AUTOZONE: Discussion and analysis by management of the financial position and operating results (Form 10-K)

We are the leading retailer, and a leading distributor, of automotive
replacement parts and accessories in the Americas. We began operations in 1979
and at August 28, 2021, operated 6,051 stores in the U.S., 664 stores in Mexico
and 52 stores in Brazil. Each store carries an extensive product line for cars,
sport utility vehicles, vans and light trucks, including new and remanufactured
automotive hard parts, maintenance items, accessories and non-automotive
products. At August 28, 2021, in 5,179 of our domestic stores, we also had a
commercial sales program that provides commercial credit and prompt delivery of
parts and other products to local, regional and national repair garages,
dealers, service stations and public sector accounts. We also have commercial
programs in all stores in Mexico and Brazil. We also sell the ALLDATA brand
automotive diagnostic, repair and shop management software through
www.alldata.com. Additionally, we sell automotive hard parts, maintenance items,
accessories and non-automotive products through www.autozone.com, and our
commercial customers can make purchases through www.autozonepro.com. We also
provide product information on our Duralast branded products through
www.duralastparts.com. We do not derive revenue from automotive repair or
installation services.

COVID-19 Impact



COVID-19 continues to impact numerous aspects of our business. Our sales remain
at record levels as we have experienced unprecedented customer demand for our
products during the COVID-19 pandemic, as we believe that many of our customers
have benefitted from pandemic-related government stimulus and benefits. Our main
priority continues to be the health, safety and well-being of our customers and
AutoZoners. We continue to invest in supplies for the protection of our
employees and customers and increased the frequency of cleaning and disinfecting
our stores. For fiscal 2021, we incurred approximately $43.0 million in pandemic
related expenses, including Emergency Time-Off benefit enhancements for both
full-time and part-time employees as compared to approximately $83.9 million in
the comparable prior year period.



The long-term impact to our business remains unknown as we are unable to
accurately predict the impact that COVID-19 will have due to numerous
uncertainties, including the severity of the disease, the duration of the
outbreak, the likelihood of additional variants and resurgences of the outbreak,
actions that may be taken by governmental authorities in response to the
disease, the timing, distribution, efficacy and public acceptance of vaccines,
and unintended consequences of the foregoing. Furthermore, the continuing
pandemic and related economic uncertainty may result in prolonged disruption and
volatility to our business and magnify certain risks, including risks associated
with sourcing quality merchandise domestically and outside the U.S.; our ability
to promptly adjust inventory levels to meet fluctuations in customer demand; our
ability to comply with complex and evolving laws and regulations related to
customers' and AutoZoners' health and safety; our ability to open new store
locations and expand or remodel existing stores; and our ability to hire and
train qualified employees to address temporary or sustained labor shortages.



Executive Summary

For fiscal 2021, we achieved record net income of $2.170 billion, a 25.2%
increase over the prior year, and sales growth of $1.998 billion, a 15.8%
increase over the prior year. Domestic commercial sales increased 22.6%, which
represents approximately 23% of our total sales. Both our retail sales and
commercial sales grew this past year as we continue to experience unprecedented
demand for our products during the COVID-19 pandemic and make progress on our
initiatives aimed at improving our ability to say "Yes" to our customers more
frequently, drive traffic to our stores and accelerate our commercial growth.



Our business is impacted by various factors within the economy that affect both
our consumer and our industry, including but not limited to fuel costs, wage
rates, supply chain disruptions, hiring and other economic conditions, including
for fiscal 2021 and 2020, the effects of, and responses to, COVID-19. Given the
nature of these macroeconomic factors, we cannot predict whether or for how long
certain trends will continue, nor can we predict to what degree these trends
will impact us in the future.



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One macroeconomic factor affecting our customers and our industry during fiscal
2021 was gas prices. During fiscal 2021, the average price per gallon of
unleaded gasoline in the U.S. was $2.62, compared to $2.32 during fiscal 2020.
We believe fluctuations in gas prices impact our customers' level of disposable
income. With approximately 10 billion gallons of unleaded gas consumption
each month across the U.S., each $1 decrease at the pump contributes
approximately $10 billion of additional spending capacity to consumers
each month. Given the unpredictability of gas prices, we cannot predict whether
gas prices will increase or decrease, nor can we predict how any future changes
in gas prices will impact our sales in future periods.



We have also experienced continued accelerated pressure on wages in the U.S.
during fiscal 2021. Some of this is attributed to regulatory changes in certain
states and municipalities, while the larger portion is being driven by general
market pressures and some specific actions taken recently by other retailers.
The regulatory changes are expected to continue, as evidenced by the areas that
have passed legislation to increase employees' wages substantially over the next
few years, but we are still assessing to what degree these changes will impact
our earnings growth in future periods.

During fiscal 2021, failure and maintenance related categories represented the
largest portion of our sales mix, at approximately 83% of total sales, with
failure related categories continuing to comprise our largest set of categories.
While we have not experienced any fundamental shifts in our category sales mix
as compared to previous years, in our domestic stores we continue to see a
slight increase in mix of sales of the discretionary category as compared to
last year. We believe the improvement in this sales category resulted from the
pandemic as many of our customers continue to have more time to work on
discretionary projects.

The two statistics we believe have the closest correlation to our market growth
over the long-term are miles driven and the number of seven year old or older
vehicles on the road.

Miles Driven

We believe as the number of miles driven increases, consumers' vehicles are more
likely to need service and maintenance, resulting in an increase in the need for
automotive hard parts and maintenance items. While over the long-term we have
seen a close correlation between our net sales and the number of miles driven,
we have also seen certain time frames of minimal correlation in sales
performance and miles driven. During the periods of minimal correlation between
net sales and miles driven, we believe net sales have been positively impacted
by other factors, including macroeconomic factors and the number of seven year
old or older vehicles on the road. Since the beginning of the fiscal year and
through July 2021 (latest publicly available information), miles driven in the
U.S. decreased by 5.2% compared to the same period in the prior year. We believe
this decrease is a result of the pandemic, but we are unable to predict if this
decline will continue and are uncertain of the impact it will have to our
business.

Vehicles seven years or older

According to the latest data provided by the U.S. Bureau of Economic Analysis,
new light vehicle sales for the year ended August 2021 increased 11.5% as
compared to the comparable prior year period. We estimate vehicles are driven an
average of approximately 12,500 miles each year. In seven years, the average
miles driven equates to approximately 87,500 miles. Our experience is that at
this point in a vehicle's life, most vehicles are not covered by warranties and
increased maintenance is needed to keep the vehicle operating.

According to the latest data provided by the Automobile maintenance association, starting the
January 1, 2021, the average age of light vehicles on the road was 12.1 years. The average age of light vehicles has exceeded 11 years since 2012.

