Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x |
Annual
Report under section 13 or 15(d) of the Securities Exchange Act of
1934
|
For
the
fiscal year ended August 25, 2007, or
o |
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 Identification No.)
|
incorporation
or organization)
|
|
123
South Front Street, Memphis, Tennessee 38103
(Address
of principal executive offices) (Zip Code)
(901)
495-6500
Registrant’s
telephone number, including area code
Securities
registered pursuant to Section 12(b) of the Act:
|
Name
of each exchange
|
Title
of each class
|
on
which registered
|
Common
Stock
|
New
York Stock Exchange
|
($.01
par value)
|
|
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes x No o
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act. Yes o No x
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 period 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 o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer x Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act) Yes o
No
x
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
last sold, or the average bid and asked price of such common equity, as of
the
last business day of the registrant’s most recently completed second fiscal
quarter was $8,723,547,564.
The
number of shares of Common Stock outstanding as of October 15, 2007, was
64,914,833
Documents
Incorporated By Reference
Portions
of the definitive Proxy Statement to be filed within 120 days of August 25,
2007, pursuant to Regulation 14A under the Securities Exchange Act of 1934
for
the Annual Meeting of Stockholders to be held December 12, 2007, are
incorporated by reference into Part III.
TABLE
OF CONTENTS
PART
I
|
|
|
4
|
|
Item
1. Business
|
|
|
4
|
|
Introduction
|
|
|
5
|
|
Marketing
and Merchandising Strategy
|
|
|
5
|
|
Commercial
|
|
|
6
|
|
Store
Operations
|
|
|
6
|
|
Store
Development
|
|
|
7
|
|
Purchasing
and Supply Chain
|
|
|
8
|
|
Competition
|
|
|
8
|
|
Trademarks
and Patents
|
|
|
8
|
|
Employees
|
|
|
8
|
|
AutoZone
Website
|
|
|
9
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|
Executive
Officers of the Registrant
|
|
|
9
|
|
Item
1A. Risk Factors
|
|
|
10
|
|
Item
1B. Unresolved Staff Comments
|
|
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12
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|
Item
2. Properties
|
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12
|
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Item
3. Legal Proceedings
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|
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13
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Item
4. Submission of Matters to a Vote of Security Holders
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13
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|
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|
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PART
II
|
|
|
14
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|
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchase of Securities
|
|
|
14
|
|
Item
6. Selected Financial Data
|
|
|
16
|
|
Item
7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
|
|
18
|
|
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
|
|
|
27
|
|
Item
8. Financial Statements and Supplementary Data
|
|
|
29
|
|
Item
9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
|
|
|
57
|
|
Item
9A. Controls and Procedures
|
|
|
57
|
|
Item
9B. Other Information
|
|
|
57
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|
|
|
|
|
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PART
III
|
|
|
58
|
|
Item
10. Directors, Executive Officers and Corporate Governance
|
|
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58
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|
Item
11. Executive Compensation
|
|
|
58
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|
Item
12. Security Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
|
|
|
58
|
|
Item
13. Certain Relationships and Related Transactions, and Director
Independence
|
|
|
58
|
|
Item
14. Principal Accountant Fees and Services
|
|
|
58
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|
|
|
|
|
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PART
IV
|
|
|
59
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|
Item
15. Exhibits, Financial Statement Schedules
|
|
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59
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|
Forward-Looking
Statements
Certain
statements contained in this Annual Report on Form 10-K are forward-looking
statements. Forward-looking statements typically use words such as “believe,”
“anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,”
“project,” “positioned,” “strategy” and similar expressions. These are based on
assumptions and assessments made by our management in light of experience and
perception of historical trends, current conditions, expected future
developments and other factors that we believe to be appropriate. These
forward-looking statements are subject to a number of risks and uncertainties,
including without limitation, competition; product demand; the economy; credit
markets; the ability to hire and retain qualified employees; consumer debt
levels; inflation; weather; raw material costs of our suppliers; energy prices;
war and the prospect of war, including terrorist activity; availability of
commercial transportation; construction delays; access to available and feasible
financing; and changes in laws or regulations. Forward-looking statements are
not guarantees of future performance and actual results, developments and
business decisions may differ from those contemplated by such forward-looking
statements, and such events could materially and adversely affect our business.
Forward-looking statements speak only as of the date made. Except as required
by
applicable law, we undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Actual results may materially differ from anticipated
results. Please refer to the Risk Factors section contained in Item 1 under
Part
I of this Form 10-K for more details.
PART
I
Item
1. Business
Introduction
We
are
the nation’s leading specialty retailer and a leading distributor of automotive
replacement parts and accessories, with most of our sales to do-it-yourself
(“DIY”) customers. We began operations in 1979 and at August 25, 2007 operated
3,933 stores in the United States and Puerto Rico, and 123 in Mexico. Each
of
our stores carries an extensive product line for cars, sport utility vehicles,
vans and light trucks, including new and remanufactured automotive hard parts,
maintenance items, accessories and non-automotive products. In many of our
stores we also have a commercial sales program that provides commercial credit
and prompt delivery of parts and other products to local, regional and national
repair garages, dealers and service stations. We also sell the ALLDATA brand
automotive diagnostic and repair software. On the web at www.autozone.com,
we
sell diagnostic and repair information, auto and light truck parts, and
accessories. We do not derive revenue from automotive repair or installation
services.
At
August
25, 2007, our stores were in the following locations:
Alabama
|
|
|
90
|
|
Arizona
|
|
|
110
|
|
Arkansas
|
|
|
59
|
|
California
|
|
|
428
|
|
Colorado
|
|
|
55
|
|
Connecticut
|
|
|
31
|
|
Delaware
|
|
|
10
|
|
Florida
|
|
|
173
|
|
Georgia
|
|
|
160
|
|
Idaho
|
|
|
18
|
|
Illinois
|
|
|
192
|
|
Indiana
|
|
|
125
|
|
Iowa
|
|
|
22
|
|
Kansas
|
|
|
37
|
|
Kentucky
|
|
|
74
|
|
Louisiana
|
|
|
97
|
|
Maine
|
|
|
6
|
|
Maryland
|
|
|
38
|
|
Massachusetts
|
|
|
66
|
|
Michigan
|
|
|
133
|
|
Minnesota
|
|
|
22
|
|
Mississippi
|
|
|
81
|
|
Missouri
|
|
|
90
|
|
Montana
|
|
|
1
|
|
Nebraska
|
|
|
13
|
|
Nevada
|
|
|
42
|
|
New
Hampshire
|
|
|
16
|
|
New
Jersey
|
|
|
57
|
|
New
Mexico
|
|
|
54
|
|
New
York
|
|
|
112
|
|
North
Carolina
|
|
|
145
|
|
North
Dakota
|
|
|
2
|
|
Ohio
|
|
|
205
|
|
Oklahoma
|
|
|
66
|
|
Oregon
|
|
|
25
|
|
Pennsylvania
|
|
|
101
|
|
Puerto
Rico
|
|
|
15
|
|
Rhode
Island
|
|
|
15
|
|
South
Carolina
|
|
|
68
|
|
South
Dakota
|
|
|
1
|
|
Tennessee
|
|
|
145
|
|
Texas
|
|
|
492
|
|
Utah
|
|
|
34
|
|
Vermont
|
|
|
1
|
|
Virginia
|
|
|
81
|
|
Washington
|
|
|
44
|
|
Washington,
DC
|
|
|
6
|
|
West
Virginia
|
|
|
22
|
|
Wisconsin
|
|
|
48
|
|
Wyoming
|
|
|
5
|
|
Domestic
Total
|
|
|
3,933
|
|
Mexico
|
|
|
123
|
|
TOTAL
|
|
|
4,056
|
|
Marketing
and Merchandising Strategy
We
are
dedicated to providing customers with superior service, value and quality
automotive parts and products at conveniently located, well-designed stores.
Key
elements of this strategy are:
Customer
Service
Customer
service is the most important element in our marketing and merchandising
strategy, which is based upon consumer marketing research. We emphasize that
our
AutoZoners (employees) should always put customers first by providing prompt,
courteous service and trustworthy advice. Our electronic parts catalog assists
in the selection of parts; and lifetime warranties are offered by us or our
vendors on many of the parts we sell. Our wide area network in our stores helps
us to expedite credit or debit card and check approval processes, to locate
parts at neighboring AutoZone stores, and in some cases, to place special orders
directly with our vendors.
Our
stores generally open at 7:30 or 8 a.m. and close between 8 and 10 p.m. Monday
through Saturday and typically open at 9 a.m. and close between 6 and 9 p.m.
on
Sunday. However, some stores are open 24 hours, and some have extended hours
of
6 or 7 a.m. until midnight seven days a week.
We
also
provide specialty tools through our Loan-A-Tool® program. Customers can borrow a
specialty tool, such as a steering wheel puller, for which a DIY customer or
a
repair shop would have little or no use other than for a single job. AutoZoners
also provide other free services, including check engine light readings; battery
charging; oil recycling; and testing of starters, alternators, batteries,
sensors and actuators.
Merchandising
The
following table shows some of the types of products that we sell:
Hard
Parts
|
|
Maintenance
Items
|
|
Accessories
and Non-Automotive
|
A/C
Compressors
|
|
Antifreeze
& Windshield Washer Fluid
|
|
Air
Fresheners
|
Alternators
|
|
Belts
& Hoses
|
|
Cell
Phone Accessories
|
Batteries
& Accessories
Brake
Drums, Rotors,
|
|
Chemicals,
including Brake & Power
Steering
Fluid, Oil & Fuel Additives
|
|
Drinks
& Snacks
Floor
Mats
|
Shoes
& Pads
|
|
Fuses
|
|
Hand
Cleaner
|
Carburetors
|
|
Lighting
|
|
Neon
Lighting
|
Clutches
|
|
Oil
& Transmission Fluid
|
|
Mirrors
|
CV
Axles
|
|
Oil,
Air, Fuel & Transmission Filters
|
|
Paint
& Accessories
|
Engines
|
|
Oxygen
Sensors
|
|
Performance
Products
|
Fuel
Pumps
|
|
Protectants
& Cleaners
|
|
Seat
Covers
|
Mufflers
|
|
Refrigerant
& Accessories
|
|
Steering
Wheel Covers
|
Shock
Absorbers & Struts
|
|
Sealants
& Adhesives
|
|
Stereos
|
Starters
|
|
Spark
Plugs & Wires
|
|
Tools
|
Water
Pumps
|
|
Wash
& Wax
|
|
|
|
|
Windshield
Wipers
|
|
|
We
believe that the satisfaction of DIY customers and professional technicians
is
often impacted by our ability to provide specific automotive products as
requested. Our stores generally offer approximately 21,000 stock keeping units
(“SKUs”), covering a broad range of vehicle types. Each store carries the same
basic product lines, but we tailor our parts inventory to the makes and models
of the vehicles in each store’s trade area. Our hub stores carry a larger
assortment of products that can be delivered to commercial customers or local
satellite stores. In excess of 750,000 additional SKUs of slower-selling
products are available either through our vendor direct program (“VDP”), which
offers overnight delivery, or through our salvage auto parts and original
equipment manufacturer (“OEM”) parts programs.
We
are
constantly updating the products that we offer to assure that our inventory
matches the products that our customers demand.
Pricing
We
want
to be perceived by our customers as the value leader in our industry by
consistently providing quality merchandise at the right price, backed by a
good
warranty and outstanding customer service. On many of our products we offer
multiple value choices in a good/better/best assortment, with appropriate price
and quality differences from the “good” products to the “better” and “best”
products. A key component is our exclusive line of in-house brands: Valucraft,
AutoZone, Duralast and Duralast Gold. We believe that our overall prices and
value compare favorably to those of our competitors.
Marketing:
Advertising and Promotions
We
believe that targeted advertising and promotions play important roles in
succeeding in today’s environment. We are constantly working to understand our
customers’ wants and needs so that we can build long-lasting, loyal
relationships. We utilize promotions and advertising primarily to advise
customers about the overall importance of vehicle maintenance, our great value
and the availability of high quality parts. Broadcast and targeted loyalty
efforts are our primary marketing methods of driving traffic to our stores.
We
utilize in-store signage and creative product placement to help educate
customers about products they need.
