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 9, 1998, 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 - 152,734,031 shares as of June 19, 1998.
AUTOZONE, INC.
CONDENDSED CONSOLIDATED BALANCE SHEETS
MAY 9, AUG. 30,
1998 1997
----------- -----------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents $ 5,869 $ 4,668
Accounts receivable 19,304 18,713
Merchandise inventories 768,540 709,446
Prepaid expenses 28,715 20,987
Deferred income taxes 30,851 24,988
----------- -----------
Total current assets 853,279 778,802
Property and equipment:
Property and equipment 1,569,967 1,336,911
Less accumulated depreciation
and amortization (326,379) (255,783)
----------- -----------
1,243,588 1,081,128
Other assets:
Cost in excess of net assets
acquired 55,733 16,570
Deferred income taxes 15,771 4,339
Other assets 42,317 3,178
----------- -----------
113,821 24,087
----------- -----------
$ 2,210,688 $ 1,884,017
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 466,119 $ 449,793
Accrued expenses 143,182 122,580
Income taxes payable 25,338 20,079
----------- -----------
Total current liabilities 634,639 592,452
Long-term debt 338,000 198,400
Other liabilities 13,325 17,957
Stockholders' equity 1,224,724 1,075,208
------------ ------------
$ 2,210,688 $ 1,884,017
============ ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
TWELVE WEEKS ENDED THIRTY-SIX WEEKS ENDED
----------------------- -------------------------
MAY 9, MAY 10, MAY 9, MAY 10,
1998 1997 1998 1997
----------- ---------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 743,661 $ 637,895 $ 2,026,032 $ 1,745,052
Cost of sales, including warehouse
and delivery expenses 432,581 368,920 1,180,830 1,008,823
Operating, selling, general and
administrative expenses 220,623 192,200 618,015 548,339
----------- ----------- ------------ -----------
Operating profit 90,457 76,775 227,187 187,890
Interest expense 4,217 2,672 9,747 5,955
----------- ----------- ------------ -----------
Income before income taxes 86,240 74,103 217,440 181,935
Income taxes 32,300 28,000 81,600 68,450
----------- ----------- ------------ -----------
Net income $ 53,940 $ 46,103 $ 135,840 $ 113,485
=========== =========== ============ ===========
Weighted average shares
for basic earnings per share 152,366 150,879 152,042 150,548
Effect of dilutive stock
options 1,958 1,723 1,907 1,841
----------- ----------- ------------ -----------
Adjusted weighted average
shares for diluted earnings
per share 154,324 152,602 153,949 152,389
=========== =========== ============ ===========
Basic earnings per share $ 0.35 $ 0.31 $ 0.89 $ 0.75
=========== =========== ============ ===========
Diluted earnings per share $ 0.35 $ 0.30 $ 0.88 $ 0.74
=========== =========== ============ ===========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THIRTY-SIX WEEKS ENDED
--------------------------
MAY 9, MAY 10,
1998 1997
----------- -----------
(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 135,840 $ 113,485
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 62,483 53,598
Net increase in merchandise inventories (35,211) (194,675)
Net increase in current liabilities 5,585 90,576
Other - net (21,430) (18,424)
----------- -----------
Net cash provided by operating activities 147,267 44,560
Cash flows from investing activities:
Cash outflows for property
and equipment, net (212,023) (170,387)
Acquisitions of businesses, net of cash (87,319) -
----------- -----------
Net cash used in investing activities (299,342) (170,387)
Cash flows from financing activities:
Net proceeds from debt 139,600 115,300
Purchase of Company stock (5,311) -
Net proceeds from sale of Common Stock 18,987 11,461
----------- -----------
Net cash provided by financing activities 153,276 126,761
Net increase in cash and cash equivalents 1,201 934
Cash and cash equivalents at beginning of period 4,668 3,904
----------- -----------
Cash and cash equivalents at end of period $ 5,869 $ 4,838
=========== ===========
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 9, 1998, 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
On February 10, 1998, the Company increased its five-year unsecured
revolving credit facility by $75 million for a total of $350 million which
extends until December 2001. 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 9, 1998, the
Company's borrowings under this agreement were $338 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.
The Company also has a negotiated rate unsecured revolving credit
agreement totaling $25 million which extends until March 26, 1999.
Additionally, on February 23, 1998, the Company acquired a 364-day credit
facility with a group of banks for $150 million. The rate of interest
payable under these agreements is a function of the London Interbank
Offered Rate (LIBOR), or the lending bank's base rate (as defined in the
agreement) at the option of the Company. There were no amounts outstanding
under this agreement.
NOTE D-ACQUISITIONS
On February 17, 1998, the Company acquired 100% of the voting stock of
ADAP, Inc. (Auto Palace) for $55 million in a transaction accounted for as
a purchase.
On May 1, 1998, the Company acquired the assets and liabilities of
TruckPro, L.P. (TruckPro) in a transaction accounted for as a purchase.