We expect the aging vehicle population to continue to increase as consumers keep
their cars longer in an effort to save money. Additionally, there is increased
demand for used vehicles as a result of new vehicle inventory shortages during
the COVID-19 pandemic. As the number of seven year old or older vehicles on the
road increases, we expect an increase in demand for the products we sell.



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Results of Operations

The following table highlights selected financial information over the last 5
years:


                                                                  Fiscal Year Ended August
(in thousands, except per share
data, same store sales and
selected operating data)                 2021(1)         2020(1)          2019(2)          2018(3)           2017

Income Statement Data
Net sales                             $  14,629,585    $ 12,631,967    $  11,863,743    $  11,221,077    $  10,888,676
Cost of sales, including warehouse
and delivery expenses                     6,911,800       5,861,214        5,498,742        5,247,331        5,149,056
Gross profit                              7,717,785       6,770,753        6,365,001        5,973,746        5,739,620
Operating, selling, general and
administrative expenses                   4,773,258       4,353,074        4,148,864        4,162,890        3,659,551
Operating profit                          2,944,527       2,417,679        2,216,137        1,810,856        2,080,069
Interest expense, net                       195,337         201,165          184,804          174,527          154,580
Income before income taxes                2,749,190       2,216,514        2,031,333        1,636,329        1,925,489
Income tax expense(4)                       578,876         483,542          414,112          298,793          644,620
Net income(4)                         $   2,170,314    $  1,732,972    $   1,617,221    $   1,337,536    $   1,280,869
Diluted earnings per share(4)         $       95.19    $      71.93    $       63.43    $       48.77    $       44.07
Weighted average shares for
diluted earnings per share(4)                22,799          24,093           25,498           27,424           29,065
Same Store Sales
Increase in domestic comparable
store net sales(5)                             13.6 %           7.4 %            3.0 %            1.8 %            0.5 %
Balance Sheet Data
Current assets                        $   6,415,303    $  6,811,872    $   5,028,685    $   4,635,869    $   4,611,255
Operating lease right-of-use
assets(6)                                 2,718,712       2,581,677                -                -                -
Working capital (deficit)                 (954,451)         528,781        (483,456)        (392,812)        (155,046)
Total assets                             14,516,199      14,423,872        9,895,913        9,346,980        9,259,781
Current liabilities                       7,369,754       6,283,091        5,512,141        5,028,681        4,766,301
Debt                                      5,269,820       5,513,371        5,206,344        5,005,930        5,081,238
Finance lease liabilities, less
current portion(6)                          186,122         155,855          123,659          102,013          102,322
Operating lease liabilities, less
current portion(6)                        2,632,842       2,501,560                -                -                -
Stockholders' deficit                   (1,797,536)       (877,977)      (1,713,851)      (1,520,355)      (1,428,377)
Selected Operating Data
Number of locations at beginning
of year                                       6,549           6,411            6,202            6,029            5,814
Sold locations(7)                                 -               -                -               26                -
New locations                                   219             138              209              201              215
Closed locations                                  1               -                -                2                -
Net new locations                               218             138              209              199              215
Relocated locations                              12               5                2                7                5

Number of locations at end of year            6,767           6,549            6,411            6,202            6,029
AutoZone domestic commercial
programs                                      5,179           5,007            4,893            4,741            4,592
Inventory per location (in
thousands)                            $         686    $        683    $         674    $         636    $         644
Total AutoZone store square
footage (in thousands)                       45,057          43,502           42,526           41,066           39,684
Average square footage per
AutoZone store                                6,658           6,643            6,633            6,621            6,611
Increase in AutoZone store square
footage                                         3.6 %           2.3 %            3.6 %            3.5 %            3.9 %
Average net sales per AutoZone
store (in thousands)                  $       2,160    $      1,914    $       1,847    $       1,778    $       1,756
Net sales per AutoZone store
average square foot                   $         325    $        288    $         279    $         269    $         266
Total employees at end of year (in
thousands)                                      105             100               96               89               87
Inventory turnover(8)                          1.5x            1.3x             1.3x             1.3x             1.4x
Accounts payable to inventory
ratio                                         129.6 %         115.3 %          112.6 %          111.8 %          107.4 %
After-tax return on invested
capital(9)                                     41.0 %          35.7 %           35.7 %           32.1 %           29.9 %
Adjusted debt to EBITDAR(10)                    2.0             2.4              2.5              2.5              2.6
Net cash provided by operating
activities (in thousands)(4)          $   3,518,543    $  2,720,108    $   2,128,513    $   2,080,292    $   1,570,612
Cash flow before share repurchases
and changes in debt
(in thousands)(11)                    $   3,048,841    $  2,185,418    $   1,758,672    $   1,596,367    $   1,017,585
Share repurchases (in
thousands)(12)                        $   3,378,321    $    930,903    $   2,004,896    $   1,592,013    $   1,071,649
Number of shares repurchased (in
thousands)(12)                                2,592             826            2,182            2,398            1,495


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(1) The 52 weeks ended August 28, 2021 and August 29, 2020 were negatively
impacted by pandemic related expenses, including Emergency Time-Off of
approximately $43.0 million (pre-tax) and $83.9 million (pre-tax), respectively.
(2)  The fiscal year ended August 31, 2019 consisted of 53 weeks.
(3)  Fiscal 2018 was negatively impacted by pension termination charges of
$130.3 million (pre-tax) recognized in the fourth quarter and asset impairments
of $193.2 million (pre-tax) recognized in the second quarter of fiscal 2018.
Fiscal 2019 and 2018 also includes a benefit to net income related to the Tax
Cuts and Jobs Act of $6.3 million and $132.1 million, net of repatriation tax,
respectively.
(4)  Fiscal 2021, 2020, 2019, 2018 and 2017 include excess tax benefits from
stock option exercises of $56.4 million, $20.9 million, $46.0 million, $31.3
million and $31.2 million, respectively.
(5)  The domestic comparable sales increases are based on sales for all AutoZone
domestic stores open at least one year. Same store sales are computed on a
52-week basis. Relocated stores are included in the same store sales computation
based on the year the original store was opened. Closed store sales are included
in the same store sales computation up to the week it closes, and excluded from
the computation for all periods subsequent to closing. All sales through our
www.autozone.com website, including consumer direct ship-to-home sales, are also
included in the computation.
(6)  The Company adopted ASU 2016-02, Leases (Topic 842), beginning with its
first quarter ended November 23, 2019 which resulted in the Company recognizing
a right-of-use asset ("ROU asset") and a corresponding lease liability on the
balance sheet.
(7)  26 IMC branches were sold on April 4, 2018.
(8)  Inventory turnover is calculated as cost of sales divided by the average
merchandise inventory balance over the trailing 5 quarters.
(9)  After-tax return on invested capital is defined as after-tax operating
profit (excluding rent charges) divided by invested capital (which includes a
factor to capitalize leases). For fiscal 2019, after-tax operating profit was
adjusted for the impact of the average revaluation of deferred tax liabilities,
net of repatriation tax. For fiscal 2018, after-tax operating profit was
adjusted for impairment charges, pension termination charges and the impact of
the revaluation of deferred tax liabilities, net of repatriation tax. See
Reconciliation of Non-GAAP Financial Measures in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
(10) Adjusted debt to EBITDAR is defined as the sum of total debt, finance lease
obligations and annual rents times six; divided by net income plus interest,
taxes, depreciation, amortization, rent and share-based compensation expense.
For fiscal 2018, net income was adjusted for impairment charges and pension
termination charges before tax impact. See Reconciliation of Non-GAAP Financial
Measures in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(11) Cash flow before share repurchases and changes in debt is defined as the
change in cash and cash equivalents less the change in debt plus treasury stock
purchases. See Reconciliation of Non-GAAP Financial Measures in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
(12) During the third quarter of fiscal 2020, the Company temporarily suspended
share repurchases under the share repurchase program in response to COVID-19
which was restarted beginning in the first quarter of fiscal 2021.