Store
Design and Visual Merchandising
We
design
and build stores for a high visual impact. The typical AutoZone store utilizes
colorful exterior and interior signage, exposed beams and ductwork and brightly
lighted interiors. Maintenance products, accessories and miscellaneous items
are
attractively displayed for easy browsing by customers. In-store signage and
special displays promote products on floor displays, end caps and on the shelf.
Commercial
Our
commercial sales program operates in a highly fragmented market and is one
of
the leading distributors of automotive parts and other products to local,
regional and national repair garages, dealers and service stations in the United
States. As a part of the program we offer credit and delivery to our commercial
customers. The program operated out of 2,182 stores as of August 25, 2007.
Through our hub stores, we offer a greater range of parts and products desired
by professional technicians, and this additional inventory is available for
our
DIY customers as well. We have a national sales team focused on national and
regional commercial accounts.
Store
Operations
Store
Formats
Substantially
all AutoZone stores are based on standard store formats, resulting in generally
consistent appearance, merchandising and product mix. Approximately 85% to
90%
of each store’s square footage is selling space, of which approximately 40% to
45% is dedicated to hard parts inventory. The hard parts inventory area is
generally fronted by counters or pods that run the depth or length of the store,
dividing the hard parts area from the remainder of the store. The remaining
selling space contains displays of maintenance, accessories and non-automotive
items.
We
believe that our stores are “destination stores,” generating their own traffic
rather than relying on traffic created by adjacent stores. Therefore, we situate
most stores on major thoroughfares with easy access and good parking.
Store
Personnel and Training
Each
store typically employs from 10 to 16 AutoZoners, including a manager and,
in
some cases, an assistant manager. AutoZoners typically have prior automotive
experience. All AutoZoners are encouraged to complete courses resulting in
certification by the National Institute for Automotive Service Excellence
(“ASE”), which is broadly recognized for training certification in the
automotive industry. Although we do on-the-job training, we also provide formal
training programs, including an annual national sales meeting, regular store
meetings on specific sales and product issues, standardized training manuals
and
a specialist program that provides training to AutoZoners in several areas
of
technical expertise from both the Company and from independent certification
agencies. Training is supplemented with frequent store visits by
management.
Store
managers receive financial incentives through performance-based bonuses. In
addition, our growth has provided opportunities for the promotion of qualified
AutoZoners. We believe these opportunities are important to attract, motivate
and retain high quality AutoZoners.
All
store
support functions are centralized in our store support centers located in
Memphis, Tennessee and Mexico. We believe that this centralization enhances
consistent execution of our merchandising and marketing strategies at the store
level, while reducing expenses and cost of sales.
Store
Automation
All
of
our stores have Z-netTM,
our
proprietary electronic catalog that enables our AutoZoners to efficiently look
up the parts our customers need and provides complete job solutions, advice
and
information for customer vehicles. Z-netTM
provides
parts information based on the year, make, model and engine type of a vehicle
and also tracks inventory availability at the store, at other nearby stores
and
through special order. The Z-netTM
display
screens are placed on the hard parts counter or pods, where both AutoZoners
and
customers can view the screen. In addition, our wide area network enables the
stores to expedite credit or debit card and check approval processes, to access
immediately national warranty data, to implement real-time inventory controls
and to locate and hold parts at neighboring AutoZone stores.
Our
stores utilize our computerized proprietary Store Management System, which
includes bar code scanning and point-of-sale data collection terminals. The
Store Management System provides administrative assistance and improved
personnel scheduling at the store level, as well as enhanced merchandising
information and improved inventory control. We believe the Store Management
System also enhances customer service through faster processing of transactions
and simplified warranty and product return procedures.
Store
Development
The
following table reflects store development during the past five fiscal
years:
|
|
Fiscal
Year
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Domestic Stores
|
|
|
3,771
|
|
|
3,592
|
|
|
3,420
|
|
|
3,219
|
|
|
3,068
|
|
New
Stores
|
|
|
163
|
|
|
185
|
|
|
175
|
|
|
202
|
|
|
160
|
|
Closed
Stores
|
|
|
1
|
|
|
6
|
|
|
3
|
|
|
1
|
|
|
9
|
|
Net
New Stores
|
|
|
162
|
|
|
179
|
|
|
172
|
|
|
201
|
|
|
151
|
|
Relocated
Stores
|
|
|
18
|
|
|
18
|
|
|
7
|
|
|
4
|
|
|
6
|
|
Ending
Domestic Stores
|
|
|
3,933
|
|
|
3,771
|
|
|
3,592
|
|
|
3,420
|
|
|
3,219
|
|
Ending
Mexico Stores
|
|
|
123
|
|
|
100
|
|
|
81
|
|
|
63
|
|
|
49
|
|
Ending
Total Stores
|
|
|
4,056
|
|
|
3,871
|
|
|
3,673
|
|
|
3,483
|
|
|
3,268
|
|
The
domestic stores include stores in the United States and Puerto Rico. The new
store count in 2007 reflects 3 stores that were temporarily closed during fiscal
2006 and excluded from the prior year ending store count. We believe that
expansion opportunities exist both in markets that we do not currently serve,
as
well as in markets where we can achieve a larger presence. We attempt to obtain
high visibility sites in high traffic locations and undertake substantial
research prior to entering new markets. The most important criteria for opening
a new store are its projected future profitability and its ability to achieve
our required investment hurdle rate. Key factors in selecting new site and
market locations include population, demographics, vehicle profile, number
and
strength of competitors’ stores and the cost of real estate. In reviewing the
vehicle profile, we also consider the number of vehicles that are seven years
old and older- “our kind of vehicles,” as these are generally no longer under
the original manufacturers’ warranties and will require more maintenance and
repair than younger vehicles. We generally seek to open new stores within or
contiguous to existing market areas and attempt to cluster development in
markets in a relatively short period of time. In addition to continuing to
lease
or develop our own stores, we evaluate and may make strategic
acquisitions.
Purchasing
and Supply Chain
Merchandise
is selected and purchased for all stores through our store support centers
located in Memphis, Tennessee and Mexico. No one class of product accounts
for
as much as 10 percent of our total sales. In fiscal 2007, no single supplier
accounted for more than 10 percent of our total purchases. We generally have
few
long-term contracts for the purchase of merchandise. We believe that we have
good relationships with suppliers. We also believe that alternative sources
of
supply exist, at similar cost, for most types of product sold. Most of our
merchandise flows through our distribution centers to our stores by our fleet
of
tractors and trailers or by third-party trucking firms.
Our
hub
stores have increased our ability to distribute products on a timely basis
to
many of our stores. A hub store is able to provide replenishment of products
sold and deliver other products maintained only in hub store inventories to
a
store in its coverage area generally within 24 hours. Hub stores are generally
replenished from distribution centers multiple times per week.
Competition
The
sale
of automotive parts, accessories and maintenance items is highly competitive
in
many areas, including name recognition, product availability, customer service,
store location and price. AutoZone competes in both the retail (“DIY”) and
commercial do-it-for-me (“DIFM”) auto parts and accessories
markets.
Competitors
include national and regional auto parts chains, independently owned parts
stores, wholesalers and jobbers, repair shops, car washes and auto dealers,
in
addition to discount and mass merchandise stores, department stores, hardware
stores, supermarkets, drugstores, convenience stores and home stores that sell
aftermarket vehicle parts and supplies, chemicals, accessories, tools and
maintenance parts. AutoZone competes on the basis of customer service, including
the trustworthy advice of our AutoZoners, merchandise selection and
availability, price, product warranty, store layouts and location.
Trademarks
and Patents
We
have
registered several service marks and trademarks in the United States Patent
and
Trademark office as well as in certain other countries, including our service
marks, “AutoZone” and “Get in the Zone,” and trademarks, “AutoZone,” “Duralast,”
“Duralast Gold,” “Valucraft,” “ALLDATA” and “Z-netTM.”
We
believe that these service marks and trademarks are important components of
our
merchandising and marketing strategy.
Employees
As
of
August 25, 2007, we employed approximately 55,000 persons, approximately 56
percent of whom were employed full-time. About 93 percent of our AutoZoners
were
employed in stores or in direct field supervision, approximately 5 percent
in
distribution centers and approximately 2 percent in store support functions.
Included in the above numbers are approximately 2,000 persons employed in our
Mexico operations.
We
have
never experienced any material labor disruption and believe that relations
with
our AutoZoners are generally good.
AutoZone
Website
AutoZone’s
primary website is at http://www.autozone.com. We make available, free of
charge, at our investor relations website, http://www.autozoneinc.com, our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on
Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as soon
as reasonably feasible after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission.
Executive
Officers of the Registrant
The
following list describes our executive officers. The title of each executive
officer includes the words “Customer Satisfaction” which reflects our commitment
to customer service. Officers are elected by and serve at the discretion of
the
Board of Directors.
William
C. Rhodes, III, 42—Chairman,
President and Chief Executive Officer, Customer Satisfaction
William
C. Rhodes, III, was
named
Chairman of AutoZone in June 2007 and has
been
President, Chief Executive Officer and a director since March 2005. Prior to
his
appointment as President and Chief Executive Officer, Mr. Rhodes was Executive
Vice President-Store Operations and Commercial. Prior to fiscal 2005, he had
been Senior Vice President-Supply Chain and Information Technology since fiscal
2002, and prior thereto had been Senior Vice President-Supply Chain since 2001.
Prior to that time, he served in various capacities within the Company,
including Vice President-Stores in 2000, Senior Vice President-Finance and
Vice
President-Finance in 1999 and Vice President-Operations Analysis and Support
from 1997 to 1999. Prior to 1994, Mr. Rhodes was a manager with Ernst &
Young LLP.
William
T. Giles, 48—Chief
Financial Officer and Executive
Vice President, Finance,
Information
Technology and Store Development, Customer Satisfaction
William
T. Giles was elected Executive Vice President - Finance, Information Technology
and Store Development in March 2007. Prior to that, he was Executive Vice
President, Chief Financial Officer and Treasurer from June 2006 to December
2006
and Executive Vice President, Chief Financial Officer since May 2006. From
1991
to May 2006, he held several positions with Linens N’ Things, Inc., most
recently as the Executive Vice President and Chief Financial Officer. Prior
to
1991, he was with Melville, Inc. and PricewaterhouseCoopers.
Harry
L. Goldsmith, 56—Executive Vice President, Secretary and General Counsel,
Customer Satisfaction
Harry
L.
Goldsmith was elected Executive Vice-President, General Counsel and Secretary
during fiscal 2006. Previously, he was Senior Vice President, Secretary and
General Counsel since 1996 and was Vice President, General Counsel and Secretary
from 1993 to 1996.
Robert
D. Olsen, 54—Executive Vice President- Store Operations, Commercial and Mexico,
Customer Satisfaction
Robert
D.
Olsen was elected Executive Vice President- Store Operations, Commercial and
Mexico during
fiscal 2007. Prior to that, he was Executive Vice President-Supply
Chain, Information Technology, Mexico and Store Development since fiscal 2006.
Previously, he was Senior Vice President since fiscal 2000 with primary
responsibility for store development and Mexico operations. From 1993 to 2000,
Mr. Olsen was Executive Vice President and Chief Financial Officer of Leslie’s
Poolmart. From 1985 to 1989, Mr. Olsen held several positions with AutoZone,
including Controller, Vice President-Finance,
and Senior Vice President and Chief Financial Officer.
James
A. Shea, 62—Executive
Vice President-Merchandising, Marketing and Supply Chain,
Customer Satisfaction
James
A.
Shea was elected Executive Vice President- Merchandising,
Marketing and Supply Chain
during
fiscal 2007 and has served as Executive Vice President-Merchandising
and Marketing
since
fiscal 2005. He was President and Co-founder of Portero during 2004. Prior
to
2004, he was Chief Executive Officer of Party City from 1999 to 2003. From
1995
to 1999, he was with Lechters Housewares where he was Senior Vice President
Marketing and Merchandising before being named President in 1997. From 1990
to
1995, he was Senior Vice President of Home for Kaufmanns Department Store,
a
division of May Company.
Timothy
W. Briggs, 46—Senior
Vice President-Human Resources,
Customer Satisfaction
Timothy
W. Briggs was elected Senior Vice President-Human Resources in October 2005.
Prior to that, he was Vice President - Field Human Resources since March 2005.
From 2002 to 2005, Mr. Briggs was Vice President - Organization Development.
