AutoZone (AZO) 10-Q 18 Mar 10 2010 Q2 Quarterly report Financial data

Document and Company Informatio

Document and Company Information (USD $)
	6 Months Ended Feb. 13, 2010	Mar. 15, 2010	Feb. 14, 2009
Document and Company Information [Abstract]
Entity Registrant Name	AUTOZONE INC
Entity Central Index Key	0000866787
Document Type	10-Q
Document Period End Date	2010-02-13
Amendment Flag	false
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--08-29
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$7,449,415,374
Entity Common Stock, Shares Outstanding		48,759,768

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands	Feb. 13, 2010	Aug. 29, 2009
Current assets:
Cash and cash equivalents	$105,161	$92,706
Accounts receivable	147,466	126,514
Merchandise inventories	2,261,528	2,207,497
Other current assets	134,558	135,013
Total current assets	2,648,713	2,561,730
Property and equipment:
Property and equipment	3,901,843	3,809,414
Less: Accumulated depreciation and amortization	1,518,700	1,455,057
Property and equipment, net	2,383,143	2,354,357
Other assets:
Goodwill, net of accumulated amortization	302,645	302,645
Deferred income taxes	50,746	59,067
Other long-term assets	39,745	40,606
Other noncurrent assets total	393,136	402,318
Total assets	5,424,992	5,318,405
Current liabilities:
Accounts payable	2,144,995	2,118,746
Accrued expenses and other current liabilities	367,059	381,271
Income taxes payable	72,774	35,145
Deferred income taxes	164,496	171,590
Total current liabilities	2,749,324	2,706,752
Debt	2,774,700	2,726,900
Other liabilities	322,639	317,827
Stockholders' equity (deficit)	(421,671)	(433,074)
Liabilities and stockholders' equity	$5,424,992	$5,318,405

Condensed Consolidated Statemen

Condensed Consolidated Statements of Income (Unaudited) (USD $)
In Thousands, except Per Share data	3 Months Ended Feb. 13, 2010	3 Months Ended Feb. 14, 2009	6 Months Ended Feb. 13, 2010	6 Months Ended Feb. 14, 2009
Condensed Consolidated Statements of Income (Unaudited) [Abstract]
Net sales	$1,506,225	$1,447,877	$3,095,469	$2,926,169
Cost of sales, including warehouse and delivery expenses	752,489	728,579	1,541,809	1,465,681
Gross profit	753,736	719,298	1,553,660	1,460,488
Operating, selling, general and administrative expenses	523,355	504,602	1,062,850	1,007,254
Operating profit	230,381	214,696	490,810	453,234
Interest expense, net	36,309	31,907	72,650	63,072
Income before income taxes	194,072	182,789	418,160	390,162
Income taxes	70,739	66,925	151,527	142,927
Net income	$123,333	$115,864	$266,633	$247,235
Weighted average shares for basic earnings per share	49,436	56,517	49,775	57,421
Effect of dilutive stock equivalents	750	648	730	619
Adjusted weighted average shares for diluted earnings per share	50,186	57,165	50,505	58,040
Basic earnings per share	2.49	2.05	5.36	4.31
Diluted earnings per share	2.46	2.03	5.28	4.26

1_Condensed Consolidated Statem

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands	6 Months Ended Feb. 13, 2010	6 Months Ended Feb. 14, 2009
Cash flows from operating activities:
Net income	$266,633	$247,235
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	87,099	81,964
Amortization of debt origination fees	2,999	1,240
Income tax benefit from exercise of stock options	(7,061)	(4,053)
Deferred income taxes	(2,145)	11,724
Share-based compensation expense	8,867	9,307
Changes in operating assets and liabilities:
Accounts receivable	(20,849)	(55,601)
Merchandise inventories	(52,560)	(58,021)
Accounts payable and accrued expenses	9,965	(49,207)
Income taxes payable	46,532	(35,380)
Other, net	9,428	(914)
Net cash provided by operating activities	348,908	148,294
Cash flows from investing activities:
Capital expenditures	(111,128)	(98,146)
Purchase of marketable securities	(10,467)	(14,520)
Proceeds from sale of marketable securities	8,015	12,164
Disposal of capital assets and other, net	4,231	6,925
Net cash used in investing activities	(109,349)	(93,577)
Cash flows from financing activities:
Net proceeds from commercial paper	47,800	441,455
Repayment of debt		(700)
Net proceeds from sale of common stock	18,726	23,666
Purchase of treasury stock	(291,888)	(647,166)
Income tax benefit from exercise of stock options	7,061	4,053
Payments of capital lease obligations	(9,084)	(8,126)
Other, net		534
Net cash used in financing activities	(227,385)	(186,284)
Effect of exchange rate changes on cash	281	(2,921)
Net increase (decrease) in cash and cash equivalents	12,455	(134,488)
Cash and cash equivalents at beginning of period	92,706	242,461
Cash and cash equivalents at end of period	$105,161	$107,973