TruckPro, which specializes in the sale of heavy duty trucks parts,
operates 43 stores in 14 states.
The purchase price for Auto Palace and TruckPro has been preliminarily
allocated in the condensed consolidated financial statements and the final
adjustment may differ from the preliminary allocation.
NOTE E--STOCKHOLDERS' EQUITY
In January 1998, the Company announced Board approval to purchase up
to $100 million of its common stock in the open market.
The Company presents basic and dilutive earnings per share (EPS)
according to guidance established in Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128 requires dual
presentation of basic 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.
NOTE F--CONTINGENCIES
The Company was a defendant in a purported class action entitled "Joe
C. Proffitt, Jr., on behalf of himself and all others similarly situated,
vs. AutoZone, Inc., and AutoZone Stores, Inc.," filed in the Circuit Court
for Jefferson County, Tennessee, on or about October 17, 1997. AutoZone
Stores, Inc., is a wholly-owned subsidiary of the Company. In the
complaint, which was similar to other class action complaints filed against
several other retailers of aftermarket automotive batteries, the plaintiff
alleges that the Company sold "old," "used," or "out of warranty"
automotive batteries to customers as if the batteries were new, and
purported to state causes of action for unfair or deceptive acts or
practices, breach of contract, breach of the duty of good faith and fair
dealing, intentional misrepresentation, fraudulent concealment, civil
conspiracy, and unjust enrichment. The plaintiffs were seeking an
accounting of all moneys wrongfully received by the Company, compensatory
and punitive damages, as well as plaintiffs' costs. On May 21, 1998, on the
plaintiff's motion, the court dismissed the case without prejudice.
The Company is also a party to various claims and lawsuits arising in
the ordinary course of business. The Company does not believe that these
claims and lawsuits, individually or in the aggregate, will have a material
adverse effect on its results of operations or financial condition.
NOTE G-SUBSEQUENT EVENTS
On May 11, 1998, the Company announced it had reached a definitive
agreement to purchase the outstanding common shares of Chief Auto Parts
Inc. (Chief) for approximately $75 million. Additionally, the Company
will assume approximately $205 million in debt. Chief operates
over 500 auto parts stores primarily in California and Texas. Subject to
the satisfactory completion of certain conditions, the Company anticipates
closing in the fiscal fourth quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
TWELVE WEEKS ENDED MAY 9, 1998, COMPARED TO
TWELVE WEEKS ENDED MAY 10, 1997
Net sales for the twelve weeks ended May 9, 1998 increased by $105.8
million, or 16.6%, over net sales for the comparable period of fiscal 1997.
This increase was due to a comparable store sales increase of 2%, (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 May 9, 1998
the Company had 2,001 stores in operation compared with 1,578 stores at May
10, 1997.
Gross profit for the twelve weeks ended May 9, 1998, was $311.1
million, or 41.8% of net sales, compared with $269.0 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 a decrease in battery
gross margin and to lower gross margins for commodities such as Freon and
antifreeze.
Operating, selling, general and administrative expenses for the twelve
weeks ended May 9, 1998 increased by $28.4 million over such expenses for
the comparable period for fiscal 1997, and decreased as a percentage of net
sales from 30.1% to 29.7%. The decrease in the expense ratio was due
primarily to a decrease in net advertising and to a sales increase in the
Company's commercial program, which resulted in favorable commercial
payroll leverage.
The Company's effective income tax rate was 37.5% of pre-tax income
for the twelve weeks ended May 9, 1998 and 37.8% for the twelve weeks ended
May 10, 1997.
THIRTY-SIX WEEKS ENDED MAY 9, 1998, COMPARED TO
THIRTY-SIX WEEKS ENDED MAY 10, 1997
Net sales for the thirty-six weeks ended May 9, 1998 increased by
$281.0 million, or 16.1%, over net sales for the comparable period of
fiscal 1997. This increase was due to a comparable store sales increase of
4%, (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.
Gross profit for the thirty-six weeks ended May 9, 1998, was $845.2
million, or 41.7% of net sales, compared with $736.2 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 commodity gross
margins.
Operating, selling, general and administrative expenses for the
thirty-six weeks ended May 9, 1998 increased by $69.7 million over such
expenses for the comparable period for fiscal 1997, and decreased as a
percentage of net sales from 31.4% to 30.5%. The decrease in the expense
ratio was due primarily to sales increases in the Company's commercial
program, which resulted in favorable commercial payroll leverage and to
efficiencies gained with the closings of two call centers in fiscal 1997.
The number of stores participating in the commercial program was 1,323 at
May 9, 1998.
The Company's effective income tax rate was 37.5% of pre-tax income
for the thirty-six weeks ended May 9, 1998 and 37.6% for the thirty-six
weeks ended May 10, 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the thirty-six weeks ended May 9, 1998, net cash of $147.3 million
was provided by the Company's operations versus $44.6 million for the
comparable period of fiscal year 1997. The comparative increase in cash
provided by operations is due primarily to improving inventory turnover.