From 1996 to 2002, Mr. Briggs served in various management capacities at the
Limited Inc., including Vice President, Human Resources.
William
W. Graves,
47—Senior
Vice President-Supply Chain, Customer Satisfaction
William
W. Graves was
elected Senior Vice President-Supply Chain in October 2005. Prior thereto,
he
was Vice President - Supply Chain since 2000. From 1992 to 2000, Mr. Graves
served in various capacities with the Company.
Lisa
R. Kranc, 54—Senior Vice President-Marketing, Customer
Satisfaction
Lisa
R.
Kranc was elected Senior Vice President-Marketing
during fiscal 2001. Previously, she was Vice President-Marketing
for Hannaford Bros. Co., a Maine-based grocery chain, since 1997, and was Senior
Vice President-Marketing
for Bruno’s, Inc., from 1996 to 1997. Prior to 1996, she was Vice
President-Marketing for Giant Eagle, Inc. since 1992.
Thomas
B. Newbern, 45—Senior Vice President-Store Operations, Customer
Satisfaction
Thomas
B.
Newbern was elected Senior Vice President-Store
Operations in March 2007. Previously, Mr. Newbern held the title Vice President,
Store Operations for AutoZone since 1998. A twenty-one year AutoZoner, he has
held several key management positions with the Company.
Charlie
Pleas, III, 42—Senior Vice President, Controller, Customer
Satisfaction
Charlie
Pleas, III, was elected Senior Vice President and Controller in March 2007.
Prior to that, he was Vice President, Controller since 2003. Previously, he
was
Vice President-Accounting since 2000, and Director of General Accounting since
1996. Prior to joining AutoZone, Mr. Pleas was a Division Controller with
Fleming Companies, Inc. where he served in various capacities from
1988.
Larry
M. Roesel, 50—Senior Vice President-Commercial, Customer
Satisfaction
Larry
M.
Roesel joined AutoZone as Senior Vice President-Commercial
in March 2007. Mr. Roesel came to AutoZone with more than thirty years of
experience with OfficeMax, Inc. and its predecessor, where he served in
operations, sales and general management.
Item
1A. Risk Factors
Our
business is subject to a variety of risks. Set forth below are certain of the
important risks that we face and that could cause actual results to differ
materially from historical results. These risks are not the only ones we face.
Our business could also be affected by additional factors that are presently
unknown to us or that we currently believe to be immaterial to our
business.
We
may not be able to increase sales by the same historic growth
rates.
We
have
increased our store count in the past five fiscal years, growing from 3,107
stores at August 31, 2002, to 4,056 stores at August 25, 2007, an average store
count increase per year of 5%. Additionally, we have increased annual revenues
in the past five fiscal years from $5.326 billion in fiscal 2002 to $6.170
billion in fiscal 2007, an average increase per year of 3%. Annual revenue
growth is driven by the opening of new stores and same-store sales. We cannot
provide any assurance that we can continue to open stores or increase same-store
sales.
Our
business depends upon qualified employees.
At
the
end of fiscal 2007, our consolidated employee count was approximately 55,000.
We
cannot assure that we can continue to hire and retain qualified employees at
current wage rates. If we do not maintain competitive wages, our customer
service could suffer by reason of a declining quality of our workforce or,
alternatively, our earnings could decrease if we increase our wage
rates.
If
demand for our products slows, then our business may be materially
affected.
Demand
for products sold by our stores depends on many factors. In the short term,
it
may depend upon:
|
·
|
the
number of miles vehicles are driven annually, as higher vehicle mileage
increases the need for maintenance and repair. Mileage levels may
be
affected by gas prices and other
factors.
|
|
·
|
the
number of vehicles in current service that are seven years old and
older,
as these vehicles are no longer under the original vehicle manufacturers’
warranties and will need more maintenance and repair than younger
vehicles.
|
|
·
|
the
weather, as vehicle maintenance may be deferred.
|
|
·
|
the
economy. In periods of rapidly declining economic conditions, both
retail
DIY and commercial DIFM customers may defer vehicle maintenance or
repair.
During periods of expansionary economic conditions, more of our DIY
customers may pay others to repair and maintain their cars instead
of
working on their own vehicles or they may purchase new vehicles.
|
For
the
long term, demand for our products may depend upon:
|
·
|
the
quality of the vehicles manufactured by the original vehicle manufacturers
and the length of the warranty or maintenance offered on new
vehicles.
|
|
·
|
restrictions
on access to diagnostic tools and repair information imposed by the
original vehicle manufacturers or by governmental
regulation.
|
If
we are unable to compete successfully against other businesses that sell
the products
that we sell, we could lose customers and our sales and profits
may decline.
The
sale
of automotive parts, accessories and maintenance items is highly competitive
based on many factors, including name recognition, product availability,
customer service, store location and price. Competitors are rapidly opening
locations near our existing stores. AutoZone competes as a supplier in both
the
DIY and DIFM auto parts and accessories markets.
Competitors
include national, regional and local auto parts chains, independently owned
parts stores, jobbers, repair shops, car washes and auto dealers, in addition
to
discount and mass merchandise stores, department stores, hardware stores,
supermarkets, drugstores, convenience stores and home stores that sell
aftermarket vehicle parts and supplies, chemicals, accessories, tools and
maintenance parts. Although we believe we compete effectively on the basis
of
customer service, including the knowledge and expertise of our AutoZoners;
merchandise quality, selection and availability; product warranty; store layout,
location and convenience; price; and the strength of our AutoZone brand name,
trademarks and service marks; some competitors may have competitive advantages,
such as greater financial and marketing resources, larger stores with more
merchandise, longer operating histories, more frequent customer visits and
more
effective advertising. If we are unable to continue to develop successful
competitive strategies, or if our competitors develop more effective strategies,
we could lose customers and our sales and profits may decline.
If
we cannot profitably increase our market share in the commercial auto
parts business,
our sales growth may be limited.
Although
we are one of the largest sellers of auto parts in the commercial market, to
increase commercial sales we must compete against national and regional auto
parts chains, independently owned parts stores, wholesalers and jobbers, repair
shops and auto dealers. Although we believe we compete effectively on the basis
of customer service, merchandise quality, selection and availability, price,
product warranty and distribution locations, and the strength of our AutoZone
brand name, trademarks and service marks, some automotive aftermarket jobbers
have been in business for substantially longer periods of time than we have,
have developed long-term customer relationships and have large available
inventories. We can make no assurances that we can profitably develop new
commercial customers or make available inventories required by commercial
customers.
If
our vendors continue to consolidate, we may pay higher prices for
our merchandise.
In
recent
years, several of our vendors have merged. Further vendor consolidation could
limit the number of vendors from which we may purchase products and could
materially affect the prices we pay for these products.
Consolidation
among our competitors may negatively impact our business.
If
our
competitors consolidate with other auto parts chains and are able to achieve
efficiencies in their mergers, then there may be greater competitive pressures
in the markets in which they are stronger.
War
or acts of terrorism or the threat of either may negatively
impact availability
of merchandise and adversely impact our sales.
War
or
acts of terrorism, or the threat of either, may have a negative impact on our
ability to obtain merchandise available for sale in our stores. Some of our
merchandise is imported from other countries. If imported goods become difficult
or impossible to bring into the United States, and if we cannot obtain such
merchandise from other sources at similar costs, our sales and profit margins
may be negatively affected.
In
the
event that commercial transportation is curtailed or substantially delayed,
our
business may be adversely impacted, as we may have difficulty shipping
merchandise to our distribution centers and stores.
Rising
energy prices may negatively impact our profitability.
As
mentioned above, rising energy prices may impact demand for the products that
we
sell, overall transaction count and our profitability. Higher energy prices
impact our merchandise distribution, commercial delivery, utility, and product
costs.
Demand
for our merchandise may decline if vehicle manufacturers refuse to make
available the information our customers need to work on their own
vehicles.
Demand
for our merchandise may decline if vehicle manufacturers refuse to make
available to the automotive aftermarket industry diagnostic, repair and
maintenance information that our customers, both retail (“DIY”) and commercial
(“DIFM”), require to diagnose, repair and maintain their vehicles. Without
public dissemination of this information, consumers may be forced to have all
diagnostic work, repairs and maintenance performed by the vehicle manufacturers'
dealer network.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
The
following table reflects the square footage and number of leased and owned
properties for our stores as of August 25, 2007:
|
|
No.
of Stores
|
|
Square
Footage
|
|
Leased
|
|
|
1,873
|
|
|
11,250,612
|
|
Owned
|
|
|
2,183
|
|
|
14,793,581
|
|
Total
|
|
|
4,056
|
|
|
26,044,193
|
|
We
have
over 3.4 million square feet in distribution centers servicing our stores,
of
which approximately 1.3 million square feet is leased and the remainder is
owned. Our distribution centers are located in Arizona, California, Georgia,
Illinois, Ohio, Tennessee, Texas and Mexico. Our primary store support center,
which we own, is located in Memphis, Tennessee, and consists of approximately
260,000 square feet. We also own and lease other properties that are not
material in the aggregate.
Item
3. Legal Proceedings
AutoZone,
Inc. is a defendant in a lawsuit entitled "Coalition for a Level Playing Field,
L.L.C., et al., v. AutoZone, Inc. et al.," filed in the U.S. District Court
for
the Southern District of New York in October 2004. The case was filed by more
than 200 plaintiffs, which are principally automotive aftermarket warehouse
distributors and jobbers (collectively “Plaintiffs”), against a number of
defendants, including automotive aftermarket retailers and aftermarket
automotive parts manufacturers. In the amended complaint, the plaintiffs allege,
inter alia, that some or all of the automotive aftermarket retailer defendants
have knowingly received, in violation of the Robinson-Patman Act (the “Act”),
from various of the manufacturer defendants benefits such as volume discounts,
rebates, early buy allowances and other allowances, fees, inventory without
payment, sham advertising and promotional payments, a share in the
manufacturers' profits, benefits of pay on scan purchases, implementation of
radio frequency identification technology, and excessive payments for services
purportedly performed for the manufacturers. Additionally, a subset of
plaintiffs alleges a claim of fraud against the automotive aftermarket retailer
defendants based on discovery issues in a prior litigation involving similar
Robinson-Patman Act claims. In the prior litigation, the discovery dispute,
as
well as the underlying claims, were decided in favor of AutoZone and the other
automotive aftermarket retailer defendants who proceeded to trial, pursuant
to a
unanimous jury verdict which was affirmed by the Second Circuit Court of
Appeals. In the current litigation, plaintiffs seek an unspecified amount of
damages (including statutory trebling), attorneys' fees, and a permanent
injunction prohibiting the aftermarket retailer defendants from inducing and/or
knowingly receiving discriminatory prices from any of the aftermarket
manufacturer defendants and from opening up any further stores to compete with
plaintiffs as long as defendants allegedly continue to violate the Act. The
Company believes this suit to be without merit and is vigorously defending
against it. Defendants have filed motions to dismiss all claims with prejudice
on substantive and procedural grounds. Additionally, the Defendants have sought
to enjoin plaintiffs from filing similar lawsuits in the future. If granted
in
their entirety, these dispositive motions would resolve the litigation in
Defendants' favor.
On
June
22, 2005, the Attorney General of the State of California, in conjunction with
District Attorneys for San Bernardino, San Joaquin and Monterey Counties, filed
suit in the San Bernardino County Superior Court against AutoZone, Inc. and
its
California subsidiaries. The San Diego County District Attorney later joined
the
suit. The lawsuit alleges that AutoZone failed to follow various state statutes
and regulation governing the storage and handling of used motor oil and other
materials collected for recycling or used for cleaning AutoZone stores and
parking lots. The suit sought $12 million in penalties and injunctive relief.
On
June 1, 2007, AutoZone and the State entered into a Stipulated Final Judgment
by
Consent. The Stipulated Final Judgment amended the suit to also allege weights
and measures (pricing) violations. Pursuant to this Judgment, AutoZone is
enjoined from committing these types of violations and agreed to pay civil
penalties in the amount of $1.8 million, including $1.5 million in cash and
a
$300,000 credit for work performed to insure compliance.
AutoZone
is involved in various other legal proceedings incidental to the conduct of
our
business. Although the amount of liability that may result from these other
proceedings cannot be ascertained, we do not currently believe that, in the
aggregate, they will result in liabilities material to our financial condition,
results of operations, or cash flows.