General

General
	6 Months Ended Feb. 13, 2010
General [Abstract]
General	Note A General The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article10 of RegulationS-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles 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 footnotes included in the Annual Report to Stockholders for AutoZone, Inc. (AutoZone or the Company) for the year ended August 29, 2009 (the 2009 Annual Report to Stockholders). Operating results for the twelve and twenty-four weeks ended February13, 2010, are not necessarily indicative of the results that may be expected for the fiscal year ending August28, 2010. Each of the first three quarters of AutoZones fiscal year consists of 12weeks, and the fourth quarter consists of 16 or 17weeks. The fourth quarter for fiscal 2009 had 16weeks and fiscal 2010 will also have 16weeks. Additionally, the Companys business is somewhat seasonal in nature, with the highest sales generally occurring in the spring and summer months during the first, third and fourth quarters and the lowest sales generally occurring in the winter months during the second quarter. Recent Accounting Pronouncements: In June2009, the Financial Accounting Standards Board (FASB) voted to approve the FASB Accounting Standards Codification (ASC) as the single source of authoritative nongovernmental U.S. generally accepted accounting principles. The ASC became effective for the Company commencing with the Companys fiscal quarter beginning August30, 2009. The ASC does not change U.S. generally accepted accounting principles, but combines all authoritative standards such as those issued by the FASB, the American Institute of Certified Public Accountants and the Emerging Issues Task Force into a comprehensive, topically organized online database. On August31, 2008, the Company adopted ASC 820 (formerly FASB Statement No.157, Fair Value Measurements). This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. On August30, 2009, the Company implemented the previously deferred provisions of ASC 820 for nonfinancial assets and liabilities recorded at fair value, as required. The adoption of this statement did not have a material impact on the consolidated financial statements. In December2007, the FASB issued ASC 805 (formerly FASB Statement 141R, Business Combinations). This standard significantly changes the accounting for and reporting of business combinations in consolidated financial statements. Among other things, ASC 805 requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed at the acquisition date and requires the expen

Share-Based Payments

Share-Based Payments
	6 Months Ended Feb. 13, 2010
Share-Based Payments [Abstract]
Share-Based Payments	Note B Share-Based Payments AutoZone 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 and the discount on shares sold to employees under share purchase plans. Additionally, directors may defer a portion of their fees in units with value equivalent to the value of shares of common stock as of the grant date. Total share-based compensation expense (a component of operating, selling, general and administrative expenses) was $4.6million for the twelve week period ended February13, 2010, and was $4.9million for the comparable prior year period. Share-based compensation expense was $8.9 million for the twenty-four week period ended February13, 2010, and was $9.3million for the comparable prior year period. During the twenty-four week period ended February13, 2010, the Company made stock option grants of 496,580 shares. The Company granted options to purchase 591,442 shares during the comparable prior year period. The weighted average fair value of the stock option awards granted during the twenty-four week periods ended February13, 2010 and February14, 2009, using the Black-Scholes-Merton multiple-option pricing valuation model, was $40.75 and $34.00 per share, respectively, using the following weighted average key assumptions: Twenty-Four Weeks Ended February 13, February 14, 2010 2009 Expected price volatility 31 % 28 % Risk-free interest rate 1.8 % 2.5 % Weighted average expected lives in years 4.3 4.1 Forfeiture rate 10.0 % 10.0 % Dividend yield 0.0 % 0.0 % See AutoZones 2009 Annual Report to Stockholders for a discussion of the methodology used in developing AutoZones assumptions to determine the fair value of the option awards.

Fair Value Measurements

Fair Value Measurements
	6 Months Ended Feb. 13, 2010
Fair Value Measurements [Abstract]
Fair Value Measurements	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. The Company uses a hierarchy of valuation inputs to measure fair value. The hierarchy prioritizes the inputs into three broad levels: Level 1 inputsunadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. Level 2 inputsinputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates. Level 3 inputsunobservable inputs for the asset or liability. At February13, 2010, our assets and liabilities required to be measured at fair value include investments (Level 1) of $71.9million, which are included in other current assets in the accompanying Condensed Consolidated Balance Sheet. The investments are valued at the closing quoted price in the principal active market as of the last business day of the quarter. See Note D Marketable Securities for further discussion. 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 Companys debt is included in Note G Debt.