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Fiscal year 2021 compared to fiscal year 2020

For the year ended August 28, 2021, we reported net sales of $ 14.630 billion compared to $ 12.632 billion for the year ended August 29, 2020, an increase of 15.8% compared to fiscal 2020. This growth is mainly attributable to a 13.6% increase in comparable store sales in the country and net sales of $ 215.8 million new stores. Domestic commercial sales increased $ 617.7 million, or 22.6%, of domestic commercial sales for fiscal 2020.

At August 28, 2021, we operated 6,051 domestic stores, 664 in Mexico and 52 in
Brazil, compared with 5,885 domestic stores, 621 in Mexico and 43 in Brazil at
August 29, 2020. We reported a total auto parts segment (domestic, Mexico and
Brazil) sales increase of 15.9% for fiscal 2021.

Gross profit for fiscal 2021 was $7.718 billion, or 52.8% of net sales, an 85
basis point decrease compared with $6.771 billion, or 53.6% of net sales for
fiscal 2020. The decrease in gross margin was primarily driven by the
initiatives to accelerate growth in our commercial business.

Operating, selling, general and administrative expenses for fiscal 2021
increased to $4.773 billion, or 32.6% of net sales, from $4.353 billion, or
34.5% of net sales for fiscal 2020. The reduction in operating expenses as a
percentage of sales was driven by strong sales growth and a decrease in pandemic
related expenses.

Net interest expense for 2021 was $ 195.3 million compared to $ 201.2 million during fiscal year 2020. Average borrowings for fiscal year 2021 were $ 5.401 billion, compared to $ 5.393 billion for fiscal 2020. The weighted average borrowing rates were 3.28% and 3.26% for fiscal 2021 and 2020, respectively.

Our effective income tax rate was 21.1% of pre-tax income for fiscal 2021
compared to 21.8% for fiscal 2020. The decrease in the tax rate was primarily
attributable to an increased benefit from stock options exercised during fiscal
2021 compared to fiscal 2020. The benefit of stock options exercised for fiscal
2021 was $56.4 million compared to $20.9 million for fiscal 2020 (see "Note D -
Income Taxes" in the Notes to Consolidated Financial Statements).

Net income for fiscal 2021 increased by 25.2% to $2.170 billion, and diluted
earnings per share increased 32.3% to $95.19 from $71.93 in fiscal 2020. The
impact on the fiscal 2021 diluted earnings per share from stock repurchases was
an increase of $5.13.

Fiscal year 2020 compared to fiscal year 2019

A discussion of changes in our results of operations from fiscal 2019 to fiscal
2020 has been omitted from this Annual Report on Form 10-K, but may be found in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" of our Annual Report on Form 10-K for the fiscal year ended
August 29, 2020, filed with the SEC on October 26, 2020, which is available free
of charge on the SECs website at www.sec.gov and at www.autozone.com, by
clicking "Investor Relations" located at the bottom of the page.

Quarterly periods

Each of the first three quarters of our fiscal year consists of 12 weeks, and
the fourth quarter consisted of 16 weeks in 2021 and 2020 and 17 weeks in 2019.
Because the fourth quarter contains seasonally high sales volume and consists of
16 or 17 weeks, compared with 12 weeks for each of the first three quarters, our
fourth quarter represents a disproportionate share of our annual net sales and
net income. The fourth quarter of fiscal year 2021 represented 33.6% of annual
sales and 36.2% of net income; the fourth quarter of fiscal year 2020
represented 36.0% of annual sales and 42.7% of net income; and the fourth
quarter of fiscal year 2019 represented 33.6% of annual sales and 35.0% of

net
income.

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Liquidity and capital resources

The primary source of our liquidity is our cash flows realized through the sale
of automotive parts, products, and accessories. Unprecedented customer demand
from the impact of the COVID-19 pandemic and continued progress on our
initiatives improved our operating performance for the fiscal year, which drove
a substantial increase in cash flows from operations. We believe that our cash
generated from operating activities, available cash reserves and available
credit, supplemented with our long-term borrowings will provide ample liquidity
to fund our operations while allowing us to make strategic investments to
support long-term growth initiatives and return excess cash to shareholders in
the form of share repurchases. As of August 28, 2021, we held $1.171 billion of
cash and cash equivalents, as well as $1.998 billion in undrawn capacity on our
revolving credit facility. We believe our sources of liquidity will continue to
be adequate to fund our operations and investments to grow our business, repay
our debt as it becomes due and fund our share repurchases over the short-term
and long-term. In addition, we believe we have the ability to obtain alternative
sources of financing, if necessary.

Net cash provided by operating activities was $3.519 billion in 2021, $2.720
billion in 2020 and $2.129 billion in 2019. Cash flows from operations are
favorable compared to last year primarily due to favorable changes in accounts
payable, driven by higher sustained inventory purchase volume in fiscal 2021 as
compared to fiscal 2020, and growth in net income due to accelerated sales
growth as a result of the pandemic.

Our net cash flows used in investing activities were $601.8 million in fiscal
2021, $497.9 million in fiscal 2020 and $491.8 million in fiscal 2019. The
increase in net cash used in investing activities in fiscal 2021, compared to
fiscal 2020, was due to an increase in capital expenditures. We invested $621.8
million in capital assets in fiscal 2021, $457.7 million in fiscal 2020 and
$496.1 million in fiscal 2019. The increase in capital expenditures from fiscal
2020 to fiscal 2021 was primarily driven by increased store openings. We had 218
net new store openings for fiscal 2021, 138 for fiscal 2020 and 209 for fiscal
2019. We invest a portion of our assets held by our wholly owned insurance
captive in marketable debt securities. We purchased $63.7 million in marketable
debt securities in fiscal 2021, $90.9 million in fiscal 2020 and $55.5 million
in fiscal 2019. We had proceeds from the sale of marketable debt securities of
$95.4 million in fiscal 2021, $84.2 million in fiscal 2020 and $53.1 million in
fiscal 2019.