Item
4. Submission of Matters to a Vote of Security Holders
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
AutoZone’s
common stock is listed on the New York Stock Exchange under the symbol “AZO.” On
October 15, 2007, there were 3,589 stockholders of record, which does not
include the number of beneficial owners whose shares were represented by
security position listings.
We
currently do not pay a cash dividend on our common stock. Any payment of
dividends in the future would be dependent upon our financial condition, capital
requirements, earnings, cash flow and other factors.
The
following table sets forth the high and low sales prices per share of common
stock, as reported by the New York Stock Exchange, for the periods
indicated:
|
|
Price
Range of Common Stock
|
|
|
|
High
|
|
Low
|
|
Fiscal
Year Ended August 25, 2007:
|
|
|
|
|
|
Fourth
quarter
|
|
$
|
140.29
|
|
$
|
111.46
|
|
Third
quarter
|
|
$
|
137.66
|
|
$
|
121.52
|
|
Second
quarter
|
|
$
|
128.00
|
|
$
|
112.39
|
|
First
quarter
|
|
$
|
114.98
|
|
$
|
87.30
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended August 26, 2006:
|
|
|
|
|
|
|
|
Fourth
quarter
|
|
$
|
94.61
|
|
$
|
83.81
|
|
Third
quarter
|
|
$
|
102.00
|
|
$
|
91.35
|
|
Second
quarter
|
|
$
|
99.32
|
|
$
|
86.50
|
|
First
quarter
|
|
$
|
97.08
|
|
$
|
77.76
|
|
During
1998 the Company announced a program permitting the Company to repurchase a
portion of its outstanding shares not to exceed a dollar maximum established
by
the Company’s Board of Directors. The program was most recently amended in June
2007, to increase the repurchase authorization to $5.9 billion from $5.4
billion. The program does not have an expiration date.
Shares
of
common stock repurchased by the Company during the quarter ended August 25,
2007, were as follows:
Period
|
|
Total
Number of Shares Purchased
|
|
Average
Price Paid per Share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
Maximum
Dollar Value that May Yet Be Purchased Under the Plans or Programs
|
|
May
6, 2007, to
June
2, 2007
|
|
|
816,200
|
|
$
|
127.84
|
|
|
97,809,493
|
|
$
|
651,360,893
|
|
June
3, 2007, to
June
30, 2007
|
|
|
1,444,560
|
|
|
133.66
|
|
|
99,254,053
|
|
|
458,281,384
|
|
July
1, 2007, to
July
28, 2007
|
|
|
-
|
|
|
-
|
|
|
99,254,053
|
|
|
458,281,384
|
|
July
29, 2007, to
August
25, 2007
|
|
|
-
|
|
|
-
|
|
|
99,254,053
|
|
|
458,281,384
|
|
Total
|
|
|
2,260,760
|
|
$
|
131.56
|
|
|
99,254,053
|
|
$
|
458,281,384
|
|
The
Company also repurchased, at fair value, an additional 65,152 shares in fiscal
2007, 62,293 shares in fiscal 2006, and 87,974 shares in fiscal 2005 from
employees electing to sell their stock under the Company’s Third Amended and
Restated Employee Stock Purchase Plan, qualified under Section 423 of the
Internal Revenue Code, under which all eligible employees may purchase
AutoZone’s common stock at 85% of the lower of the market price of the common
stock on the first day or last day of each calendar quarter through payroll
deductions. Maximum permitted annual purchases are $15,000 per employee or
10
percent of compensation, whichever is less. Under the plan, 39,139 shares were
sold to employees in fiscal 2007, 51,167 shares were sold to employees in fiscal
2006, and 59,479 shares were sold in fiscal 2005. At August 25, 2007, 385,897
shares of common stock were reserved for future issuance under this plan. Under
the Amended and Restated Executive Stock Purchase Plan all eligible executives
are permitted to purchase AutoZone’s common stock up to 25 percent of his or her
annual salary and bonus. Purchases by executives under this plan were 1,257
shares in fiscal 2007, 811 shares in fiscal 2006, and 5,366 shares in fiscal
2005. At August 25, 2007, 263,037 shares of common stock were reserved for
future issuance under this plan.
Stock
Performance Graph
This
graph shows, from the end of fiscal year 2002 to the end of fiscal year 2007,
changes in the value of $100 invested in each of the following: AutoZone’s
common stock, Standard & Poor’s 500 Composite Index, and a peer group
consisting of other automotive aftermarket retailers.
|
|
Aug-02
|
|
Aug-03
|
|
Aug-04
|
|
Aug-05
|
|
Aug-06
|
|
Aug-07
|
|
AutoZone,
Inc.
|
|
|
100
|
|
|
126.88
|
|
|
104.16
|
|
|
131.93
|
|
|
120.54
|
|
|
170.37
|
|
S&P
500 Index
|
|
|
100
|
|
|
112.07
|
|
|
125.30
|
|
|
138.83
|
|
|
152.05
|
|
|
176.88
|
|
Peer
Group
|
|
|
100
|
|
|
115.32
|
|
|
125.85
|
|
|
164.71
|
|
|
146.05
|
|
|
178.66
|
|
The
peer
group consists of Advance Auto Parts, Inc, CSK Auto Corporation, Genuine Parts
Company, O’Reilly Automotive, Inc., and The Pep Boys-Manny, Moe &
Jack.
Item
6. Selected Financial Data
|
|
Fiscal
Year Ended August
|
|
(in
thousands, except per share data and
selected
operating data)
|
|
2007(1)
|
|
2006(1)
|
|
2005(2)
|
|
2004(3)
|
|
2003(4)
|
|
Income
Statement Data |
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
6,169,804
|
|
$
|
5,948,355
|
|
$
|
5,710,882
|
|
$
|
5,637,025
|
|
$
|
5,457,123
|
|
Cost
of sales, including warehouse and delivery expenses
|
|
|
3,105,554
|
|
|
3,009,835
|
|
|
2,918,334
|
|
|
2,880,446
|
|
|
2,942,114
|
|
Operating,
selling, general and administrative expenses
|
|
|
2,008,984
|
|
|
1,928,595
|
|
|
1,816,884
|
|
|
1,757,873
|
|
|
1,597,212
|
|
Operating
profit
|
|
|
1,055,266
|
|
|
1,009,925
|
|
|
975,664
|
|
|
998,706
|
|
|
917,797
|
|
Interest
expense - net
|
|
|
119,116
|
|
|
107,889
|
|
|
102,443
|
|
|
92,804
|
|
|
84,790
|
|
Income
before income taxes
|
|
|
936,150
|
|
|
902,036
|
|
|
873,221
|
|
|
905,902
|
|
|
833,007
|
|
Income
taxes
|
|
|
340,478
|
|
|
332,761
|
|
|
302,202
|
|
|
339,700
|
|
|
315,403
|
|
Net
income
|
|
$
|
595,672
|
|
$
|
569,275
|
|
$
|
571,019
|
|
$
|
566,202
|
|
$
|
517,604
|
|
Diluted
earnings per share
|
|
$
|
8.53
|
|
$
|
7.50
|
|
$
|
7.18
|
|
$
|
6.56
|
|
$
|
5.34
|
|
Adjusted
weighted average shares for diluted earnings
per share
|
|
|
69,844
|
|
|
75,859
|
|
|
79,508
|
|
|
86,350
|
|
|
96,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
2,270,455
|
|
$
|
2,118,927
|
|
$
|
1,929,459
|
|
$
|
1,755,757
|
|
$
|
1,671,354
|
|
Working
capital (deficit)
|
|
|
(15,439
|
)
|
|
64,359
|
|
|
118,300
|
|
|
4,706
|
|
|
(40,050
|
)
|
Total
assets
|
|
|
4,804,709
|
|
|
4,526,306
|
|
|
4,245,257
|
|
|
3,912,565
|
|
|
3,766,826
|
|
Current
liabilities
|
|
|
2,285,894
|
|
|
2,054,568
|
|
|
1,811,159
|
|
|
1,751,051
|
|
|
1,711,404
|
|
Debt
|
|
|
1,935,618
|
|
|
1,857,157
|
|
|
1,861,850
|
|
|
1,869,250
|
|
|
1,546,845
|
|
Long-term
capital leases
|
|
|
39,073
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stockholders’
equity
|
|
$
|
403,200
|
|
$
|
469,528
|
|
$
|
391,007
|
|
$
|
171,393
|
|
$
|
373,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Operating Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of domestic stores at beginning of year
|
|
|
3,771
|
|
|
3,592
|
|
|
3,420
|
|
|
3,219
|
|
|
3,068
|
|
New
stores
|
|
|
163
|
|
|
185
|
|
|
175
|
|
|
202
|
|
|
160
|
|
Closed
stores
|
|
|
1
|
|
|
6
|
|
|
3
|
|
|
1
|
|
|
9
|
|
Net
new stores
|
|
|
162
|
|
|
179
|
|
|
172
|
|
|
201
|
|
|
151
|
|
Relocated
stores
|
|
|
18
|
|
|
18
|
|
|
7
|
|
|
4
|
|
|
6
|
|
Number
of domestic stores at end of year
|
|
|
3,933
|
|
|
3,771
|
|
|
3,592
|
|
|
3,420
|
|
|
3,219
|
|
Number
of Mexico stores at end of year
|
|
|
123
|
|
|
100
|
|
|
81
|
|
|
63
|
|
|
49
|
|
Number
of total stores at end of year
|
|
|
4,056
|
|
|
3,871
|
|
|
3,673
|
|
|
3,483
|
|
|
3,268
|
|
Total
domestic store square footage (in thousands)
|
|
|
25,135
|
|
|
24,016
|
|
|
22,808
|
|
|
21,689
|
|
|
20,500
|
|
Average
square footage per domestic store
|
|
|
6,391
|
|
|
6,369
|
|
|
6,350
|
|
|
6,342
|
|
|
6,368
|
|
Increase
in domestic store square footage
|
|
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
|
6
|
%
|
|
4
|
%
|
Increase
(decrease) in domestic comparable store net sales(5)
|
|
|
0.1
|
%
|
|
0.4
|
%
|
|
(2.1
|
)%
|
|
0.1
|
%
|
|
3.2
|
%
|
Average
net sales per domestic store (in thousands)
|
|
$
|
1,523
|
|
$
|
1,548
|
|
$
|
1,573
|
|
$
|
1,647
|
|
$
|
1,689
|
|
Average
net sales per domestic store square foot
|
|
$
|
239
|
|
$
|
243
|
|
$
|
248
|
|
$
|
259
|
|
$
|
264
|
|
Total
domestic employees at end of year
|
|
|
54,859
|
|
|
52,677
|
|
|
50,869
|
|
|
48,294
|
|
|
47,727
|
|
Merchandise
under pay-on-scan arrangements (in thousands)
|
|
$
|
22,387
|
|
$
|
92,142
|
|
$
|
151,682
|
|
$
|
146,573
|
|
$
|
—
|
|
Inventory
turnover(6)
|
|
|
1.6x
|
|
|
1.7x
|
|
|
1.8x
|
|
|
1.9x
|
|
|
2.0x
|
|
After-tax
return on invested capital
(7)
|
|
|
22.7
|
%
|
|
22.2
|
%
|
|
23.9
|
%
|
|
25.1
|
%
|
|
23.4
|
%
|
Net
cash provided by operating activities (in thousands)
|
|
$
|
845,194
|
|
$
|
822,747
|
|
$
|
648,083
|
|
$
|
638,379
|
|
$
|
720,807
|
|
Cash
flow before share repurchases and changes in debt (in
thousands)(8)
|
|
$
|
678,522
|
|
$
|
599,507
|
|
$
|
432,210
|
|
$
|
509,447
|
|
$
|
561,563
|
|
Return
on average equity
|
|
|
137
|
%
|
|
132
|
%
|
|
203
|
%
|
|
208
|
%
|
|
97
|
%
|
(1) |
Fiscal
2007 operating results include a $18.5 million pre-tax non-cash expense
for share-based compensation, and fiscal 2006 operating results contain
a
$17.4 million pre-tax non-cash expense for share-based compensation
as a
result of the adoption of SFAS 123 (R) at the beginning of fiscal
2006.