Marketable Securities

Marketable Securities
	6 Months Ended Feb. 13, 2010
Marketable Securities [Abstract]
Marketable Securities	Note D Marketable Securities The Company invests a portion of its assets held by the Companys wholly owned insurance captive in marketable debt securities and classifies them as available-for-sale. The Company includes these securities in other current assets in the accompanying Condensed Consolidated Balance Sheet. The investments are recorded at fair value, which is typically valued at the closing quoted price in the principal active market as of the last business day of the quarter. Unrealized gains and losses on the marketable securities are recorded in accumulated other comprehensive income, net of tax. The Companys basis for determining the cost of a security sold is the Specific Identification Model. The Companys available-for-sale marketable securities consisted of the following: Amortized Gross Gross Cost Unrealized Unrealized (in thousands) Basis Gains Losses Fair Value February13, 2010 $ 70,616 $ 1,364 $ (52 ) $ 71,928 August29, 2009 $ 68,862 $ 1,510 $ (334 ) $ 70,038 The debt securities held at February13, 2010, had maturities ranging from less than one year to less than three years and consisted primarily of high grade corporate and government fixed income securities. The Company did not realize any material gains or losses on its marketable securities during the twenty-four week period ended February13, 2010. As of February13, 2010, the Company holds four securities that are in an unrealized loss position. The Company has the intent and ability to hold these investments until recovery of fair value or maturity, and does not deem the investments to be impaired on an other than temporary basis. In evaluating whether the securities are deemed to be impaired on an other than temporary basis, the Company considers factors such as the duration and severity of the loss position, the creditworthiness of the issuer, the term to maturity and intent and ability to hold the investments until maturity or until recovery of fair value.

Merchandise Inventories

Merchandise Inventories
	6 Months Ended Feb. 13, 2010
Merchandise Inventories [Abstract]
Merchandise Inventories	Note E Merchandise Inventories Inventories are stated at the lower of cost or market using the last-in, first-out (LIFO) method for domestic inventories and the first-in, first-out (FIFO) method for Mexico inventories. Included in inventories are related purchasing, storage and handling costs. Due to price deflation on the Companys merchandise purchases, the Companys domestic inventory balances are effectively maintained under the FIFO method. The Companys policy is not to write up inventory in excess of replacement cost. The cumulative balance of this unrecorded adjustment, which will be reduced upon experiencing price inflation on the Companys merchandise purchases, was $239.3million at February 13, 2010, and $223.0million at August29, 2009.

Pension Plans

Pension Plans
	6 Months Ended Feb. 13, 2010
Pension Plans [Abstract]
Pension Plans	Note F Pension Plans The components of net periodic pension expense (income)related to the Companys pension plans for all periods presented are as follows: Twelve Weeks Ended Twenty-Four Weeks Ended February 13, February 14, February 13, February 14, (in thousands) 2010 2009 2010 2009 Interest cost $ 2,611 $ 2,457 $ 5,222 $ 4,914 Expected return on plan assets (2,087 ) (2,927 ) (4,175 ) (5,854 ) Amortization of prior service cost 14 28 Amortization of net loss 1,877 17 3,755 34 Net periodic pension expense (income) $ 2,401 $ (439 ) $ 4,802 $ (878 ) The Company makes contributions in amounts at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006. During the twenty-four week period ended February13, 2010, the Company did not make any contributions to its funded plan and does not expect to make any additional cash contributions during the remainder of fiscal 2010.

Debt

Debt
	6 Months Ended Feb. 13, 2010
Debt [Abstract]
Debt	Note G Debt The Companys debt consisted of the following: February 13, August 29, (in thousands) 2010 2009 4.75% Senior Notes due November2010, effective interest rate of 4.17% $ 199,300 $ 199,300 5.875% Senior Notes due October2012, effective interest rate of 6.33% 300,000 300,000 4.375% Senior Notes due June2013, effective interest rate of 5.65% 200,000 200,000 6.5% Senior Notes due January2014, effective interest rate of 6.63% 500,000 500,000 5.75% Senior Notes due January2015, effective interest rate of 5.89% 500,000 500,000 5.5% Senior Notes due November2015, effective interest rate of 4.86% 300,000 300,000 6.95% Senior Notes due June2016, effective interest rate of 7.09% 200,000 200,000 7.125% Senior Notes due August2018, effective interest rate of 7.28% 250,000 250,000 Commercial paper, weighted average interest rate of 0.31% and 0.49% at February13, 2010 and August29, 2009, respectively 325,400 277,600 $ 2,774,700 $ 2,726,900 As of February13, 2010, the 4.75% Senior Notes due November2010 and the commercial paper borrowings mature in the next twelve months, but are classified as long-term in the accompanying Condensed Consolidated Balance Sheet, as the Company has the ability and intent to refinance the borrowings on a long-term basis. Before considering the effect of commercial paper borrowings, the Company had $676.8million of availability under its $800million revolving credit facility, expiring in July2012, which would allow it to replace these short term obligations with long-term financing. The fair value of the Companys debt was estimated at $2.983billion as of February13, 2010, and $2.853billion as of August29, 2009, based on the quoted market prices for the same or similar issues or on the current rates available to the Company for debt of the same remaining maturities. Such fair value is greater than the carrying value of debt by $207.9million at February13, 2010, and $126.5million at August29, 2009.