Net cash used in financing activities was $3.5 billion in fiscal 2021, $643.6
million in fiscal 2020 and $1.674 billion in fiscal 2019. The net cash used in
financing activities reflected purchases of treasury stock, which totaled $3.378
billion for fiscal 2021, $930.9 million for fiscal 2020 and $2.005 billion for
fiscal 2019. The increase in purchases of treasury stock for fiscal 2021 in
comparison to fiscal 2020 was due to resuming our share repurchase program which
was temporarily suspended in fiscal 2020 due to the COVID-19 pandemic. The
treasury stock purchases in fiscal 2021, 2020 and 2019 were primarily funded by
cash flows from operations. During the year ended August 28, 2021, we repaid our
$250 million 2.500% Senior Notes due April 2021, which were callable at par in
March 2021. We did not issue any new debt in fiscal 2021, and issued $1.850
billion and $750 million in fiscal 2020 and 2019, respectively. In fiscal 2020,
the proceeds from the issuance of debt were used for general corporate purposes,
repayment of our outstanding commercial paper and repayment of our $500 million
Senior Notes due in November 2020 which were callable at par in August 2020. In
fiscal 2019, the proceeds from the issuance of debt were used to repay a portion
of our outstanding commercial paper borrowings, our $250 million Senior
Notes due in April 2019 and for general corporate purposes.

We did not have any commercial paper or short term borrowing activity during
fiscal 2021. Net repayments of commercial paper and short term borrowings were
$1.030 billion and $295.3 million for 2020 and 2019, respectively.

During fiscal 2022, we expect to increase the investment in our business as
compared to fiscal 2021. Our investments are expected to be directed primarily
to expansion of our store base and supply chain to fuel the growth of our
domestic and Mexico businesses, which includes new stores, including mega hubs,
as well as distribution center expansions and remodels. The amount of
investments in our new stores is impacted by different factors, including
whether the building and land are purchased (requiring higher investment) or
leased (generally lower investment) and whether such buildings are located in
the U.S., Mexico or Brazil, or located in urban or rural areas.

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In fiscal 2021, our capital expenditures increased by approximately 36%, compared to a decrease of 8% and 5%, for fiscal 2020 and 2019 respectively. Fiscal 2021 capital spending increased significantly due to delays in capital spending for the third and fourth quarters of fiscal 2020 related to COVID-19.

In addition to building and land costs, our new stores require working capital,
predominantly for inventories. Historically, we have negotiated extended payment
terms from suppliers, reducing the working capital required and resulting in a
high accounts payable to inventory ratio. We plan to continue leveraging our
inventory purchases; however, our ability to do so may be limited by our
vendors' capacity to factor their receivables from us. Certain vendors
participate in arrangements with financial institutions whereby they factor
their AutoZone receivables, allowing them to receive early payment from the
financial institution on our invoices at a discounted rate. The terms of these
agreements are between the vendor and the financial institution. Upon request
from the vendor, we confirm to the vendor's financial institution the balances
owed to the vendor, the due date and agree to waive any right of offset to the
confirmed balances. A downgrade in our credit or changes in the financial
markets may limit the financial institutions' willingness to participate in
these arrangements, which may result in the vendor wanting to renegotiate
payment terms. A reduction in payment terms would increase the working capital
required to fund future inventory investments. Extended payment terms from our
vendors have allowed us to continue our high accounts payable to inventory
ratio. We had an accounts payable to inventory ratio of 129.6% at August 28,
2021 and 115.3% at August 29, 2020. The increase from fiscal 2020 was primarily
due to increased accounts payable purchases with favorable vendor terms and
higher inventory turns.

Depending on the timing and magnitude of our future investments (either in the
form of leased or purchased properties or acquisitions), we anticipate that we
will rely primarily on internally generated funds and available borrowing
capacity to support a majority of our capital expenditures, working capital
requirements and stock repurchases. The balance may be funded through new
borrowings. We anticipate we will be able to obtain such financing in view of
our credit ratings and favorable experiences in the debt markets in the past.

Our cash balances are held in various locations around the world. As of August
28, 2021, and August 29, 2020, cash and cash equivalents of $80.4 million and
$62.4 million, respectively, were held outside of the U.S. and were generally
utilized to support the liquidity needs in our foreign operations.

For the fiscal year ended August 28, 2021, our adjusted after-tax return on
invested capital ("ROIC"), which is a non-GAAP measure, was 41.0% as compared to
35.7% for the comparable prior year period. Adjusted ROIC is calculated as
after-tax operating profit (excluding rent charges) divided by invested capital
(which includes a factor to capitalize operating leases). We use adjusted ROIC
to evaluate whether we are effectively using our capital resources and believe
it is an important indicator of our overall operating performance. Refer to the
"Reconciliation of Non-GAAP Financial Measures" section for further details

of
our calculation.

Debt Facilities

We entered into a Master Extension, New Commitment and Amendment Agreement dated
as of November 18, 2017 (the "Extension Amendment") to the Third Amended and
Restated Credit Agreement dated as of November 18, 2016, as amended, modified,
extended or restated from time to time (the "Revolving Credit Agreement"). Under
the Extension Amendment: (i) our borrowing capacity under the Revolving Credit
Agreement was increased from $1.6 billion to $2.0 billion; (ii) the maximum
borrowing under the Revolving Credit Agreement may, at our option, subject to
lenders approval, be increased from $2.0 billion to $2.4 billion; (iii) the
termination date of the Revolving Credit Agreement was extended from
November 18, 2021 until November 18, 2022; and (iv) we have the option to make
one additional written request of the lenders to extend the termination date
then in effect for an additional year. Under the Revolving Credit Agreement, we
may borrow funds consisting of Eurodollar loans, base rate loans or a
combination of both. Interest accrues on Eurodollar loans at a defined
Eurodollar rate, defined as LIBOR plus the applicable percentage, as defined in
the Revolving Credit Agreement, depending upon our senior, unsecured,
(non-credit enhanced) long-term debt ratings. Interest accrues on base rate
loans as defined in the Revolving Credit Agreement.

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From August 28, 2021, we had no outstanding loans and $ 1.7 million letters of credit outstanding under the revolving credit agreement. We intend to amend and restate our revolving credit agreement and expect to close the agreement in the first quarter of fiscal 2022.

Under our revolving credit agreement, restrictive covenants include restrictions on liens, a maximum debt-to-earnings ratio, a minimum fixed charge coverage ratio, and a change of control clause which may require the acceleration of debt obligations. refund under certain circumstances.

The Revolving Credit Agreement requires that our consolidated interest coverage
ratio as of the last day of each quarter shall be no less than 2.5:1. This ratio
is defined as the ratio of (i) consolidated earnings before interest, taxes and
rents to (ii) consolidated interest expense plus consolidated rents. Our
consolidated interest coverage ratio as of August 28, 2021 was 6.9:1.

