20.0 million and $62.4 million, respectively. For the comparable prior year periods, total share-based compensation expense was $18.3 million and $49.1 million, respectively.

8

For the twelve and thirty-six week periods ended May 6, 2023, 154,041 and 132,965, respectively, stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year periods, 120,515 and 136,994, respectively, anti-dilutive stock options were excluded from the dilutive earnings per share computation.

See AutoZone’s Annual Report on Form 10-K for the year ended August 27, 2022 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 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 6, 2023
(in thousands)	Level 1		Level 2		Level 3		Fair Value
Other current assets	$	39,649	$	2,908	$	—	$	42,557
Other long-term assets		69,302		12,605		—		81,907
	$	108,951	$	15,513	$	—	$	124,464

	August 27, 2022
(in thousands)	Level 1		Level 2		Level 3		Fair Value
Other current assets	$	49,659	$	109	$	—	$	49,768
Other long-term assets		57,301		5,476		—		62,777
	$	106,960	$	5,585	$	—	$	112,545

At May 6, 2023, 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 6, 2023
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value
Corporate debt securities	$	32,516	$	73	$	(197)	$	32,392
Government bonds		64,087		116		(1,334)		62,869
Mortgage-backed securities		3,689		—		(215)		3,474
Asset-backed securities and other		25,936		22		(229)		25,729
	$	126,228	$	211	$	(1,975)	$	124,464

	August 27, 2022
	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
(in thousands)	Basis		Gains		Losses		Value
Corporate debt securities	$	15,293	$	1	$	(298)	$	14,996
Government bonds		88,903		—		(1,963)		86,940
Mortgage-backed securities		4,600		—		(243)		4,357
Asset-backed securities and other		6,531		—		(279)		6,252
	$	115,327	$	1	$	(2,783)	$	112,545

The marketable debt securities held at May 6, 2023, had effective maturities ranging from less than one year to approximately three years. Securities maturing in less than one year totaled $42.6 million and $49.7 million at May 6, 2023 and August 27, 2022, respectively. Securities maturing between one and three years totaled $81.9 million and $62.8 million at May 6, 2023 and August 27, 2022, respectively. At May 6, 2023, the Company held 60 securities that are in an unrealized loss position of approximately $2.0 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 $105.1 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.

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Note E – Derivative Financial Instruments

During the second quarter of fiscal 2023, the Company entered into two treasury rate locks designated as cash flow hedges used to manage our exposure to interest rate volatility associated with anticipated debt financing, each with a notional amount of $250 million. The treasury rate locks had fixed rates of 3.45% and 3.38% benchmarked based on the 5-year and the 10-year U.S. treasury notes, respectively. These locks expired on January 27, 2023 and resulted in gains of $1.9 million and $2.9 million, respectively, which have been deferred in Accumulated other comprehensive loss and will be reclassified to Interest expense over the life of the underlying debt. The hedges remained highly effective until they expired, and no ineffectiveness was recognized in earnings.

At May 6, 2023, the Company had $13.0 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 and thirty-six week periods ended May 6, 2023, the Company reclassified $531 thousand and $2.1 million, respectively, of net losses from Accumulated other comprehensive loss to Interest expense. During the comparable prior year periods, $798 thousand and $2.6 million, respectively, were reclassified from Accumulated other comprehensive loss to Interest expense. The Company expects to reclassify $2.3 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. The Company’s policy is not to write up inventory in excess of replacement cost. Due to recent price inflation on the Company’s merchandise purchases, primarily driven by increased freight costs, the Company’s LIFO credit reserve balance was $89.0 million at May 6, 2023, and $15.0 million at August 27, 2022. Increases to the Company’s LIFO credit reserve balance are recorded as a non-cash charge to cost of sales and decreases are recorded as a non-cash benefit to cost of sales.

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Note G – Financing

The Company’s debt consisted of the following:

May 6, August 27,