|
(2) |
Fiscal
2005 operating results include a $40.3 million pre-tax non-cash charge
related to lease accounting, which includes the impact on prior years
and
reflects additional amortization of leasehold improvements and additional
rent expense, and a $21.3 million income tax benefit from the repatriation
of earnings from our Mexican operations and other discrete income
tax
items.
|
(3) |
Fiscal
2004 operating results include $42.1 million in pre-tax gains from
warranty negotiations with certain vendors.
|
(4) |
Fiscal
2003 operating results include $8.7 million in pre-tax gains from
warranty
negotiations, a $4.7 million pre-tax gain associated with the settlement
of certain liabilities and the repayment of a note associated with
the
sale of the TruckPro business in December 2001, and a $4.6 million
pre-tax
gain as a result of the disposition of properties associated with
the 2001
restructuring and impairment
charges.
|
(5) |
The
domestic comparable sales increases (decreases) are based on sales
for all
domestic stores open at least one
year.
|
(6) |
Inventory
turnover is calculated as cost of sales divided by the average of
the
beginning and ending recorded merchandise inventories, which excludes
merchandise under pay-on-scan arrangements. The calculation includes
cost
of sales related to pay-on-scan sales, which were $85.4 million for
the 52
weeks ended August 25, 2007, $198.1 million for the 52 weeks ended
August
26, 2006, $234.6 million for the 52 weeks ended August 27, 2005,
and $83.2
million for the 52 weeks ended August 28,
2004.
|
(7) |
After-tax
return on invested capital is calculated as after-tax operating profit
(excluding rent and restructuring and impairment charges) divided
by
average invested capital (which includes a factor to capitalize operating
leases). See Reconciliation of Non-GAAP Financial Measures in Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
(8) |
Cash
flow before share repurchases and changes in debt is calculated as
the
change in cash and cash equivalents less the change in debt plus
treasury
stock purchases. See Reconciliation of Non-GAAP Financial Measures
in
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
|
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of
Operations
We
are
the nation’s leading specialty retailer and a leading distributor of automotive
parts and accessories, with most of our sales to do-it-yourself (“DIY”)
customers. We began operations in 1979 and as of August 25, 2007, operated
3,933
stores in the United States and Puerto Rico, and 123 in Mexico. Each of our
stores carries an extensive product line for cars, sport utility vehicles,
vans
and light trucks, including new and remanufactured automotive hard parts,
maintenance items, accessories and non-automotive products. In many of our
stores we also have a commercial sales program that provides commercial credit
and prompt delivery of parts and other products to local, regional and national
repair garages, dealers and service stations. We also sell the ALLDATA brand
automotive diagnostic and repair software. On the web, we sell diagnostic and
repair information and automotive hard parts, maintenance items, accessories,
and non-automotive products through www.autozone.com. We do not derive revenue
from automotive repair or installation.
Results
of Operations
Fiscal
2007 Compared with Fiscal 2006
For
the
year ended August 25, 2007, AutoZone reported net sales of $6.170 billion
compared with $5.948 billion for the year ended August 26, 2006, a 3.7% increase
from fiscal 2006. This growth was primarily driven by an increase in the number
of open stores. At August 25, 2007, we operated 3,933 domestic stores and 123
in
Mexico, compared with 3,771 domestic stores and 100 in Mexico at August 26,
2006. Domestic retail sales increased 3.4% and domestic commercial sales
decreased 0.4% from prior year. ALLDATA and Mexico sales increased over prior
year, contributing 0.9 percentage points of the total increase in net sales.
Domestic same store sales, or sales for domestic stores open at least one year,
increased 0.1% from the prior year.
Gross
profit for fiscal 2007 was $3.064 billion, or 49.7% of net sales, compared
with
$2.939 billion, or 49.4% of net sales, for fiscal 2006. The improvement in
gross
profit margin was primarily attributable to ongoing category management
initiatives and supply chain efficiencies.
Operating,
selling, general and administrative expenses for fiscal 2007 increased to $2.009
billion, or 32.6% of net sales, from $1.929 billion, or 32.4% of net sales
for
fiscal 2006. The
increase in expenses is driven primarily by higher occupancy cost versus the
prior year.
Interest
expense, net for fiscal 2007 was $119.1 million compared with $107.9 million
during fiscal 2006. This increase was primarily due to higher short term rates
and higher average borrowing levels over the comparable prior year period and
the recognition of interest expense on capital lease obligations that were
accounted for as operating leases prior to a modification to the lease
agreements in fiscal 2007. Average borrowings for fiscal 2007 were $1.972
billion, compared with $1.928 billion for fiscal 2006. Weighted average
borrowing rates were 5.7% at August 25, 2007, compared to 5.5% at August 26,
2006.
Our
effective income tax rate decreased to 36.4% of pre-tax income for fiscal 2007
as compared to 36.9% for fiscal 2006 primarily
due to benefits
from changes in our pre-tax earnings mix and an increase in certain federal
and
state tax credits. Refer
to
"Note D - Income Taxes" for additional information regarding our income tax
rate.
Net
income for fiscal 2007 increased by 4.6% to $595.7 million, and diluted earnings
per share increased by 13.6% to $8.53 from $7.50 in fiscal 2006. The impact
of
the fiscal 2007 stock repurchases on diluted earnings per share in fiscal 2007
was an increase of approximately $0.14.
Fiscal
2006 Compared with Fiscal 2005
For
the
year ended August 26, 2006, AutoZone reported sales of $5.948 billion compared
with $5.711 billion for the year ended August 27, 2005, a 4.2% increase from
fiscal 2005. This growth was primarily driven by an increase in the number
of
open stores. At August 26, 2006, we operated 3,771 domestic stores and 100
in
Mexico, compared with 3,592 domestic stores and 81 in Mexico at August 27,
2005.
Domestic Retail sales increased 4.0% and domestic commercial sales decreased
1.3% from prior year. ALLDATA and Mexico sales increased over prior year,
contributing 0.9 percentage points of the total increase. Same store sales,
or
sales for domestic stores open at least one year, increased 0.4% from the prior
year.
Gross
profit for fiscal 2006 was $2.939 billion, or 49.4% of net sales, compared
with
$2.793 billion, or 48.9% of net sales, for fiscal 2005. The improvement in
gross
profit margin was primarily attributable to ongoing category management
initiatives, partially off-set by increases in certain commodity costs. Our
ongoing category management initiatives have included continued optimization
of
merchandise assortment and pricing, management of procurement costs, and an
increasing focus on direct importing initiatives.
Operating,
selling, general and administrative expenses for fiscal 2006 increased to $1.929
billion, or 32.4% of net sales, from $1.817 billion, or 31.8% of net sales
for
fiscal 2005. Expenses
for fiscal 2005 include a $40.3 million charge related to accounting for leases
(see “Note J - Leases”). Expenses for fiscal 2006 include $17.4 million in
share-based compensation expense resulting from the current year adoption of
Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment”
(see “Note B - Share-Based Payments”). The remaining increase in expenses is
driven by initiatives to improve the customer’s shopping experience and higher
occupancy costs driven largely by the opening of new stores. These initiatives
continue to include expanded hours of operation, enhanced training programs
and
ensuring clean, well-merchandised stores.
Interest
expense, net for fiscal 2006 was $107.9 million compared with $102.4 million
during fiscal 2005. This increase was due to a higher average borrowing rate,
partially offset by lower average borrowing levels. Average borrowings for
fiscal 2006 were $1.928 billion, compared with $1.970 billion for fiscal 2005.
Weighted average borrowing rates were 5.5% at August 26, 2006, compared to
5.2%
at August 27, 2005. The increase in interest rates reflects both the ongoing
effort to extend the terms of our borrowings, as well as the impact from
increased short-term rates.
Our
effective income tax rate increased to 36.9% of pre-tax income for fiscal 2006
as compared to 34.6% for fiscal 2005.
The
fiscal 2005 effective income tax rate reflects $21.3 million in tax benefits
related to the repatriation of Mexican earnings as a result of the American
Jobs
Creation Act of 2004 (see “Note D - Income Taxes”), and other discrete income
tax items.
Net
income for fiscal 2006 decreased by 0.3% to $569.3 million, and diluted earnings
per share increased by 4.5% to $7.50 from $7.18 in fiscal 2005. The impact
of
the fiscal 2006 stock repurchases on diluted earnings per share in fiscal 2006
was an increase of approximately $0.09.
Seasonality
and Quarterly Periods
AutoZone’s
business is somewhat seasonal in nature, with the highest sales occurring in
the
spring and summer months of March through August, in which average weekly
per-store sales historically have been about 15% to 25% higher than in the
slower months of December through February. During short periods of time, a
store’s sales can be affected by weather conditions. Extremely hot or extremely
cold weather may enhance sales by causing parts to fail and spurring sales
of
seasonal products. Mild or rainy weather tends to soften sales as parts failure
rates are lower in mild weather and elective maintenance is deferred during
periods of rainy weather. Over the longer term, the effects of weather balance
out, as we have stores throughout the United States and Mexico.
Each
of
the first three quarters of AutoZone’s fiscal year consists of 12 weeks, and the
fourth quarter consists of 16 weeks. Because the fourth quarter contains the
seasonally high sales volume and consists of 16 weeks, compared with 12 weeks
for each of the first three quarters, our fourth quarter represents a
disproportionate share of the annual net sales and net income. The fourth
quarter of fiscal 2007 represented 32.5% of annual sales and 36.5% of net
income; the fourth quarter of fiscal 2006 represented 32.6% of annual sales
and
37.5% of net income; and the fourth quarter of fiscal 2005 represented 33.0%
of
annual sales and 36.2% of net income.
Liquidity
and Capital Resources
Net
cash
provided by operating activities was $845.2 million in fiscal 2007, $822.7
million in fiscal 2006, and $648.1 million in fiscal 2005. The primary source
of
our liquidity is our cash flows realized through the sale of automotive parts
and accessories. Our new store development program requires working capital,
predominantly for inventories. During the past three fiscal years, we have
maintained an accounts payable to inventory ratio of 93% at August 25, 2007,
92%
at August 26, 2006, and 93% at August 27, 2005. The increase in merchandise
inventories, required to support new store development and sales growth, has
largely been financed by our vendors, as evidenced by our accounts payable
to
inventory ratio. Contributing to this ratio is the use of pay-on-scan (“POS”)
arrangements with certain vendors. Under a POS arrangement, AutoZone will not
purchase merchandise supplied by a vendor until that merchandise is ultimately
sold to AutoZone’s customers. Upon the sale of the merchandise to AutoZone’s
customers, AutoZone recognizes the liability for the goods and pays the vendor
in accordance with the agreed-upon terms. Revenues under POS arrangements are
included in net sales in the income statement. Since we do not own merchandise
under POS arrangements until just before it is sold to a customer, such
merchandise is not included in our balance sheet. Merchandise under POS
arrangements was $22.4 million at August 25, 2007.
AutoZone’s
primary capital requirement has been the funding of its continued new store
development program. From the beginning of fiscal 2005 to August 25, 2007,
we
have opened 573 net new stores. Net cash flows used in investing activities
were
$228.7 million in fiscal 2007, compared to $268.3 million in fiscal 2006 and
$282.8 million in fiscal 2005. We invested $224.5 million in capital assets
in
fiscal 2007, compared to $263.6 million in capital assets in fiscal 2006 and
$283.5 million in fiscal 2005. New store openings were 186 for fiscal 2007,
204
for fiscal 2006, and 193 for fiscal 2005. During fiscal 2006, we began investing
a portion of our assets held by the Company’s wholly owned insurance captive in
marketable securities. We acquired $94.6 million of marketable securities in
fiscal 2007 and acquired $160.0 million in fiscal 2006. We had proceeds from
matured marketable securities of $86.9 million in fiscal 2007 and $145.4 million
in fiscal 2006. Capital asset disposals provided $3.5 million in fiscal 2007,
$9.8 million in fiscal 2006, and $3.8 million for fiscal 2005.
Net
cash
used in financing activities was $621.4 million in fiscal 2007, $537.7 million
in fiscal 2006, and $367.4 million in fiscal 2005. The net cash used in
financing activities is primarily attributable to purchases of treasury stock
which totaled $761.9 million for fiscal 2007, $578.1 million for fiscal 2006,
and $426.9 million for fiscal 2005. The treasury stock purchases in fiscal
2007,
2006 and 2005 were primarily funded by cash flow from operations, and at times,
by increases in debt levels.
