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 November 22, 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 - 152,089,797 shares as of January 2, 1998.
AUTOZONE,INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Nov. 22, Aug. 30,
1997 1997
------------ -----------
(Unaudited)
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 4,365 $ 4,668
Accounts receivable 22,384 18,713
Merchandise inventories 724,859 709,446
Prepaid expenses 20,208 20,987
Deferred income taxes 25,107 24,988
------------ -----------
Total current assets 796,923 778,802
Property and equipment:
Property and equipment 1,419,667 1,336,911
Less accumulated depreciation
and amortization (287,646) (255,783)
------------ -----------
1,132,021 1,081,128
Other assets:
Cost in excess of net assets acquired 16,428 16,570
Deferred income taxes 5,114 4,339
Other assets 3,789 3,178
------------ -----------
25,331 24,087
------------ -----------
$ 1,954,275 $ 1,884,017
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 465,274 $ 449,793
Accrued expenses 112,504 122,580
Income taxes payable 25,124 20,079
------------ -----------
Total current liabilities 602,902 592,452
Long-term debt 203,000 198,400
Other liabilities 16,607 17,957
Stockholders' equity 1,131,766 1,075,208
------------ -----------
$ 1,954,275 $ 1,884,017
============ ===========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTOZONE,INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Twelve Weeks Ended
---------------------------------
Nov. 22, Nov. 23,
1997 1996
------------ ------------
(in thousands, except per share amounts)
Net Sales $ 675,274 $ 569,145
Cost of sales, including warehouse
and delivery expenses 394,833 328,847
Operating, selling, general and
administrative expenses 201,793 178,400
----------- ------------
Operating profit 78,648 61,898
Interest expense-net 2,502 1,173
----------- ------------
Income before income taxes 76,146 60,725
Income taxes 28,600 22,750
----------- ------------
Net income $ 47,546 $ 37,975
=========== ============
Net income per share $ .31 $ .25
=========== ============
Average shares outstanding, including
common stock equivalents 153,823 152,394
=========== ============
SEE NOTES TO CONDENSED CONSOLIDATED FIANANCIAL STATEMENTS
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twelve Weeks Ended
---------------------------
Nov. 22, Nov. 23,
1997 1996
---------- ----------
(in thousands)
Cash flows from operating activities:
Net income $ 47,546 $ 37,975
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19,630 17,482
Net increase in merchandise inventories (15,413) (54,586)
Net increase in current liabilities 10,450 22,656
Other - net (5,755) (10,874)
---------- ----------
Net cash provided by operating activities 56,458 12,653
Cash flows from investing activities:
Cash outflows for property
and equipment, net (70,373) (54,210)
Cash flows from financing activities:
Net proceeds from debt 4,600 38,600
Proceeds from sale of Common Stock, including
related tax benefit 9,012 2,931
---------- ----------
Net cash provided by financing activities 13,612 41,531
---------- ----------
Net decrease in cash and cash equivalents 303 26
Cash and cash equivalents at beginning of period 4,668 3,904
---------- ----------
Cash and cash equivalents at end of period $ 4,365 $ 3,878
========== ==========
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 twelve weeks ended November 22, 1997, are not necessarily
indicative of the results that may be expected for the fiscal year ending
August 29, 1998. 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 30, 1997.
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
November 22, 1997, the Company's borrowings under this agreement were $203
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.
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
November 22, 1997.
NOTE D--RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share." SFAS No. 128 requires dual presentation of basic
earnings per share (EPS) and diluted EPS on the face of all statements of
earnings for periods ending after December 15, 1997. Basic EPS is computed
as net earnings divided by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur from common shares issuable through stock-based
compensation including stock options. Assuming the Company had adopted the
provisions of SFAS No. 128, EPS as reported and pro forma for the twelve
weeks ended November 22, 1997, compared to twelve weeks ended November 23,
1996 would be as follows November 22, 1997 - as reported: $0.31, basic:
$0.31; November 23, 1996 - as reported: $0.25, basic: $0.25. The Company's
reported EPS calculations are the same as pro forma diluted EPS.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
TWELVE WEEKS ENDED NOVEMBER 22, 1997, COMPARED TO
TWELVE WEEKS ENDED NOVEMBER 23, 1996
Net sales for the twelve weeks ended November 22, 1997 increased by
$106.1 million, or 18.6%, over net sales for the comparable period of
fiscal 1997. 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 1997. At
November 22, 1997 the Company had 1,772 stores in operation compared with
1,477 stores at November 23, 1996.
