FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 10, 1997, 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 incorporation or organization) Identification No.) 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. 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 [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $.01 Par Value -151,000,793 shares as of June 20, 1997. AUTOZONE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) MAY 10, 1997 AUG. 31, 1996 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $4,838 $3,904 Accounts receivable 22,435 15,466 Merchandise inventories 750,569 555,894 Prepaid expenses 28,195 19,225 Deferred income taxes 18,147 18,608 ------- ------- Total current assets 824,184 613,097 Property and equipment: Property and equipment 1,224,666 1,061,166 Less accumulated depreciation and (244,522) (198,292) amortization --------- -------- 980,144 862,874 Other assets: Cost in excess of net assets acquired 16,760 17,187 Deferred income taxes 4,424 2,938 Other assets 1,522 2,301 ------ ------ 22,706 22,426 ---------- ---------- $1,827,034 $1,498,397 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $467,799 $401,309 Accrued expenses 127,524 104,909 Income taxes payable 13,731 12,260 Revolving credit agreements - 94,400 -------- -------- Total current liabilities 609,054 612,878 Long-term debt 209,700 - Other liabilities 17,752 19,937 Stockholders' equity 990,528 865,582 ---------- ---------- $1,827,034 $1,498,397 ========== ========== See Notes to Condensed Consolidated Financial Statements. AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) TWELVE WEEKS ENDED THIRTY-SIX WEEKS ENDED MAY 10, 1997 MAY 4, 1996 MAY 10, 1997 MAY 4, 1996 Net sales $637,895 $524,175 $1,745,052 $1,413,042 Cost of sales, including warehouse and delivery expenses 368,920 308,644 1,008,823 828,322 Operating, selling, general and administrative expenses 192,200 155,099 548,339 425,467 ------- ------- ------- ------- Operating profit 76,775 60,432 187,890 159,253 Interest expense-net 2,672 727 5,955 727 ------- ------ ------- ------- Income before income taxes 74,103 59,705 181,935 158,526 Income taxes 28,000 22,100 68,450 58,800 ------- ------- -------- ------- Net income $46,103 $37,605 $113,485 $99,726 ======= ======= ======== ======= Net income per share $.30 $.25 $.74 $.66 ==== ==== ==== ==== Average shares outstanding, including common stock equivalents 152,602 151,541 152,389 150,508 ======= ======= ======= ======= See Notes to Condensed Consolidated Financial Statements. AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) THIRTY-SIX WEEKS ENDED MAY 10, 1997 MAY 4, 1996 Cash flows from operating activities: Net Income $113,485 $99,726 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 53,598 41,540 Net increase in merchandise inventories (194,675) (134,034) Net increase in current liabilities 90,576 74,917 Other - net (18,424) (3,544) ------- ------ Net cash provided by operating activities 44,560 78,605 Cash flows from investing activities: Cash outflows for property and equipment, net (170,387) (183,181) Cash flows from financing activities: Net proceeds from debt 115,300 84,272 Proceeds from sale of Common Stock, including 11,461 14,431 related tax benefit ------- ------ Net cash provided by financing activities 126,761 98,703 ------- ------ Net increase/(decrease) in cash and cash equivalents 934 (5,873) Cash and cash equivalents at beginning of period 3,904 6,411 Beginning cash balance of pooled entity - 4,244 ------ ------ Cash and cash equivalents at end of period $4,838 $4,782 ====== ====== See Notes to Condensed Consolidated Financial Statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A--Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirty-six weeks ended May 10, 1997, are not necessarily indicative of the results that may be expected for the fiscal year ending August 30, 1997. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended August 31, 1996. NOTE B--INVENTORIES Inventories are stated at the lower of cost or market using the last- in, first-out (LIFO) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. NOTE C--DEBT During December 1996, the Company executed an agreement with a group of banks for a $275 million five-year unsecured revolving credit facility to replace the existing revolving credit agreements. The rate of interest payable under the agreement is a function of the London Interbank Offered Rate (LIBOR), or the lending bank's base rate (as defined in the agreement), or a competitive bid rate, at the option of the Company. At May 10, 1997, the Company's borrowings under this agreement were $209.7 million and the weighted average interest rate was 5.8%. The unsecured revolving credit agreement contains a covenant limiting the amount of debt the Company may incur relative to its total capitalization. Based on the terms of the Company's new five-year credit facility, amounts outstanding under the revolving credit facility have been classified as long-term. On March 27, 1997, the Company acquired a negotiated rate unsecured revolving credit agreement totaling $25 million which extends until March 26, 1998. There were no amounts outstanding under this agreement as of May 10, 1997. NOTE D--CONTINGENCIES The Company is a defendant in a purported class action entitled "Jack Elliot and Greg