We
expect
to invest in our business consistent with historical rates during fiscal 2008,
primarily related to our new store development program and enhancements to
existing stores and systems. In addition to the building and land costs, our
new
store development program requires working capital, predominantly for
inventories. Historically, we have negotiated extended payment terms from
suppliers, reducing the working capital required. We believe that we will be
able to continue to finance much of our inventory requirements through favorable
payment terms from suppliers.
Depending
on the timing and magnitude of our future investments (either in the form of
leased or purchased properties or acquisitions), we anticipate that we will
rely
primarily on internally generated funds and available borrowing capacity to
support a majority of our capital expenditures, working capital requirements
and
stock repurchases. The balance may be funded through new borrowings. We
anticipate that we will be able to obtain such financing in view of our credit
rating and favorable experiences in the debt markets in the past.
Credit
Ratings
At
August
25, 2007, AutoZone had a senior unsecured debt credit rating from Standard
&
Poor’s of BBB+ and a commercial paper rating of A-2. Moody’s Investors Service
had assigned us a senior unsecured debt credit rating of Baa2 and a commercial
paper rating of P-2. As of August 25, 2007, Moody’s and Standard & Poor’s
had AutoZone listed as having a “stable” outlook. If our credit ratings drop,
our interest expense may increase; similarly, we anticipate that our interest
expense may decrease if our investment ratings are raised. If our commercial
paper ratings drop below current levels, we may have difficulty continuing
to
utilize the commercial paper market and our interest expense will increase,
as
we will then be required to access more expensive bank lines of credit. If
our
senior unsecured debt ratings drop below investment grade, our access to
financing may become more limited.
Debt
Facilities
We
maintain $1.0 billion of revolving credit facilities with a group of banks
to
primarily support commercial paper borrowings, letters of credit and other
short-term unsecured bank loans. These facilities expire in May 2010, may be
increased to $1.3 billion at AutoZone’s election, may include up to $200 million
in letters of credit, and may include up to $100 million in capital leases.
As
the available balance is reduced by commercial paper borrowings and certain
outstanding letters of credit, the Company had $680.2 million in available
capacity under these facilities at August 25, 2007. The rate of interest payable
under the credit facilities is a function of Bank of America’s base rate or a
Eurodollar rate (each as defined in the facility agreements), or a combination
thereof.
Our
$300.0 million bank term loan entered in December 2004 was amended in April
2006
to have similar terms and conditions as the $1.0 billion credit facilities,
but
with a December 2009 maturity, and was further amended in August 2007 to reduce
the interest rate on Euro-dollar loans. That credit agreement with a group
of
banks provides for a term loan, which consists of, at our election, base rate
loans, Eurodollar loans or a combination thereof. The interest accrues on base
rate loans at a base rate per annum equal to the higher of the prime rate or
the
Federal Funds Rate plus 1/2 of 1%. Interest accrues on Eurodollar loans at
a
defined Eurodollar rate plus the applicable percentage, which can range from
30
basis points to 90 basis points, depending upon our senior unsecured (non-credit
enhanced) long-term debt rating. Based on our ratings at August 25, 2007, the
applicable percentage on Eurodollar loans is 35 basis points. We may select
interest periods of one, two, three or six months for Eurodollar loans, subject
to availability. Interest is payable at the end of the selected interest period,
but no less frequently than quarterly. We entered into an interest rate swap
agreement on December 29, 2004, to effectively fix, based on current debt
ratings, the interest rate of the term loan at 4.4%. We have the option to
extend loans into subsequent interest period(s) or convert them into loans
of
another interest rate type. The entire unpaid principal amount of the term
loan
will be due and payable in full on December 23, 2009, when the facility
terminates. We may prepay the term loan in whole or in part at any time without
penalty, subject to reimbursement of the lenders’ breakage and redeployment
costs in the case of prepayment of Eurodollar borrowings.
During
April 2006, our $150.0 million Senior Notes maturing at that time were repaid
with an increase in commercial paper. On June 8, 2006, we issued
$200.0 million in 6.95% Senior Notes due 2016 under our existing shelf
registration statement filed with the Securities and Exchange Commission on
August 17, 2004. That shelf registration allowed us to sell up to $300
million in debt securities to fund general corporate purposes, including
repaying, redeeming or repurchasing outstanding debt, and for working capital,
capital expenditures, new store openings, stock repurchases and acquisitions.
The remainder of the shelf registration was cancelled in February, 2007.
Our
borrowings under our Senior Notes arrangements contain minimal covenants,
primarily restrictions on liens. Under our other borrowing arrangements,
covenants include limitations on total indebtedness, restrictions on liens,
a
minimum fixed charge coverage ratio and a provision where repayment obligations
may be accelerated if AutoZone experiences a change in control (as defined
in
the agreements). All of the repayment obligations under our borrowing
arrangements may be accelerated and come due prior to the scheduled payment
date
if covenants are breached or an event of default occurs. As of August 25, 2007,
we were in compliance with all covenants and expect to remain in compliance
with
all covenants.
Stock
Repurchases
During
1998, the Company announced a program permitting the Company to repurchase
a
portion of its outstanding shares not to exceed a dollar maximum established
by
the Company’s Board of Directors. The program was most recently amended in June
2007 to increase the repurchase authorization to $5.9 billion from $5.4 billion.
From January 1998 to August 25, 2007, the Company has repurchased a total of
99.3 million shares at an aggregate cost of $5.4 billion. The Company
repurchased 6.0 million shares of its common stock at an aggregate cost of
$761.9 million during fiscal 2007, 6.2 million shares of its common stock at
an
aggregate cost of $578.1 million during fiscal 2006, and 4.8 million shares
of
its common stock at an aggregate cost of $426.9 million during fiscal
2005.
Financial
Commitments
The
following table shows AutoZone’s significant contractual obligations as of
August 25, 2007:
|
|
Total
|
|
Payment
Due by Period
|
|
|
|
Contractual
|
|
Less
than
|
|
Between
|
|
Between
|
|
Over
5
|
|
(in
thousands)
|
|
Obligations
|
|
1
year
|
|
1-3
years
|
|
4-5
years
|
|
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt (1)
|
|
$
|
1,935,618
|
|
$
|
435,618
|
|
$
|
300,000
|
|
$
|
200,000
|
|
$
|
1,000,000
|
|
Interest
payments (2)
|
|
|
500,707
|
|
|
96,988
|
|
|
154,506
|
|
|
118,300
|
|
|
130,913
|
|
Operating
leases (3)
|
|
|
1,312,252
|
|
|
171,163
|
|
|
291,970
|
|
|
214,984
|
|
|
634,135
|
|
Capital
leases (4)
|
|
|
62,510
|
|
|
16,015
|
|
|
28,928
|
|
|
17,567
|
|
|
—
|
|
Self-insurance
reserves (5)
|
|
|
141,815
|
|
|
45,727
|
|
|
45,283
|
|
|
22,415
|
|
|
28,390
|
|
Construction
obligations
|
|
|
23,804
|
|
|
23,804
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
3,976,706
|
|
$
|
789,315
|
|
$
|
820,687
|
|
$
|
573,266
|
|
$
|
1,793,438
|
|
(1) |
Long-term
debt balances represent principal maturities, excluding interest.
At
August 25, 2007, debt balances due
in less than one year of $435.6 million are classified as long-term
in our
consolidated financial statements, as
we have the ability and intent to refinance them on a long-term
basis.
|
(2) |
Represents
obligations for interest payments on long-term debt, including the
effect
of interest rate hedges.
|
(3) |
Operating
lease obligations include related interest and are inclusive of amounts
accrued within deferred rent and closed store obligations reflected
in our
consolidated balance sheets.
|
(4) |
Capital
lease obligations include related
interest.
|
(5) |
The
Company retains a significant portion of the risks associated with
workers
compensation, employee health, general and product liability, property,
and automotive insurance. These amounts represent undiscounted estimates
based on actuarial calculations. Although these obligations do not
have
scheduled maturities , the timing of future payments are predictable
based
upon historical patterns. Accordingly, the Company reflects the net
present value of these obligations in its consolidated balance
sheets.
|
We
have
other obligations reflected in our balance sheet that are not reflected in
the
table above due to the absence of scheduled maturities or due to the nature
of
the account. Therefore, the timing of these payments cannot be determined,
except for amounts estimated to be payable in 2008 that are included in current
liabilities.
We
have
certain contingent liabilities that are not accrued in our balance sheet in
accordance with accounting principles generally accepted in the United States.
These contingent liabilities are not included in the table above.
Off-Balance
Sheet Arrangements
The
following table reflects outstanding letters of credit and surety bonds as
of
August 25, 2007.
(in
thousands)
|
|
Total
Other
Commitments
|
|
Standby
letters of credit
|
|
$
|
113,305
|
|
Surety
bonds
|
|
|
11,286
|
|
|
|
$
|
124,591
|
|
A
substantial portion of the outstanding standby letters of credit (which are
primarily renewed on an annual basis) and surety bonds are used to cover
reimbursement obligations to our workers’ compensation carriers. There are no
additional contingent liabilities associated with them as the underlying
liabilities are already reflected in our consolidated balance sheet. The standby
letters of credit and surety bonds arrangements expire within one year, but
have
automatic renewal clauses.
In
conjunction with our commercial sales program, we offer credit to some of our
commercial customers. The majority of our receivables related to the credit
program are sold to a third party at a discount for cash with limited recourse.
AutoZone has recorded a reserve for this recourse. At August 25, 2007, the
receivables facility had an outstanding balance of $55.3 million and the balance
of the recourse reserve was $1.8 million.
We
have
entered into POS arrangements with certain vendors, whereby we will not purchase
merchandise supplied by a vendor until just before that merchandise is
ultimately sold to our customers. Title and certain risks of ownership remain
with the vendor until the merchandise is sold to our customers. Since we do
not
own merchandise under POS arrangements until just before it is sold to a
customer, such merchandise is not recorded on our balance sheet. Upon the sale
of the merchandise to our customers, we recognize the liability for the goods
and pay the vendor in accordance with the agreed-upon terms. Although we do
not
hold title to the goods, we do control pricing and have credit collection risk
and therefore, gross revenues under POS arrangements are included in net sales
in the income statement. Sales
of
merchandise under POS arrangements approximated $170.0 million in fiscal 2007,
$390.0 million in fiscal 2006, and $460.0 million in fiscal 2005. Merchandise
under POS arrangements was $22.4 million at August 25, 2007 and $92.1 million
at
August 26, 2006.
Value
of Pension Assets
At
August
25, 2007, the fair market value of AutoZone’s pension assets was $161.2 million,
and the related accumulated benefit obligation was $161.1 million based on
a May
31, 2007 measurement date. On January 1, 2003, our defined benefit pension
plans
were frozen. Accordingly, plan participants earn no new benefits under the
plan
formulas, and no new participants may join the plans. The material assumptions
for fiscal 2007 are an expected long-term rate of return on plan assets of
8.0%
and a discount rate of 6.25%. For additional information regarding AutoZone’s
qualified and non-qualified pension plans refer to “Note I - Pensions and
Savings Plans” in the accompanying Notes to Consolidated Financial
Statements.
Reconciliation
of Non-GAAP Financial Measures
“Selected
Financial Data” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” include certain financial measures not derived in
accordance with generally accepted accounting principles (“GAAP”). These
non-GAAP financial measures provide additional information for determining
our
optimum capital structure and are used to assist management in evaluating
performance and in making appropriate business decisions to maximize
stockholders’ value.
Non-GAAP
financial measures should not be used as a substitute for GAAP financial
measures, or considered in isolation, for the purpose of analyzing our operating
performance, financial position or cash flows. However, we have presented the
non-GAAP financial measures, as we believe they provide additional information
to analyze or compare our operations. Furthermore, our management and
Compensation Committee of the Board of Directors use the abovementioned non-GAAP
financial measures to analyze and compare our underlying operating results
and
to determine payments of performance-based compensation. We have included a
reconciliation of this information to the most comparable GAAP measures in
the
following reconciliation tables.
