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 February 12, 2000, 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 - 133,781,794 shares as of March 17, 2000.
AUTOZONE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) FEB. 12, AUG. 28, 2000 1999 -------- -------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 6,836 $ 5,918 Accounts receivable 18,923 25,917 Merchandise inventories 1,147,429 1,129,693 Prepaid expenses 32,137 33,468 Deferred income taxes 25,810 30,088 --------- --------- Total current assets 1,231,135 1,225,084 Property and equipment: Property and equipment 2,200,535 2,089,052 Less accumulated depreciation and amortization 500,675 450,566 --------- --------- 1,699,860 1,638,486 Other assets: Cost in excess of net assets acquired 333,247 337,261 Deferred income taxes 73,116 76,412 Other assets 6,973 7,524 -------- -------- 413,336 421,197 -------- -------- $3,344,331 $3,284,767 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 691,236 $ 757,447 Accrued expenses 239,945 230,036 Income taxes payable 23,149 13,071 Notes payable 48,090 --------- --------- Total current liabilities 1,002,420 1,000,554 Long-term debt 1,074,181 888,340 Other liabilities 67,560 72,072 Stockholders' equity 1,200,170 1,323,801 ----------- ----------- $ 3,344,331 $ 3,284,767 =========== =========== SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except per share amounts) <TABLE> <CAPTION> TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED ----------------------- -------------------------- FEB. 12, FEB. 13, FEB. 12, FEB. 13, 2000 1999 2000 1999 --------- --------- --------- ---------- <S> <C> <C> <C> <C> Net sales $ 924,164 $ 852,538 $1,930,636 $1,753,487 Cost of sales, including warehouse and delivery expenses 535,737 499,045 1,120,693 1,023,512 Operating, selling, general and administrative expenses 308,414 286,220 624,182 572,887 --------- -------- --------- --------- Operating profit 80,013 67,273 185,761 157,088 Interest expense 16,452 10,234 31,056 18,749 --------- -------- --------- --------- Income before income taxes 63,561 57,039 154,705 138,339 Income taxes 24,500 21,000 59,600 51,000 --------- -------- --------- --------- Net income $ 39,061 $ 36,039 $ 95,105 $ 87,339 ========= ======== ========== ========== Weighted average shares for basic earnings per share 138,056 149,929 138,659 150,345 Effect of dilutive stock options 1,029 1,740 911 1,274 ------- ------- ------- ------- Adjusted weighted average shares for diluted earnings per share 139,085 151,669 139,570 151,619 ======= ======= ======= ======= Basic earnings per share $ 0.28 $ 0.24 $ 0.69 $ 0.58 ========= ======== ========== ========== Diluted earnings per share $ 0.28 $ 0.24 $ 0.68 $ 0.58 ========= ======== ========== ========== </TABLE> SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) TWENTY-FOUR WEEKS ENDED ----------------------- FEB. 12, FEB. 13, 2000 1999 -------- -------- Cash flows from operating activities: Net income $ 95,105 $ 87,339 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 60,956 56,675 Net increase in merchandise inventories (17,736) (66,374) Net decrease in current liabilities (46,224) (45,872) Other-net 10,293 8,817 -------- ------- Net cash provided by operating activities 102,394 40,585 Cash flows from investing activities: Purchases of property and equipment (126,008) (265,114) Proceeds from sale of property and equipment 9,337 Notes receivable from officers (4,000) --------- --------- Net cash used in investing activities (120,671) (265,114) Cash flows from financing activities: Net proceeds from debt 233,931 294,360 Proceeds from sale of Common Stock, including related tax benefit 4,544 7,340 Purchase of treasury stock (219,280) (77,482) --------- -------- Net cash provided by financing activities 19,195 224,218 --------- -------- Net increase(decrease) in cash and cash equivalents 918 (311) Cash and cash equivalents at beginning of period 5,918 6,631 -------- --------- Cash and cash equivalents at end of period $ 6,836 $ 6,320 ======== ========= 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 twenty-four weeks ended February 12, 2000, are not necessarily indicative of the results that may be expected for the fiscal year ending August 26, 2000. For further information, refer to the financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended August 28, 1999. 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-FINANCING ARRANGEMENTS The Company's long-term debt as of February 12, 2000, and August 28, 1999, consisted of the following (in thousands): Feb. 12, Aug. 28, 2000 1999 --------- ---------- 6.5% Debentures due July 2008 $ 200,000 $200,000 6% Notes due November 2003 150,000 150,000 Commercial paper, weighted average rate of 6% at February 12, 2000, and 5.4% at August 28, 1999 553,790 533,000 Unsecured bank loans 194,300 Other 24,181 5,340 --------- -------- Total debt 1,122,271 888,340 Less portion included in notes payable 48,090 ---------- -------- Total long-term debt $1,074,181 $888,340 ========== ======== In November 1998, the Company sold $150 million of 6% Notes due November 2003 at a discount. Interest on the Notes is payable semi-annually on May 1 and November 1 each year. In July 1998, the Company sold $200 million of 6.5% Debentures due July 2008 at a discount. Interest on the Debentures is payable semi-annually on January 15 and July 15 of each year. Proceeds from the Notes and Debentures