On April 3, 2020, we entered into a 364-Day Credit Agreement (the "364-Day
Credit Agreement") to supplement our existing Revolving Credit Agreement. The
364-Day Credit Agreement provided for loans in the aggregate principal amount of
up to $750 million. The 364-Day Credit Agreement had a termination date of, and
any amounts borrowed under the 364-Day Credit Agreement were due and payable on
April 2, 2021. Revolving loans under the 364-Day Credit Agreement could be base
rate loans, Eurodollar loans, or a combination of both at our election.

Effective February 2021, we terminated the 364-Day Credit Agreement. There were
no borrowings outstanding under the 364-Day Credit Agreement. We entered into
the 364-Day Agreement to augment our access to liquidity due to the
macroeconomic conditions existing at the time, and we determined the additional
access to liquidity was no longer necessary.

As of August 28, 2021, the $500 million 3.700% Senior Notes due April 2022 were
classified as long-term in the Consolidated Balance Sheets as we had the ability
and intent to refinance them on a long-term basis through available capacity in
our revolving credit facility. As of August 28, 2021, we had $1.998 billion of
availability under our $2.0 billion Revolving Credit Agreement, which would
allow us to replace these short-term obligations with a long-term financing
facility.

At March 15, 2021, we refunded the $ 250 million 2.500% senior notes at maturity April 2021
which were redeemable at par in March 2021.

On August 14, 2020, we issued $600 million in 1.650% Senior Notes due January
2031 under our automatic shelf registration statement on Form S-3, filed with
the SEC on April 4, 2019 (File No. 333-230719) (the "2019 Shelf Registration
Statement"). The 2019 Shelf Registration Statement allows us to sell an
indeterminate amount in debt securities to fund general corporate purposes,
including repaying, redeeming or repurchasing outstanding debt and for working
capital, capital expenditures, new store openings, stock repurchases and
acquisitions. Proceeds from the debt issuance were used for general corporate
purposes, including the repayment of the $500 million in 4.000% Senior Notes due
in November 2020 that were callable at par in August 2020.

On March 30, 2020, we issued $500 million in 3.625% Senior Notes due April 2025
and $750 million in 4.000% Senior Notes due April 2030 under the 2019 Shelf
Registration Statement. Proceeds from the debt issuance were used to repay a
portion of the outstanding commercial paper borrowings and for other general
corporate purposes.

On April 18, 2019, we issued $300 million in 3.125% Senior Notes due April 2024
and $450 million in 3.750% Senior Notes due April 2029 under the 2019 Shelf
Registration Statement. Proceeds from the debt issuance were used to repay a
portion of our outstanding commercial paper borrowings, the $250 million in
1.625% Senior Notes due in April 2019 and for other general corporate purposes.

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All Senior Notes are subject to an interest rate adjustment if the debt ratings
assigned are downgraded (as defined in the agreements). Further, the Senior
Notes contain a provision that repayment may be accelerated if we experience a
change in control (as defined in the agreements). Our borrowings under our
Senior Notes contain minimal covenants, primarily restrictions on liens, sale
and leaseback transactions and consolidations, mergers and the sale of assets.
All of the repayment obligations under our borrowing arrangements may be
accelerated and come due prior to the applicable scheduled payment date if
covenants are breached or an event of default occurs. Interest is paid on a
semi-annual basis.

From August 28, 2021, we were in compliance with all covenants and plan to remain in compliance with all covenants in our debt agreements.

We also maintain a letter of credit facility that allows us to request the
participating bank to issue letters of credit on our behalf up to an aggregate
amount of $25 million. The letter of credit facility is in addition to the
letters of credit that may be issued under the Revolving Credit Agreement. As of
August 28, 2021, we had $23.9 million in letters of credit outstanding under the
letter of credit facility which expires in June 2022.

In addition to the outstanding letters of credit issued under the committed
facility discussed above, we had $136.8 million in letters of credit outstanding
as of August 28, 2021. These letters of credit have various maturity dates and
were issued on an uncommitted basis.

For the fiscal year ended August 28, 2021, our adjusted debt to earnings before
interest, taxes, depreciation, amortization, rent and share-based compensation
expense ("EBITDAR") ratio was 2.0:1 as compared to 2.4:1 as of the comparable
prior year end. We calculate adjusted debt as the sum of total debt, finance
lease liabilities and rent times six; and we calculate adjusted EBITDAR by
adding interest, taxes, depreciation, amortization, rent and share-based
compensation expense to net income. We target our debt levels to a specified
ratio of adjusted debt to EBITDAR in order to maintain our investment grade
credit ratings and believe this is important information for the management of
our debt levels.

Management expects the ratio of adjusted debt to EBITDAR to return to
pre-pandemic levels in the future, increasing debt levels. Once the target ratio
is achieved, to the extent adjusted EBITDAR increases, we expect our debt levels
to increase; conversely, if adjusted EBITDAR decreases, we would expect our debt
levels to decrease. Refer to the "Reconciliation of Non-GAAP Financial Measures"
section for further details of our calculation.

Share buybacks

During 1998, we announced a program permitting us to repurchase a portion of our
outstanding shares not to exceed a dollar maximum established by our Board of
Directors (the "Board"). On December 15, 2020, the Board voted to increase the
authorization by $1.5 billion. On March 23, 2021, the Board voted to increase
the repurchase authorization by an additional $1.5 billion, which raised the
total value of shares authorized to be repurchased to $26.15 billion. From
January 1998 to August 28, 2021, we have repurchased a total of 150.3 million
shares at an aggregate cost of $25.732 billion. We repurchased 2.6 million
shares of common stock at an aggregate cost of $3.378 billion during fiscal
2021, 826 thousand shares of common stock at an aggregate cost of $930.9 million
during fiscal 2020 and 2.2 million shares of common stock at an aggregate cost
of $2.005 billion during fiscal 2019. The increase in purchases of treasury
stock for fiscal 2021 compared to fiscal 2020 was due to the temporary
suspension of the share repurchase program during fiscal 2020 in order to
preserve cash as a result of the uncertainty related to the pandemic. Purchases
under the program resumed beginning in the first quarter of fiscal 2021.
Considering cumulative repurchases as of August 28, 2021, we had $417.6 million
remaining under the Board's authorization to repurchase our common stock. We
will continue to evaluate current and expected business conditions and adjust
the level of share repurchases under our share repurchase program as we deem
appropriate.

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For the fiscal year ended August 28, 2021, cash flow before share repurchases
and changes in debt was $3.049 billion as compared to $2.185 billion during the
comparable prior year period. Cash flow before share repurchases and changes in
debt is calculated as the net increase or decrease in cash and cash equivalents
less net increases or decreases in debt (excluding deferred financing costs)
plus share repurchases. We use cash flow before share repurchases and changes in
debt to calculate the cash flows remaining and available. We believe this is
important information regarding our allocation of available capital where we
prioritize investments in the business and utilize the remaining funds to
repurchase shares, while maintaining debt levels that support our investment
grade credit ratings. Refer to the "Reconciliation of Non-GAAP Financial
Measures" section for further details of our calculation.