Reconciliation
of Non-GAAP Financial Measure: Cash Flow Before Share Repurchases
and Changes in Debt
The
following table reconciles net increase (decrease) in cash and cash equivalents
to cash flow before share repurchases and changes in debt, which is presented
in
the “Selected Financial Data”.
|
|
Fiscal
Year Ended August
|
|
(in
thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
(4,904
|
)
|
$
|
16,748
|
|
$
|
(2,042
|
)
|
$
|
(16,250
|
)
|
$
|
22,796
|
|
Less:
Increase (decrease) in debt
|
|
|
78,461
|
|
|
(4,693
|
)
|
|
(7,400
|
)
|
|
322,405
|
|
|
352,328
|
|
Less:
Share repurchases
|
|
|
(761,887
|
)
|
|
(578,066
|
)
|
|
(426,852
|
)
|
|
(848,102
|
)
|
|
(891,095
|
)
|
Cash
flow before share repurchases and changes
in debt
|
|
$
|
678,522
|
|
$
|
599,507
|
|
$
|
432,210
|
|
$
|
509,447
|
|
$
|
561,563
|
|
Reconciliation
of Non-GAAP Financial Measure: After-Tax Return on Invested Capital
The
following table reconciles the percentages of after-tax return on invested
capital, or “ROIC.” After-tax return on invested capital is calculated as
after-tax operating profit (excluding rent) divided by average invested capital
(which includes a factor to capitalize operating leases). The ROIC percentages
are presented in the “Selected Financial Data.”
(in
thousands, except percentage data)
|
|
Fiscal
Year Ended August
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Net
income
|
|
$
|
595,672
|
|
$
|
569,275
|
|
$
|
571,019
|
|
$
|
566,202
|
|
$
|
517,604
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax
interest
|
|
|
75,793
|
|
|
68,089
|
|
|
65,533
|
|
|
58,003
|
|
|
52,686
|
|
After-tax
rent
|
|
|
97,050
|
|
|
90,808
|
|
|
96,367
|
|
|
73,086
|
|
|
68,764
|
|
After-tax
return
|
|
$
|
768,515
|
|
$
|
728,172
|
|
$
|
732,919
|
|
$
|
697,291
|
|
$
|
639,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
debt (1)
|
|
$
|
1,955,652
|
|
$
|
1,909,011
|
|
$
|
1,969,639
|
|
$
|
1,787,307
|
|
$
|
1,484,987
|
|
Average
equity (2)
|
|
|
478,853
|
|
|
510,657
|
|
|
316,639
|
|
|
292,802
|
|
|
580,176
|
|
Rent
x 6 (3)
|
|
|
915,138
|
|
|
863,328
|
|
|
774,706
|
|
|
701,621
|
|
|
663,990
|
|
Average
capital lease obligations (4)
|
|
|
30,538
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Pre-tax
invested capital
|
|
$
|
3,380,181
|
|
$
|
3,282,996
|
|
$
|
3,060,984
|
|
$
|
2,781,730
|
|
$
|
2,729,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROIC
|
|
|
22.7
|
%
|
|
22.2
|
%
|
|
23.9
|
%
|
|
25.1
|
%
|
|
23.4
|
%
|
(1) |
Average
debt is equal to the average of our long-term debt measured at the
end of
the prior fiscal year and each of the 13 fiscal periods in the current
fiscal year. Long-term debt (in thousands) was $1,194,517 at August
31,
2002.
|
(2) |
Average
equity is equal to the average of our stockholders’ equity measured at the
end of the prior fiscal year and each of the 13 fiscal periods of
the
current fiscal year. Stockholders’ equity (in thousands) was $689,127 at
August 31, 2002.
|
(3) |
Rent
is multiplied by a factor of six to capitalize operating leases in
the
determination of pre-tax invested capital. This calculation excludes
the
impact from the cumulative lease accounting adjustments recorded
in the
second quarter of fiscal 2005.
|
(4) |
Average
of the capital lease obligations relating to vehicle capital leases
entered into at the beginning of fiscal 2007 is computed as the average
over the trailing 13 periods. Rent expense associated with the vehicles
prior to the conversion to capital leases is included in the rent
for
purposes of calculating return on invested
capital.
|
Recent
Accounting Pronouncements
The
Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN 48”) in June 2006. The
interpretation clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with SFAS No. 109, “Accounting
for Income Taxes.” FIN 48 will be effective for our fiscal year beginning August
26, 2007. The Company has not determined the effect, if any, that the adoption
of FIN 48 will have on the Company’s financial position and results of
operations.
In
September 2006, the FASB issued FASB Statement No. 157, “Fair Value
Measurements” (“SFAS 157”). This new standard defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. SFAS 157 will
be
effective for AutoZone in fiscal 2009. The Company is still in the process
of
evaluating the impact, if any, that SFAS 157 will have on the Company’s
financial position and results of operations.
On
September 29, 2006, the FASB issued FASB Statement No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans -- An
Amendment of FASB Statements No. 87, 88, 106, and 132R ("SFAS 158"). This new
standard requires an employer to: (a) recognize in its statement of financial
position an asset for a plan's overfunded status or a liability for a plan's
underfunded status; (b) measure a plan's assets and its obligations that
determine its funded status as of the end of the employer's fiscal year (with
limited exceptions); and (c) recognize changes in the funded status of a defined
benefit postretirement plan in the year in which the changes occur. Those
changes will be reported in comprehensive income. We adopted the recognition
and
disclosure provisions of SFAS 158 during 2007 and will adopt the measurement
date provisions in 2009. Please refer to Note I (Pension and Savings Plan)
for
further description of this adoption.
In
February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS 159”). This new standard
permits entities to choose to measure many financial instruments and certain
other items at fair value. SFAS 159 will be effective for AutoZone in fiscal
2009. The Company is still in the process of evaluating the impact, if any,
that
it will have on the Company’s financial position and results of operations.
Critical
Accounting Policies
Preparation
of our consolidated financial statements requires us to make estimates and
assumptions affecting the reported amounts of assets and liabilities at the
date
of the financial statements, reported amounts of revenues and expenses during
the reporting period and related disclosures of contingent liabilities. In
the
Notes to Consolidated Financial Statements, we describe our significant
accounting policies used in preparing the consolidated financial statements.
Our
policies are evaluated on an ongoing basis and are drawn from historical
experience and other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ under different assumptions or
conditions. Our senior management has identified the critical accounting
policies for the areas that are materially impacted by estimates and assumptions
and have discussed such policies with the Audit Committee of our Board of
Directors. The following items in our consolidated financial statements require
significant estimation or judgment:
Inventory
and Cost of Sales
We
state
our inventories at the lower of cost or market using the last-in, first-out
(“LIFO”) method. Included in inventory are related purchasing, storage and
handling costs. Due to price deflation on the Company’s merchandise purchases,
the Company’s inventory balances are effectively maintained under the first-in,
first-out method as the Company’s policy is not to write up inventory for
favorable LIFO adjustments, resulting in cost of sales being reflected at the
higher amount. Since inventory value is adjusted regularly to reflect market
conditions, our inventory methodology reflects the lower of cost or market.
The
nature of our inventory is such that the risk of obsolescence is minimal and
excess inventory has historically been returned to our vendors for credit.
We
provide reserves where less than full credit will be received for such returns
and where we anticipate that items will be sold at retail prices that are less
than recorded costs. Additionally, we reduce inventory for estimated losses
related to shrinkage. Our shrink estimate is based on historical losses verified
by ongoing physical inventory counts.
Vendor
Allowances
AutoZone
receives various payments and allowances from its vendors based on the volume
of
purchases or for services that AutoZone provides to the vendors. Monies received
from vendors include rebates, allowances and promotional funds. The amounts
to
be received are subject to purchase volumes and the terms of the vendor
agreements, which generally do not state an expiration date, but are subject
to
ongoing negotiations that may be impacted in the future based on changes in
market conditions, vendor marketing strategies and changes in the profitability
or sell-through of the related merchandise. The Company’s level of advertising
and other operating, selling, general and administrative expenditures are not
dependent on vendor allowances.
Rebates
and other miscellaneous incentives are earned based on purchases or product
sales and are accrued ratably over the purchase or sale of the related product,
but only if it is reasonably certain that the required volume levels will be
reached. These monies are recorded as a reduction of inventories and are
recognized as a reduction to cost of sales as the related inventories are
sold.
For
all
allowances and promotional funds earned under vendor funding, the Company
applies the guidance pursuant to the Emerging Issues Task Force Issue No. 02-16,
“Accounting by a Customer (Including a Reseller) for Cash Consideration Received
from a Vendor” (“EITF 02-16”), by recording the vendor funds as a reduction of
inventories that are recognized as a reduction to cost of sales as the
inventories are sold. The Company’s vendor funding arrangements do not provide
for any reimbursement arrangements that are for specific, incremental,
identifiable costs that are permitted under EITF 02-16 for the funding to be
recorded as a reduction to advertising or other operating, selling, general
and
administrative expenses.
Impairments
In
accordance with the provisions of Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), we evaluate the recoverability of the carrying amounts of long-lived
assets, such as property and equipment, covered by this standard annually and
more frequently if events or changes in circumstances dictate that the carrying
value may not be recoverable. As part of the evaluation, we review performance
at the store level to identify any stores with current period operating losses
that should be considered for impairment. We compare the sum of the undiscounted
expected future cash flows with the carrying amounts of the assets.
Under
the
provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and
Other Intangible Assets” (“SFAS 142”), we perform an annual test of goodwill to
compare the estimated fair value of goodwill to the carrying amount to determine
if any impairment exists. We perform the annual impairment assessment in the
fourth quarter of each fiscal year, unless circumstances dictate more frequent
assessments.
If
impairments are indicated by either of the above evaluations, the amount by
which the carrying amount of the assets exceeds the fair value of the assets
is
recognized as an impairment loss. Such evaluations require management to make
certain assumptions based upon information available at the time the evaluation
is performed, which could differ from actual results.
Self-Insurance
We
retain
a significant portion of the risks associated with workers’ compensation,
vehicle, employee health, general and product liability and property losses.
Liabilities associated with these losses include estimates of both claims filed
and losses incurred but not yet reported. Through various methods, which include
analyses of historical trends and utilization of actuaries, the Company
estimates the costs of these risks. The actuarial estimated long-term portions
of these liabilities are recorded at our estimate of their net present value;
other liabilities are not discounted. We believe the amounts accrued are
adequate, although actual losses may differ from the amounts provided. We
maintain stop-loss coverage to limit the exposure related to certain
risks.
Income
Taxes
We
accrue
and pay income taxes based on the tax statutes, regulations and case law of
the
various jurisdictions in which we operate. Income tax expense involves
management judgment as to the ultimate resolution of any tax matters in dispute
with state, federal and foreign tax authorities. Management believes the
resolution of the current open tax issues will not have a material impact on
our
consolidated financial statements.
Litigation
and Other Contingent Liabilities
We
have
received claims related to and been notified that we are a defendant in a number
of legal proceedings resulting from our business, such as employment matters,
product liability claims and general liability claims related to our store
premises. We calculate contingent loss accruals using our best estimate of
our
probable and reasonably estimable contingent liabilities.
Pension
Obligation
Prior
to
January 1, 2003, substantially all full-time employees were covered by a defined
benefit pension plan. The benefits under the plan were based on years of service
and the employee’s highest consecutive five-year average compensation. On
January 1, 2003, the plan was frozen. Accordingly, pension plan participants
will earn no new benefits under the plan formula and no new participants will
join the pension plan. On January 1, 2003, the Company’s supplemental defined
benefit pension plan for certain highly compensated employees was also frozen.
Accordingly, plan participants will earn no new benefits under the plan formula
and no new participants will join the pension plan. As the plan benefits are
frozen, the annual pension expense and recorded liabilities are not impacted
by
increases in future compensation levels, but are impacted by actuarial
calculations using two key assumptions:
i.
Expected long-term rate of return on plan assets:
estimated by considering the composition of our asset portfolio, our historical
long-term investment performance and current market conditions.
ii.
Discount rate used to determine benefit obligations:
adjusted
annually based on the interest rate for long-term high-quality corporate bonds
as of the measurement date (May 31) using yields for maturities that are in
line
with the duration of our pension liabilities. This same discount rate is also
used to determine pension expense for the following plan year. If such
assumptions differ materially from actual experience, the impact could be
material to our financial statements.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
AutoZone
is exposed to market risk from, among other things, changes in interest rates,
foreign exchange rates and fuel prices. From time to time, we use various
financial instruments to reduce interest rate and fuel price risks. To date,
based upon our current level of foreign operations, hedging costs and past
changes in the associated foreign exchange rates, no derivative instruments
have
been utilized to reduce foreign exchange rate risk. All of our hedging
activities are governed by guidelines that are authorized by our Board of
Directors. Further, we do not buy or sell financial instruments for trading
purposes.