Capital expenditures for the thirty-six weeks ended May 9, 1998 were
$212 million. The Company anticipates that capital expenditures for fiscal
1998 will be approximately $400 million. The Company completed its
acquisition of 112 Auto Palace stores and 43 TruckPro stores. In addition
to these acquisitions, year-to-date the Company opened 161 net new stores
and 9 replacement stores. Excluding the pending acquisition of Chief, the
Company expects to add approximately 450 new stores including stores
acquired through the Auto Palace and TruckPro acquisitions and
approximately 17 to 20 replacement stores during fiscal 1998.
The Company anticipates that it will rely on internally generated funds to
support a significant portion of its capital expenditures, acquisitions 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 $350 million. At May 9, 1998, the Company had borrowings
outstanding under the credit agreement of $338 million. The Company also
has a negotiated rate unsecured revolving credit agreement totaling $25
million which extends until March 26, 1999. On February 23, 1998, the
Company acquired a 364 day credit facility with a group of banks for $150
million. There were no amounts outstanding under this agreement as of May
9, 1998.
YEAR 2000 CONVERSION
The Company has dedicated personnel to implement a detailed plan to assure
that the Company's computer systems are able to properly process dates for
January 1, 2000 and beyond. The inventory and assessment phases of the
implementation plan have been substantially completed and the conversion
and testing phases are currently underway. The Company intends to have
all of its systems Year 2000 compliant by December 31, 1998; however,
certain software vendors may not have issued Year 2000 compliant releases
prior to that time. These software releases will be installed and tested as
they become available.
A failure by the Company's vendors or service providers to address all of
their Year 2000 issues may have a material impact upon the Company's
operations. Therefore, the Company has begun contacting its material
vendors and service providers to assess the preparedness of their computer
systems for the Year 2000, and to assess the impact that any lack of
preparedness would have upon the Company.
The costs of conversion of the Company's systems and the assessment of the
Company's vendor's systems are not material.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this quarterly report on Form 10-Q are
forward-looking statements. These statements discuss, among other things,
expected growth, store development and expansion strategy, business
strategies, future revenues and future performance. The forward-looking
statements are subject to risks, uncertainties and assumptions including,
but not limited to competitive pressures, demand for the Company's
products, the market for auto parts, the economy in general, inflation,
consumer debt levels and the weather. Actual results may materially
differ from anticipated results described in these forward-looking
statements.
PART II. OTHER INFORMATION
Item 1. Legal Proceeding
The Company was a defendant in a purported class action entitled "Joe
C. Proffitt, Jr., on behalf of himself and all others similarly situated,
vs. AutoZone, Inc., and AutoZone Stores, Inc.," filed in the Circuit Court
for Jefferson County, Tennessee, on or about October 17, 1997. AutoZone
Stores, Inc., is a wholly-owned subsidiary of the Company. In the
complaint, which was similar to other class action complaints filed against
several other retailers of aftermarket automotive batteries, the plaintiff
alleges that the Company sold "old," "used," or "out of warranty"
automotive batteries to customers as if the batteries were new, and
purported to state causes of action for unfair or deceptive acts or
practices, breach of contract, breach of the duty of good faith and fair
dealing, intentional misrepresentation, fraudulent concealment, civil
conspiracy, and unjust enrichment. The plaintiffs were seeking an
accounting of all moneys wrongfully received by the Company, compensatory
and punitive damages, as well as plaintiffs' costs. On May 21, 1998, on the
plaintiff's motion, the court dismissed the case without prejudice.
The Company is also a party to various claims and lawsuits arising in
the ordinary course of business. The Company does not believe that these
claims and lawsuits, individually or in the aggregate, will have a material
adverse effect on its results of operations or financial condition.
Item 5. Other Information
John E. Moll resigned as a director of the Company effective June 23,
1998.
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 1933 (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, by and among AutoZone, Inc. and
J. Dale Dawson and Judith S. Dawson dated May 1, 1998.
10.1 Credit Agreement dated as of February 23, 1998 among AutoZone,
Inc. the several lenders from time to time party thereto, and NationsBank,
N.A. as Agent and Suntrust Bank, Nashville, N.A. as Documentation Agent.
27.1 Financial Data Schedule (SEC Use Only)
(b) Reports in Form 8-K
None
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, 1998
EXHIBIT INDEX
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 1933 (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, by and among AutoZone, Inc. and
J. Dale Dawson and Judith S. Dawson dated May 1, 1998.
10.1 Credit Agreement dated as of February 23, 1998 among AutoZone,
Inc. the several lenders from time to time party thereto, and NationsBank,
N.A. as Agent and Suntrust Bank, Nashville, N.A. as Documentation Agent.
27.1 Financial Data Schedule (SEC Use Only)
(b) Reports in Form 8-K
None