were used to repay portions of the Company's long-term variable rate bank debt and for general corporate purposes. The Company has a commercial paper program that allows borrowing up to $700 million. In connection with the program, the Company has a credit facility with a group of banks for up to $350 million which extends until December 2001, and a 364-day $350 million credit facility with another group of banks. The 364-day facility includes a renewal feature as well as an option to extinguish the outstanding debt one year from the maturity date. As of February 12, 2000, there were borrowings of $4.3 million outstanding under this facility. Borrowings under the commercial paper program reduce availability under the credit facilities. Outstanding commercial paper and unsecured bank loans at February 12, 2000, of $700 million are classified as long-term debt as it is the Company's intention to refinance them on a long-term basis; the remaining amount is included in current maturities. During the first quarter of fiscal 2000 the Company entered into unsecured bank loans totaling $190 million with maturity dates from March to August 2000 and interest rates ranging from 6.43% to 6.63%. The rate of interest payable under the credit facilities 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. In addition, the $350 million credit facility maturing in December 2001 contains a competitive bid rate option. All of the credit facilities contain a covenant limiting the amount of debt the Company may incur relative to its total capitalization. The facilities are available to support domestic commercial paper borrowings and to meet cash requirements. NOTE D-STOCKHOLDERS' EQUITY The Company presents basic and diluted earnings per share (EPS) in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." 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. As of February 29, 2000, the Company's Board of Directors had authorized the Company to repurchase up to $1 billion of common stock in the open market. From January 1998 to February 12, 2000, approximately $482.6 million of common stock has been repurchased under the plan. Additionally, the Company purchased $54.8 million of common stock between February 13 and March 22, 2000. At times, the Company utilizes equity instrument contracts to facilitate its repurchase of common stock. The Company held equity instrument contracts that relate to the purchase of approximately 5.3 million shares of common stock at an average cost of $27.80 per share at February 12, 2000 and 9.4 million shares of common stock at an average cost of $24.78 per share at March 22, 2000. NOTE E-COMPREHENSIVE INCOME Comprehensive income for the periods presented equals net income. NOTE F- CONTINGENCIES AutoZone, Inc., is a defendant in a purported class action lawsuit entitled "Melvin Quinnie on behalf of all others similarly situated v. AutoZone, Inc., and DOES 1 through 100, inclusive" filed in the Superior Court of California, County of Los Angeles, in November 1998. The plaintiff claims that the defendants failed to pay overtime to store managers as required by California law and failed to pay terminated managers in a timely manner as required by California law. The plaintiff is seeking injunctive relief, restitution, statutory penalties, prejudgment interest, and reasonable attorneys' fees, expenses and costs. The case is in the early stages of pre-class certification discovery and therefore the Company is unable to predict the outcome of this lawsuit at this time. The Company is vigorously defending against this action. AutoZone, Inc., and its wholly-owned subsidiary, Chief Auto Parts Inc., are defendants in a purported class action lawsuit entitled "Paul D. Rusch, on behalf of all others similarly situated, v. Chief Auto Parts Inc. and AutoZone, Inc." filed in the Superior Court of California, County of Los Angeles, in May 1999. The plaintiffs claim that the defendants have failed to pay their store managers overtime pay from March 1997 to present. The plaintiffs are seeking back overtime pay, interest, an injunction against the defendants committing such practices in the future, costs, and attorneys' fees. The Company is unable to predict the outcome of this lawsuit at this time, but believes that the potential damages recoverable by any single plaintiff are minimal. However, if the plaintiff class were to be certified and prevail on all of its claims, the aggregate amount of damages could be substantial. The Company is vigorously defending against this action. The Company currently, and from time to time, is involved in various other legal proceedings incidental to the conduct of its business. Although the amount of liability that may result from these proceedings cannot be ascertained, the Company does not currently believe that, in the aggregate, they will result in liabilities material to the Company's financial condition or results of operations. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TWELVE WEEKS ENDED FEBRUARY 12, 2000, COMPARED TO TWELVE WEEKS ENDED FEBRUARY 13, 1999 Net sales for the twelve weeks ended February 12, 2000, increased by $71.6 million, or 8.4%, over net sales for the comparable period of fiscal 1999. This increase was due to a comparable store sales increase of 3%, and increases in net sales for stores opened or acquired since the beginning of fiscal 1999. On a rolling basis (stores opened for more than one year) comparable store sales increased 4%. At February 12, 2000, the Company had 2,837 stores in operation compared with 2,700 stores at February 13, 1999. Gross profit for the twelve weeks ended February 12, 2000, was $388.4 million, or 42.0% of net sales, compared with $353.5 million, or 41.5% of net sales, during the comparable period for fiscal 1999. The increase in the gross profit percentage was due primarily to better gross margins in acquired stores as a result of the conversion to AutoZone systems and format. Operating, selling, general and administrative expenses for the twelve weeks ended February 12, 2000, increased by $22.2 million over such expenses for the comparable period for fiscal 1999, and decreased as a percentage of net sales from 33.6% to 33.4%. The decrease in the expense ratio was due primarily to leverage of payroll and occupancy costs, principally in acquired stores, and acquisition integration expenses incurred in fiscal 1999. Interest expense for the twelve weeks ended February 12, 2000, was $16.5 million compared with $10.2 million during the comparable period of 1999. The increase in interest expense was primarily due to higher levels of borrowings as a result of the stock repurchases. The Company's effective income tax rate was 38.5% of pre-tax income for the twelve weeks ended February 12, 2000, and 36.8% for the twelve weeks ended February 13, 1999. The fiscal 1999 effective tax rate reflects the utilization of acquired company net operating loss carryforwards. TWENTY-FOUR WEEKS ENDED FEBRUARY 12, 2000, COMPARED TO TWENTY-FOUR WEEKS ENDED FEBRUARY 13, 1999 Net sales for the twenty-four weeks ended February 12, 2000, increased by $177.1 million, or 10.1%, over net sales for the comparable period of fiscal 1999. This increase was due to a comparable store sales increase of 5%, and increases in net sales for stores opened or acquired since the beginning of fiscal 1999. On a rolling basis (stores opened for more than one year) comparable store sales increased 6%. Gross profit for the twenty-four weeks ended February 12, 2000, was $809.9 million, or 42.0% of net sales, compared with $730.0 million, or 41.6% of net sales, during the comparable period for fiscal 1999. The increase in the gross profit percentage was due primarily to better gross margins in acquired stores. Operating, selling, general and administrative expenses for the twenty-four weeks ended February 12, 2000, increased by $51.3 million over such expenses for the comparable period for fiscal 1999, and decreased as a percentage of net sales from 32.7% to 32.3%. The decrease in the expense ratio was due primarily to leverage of payroll and occupancy costs in acquired stores. Interest expense for the twenty-four weeks ended February 12, 2000, was $31.1 million compared with $18.7 million during the comparable period of 1999. The increase in interest expense was primarily due to higher levels of borrowings as a result of the stock repurchases. The Company's effective income tax rate was 38.5% of pre-tax income for the twenty-four weeks ended February 12, 2000, and 36.9% for the twenty-four weeks ended February 13, 1999. The fiscal 1999 effective tax rate reflects the utilization of acquired company net operating loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES For the twenty-four weeks ended February 12, 2000, net cash of $102.4 million was provided by the Company's operations versus $40.6 million for the comparable period of fiscal year 1999. The comparative increase in cash provided by operations is due primarily to the absence of working capital requirements in the acquired businesses in fiscal year 2000. Capital expenditures for the twenty-four weeks ended February 12, 2000, were $126.0 million. Year to date, the Company opened 126 net new AutoZone stores. The Company expects to operate between 2,900 and 2,950 auto parts stores at the end of the fiscal year. The Company anticipates that it will continue to generate significant operating cash flow. The Company foresees no difficulty in obtaining long- term financing in view of its credit rating and favorable experiences in the debt market in the past. The Company has a commercial paper program that allows borrowing up to $700 million. In connection with the program, the Company has a credit facility with a group of banks for up to $350 million which extends until December 2001, and a 364-day $350 million credit facility with another group of banks. The 364-day facility includes a renewal feature as well as an option to extinguish the outstanding debt one year from the maturity date. As of February 12, 2000, there were borrowings of $4.3 million outstanding under this facility. Borrowings under the commercial paper program reduce availability under the credit facilities. Outstanding commercial paper and unsecured bank loans at February 12, 2000, of $700 million are classified as long-term debt as it is the Company's intention to refinance them on a long-term basis; the remaining amount is included in current maturities. During the first quarter of fiscal 2000 the Company entered into unsecured bank loans totaling $190 million with maturity dates from March to August 2000 and interest rates ranging from 6.43% to 6.63%. As of February 29, 2000, the Company's Board of Directors had authorized the Company to repurchase up to $1 billion of common stock in the open market. From January 1998 to February 12, 2000, approximately $482.6 million of common stock has been repurchased under the plan. Additionally, the Company purchased $54.8 million of common stock between February 13 and March 22, 2000. At times, the Company utilizes equity instrument contracts to facilitate its repurchase of common stock. The Company held equity instrument contracts that relate to the purchase of approximately 5.3 million shares of common stock at an average cost of $27.80 per share at February 12, 2000, and 9.4 million shares of common stock at an average cost of $24.78 per share at March 22, 2000. 