Gross profit for the twelve weeks ended November 22, 1997, was $280.4
million, or 41.5% of net sales, compared with $240.3 million, or 42.2% of
net sales, during the comparable period for fiscal 1997. The decrease in
the gross profit percentage was due primarily to lower commodities gross
margins.
Operating, selling, general and administrative expenses for the twelve
weeks ended November 22, 1997 increased by $23.4 million over such expenses
for the comparable period for fiscal 1997, and decreased as a percentage of
net sales from 31.3% to 29.9%. The decrease in the expense ratio was due
primarily to a sales increase in the Company's commercial program,
favorable payroll leverage and efficiencies gained with the call center
closings. The number of stores participating in the commercial program was
1,282 at November 22, 1997.
The Company's effective income tax rate was 37.6% of pre-tax income
for the twelve weeks ended November 22, 1997 and 37.5% for the twelve weeks
ended November 23, 1996.
LIQUIDITY AND CAPITAL RESOURCES
For the twelve weeks ended November 22, 1997, net cash of $56.5
million was provided by the Company's operations versus $12.7 million for
the comparable period of fiscal year 1997. The comparative increase in cash
provided by operations was due primarily to favorable inventory require-
ments in comparison to the twelve weeks ended November 23, 1996.
Capital expenditures for the twelve weeks ended November 22, 1997 were
$70.4 million. The Company anticipates that capital expenditures for fiscal
1998 will be approximately $400 million. Year-to-date, the Company opened
44 net new stores and 2 stores that replaced existing stores. The Company
plans to open approximately 350 net new stores during fiscal 1998.
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 revolving credit agreements with several banks
providing for lines of credit in an aggregate maximum amount of $300
million. At November 22, 1997, the Company had borrowings outstanding under
these credit agreements of $203 million.
PART II. OTHER INFORMATION
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 Registration Statement filed by the Company under the
Securities Act of 1993 (No. 33-45649) (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 of 1993 (No.33-9197) (the "April 1991
Form S-1").
4.3 Amendment to the Registration Rights Agreement dated as of August
1, 1993, by and among AutoZone, Inc. and certain stockholders. Incorporated
by reference to Exhibit 4.1 to the Form S-3 Registration Statement filed
by the Company under the Securities Act of 1933. (No. 33-67550).
4.4 Amendment No. 2 to the Registration Rights Agreement dated as of
November 6, 1997, by and among AutoZone, Inc. and certain stockholders.
Incorporated by reference to Exhibit 4.4 to the Form S-3 Registration
Statement filed by the Company under the Securities Act of 1933
(No. 333-39715).
10.1 Amended and Restated Agreement between J. R. Hyde III, and
AutoZone, Inc., dated October 23, 1997.
10.2 AutoZone Inc., Executive Incentive Compensation Plan.
Incorporated by reference to Exhibit A to the definitive Proxy Statement
dated November 14, 1994, filed by the Company pursuant to Regulation 14A of
the Securities Exchange Act of 1934.
10.3 Amended and Restated 1996 Stock Option Plan
11.1 Statement re: Computation of earnings per share.
27.1 Financial Data Schedule. (SEC Use Only)
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: January 6, 1998
EXHIBIT INDEX
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 Registration Statement filed by the Company under the
Securities Act of 1993 (No. 33-45649) (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 of 1993 (No.33-9197), (the "April
1991 Form S-1").
4.3 Amendment to the Registration Rights Agreement dated as of August
1, 1993, by and among AutoZone, Inc. and certain stockholders. Incorporated
by reference to Exhibit 4.1 to the Form S-3 Registration Statement filed
by the Company under the Securities Act of 1933. (No. 33-67550).
4.4 Amendment No. 2 to the Registration Rights Agreement dated as of
November 6, 1997, by and among AutoZone, Inc., and certain stockholders.
Incorporated by reference to Exhibit 4.4 to the Form S-3 Registration
Statement filed by the Company under the Securities Act of 1933
(No. 333-39715).
10.1 Amended and Restated Agreement between J. R. Hyde III, and
AutoZone, Inc., Dated October 23, 1997.
10.2 AutoZone Inc., Executive Incentive Compensation Plan.
Incorporated by reference to Exhibit A to the definitive Proxy Statement
dated November 14, 1994, filed by the Company pursuant to Registration 14A
of the Securities Exchange Act of 1934.
10.3 Amended and Restated 1996 Stock Option Plan
11.1 Statement re: Computation of earnings per share.
27.1 Financial Data Schedule. (SEC Use Only)