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)