On October 5, 2021, the Board voted to authorize the repurchase of an additional
$1.5 billion of our common stock in connection with our ongoing share repurchase
program. Since the inception of the repurchase program in 1998, the Board has
authorized $27.65 billion in share repurchases. Subsequent to August 28, 2021
and through October 18, 2021, we have repurchased 220,022 shares of common stock
at an aggregate cost of $362.8 million. Considering the cumulative repurchases
and the increase in authorization subsequent to August 28, 2021 and through
October 18, 2021, we have $1.555 billion remaining under the Board's
authorization to repurchase its common stock.

Financial commitments

The following table shows our significant contractual obligations as of
August 28, 2021:


                                       Total                       Payment Due by Period
                                    Contractual     Less than      Between       Between        Over
(in thousands)                      Obligations      1 year       1­3

years 35 years 5 years

Debt(1)                             $  5,300,000   $   500,000   $ 1,100,000   $ 1,300,000   $ 2,400,000
Interest payments(2)                     911,863       175,025       284,488       214,675       237,675
Operating leases(3)                    3,682,998       323,245       672,142       573,073     2,114,538
Finance leases(3)                        304,499        91,228       106,969        57,922        48,380
Self-insurance reserves(4)               259,585        95,263        87,953        37,188        39,181
Construction commitments                  48,217        48,217             -             -             -
                                    $ 10,507,162   $ 1,232,978   $ 2,251,552   $ 2,182,858   $ 4,839,774

(1) Debt balances represent the main maturities, excluding interest, discounts,

and debt issuance costs.

(2) Represents interest payment obligations on long-term debt.

(3) Operating lease and finance lease obligations include interest

in accordance with ASU 2016-02, Leases (subject 842).

Self-insurance reserves reflect estimates based on actuarial calculations and

are presented net of insurance receivables. Although these bonds do not have (4) scheduled maturities, the timing of future payments is predictable.

based on historical models. Accordingly, we reflect the net present value

of these obligations in our Consolidated Balance Sheets.

Our tax liability for uncertain tax positions, including interest and penalties,
was $31.8 million at August 28, 2021. Approximately $3.0 million is classified
as current liabilities and $28.8 million is classified as long-term liabilities.
We did not reflect these obligations in the table above as we are unable to make
an estimate of the timing of payments of the long-term liabilities due to
uncertainties in the timing and amounts of the settlement of these tax
positions.



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Off-balance sheet provisions

The following table reflects outstanding letters of credit and surety bonds as
of August 28, 2021:


                                Total
                                Other
(in thousands)                Commitments

Standby letters of credit    $     162,393
Surety bonds                        35,362
                             $     197,755

A significant portion of outstanding standby letters of credit (which are mainly renewed on an annual basis) and bonds are used to cover repayment obligations to our workers’ compensation insurers.

There are no additional contingent liabilities associated with these instruments
as the underlying liabilities are already reflected in our Consolidated Balance
Sheets. The standby letters of credit and surety bond arrangements expire within
one year but have automatic renewal clauses.

Reconciliation of non-GAAP financial measures

"Management's Discussion and Analysis of Financial Condition and Results of
Operations" includes certain financial measures not derived in accordance with
generally accepted accounting principles ("GAAP"). These non-GAAP financial
measures provide additional information for determining our optimum capital
structure and are used to assist management in evaluating performance and in
making appropriate business decisions to maximize stockholders' value.

Non-GAAP financial measures should not be used as a substitute for GAAP
financial measures, or considered in isolation, for the purpose of analyzing our
operating performance, financial position or cash flows. However, we have
presented the non-GAAP financial measures, as we believe they provide additional
information that is useful to investors as it indicates more clearly our
comparative year-to-year operating results. Furthermore, our management and
Compensation Committee of the Board use the above-mentioned non-GAAP financial
measures to analyze and compare our underlying operating results and use select
measurements to determine payments of performance-based compensation. We have
included a reconciliation of this information to the most comparable GAAP
measures in the following reconciliation tables.

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Reconciliation of non-GAAP financial measures: cash flow before share buybacks and changes in debt

The following table reconciles net increase (decrease) in cash and cash
equivalents to cash flow before share repurchases and changes in debt, which is
presented in "Management's Discussion and Analysis of Financial Condition and
Results of Operations":


                                                            Fiscal Year Ended August
(in thousands)                       2021             2020            2019             2018            2017

Net cash provided by/(used
in):
Operating activities             $   3,518,543    $  2,720,108    $   2,128,513    $   2,080,292    $ 1,570,612
Investing activities                 (601,778)       (497,875)        (491,846)        (521,860)      (553,599)
Financing activities               (3,500,417)       (643,636)      (1,674,088)      (1,632,154)      (914,329)
Effect of exchange rate
changes on cash                          4,172         (4,082)          (4,103)          (1,724)            852
Net increase/(decrease) in
cash and cash equivalents            (579,480)       1,574,515         (41,524)         (75,446)        103,536
Less: increase/(decrease) in
debt, excluding deferred
financing costs                      (250,000)         320,000          204,700         (79,800)        157,600
Plus: Share repurchases              3,378,321      930,903(1)        2,004,896        1,592,013      1,071,649
Cash flow before share
repurchases and changes in
debt                             $   3,048,841    $  2,185,418    $   1,758,672    $   1,596,367    $ 1,017,585

(1) During the third quarter of fiscal 2020, the Company temporarily suspended

    share repurchases under the share repurchase program in response to COVID-19.














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Reconciliation of non-GAAP financial measure: Adjusted after-tax ROI

The following table calculates the percentage of ROIC. ROIC is calculated as
after-tax operating profit (excluding rent) divided by invested capital (which
includes a factor to capitalize operating leases). The ROIC percentages are
presented in "Management's Discussion and Analysis of Financial Condition and
Results of Operations":





                                                               Fiscal Year Ended August
(in thousands, except
percentage)                            2021             2020            2019(1)          2018(2)           2017

Net income                         $   2,170,314    $   1,732,972    $   1,617,221    $   1,337,536    $   1,280,869
Adjustments:
Impairment before tax                          -                -                -          193,162                -
Pension termination charges
before tax                                     -                -                -          130,263                -
Interest expense                         195,337          201,165          184,804          174,527          154,580
Rent expense(3)                          345,380          329,783          332,726          315,580          302,928
Tax effect(4)                          (114,091)        (115,747)        (105,576)        (211,806)        (153,265)
Deferred tax liabilities, net
of repatriation tax(5)                         -                -          (6,340)        (132,113)                -
Adjusted after-tax return          $   2,596,940    $   2,148,173    $   2,022,835    $   1,807,149    $   1,585,112