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, domestic and international development and expansion strategy, and future performance. The forward-looking statements are subject to risks, uncertainties and assumptions including, without limitation, competition, product demand, domestic and international economies, government approvals, inflation, the ability to hire and retain qualified employees, consumer debt levels and the weather. Actual results may materially differ from anticipated results. Please refer to the Risk Factors section in the Annual Report on Form 10-K for fiscal year ended August 28, 1999, for more details. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Chief Auto Parts Inc. is a defendant in a class action lawsuit entitled "Doug Winfrey, et al. on their own behalf and on behalf of a class and all others similarly situated, v. Chief Auto Parts Inc. et al.," filed in the Superior Court of California, County of San Joaquin in August 1995 and then transferred to The Superior Court of California, County of San Francisco, in October 1995. In the complaint, the plaintiffs allege that Chief had a policy and practice of denying hourly employees in California mandated rest periods during their scheduled hours of work. The plaintiffs are seeking damages, restitution, disgorgement of profits, statutory penalties, declaratory relief, injunctive relief, prejudgment interest, and reasonable attorneys' fees, expenses and costs. In November 1998, the Superior Court certified the class as to all persons considered by Chief to be non-exempt hourly employees who, from August 1991, to the present, either work or did work in one of Chief's California retail stores, in excess of total work time of three and one-half (3.5) hours in any one work day and who were denied an off-duty rest break. In September 1999, the parties agreed to settle the suit. The settlement was approved by the court on January 10, 2000. The settlement does not have a material effect upon our financial results or operations. Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Stockholders was held on December 18, 1999. (b) Not applicable. (c) 1. Election of Directors. All nominees for director were elected pursuant to the following vote: NOMINEE VOTES FOR VOTES WITHHELD John C. Adams, Jr. 123,843,938 1,935,972 Andrew M. Clarkson 123,815,484 1,964,426 N. Gerry House 116,238,152 9,541,758 Robert J. Hunt 123,835,869 1,944,041 J.R. Hyde, III 123,962,610 1,817,300 James F. Keegan 123,920,472 1,859,438 Edward S. Lampert 123,959,034 1,820,876 Michael W. Michelson 123,941,862 1,838,048 Ronald A. Terry 123,939,692 1,840,218 Timothy D. Vargo 123,840,617 1,939,293 2. For the approval of the AutoZone, Inc. 2000 Executive Incentive Compensation Plan: For: 123,131,668 Against: 1,944,132 Abstain: 704,110 3. For the approval of Ernst & Young LLP as independent auditors: For: 125,456,346 Against: 46,734 Abstain: 276,830 (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed as part of this report: 3.1 Restated Articles of Incorporation of AutoZone, Inc. Incorporated by reference to Exhibit 3.1 to the Form 10-Q for the quarter ended February 13, 1999. 3.2 Amended and Restated By-laws of AutoZone, Inc. Incorporated by reference to Exhibit 3.3 to the Form 10-K for the fiscal year ended August 29, 1998. 10.1 Form of Demand Promissory Note granted by certain executive officers in favor of AutoZone, Inc. 10.2 AutoZone, Inc. 2000 Executive Incentive Compensation Plan. Incorporated by reference to Exhibit A to the definitive Proxy Statement for the annual meeting of stockholders held December 9, 1999. 10.3 AutoZone, Inc. Executive Deferred Compensation Plan. 27.1 Financial Data Schedule (SEC Use Only). (b) On December 8, 1999, the Company filed a Form 8-K containing a press release announcing its earning for the fiscal quarter ended November 20, 1999.
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/ WILLIAM C. RHODES, III -------------------------------- William C. Rhodes, III Senior Vice President, Finance-Customer Satisfaction (Principal Accounting Officer) Dated: March 23, 2000
EXHIBIT INDEX 3.1 Restated Articles of Incorporation of AutoZone, Inc. Incorporated by reference to Exhibit 3.1 to the Form 10-Q for the quarter ended February 13, 1999. 3.2 Amended and Restated By-laws of AutoZone, Inc. Incorporated by reference to Exhibit 3.3 to the Form 10-K for the fiscal year ended August 29, 1998. 10.1 Form of Demand Promissory Note granted by certain executive officers in favor of AutoZone, Inc. 10.2 AutoZone, Inc. 2000 Executive Incentive Compensation Plan. Incorporated by reference to Exhibit A to the definitive Proxy Statement for the annual meeting of stockholders held December 9, 1999. 10.3 AutoZone, Inc. Executive Deferred Compensation Plan. 27.1 Financial Data Schedule (SEC Use Only).