Dobson, on behalf of themselves and all others similarly situated, vs. AutoZone, Inc., and AutoZone Stores, Inc.," Civil Action No. 11416, Circuit Court for Roane County, Tennessee, filed on or about May 9, 1997. AutoZone Stores, Inc., is a wholly-owned subsidiary of the Company. In an ex parte proceeding held prior to service of the complaint upon the Company, and without notice to the Company, on May 14, 1997, the judge entered an order conditionally certifying a class of all persons and entities in 25 states in which the Company does business who purchased automotive batteries from any AutoZone or AutoZone retail store location at any time during the period May 5, 1990, to the present. At an appropriate time, the Company intends to move the court to either decertify the class or vacate or amend the conditional class certification order. In their complaint, which is similar to class action complaints filed against several other retailers of aftermarket automotive batteries, the plaintiffs allege that the Company sold "old", "used", or "out of warranty" automotive batteries to customers as if the batteries were new, and purports to state causes of action for unfair or deceptive acts or practices, breaches of contract, breaches of duty of good faith and fair dealing, intentional misrepresentation, fraudulent concealment, civil conspiracy, and unjust enrichment. The plaintiffs are seeking an accounting of all moneys wrongfully received by the Company, compensatory and punitive damages, along with plaintiffs' costs. The Company believes the claims are without merit and intends to vigorously defend this action. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TWELVE WEEKS ENDED MAY 10, 1997, COMPARED TO TWELVE WEEKS ENDED MAY 4, 1996 Net sales for the twelve weeks ended May 10, 1997 increased by $113.7 million, or 21.7%, over net sales for the comparable period of fiscal 1996. This increase was due to a comparable store sales increase of 7%, (which was primarily due to sales growth in the Company's newer stores and the added sales of the Company's commercial program), and increases in net sales for stores opened since the beginning of fiscal 1996. At May 10, 1997 the Company had 1,578 stores in operation compared with 1,298 stores at May 4, 1996. Gross profit for the twelve weeks ended May 10, 1997, was $269.0 million, or 42.2% of net sales, compared with $215.5 million, or 41.1% of net sales, during the comparable period for fiscal 1996. The increase in the gross profit percentage was due primarily to higher gross margins for commodity products such as oil, Freon and antifreeze, lower distribution costs, and to a lower commercial gross margin in the prior year. Operating, selling, general and administrative expenses for the twelve weeks ended May 10, 1997 increased by $37.1 million over such expenses for the comparable period for fiscal 1996, and increased as a percentage of net sales from 29.6% to 30.1%. The increase in the expense ratio was due primarily to an increase in net advertising costs. The Company's effective income tax rate was 37.8% of pre-tax income for the twelve weeks ended May 10, 1997 and 37.0% for the twelve weeks ended May 4, 1996. THIRTY-SIX WEEKS ENDED MAY 10, 1997, COMPARED TO THIRTY-SIX WEEKS ENDED MAY 4, 1996 Net sales for the thirty-six weeks ended May 10, 1997 increased by $332.0 million, or 23.5%, over net sales for the comparable period of fiscal 1996. This increase was due to a comparable store sales increase of 8%, (which was primarily due to sales growth in the Company's newer stores and the added sales of the company's commercial program), and increases in net sales for stores opened since the beginning of fiscal 1996. Gross profit for the thirty-six weeks ended May 10, 1997, was $736.2 million, or 42.2% of net sales, compared with $584.7 million, or 41.4% of net sales, during the comparable period for fiscal 1996. The increase in the gross profit percentage was due primarily to improved gross margin in commodities, such as oil, Freon and antifreeze, lower distribution costs, and the added sales of higher margin ALLDATA products. Operating, selling, general and administrative expenses for the thirty-six weeks ended May 10,1997 increased by $122.9 million over such expenses for the comparable period for fiscal 1996, and increased as a percentage of net sales from 30.1% to 31.4%. The increase in the expense ratio was due primarily to costs of the Company's commercial program and to operating costs of ALLDATA. The Company's effective income tax rate was 37.6% of pre-tax income for the thirty-six weeks ended May 10, 1997 and 37.1% for the thirty-six weeks ended May 4, 1996. LIQUIDITY AND CAPITAL RESOURCES For the thirty-six weeks ended May 10, 1997, net cash of $44.6 million was provided by the Company's operations versus $78.6 million for the comparable period of fiscal year 1996. The comparative decrease in cash provided by operations is due primarily to increased inventory requirements. Capital expenditures for the thirty-six weeks ended May 10, 1997 were $170.4 million. The Company anticipates that capital expenditures for fiscal 1997 will be approximately $300 to $325 million. Year-to-date, the Company opened 155 net new stores and 15 stores that replaced existing stores. The Company expects to open more than 300 new stores and approximately 18 replacement stores during fiscal 1997. The Company anticipates that it will rely on internally generated funds to support a majority of its capital expenditures and working capital requirements; the balance of such requirements will be funded through borrowings. The Company has an unsecured revolving credit agreement with a group of banks providing for borrowings in an aggregate maximum amount of $275 million. At May 10, 1997, the Company had borrowings outstanding under the credit agreement of $209.7 million. On March 27, 1997, the Company acquired a short-term unsecured revolving credit agreement totaling $25 million. There were no amounts outstanding under this agreement as of May 10, 1997. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is a defendant in a purported class action entitled "Jack Elliot and Greg Dobson, on behalf of themselves and all others similarly situated, vs. AutoZone, Inc., and AutoZone Stores, Inc.," Civil Action No. 11416, Circuit Court for Roane County, Tennessee, filed on or about May 9, 1997. AutoZone Stores, Inc., is a wholly-owned subsidiary of the Company. In an ex parte proceeding held prior to service of the complaint upon the Company, and without notice to the Company, on May 14, 1997, the judge entered an order conditionally certifying a class of all persons and entities in 25 states in which the Company does business who purchased automotive batteries from any AutoZone or AutoZone retail store location at any time during the period May 5, 1990, to the present. At an appropriate time, the Company intends to move the court to either decertify the class or vacate or amend the conditional class certification order. In their complaint, which is similar to class action complaints filed against several other retailers of aftermarket automotive batteries, the plaintiffs allege that the Company sold "old", "used", or "out of warranty" automotive batteries to customers as if the batteries were new, and purports to state causes of action for unfair or deceptive acts or practices, breaches of contract, breaches of duty of good faith and fair dealing, intentional misrepresentation, fraudulent concealment, civil conspiracy, and unjust enrichment. The plaintiffs are seeking an accounting of all moneys wrongfully received by the Company, compensatory and punitive damages, along with plaintiffs' costs. The Company believes the claims are without merit and intends to vigorously defend this action. The Company is also a party to various claims and lawsuits arising in the ordinary course of business, which it does not believe that such claims and lawsuits, singularly or in the aggregate, will have a material adverse effect on its business, properties, results of operations, financial condition or prospects. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are filed as part of this report: 3.1 Articles of Incorporation of AutoZone, Inc. Incorporated by reference to Exhibit 3.1 to the Form 10-K for the fiscal year ended August 27, 1994. 3.2 Amendment to Articles of Incorporation of AutoZone, Inc., dated December 16, 1993, to increase its authorized shares of common stock to 200,000,000. Incorporated by reference to Exhibit 3.2 to the Form 10-K for the fiscal year ended August 27, 1994. 3.3 By-laws of AutoZone, Inc. Incorporated by reference to Exhibit 3.2 to the February 1992 Form S-1. 4.1 Form of Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 2 to the February 1992 Form S-1. 4.2 Registration Rights Agreement, dated as of February 18, 1987, by and among Auto Shack, Inc. and certain stockholders. Incorporated by reference to Exhibit 4.9 to the Form S-1 Registration Statement filed by the Company under the Securities Act (No. 33-39197), (the "April 1991 Form S-1"). 4.3 Amendment to the Registration Rights Agreement dated as of August 1, 1993. Incorporated by reference to Exhibit 4.1 to the Form S-3 Registration Statement filed by the Company under the Securities Act (No. 33-67550). 10.1 MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT. ------------------------------------------------------- Agreement between J. R. Hyde, III, and AutoZone, Inc. and its subsidiaries, dated March 18, 1997. 11.1 Statement re: Computation of earnings per share. 27.1 Financial Data Schedule. (SEC Use Only) (b) Reports on Form 8-K During the twelve weeks ended May 10, 1997, the Company filed a report on Form 8-K dated March 18, 1997, stating: On March 18, 1997, J. R. Hyde, III, chairman of AutoZone announced his retirement as chairman. Mr. Hyde remains an active director and major shareholder. Johnston C. Adams, Jr., previously Chief Executive Officer and President, was elected Chairman and Chief Executive Officer. Timothy D. Vargo, previously Vice Chairman and Chief Operating Officer, was elected President and Chief Operating Officer. Mr. Adams and Mr. Vargo are also members of the board of directors. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AUTOZONE, INC. By: /S/ ROBERT J. HUNT --------------------------- Robert J. Hunt Executive Vice President and Chief Financial Officer-Customer Satisfaction (Principal Financial Officer) By: /S/ MICHAEL E. BUTTERICK --------------------------- Michael E. Butterick Vice President, Controller-Customer Satisfaction (Principal Accounting Officer) Dated: June 23, 1997