Average debt(6)                    $   5,416,471    $   5,375,356    $   5,126,286    $   5,013,678    $   5,061,502
Average stockholders'
deficit(6)                           (1,397,892)      (1,542,355)      (1,615,339)      (1,433,196)      (1,730,559)
Add: Rent x 6(3)(7)                    2,072,280        1,978,696        1,996,358        1,893,480        1,817,568
Average finance lease
liabilities(6)                           237,267          203,998          162,591          156,198          150,066
Invested capital                   $   6,328,126    $   6,015,695    $   

5 669 896 $ 5,630,160 $ 5,298,577

Adjusted after-tax ROIC                     41.0 %           35.7 %        

  35.7 %           32.1 %           29.9 %

Reconciliation of non-GAAP financial measure: adjusted debt / EBITDAR

The following table calculates the ratio of adjusted debt to EBITDAR. Adjusted
debt to EBITDAR is calculated as the sum of total debt, financing lease
liabilities and annual rents times six; divided by net income plus interest,
taxes, depreciation, amortization, rent and share-based compensation expense.
The adjusted debt to EBITDAR ratios are presented in "Management's Discussion
and Analysis of Financial Condition and Results of Operations":





                                                          Fiscal Year Ended August

(in thousands, except ratio)          2021           2020          2019(1) 

2018 (2) 2017

Net income                         $ 2,170,314    $ 1,732,972    $ 1,617,221    $ 1,337,536    $ 1,280,869
Add: Impairment before tax                   -              -              -        193,162              -
Pension termination charges
before tax                                   -              -              -        130,263              -
Add: Interest expense                  195,337        201,165        184,804        174,527        154,580
Income tax expense                     578,876        483,542        414,112        298,793        644,620
Adjusted EBIT                        2,944,527      2,417,679      2,216,137      2,134,281      2,080,069
Add: Depreciation and
amortization expense                   407,683        397,466        369,957        345,084        323,051
Rent expense(3)                        345,380        329,783        332,726        315,580        302,928
Share-based expense                     56,112         44,835         43,255         43,674         38,244
Adjusted EBITDAR                   $ 3,753,702    $ 3,189,763    $ 2,962,075    $ 2,838,619    $ 2,744,292

Debt                               $ 5,269,820    $ 5,513,371    $ 5,206,344    $ 5,005,930    $ 5,081,238
Financing lease liabilities            276,054        223,353        179,905        154,303        150,456
Add: Rent x 6(3)(7)                  2,072,280      1,978,696      1,996,358      1,893,480      1,817,568
Adjusted debt                      $ 7,618,154    $ 7,715,420    $ 7,382,607    $ 7,053,713    $ 7,049,262
Adjusted debt to EBITDAR                   2.0            2.4            2.5            2.5            2.6






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(1) The financial year ended August 31, 2019 consisted of 53 weeks.

(2) For the 2018 financial year, operating income after tax has been restated for impairment

pension settlement charges and fees.

Effective September 1, 2019, the Company adopted ASU 2016-02, Leases (Subject

842), the new standard for accounting for leases which required the Company to

recognize operating lease assets and liabilities on the balance sheet. Table (3) below shows the calculation of rental charges and reconciles the rents

charge at total rental cost, per ASC 842, the most directly comparable GAAP

    financial measure, for the 52 weeks ended, August 28, 2021 and August 29,
    2020.



                                                           For the year ended
(in thousands)                                     August 28,2021      August 29,2020

Total lease cost, per ASC 842, for the
trailing four quarters                            $        427,443    $    

415,505

Less: Finance lease interest and amortization             (56,334)         

(60,275)

Less: Variable operating lease components,
related to insurance and common area
maintenance                                               (25,729)         

(25,447)

Rent charges for the last four quarters $ 345,380 $

   329,783

For fiscal years 2021, 2020 and 2019, the effective tax rate was 21.1%, 21.8% and (4) 20.4%, respectively. The effective tax rate during the 2018 financial year was 24.2% for

depreciation, 28.1% for termination of pension and 26.2% for interest and rent

costs. For fiscal 2017, the effective tax rate was 33.5%.

For fiscal years 2019 and 2018, operating profit after tax was adjusted (5) for the impact of the revaluation of deferred tax liabilities, net of

repatriation tax.

(6) All averages are calculated on the basis of the last five quarters.

(7) The rent is multiplied by six to capitalize the operating leases in the

    determination of pre-tax invested capital.

Recent accounting positions

See Note A of the Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.

Critical accounting conventions and estimates

Preparation of our Consolidated Financial Statements requires us to make
estimates and assumptions affecting the reported amounts of assets and
liabilities at the date of the financial statements, reported amounts of
revenues and expenses during the reporting period and related disclosures of
contingent liabilities. In the Notes to our Consolidated Financial Statements,
we describe our significant accounting policies used in preparing the
Consolidated Financial Statements. Our policies are evaluated on an ongoing
basis and are drawn from historical experience and other assumptions that we
believe to be reasonable under the circumstances. Actual results could differ
under different assumptions or conditions. Our senior management has identified
the critical accounting policies for the areas that are materially impacted by
estimates and assumptions and have discussed such policies with the Audit
Committee of our Board. The following items in our Consolidated Financial
Statements represent our critical accounting policies that require significant
estimation or judgment by management:

Self-insurance reserves

We retain a significant portion of the risks associated with workers'
compensation, general, product liability, property and vehicle liability; and we
obtain third party insurance to limit the exposure related to certain of these
risks. Our self-insurance reserve estimates totaled $284.0 million at August 28,
2021, and $288.6 million at August 29, 2020. Where estimates are possible,
losses covered by insurance are recognized on a gross basis with a corresponding
insurance receivable.



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The assumptions made by management in estimating our self-insurance reserves
include consideration of historical cost experience, judgments about the present
and expected levels of cost per claim and retention levels. We utilize various
methods, including analyses of historical trends and use of a specialist, to
estimate the cost to settle reported claims and claims incurred but not yet
reported. The actuarial methods develop estimates of the future ultimate claim
costs based on the claims incurred as of the balance sheet date. When estimating
these liabilities, we consider factors, such as the severity, duration and
frequency of claims, legal costs associated with claims, healthcare trends and
projected inflation of related factors. In recent history, our methods for
determining our exposure have remained consistent, and our historical trends
have been appropriately factored into our reserve estimates. As we obtain
additional information and refine our methods regarding the assumptions and
estimates we use to recognize liabilities incurred, we will adjust our reserves
accordingly.

Management believes that the various assumptions developed and actuarial methods
used to determine our self- insurance reserves are reasonable and provide
meaningful data and information that management uses to make its best estimate
of our exposure to these risks. Arriving at these estimates, however, requires a
significant amount of subjective judgment by management, and as a result these
estimates are uncertain and our actual exposure may be different from our
estimates. For example, changes in our assumptions about healthcare costs, the
severity of accidents and the incidence of illness, the average size of claims
and other factors could cause actual claim costs to vary materially from our
assumptions and estimates, causing our reserves to be overstated or understated.
For instance, a 10% change in our self-insurance liability would have affected
net income by approximately $19.1 million for fiscal 2021.