Stock Repurchase Program

Stock Repurchase Program
	6 Months Ended Feb. 13, 2010
Stock Repurchase Program [Abstract]
Stock Repurchase Program	Note H Stock Repurchase Program From January1, 1998 to February13, 2010, the Company has repurchased a total of 117.4million shares at an aggregate cost of $7.9billion, including 1,982,783 shares of its common stock at an aggregate cost of $291.9million during the twenty-four week period ended February13, 2010. On December16, 2009, the Board of Directors (the Board) voted to increase the authorization by $500 million to raise the cumulative share repurchase authorization from $7.9billion to $8.4billion. Considering cumulative repurchases as of February13, 2010, the Company had $517.2million remaining under the Boards authorization to repurchase its common stock.

Comprehensive Income

Comprehensive Income
	6 Months Ended Feb. 13, 2010
Comprehensive Income [Abstract]
Comprehensive Income	Note I Comprehensive Income Comprehensive income includes foreign currency translation adjustments; the impact from certain derivative financial instruments designated and effective as cash flow hedges, including changes in fair value, as applicable; the reclassification of gains and/or losses from accumulated other comprehensive loss to net income to offset the earnings impact of the underlying items being hedged; pension liability adjustments and changes in the fair value of certain investments classified as available-for- sale. During the twenty-four week period ended February13, 2010, the Mexican Peso remained relatively flat against the US Dollar. The foreign currency translation adjustments of $11.2million and $52.8million in the twelve week and twenty-four week periods ended February14, 2009 were attributable to the weakening of the Mexican Peso against the US Dollar, which as of February14, 2009, had decreased by approximately 40% when compared to the fiscal year ended August30, 2008. Comprehensive income for all periods presented is as follows: Twelve Weeks Ended Twenty-Four Weeks Ended February 13, February 14, February 13, February 14, (in thousands) 2010 2009 2010 2009 Net income, as reported $ 123,333 $ 115,864 $ 266,633 $ 247,235 Foreign currency translation adjustments (1,554 ) (11,183 ) (66 ) (52,783 ) Net impact from derivative instruments (141 ) (1,029 ) (282 ) (2,286 ) Pension liability adjustments 2,461 2,461 Unrealized (losses)gains from marketable securities (84 ) 571 99 139 Comprehensive income $ 124,015 $ 104,223 $ 268,845 $ 192,305

Segment Reporting

Segment Reporting
	6 Months Ended Feb. 13, 2010
Segment Reporting [Abstract]
Segment Reporting	Note J Segment Reporting The Companys two operating segments (Domestic Auto Parts and Mexico) are aggregated as one reportable segment: Auto Parts Stores. The criteria the Company used to identify the reportable segment are primarily the nature of the products the Company sells and the operating results that are regularly reviewed by the Companys chief operating decision maker to make decisions about the resources to be allocated to the business units and to assess performance. The accounting policies of the Companys reportable segment are the same as those described in Note A in its 2009 Annual Report to Stockholders. The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Companys 4,491 stores in the United States, including Puerto Rico, and Mexico. 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. The Other category reflects business activities that are not separately reportable, including ALLDATA, which produces, sells and maintains diagnostic and repair information software used in the automotive repair industry, and E-commerce, which includes direct sales to customers through www.autozone.com. The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. Segment results for the periods presented are as follows: Twelve Weeks Ended Twenty-Four Weeks Ended February 13, February 14, February 13, February 14, (in thousands) 2010 2009 2010 2009 Net Sales Auto Parts Stores $ 1,472,958 $ 1,414,850 $ 3,029,218 $ 2,860,452 Other 33,267 33,027 66,251 65,717 Total $ 1,506,225 $ 1,447,877 $ 3,095,469 $ 2,926,169 Segment Profit Auto Parts Stores $ 726,797 $ 692,078 $ 1,499,795 $ 1,406,098 Other 26,939 27,220 53,865 54,390 Gross profit 753,736 719,298 1,553,660 1,460,488 Operating, selling, general and administrative expenses (523,355 ) (504,602 ) (1,062,850 ) (1,007,254 ) Interest expense, net (36,309 ) (31,907 ) (72,650 ) (63,072 ) Income before income taxes $ 194,072 $ 182,789 $ 418,160 $ 390,162