Our liabilities for workers' compensation, general and product liability,
property and vehicle claims do not have scheduled maturities; however, the
timing of future payments is predictable based on historical patterns and is
relied upon in determining the current portion of these liabilities.
Accordingly, we reflect the net present value of the obligations we determine to
be long-term using the risk-free interest rate as of the balance sheet date.

If the discount rate used to calculate the present value of these reserves varied by 25 basis points, net income would have been affected by approximately
$ 1.4 million for fiscal year 2021.

Income Taxes

Our income tax returns are audited by state, federal and foreign tax
authorities, and we are typically engaged in various tax examinations at any
given time. Tax contingencies often arise due to uncertainty or differing
interpretations of the application of tax rules throughout the various
jurisdictions in which we operate. The contingencies are influenced by items
such as tax audits, changes in tax laws, litigation, appeals and prior
experience with similar tax positions.

We regularly review our tax reserves for these items and assess the adequacy of
the amount we have recorded. As of August 28, 2021, we had approximately $31.8
million reserved for uncertain tax positions.

We evaluate exposures associated with our various tax filings by estimating a
liability for uncertain tax positions based on a two-step process. The first
step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step requires us to estimate and
measure the tax benefit as the largest amount that is more than 50% likely to be
realized upon ultimate settlement.

We believe our estimates to be reasonable and have not experienced material
adjustments to our reserves in the previous three years; however, actual results
could differ from our estimates, and we may be exposed to gains or losses that
could be material. Specifically, management has used judgment and made
assumptions to estimate the likely outcome of uncertain tax positions.
Additionally, to the extent we prevail in matters for which a liability has been
established, or must pay in excess of recognized reserves, our effective tax
rate in any particular period could be materially affected.

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Vendor Allowances

We receive various payments and allowances from our vendors through a variety of
programs and arrangements, including allowances for warranties, advertising and
general promotion of vendor products. Vendor allowances are treated as a
reduction of the cost of inventory, unless they are provided as a reimbursement
of specific, incremental, identifiable costs incurred by the Company in selling
the vendor's products. Approximately 85% of the vendor funds received during
fiscal 2021 were recorded as a reduction of the cost of inventories and
recognized as a reduction to cost of sales as these inventories are sold.

Based on our vendor agreements, a significant portion of vendor funding we
receive is earned as we purchase inventory. Therefore, we record receivables for
funding earned but not yet received as we purchase inventory. During the year,
we regularly review the receivables from vendors to ensure vendors are able to
meet their obligations. We generally have not recorded a reserve against these
receivables as we have not experienced significant losses and typically have a
legal right of offset with our vendors for payments owed them. Historically, we
have had write-offs less than $1 million in each of the last three years.

Article 7A. Quantitative and qualitative information on market risk

We are exposed to market risk from, among other things, changes in interest
rates, foreign exchange rates and fuel prices. From time to time, we use various
derivative instruments to reduce interest rate and fuel price risks. To date,
based upon our current level of foreign operations, no derivative instruments
have been utilized to reduce foreign exchange rate risk. All of our hedging
activities are governed by guidelines that are authorized by the Board. Further,
we do not buy or sell derivative instruments for trading purposes.

Interest rate risk

Our financial market risk results primarily from changes in interest rates. At
times, we reduce our exposure to changes in interest rates by entering into
various interest rate hedge instruments such as interest rate swap contracts,
treasury lock agreements and forward-starting interest rate swaps.

We have historically utilized interest rate swaps to convert variable rate debt
to fixed rate debt and to lock in fixed rates on future debt issuances. We
reflect the current fair value of all interest rate hedge instruments as a
component of either other current assets or accrued expenses and other. Our
interest rate hedge instruments are designated as cash flow hedges. As of August
28, 2021 and August 29, 2020 no such interest rate swaps were outstanding.

Unrealized gains and losses on interest rate hedges are deferred in
stockholders' deficit as a component of Accumulated Other Comprehensive Loss.
These deferred gains and losses are recognized in income as a decrease or
increase to interest expense in the period in which the related cash flows being
hedged are recognized in expense. However, to the extent that the change in
value of an interest rate hedge instrument does not perfectly offset the change
in the value of the cash flow being hedged, that ineffective portion is
immediately recognized in earnings.

The fair value of our debt was estimated at $5.683 billion as of August 28,
2021, and $6.081 billion as of August 29, 2020, based on the quoted market
prices for the same or similar debt issues or on the current rates available to
us for debt having the same remaining maturities. Such fair value is greater
than the carrying value of debt by $413.1 million and $567.5 million at August
28, 2021 and August 29, 2020, respectively, which reflects its face amount,
adjusted for any unamortized debt issuance costs and discounts.

We had no variable rate debt outstanding at August 28, 2021 and August 29, 2020.

We had outstanding fixed rate debt of $5.270 billion, net of unamortized debt
issuance costs of $30.2 million, at August 28, 2021, and $5.513 billion, net of
unamortized debt issuance costs of $36.6 million, at August 29, 2020. A
one percentage point increase in interest rates would have reduced the fair
value of our fixed rate debt by approximately $258.3 million at August 28,

2021.

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Foreign Currency Risk

Foreign currency exposures arising from transactions include firm commitments
and anticipated transactions denominated in a currency other than our entities'
functional currencies. To minimize our risk, we generally enter into
transactions denominated in the respective functional currencies. We are exposed
to Brazilian reals, Canadian dollars, euros, Chinese yuan renminbi and British
pounds, but our primary foreign currency exposure arises from Mexican
peso-denominated revenues and profits and their translation into U.S.
dollars. Foreign currency exposures arising from transactions denominated in
currencies other than the functional currency are not material.

We view our investments in Mexican subsidiaries as long-term. As a result, we
generally do not hedge these net investments. The net asset exposure in the
Mexican subsidiaries translated into U.S. dollars using the year-end exchange
rates was $310.1 million at August 28, 2021 and $293.1 million at August 29,
2020. The year-end exchange rates with respect to the Mexican peso increased by
approximately 10% with respect to the U.S. dollar during fiscal 2021 and
decreased by approximately 10% with respect to the U.S. dollar during fiscal
2020. The potential loss in value of our net assets in the Mexican subsidiaries
resulting from a hypothetical 10 percent adverse change in quoted foreign
currency exchange rates at August 28, 2021 and August 29, 2020, would have been
approximately $28.2 million and approximately $26.6 million, respectively. Any
changes in our net assets in the Mexican subsidiaries relating to foreign
currency exchange rates would be reflected in the foreign currency translation
component of Accumulated Other Comprehensive Loss, unless the Mexican
subsidiaries are sold or otherwise disposed. A hypothetical 10 percent adverse
change in average exchange rates would not have a material impact on our results
of operations.



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