Interest
Rate Risk
AutoZone’s
financial market risk results primarily from changes in interest rates. At
times, we reduce our exposure to changes in interest rates by entering into
various interest rate hedge instruments such as interest rate swap contracts,
treasury lock agreements and forward-starting interest rate swaps.
AutoZone
has historically utilized interest rate swaps to convert variable rate debt
to
fixed rate debt and to lock in fixed rates on future debt issuances. We reflect
the current fair value of all interest rate hedge instruments in our
consolidated balance sheets as a component of other assets. All of the Company’s
interest rate hedge instruments are designated as cash flow hedges. We had
an
outstanding interest rate swap with a fair value of $5.8 million at August
25,
2007, and $10.2 million at August 26, 2006, to effectively fix the interest
rate
on the $300.0 million term loan entered into during December 2004.
The
related gains and losses on interest rate hedges are deferred in stockholders’
equity as a component of other comprehensive income or loss. These deferred
gains and losses are recognized in income as a decrease or increase to interest
expense in the period in which the related cash flows being hedged are
recognized in expense. However, to the extent that the change in value of an
interest rate hedge instrument does not perfectly offset the change in the
value
of the cash flow being hedged, that ineffective portion is immediately
recognized in income. The Company’s hedge instrument was determined to be highly
effective as of August 25, 2007.
The
fair
value of our debt was estimated at $1.928 billion as of August 25, 2007, and
$1.825 billion as of August 26, 2006, based on the quoted market prices for
the
same or similar debt issues or on the current rates available to AutoZone for
debt having the same remaining maturities. Such fair value is less than the
carrying value of debt by $7.6 million at August 25, 2007, and less than the
carrying value of debt by $32.3 million at August 26, 2006. Considering the
effect of any interest rate swaps designated and effective as cash flow hedges,
we had $245.6 million of variable rate debt outstanding at August 25, 2007,
and
$167.2 million of variable rate debt outstanding at August 26, 2006. At these
borrowing levels for variable rate debt, a one percentage point increase in
interest rates would have had an unfavorable impact on our pre-tax earnings
and
cash flows of $2.5 million in 2007 and $1.7 million in 2006, which includes
the
effects of interest rate swaps. The primary interest rate exposure on variable
rate debt is based on LIBOR. Considering the effect of any interest rate swaps
designated and effective as cash flow hedges, we had outstanding fixed rate
debt
of $1.690 billion at August 25, 2007, and at August 26, 2006. A one percentage
point increase in interest rates would reduce the fair value of our fixed rate
debt by $60.8 million at August 25, 2007, and $68.3 million at August 26,
2006.
Fuel
Price Risk
Fuel
swap
contracts that we utilize have not previously been designated as hedging
instruments under the provisions of SFAS 133 and thus do not qualify for hedge
accounting treatment, although the instruments were executed to economically
hedge a portion of our diesel fuel and unleaded fuel exposure. As of August
25,
2007, the then current month’s fuel swap contract was outstanding with a
settlement date of August 31, 2007. During fiscal 2007 and 2005, we entered
into
fuel swaps to economically hedge a portion of our diesel fuel exposure. These
swaps were settled within a few days of each fiscal year end and had no
significant impact on cost of sales for the 2007 or 2005 fiscal years. We did
not enter into any fuel swap contracts during fiscal 2006.
Item
8. Financial Statements and Supplementary Data
Index
Management’s
Report on Internal Control Over Financial Reporting
|
|
|
30
|
|
Reports
of Independent Registered Public Accounting Firm
|
|
|
31
|
|
Consolidated
Statements of Income
|
|
|
33
|
|
Consolidated
Balance Sheets
|
|
|
34
|
|
Consolidated
Statements of Cash Flows
|
|
|
35
|
|
Consolidated
Statements of Stockholders’ Equity
|
|
|
36
|
|
Notes
to Consolidated Financial Statements
|
|
|
37
|
|
Quarterly
Summary (unaudited)
|
|
|
56
|
|
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended). Our internal control
over financial reporting includes, among other things, defined policies and
procedures for conducting and governing our business, sophisticated information
systems for processing transactions and properly trained staff. Mechanisms
are
in place to monitor the effectiveness of our internal control over financial
reporting, including regular testing performed by the Company’s internal audit
team, which is comprised of both Deloitte & Touche LLP professionals and
Company personnel. Actions are taken to correct deficiencies as they are
identified. Our procedures for financial reporting include the active
involvement of senior management, our Audit Committee and a staff of highly
qualified financial and legal professionals.
Management,
with the participation of our principal executive and financial officers,
assessed our internal control over financial reporting as of August 25, 2007,
the end of our fiscal year. Management based its assessment on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Based
on
this assessment, management has concluded that our internal control over
financial reporting was effective as of August 25, 2007.
Our
independent registered public accounting firm, Ernst & Young LLP, audited
the effectiveness of our internal control over financial reporting. Ernst &
Young has issued their report concurring with management’s assessment, which is
included in this Annual Report.
Certifications
Compliance
with NYSE Corporate Governance Listing Standards
On
January 12, 2007, the Company submitted to the New York Stock Exchange the
Annual CEO Certification required pursuant to Section 303A.12(a) of the New
York
Stock Exchange Listed Company Manual.
Rule
13a-14(a) Certifications of Principal Executive Officer and Principal Financial
Officer
The
Company has filed, as exhibits to its Annual Report on Form 10-K for the fiscal
year ended August 25, 2007, the certifications of its Principal Executive
Officer and Principal Financial Officer required pursuant to Section 302 of
the
Sarbanes-Oxley Act of 2004.
Report
of Independent Registered Public Accounting Firm
The
Board of Directors and Stockholders of AutoZone, Inc.
We
have
audited AutoZone, Inc.’s internal control over financial reporting as of August
25, 2007, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). AutoZone, Inc.’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment
of
the effectiveness of internal control over financial reporting included in
the
accompanying Management’s Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the company’s internal control
over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, AutoZone, Inc. maintained, in all material respects, effective internal
control over financial reporting as of August 25, 2007, based on the
COSO
criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of AutoZone,
Inc. as of August 25, 2007 and August 26, 2006 and the related consolidated
statements of income, stockholders’ equity, and cash flows for each of the three
years in the period ended August 25, 2007 of AutoZone, Inc. and our report
dated
October 19, 2007 expressed an unqualified opinion thereon.
/s/
Ernst
& Young LLP
Memphis,
Tennessee
October
19, 2007
Report
of Independent Registered Public Accounting Firm
The
Board of Directors and Stockholders of AutoZone, Inc.
We
have
audited the accompanying consolidated balance sheets of AutoZone, Inc. as of
August 25, 2007 and August 26, 2006 and the related consolidated statements
of
income, stockholders' equity, and cash flows for each of the three years in
the
period ended August 25, 2007. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of AutoZone, Inc. as
of
August 25, 2007 and August 26, 2006, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
August 25, 2007, in conformity with U.S. generally accepted accounting
principles.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of AutoZone, Inc.’s internal
control over financial reporting as of August 25, 2007, based on criteria
established in Internal Control-Integrated Framework issued by the Committee
of
Sponsoring Organizations of the Treadway Commission and our report dated October
19, 2007 expressed an unqualified opinion thereon.
/s/
Ernst
& Young LLP
Memphis,
Tennessee
October
19, 2007
Consolidated
Statements of Income
|
|
Year
Ended
|
|
(in
thousands, except per share data)
|
|
August
25,
2007
(52
Weeks)
|
|
August
26,
2006
(52
Weeks)
|
|
August
27,
2005
(52
Weeks)
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
6,169,804
|
|
$
|
5,948,355
|
|
$
|
5,710,882
|
|
Cost
of sales, including warehouse and delivery expenses
|
|
|
3,105,554
|
|
|
3,009,835
|
|
|
2,918,334
|
|
Operating,
selling, general and administrative expenses
|
|
|
2,008,984
|
|
|
1,928,595
|
|
|
1,816,884
|
|
Operating
profit
|
|
|
1,055,266
|
|
|
1,009,925
|
|
|
975,664
|
|
Interest
expense, net
|
|
|
119,116
|
|
|
107,889
|
|
|
102,443
|
|
Income
before income taxes
|
|
|
936,150
|
|
|
902,036
|
|
|
873,221
|
|
Income
taxes
|
|
|
340,478
|
|
|
332,761
|
|
|
302,202
|
|
Net
income
|
|
$
|
595,672
|
|
$
|
569,275
|
|
$
|
571,019
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares for basic earnings per share
|
|
|
69,101
|
|
|
75,237
|
|
|
78,530
|
|
Effect
of dilutive stock equivalents
|
|
|
743
|
|
|
622
|
|
|
978
|
|
Adjusted
weighted average shares for diluted earnings per share
|
|
|
69,844
|
|
|
75,859
|
|
|
79,508
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
8.62
|
|
$
|
7.57
|
|
$
|
7.27
|
|
Diluted
earnings per share
|
|
$
|
8.53
|
|
$
|
7.50
|
|
$
|
7.18
|
|
See
Notes to Consolidated Financial Statements.
Consolidated
Balance Sheets
(in
thousands, except per share data)
|
|
August
25,
2007
|
|
August
26,
2006
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
86,654
|
|
$
|
91,558
|
|
Accounts
receivable
|
|
|
59,876
|
|
|
80,363
|
|
Merchandise
inventories
|
|
|
2,007,430
|
|
|
1,846,650
|
|
Other
current assets
|
|
|
116,495
|
|
|
100,356
|
|
Total
current assets
|
|
|
2,270,455
|
|
|
2,118,927
|
|
Property
and equipment:
|
|
|
|
|
|
|
|
Land
|
|
|
625,992
|
|
|
588,444
|
|
Buildings
and improvements
|
|
|
1,720,172
|
|
|
1,566,002
|
|
Equipment
|
|
|
780,199
|
|
|
729,426
|
|
Leasehold
improvements
|
|
|
183,601
|
|
|
165,577
|
|
Construction
in progress
|
|
|
85,581
|
|
|
134,359
|
|
|
|
|
3,395,545
|
|
|
3,183,808
|
|
Less:
Accumulated depreciation and amortization
|
|
|
1,217,703
|
|
|
1,132,500
|
|
|
|
|
2,177,842
|
|
|
2,051,308
|
|
|
|
|
|
|
|
|
|
Goodwill,
net of accumulated amortization
|
|
|
302,645
|
|
|
302,645
|
|
Deferred
income taxes
|
|
|
21,331
|
|
|
20,643
|
|
Other
long-term assets
|
|
|
32,436
|
|
|
32,783
|
|
|
|
|
356,412
|
|
|
356,071
|
|
|
|
$
|
4,804,709
|
|
$
|
4,526,306
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,870,668
|
|
$
|
1,699,667
|
|
Accrued
expenses and other
|
|
|
307,633
|
|
|
280,419
|
|
Income
taxes payable
|
|
|
25,442
|
|
|
24,378
|
|
Deferred
income taxes
|
|
|
82,152
|
|
|
50,104
|
|
Total
current liabilities
|
|
|
2,285,895
|
|
|
2,054,568
|
|
Long-term
debt
|
|
|
1,935,618
|
|
|
1,857,157
|
|
Other
liabilities
|
|
|
179,996
|
|
|
145,053
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, authorized 1,000 shares; no shares issued
|
|
|
—
|
|
|
—
|
|
Common
stock, par value $.01 per share, authorized 200,000 shares; 71,250
shares
issued and 65,960 shares outstanding in 2007 and 77,240 shares
issued and 71,082 shares outstanding in 2006
|
|
|
713
|
|
|
772
|
|
Additional
paid-in capital
|
|
|
545,404
|
|
|
500,880
|
|
Retained
earnings
|
|
|
546,049
|
|
|
559,208
|
|
Accumulated
other comprehensive loss
|
|
|
(9,550
|
)
|
|
(15,500
|
)
|
Treasury
stock, at cost
|
|
|
(679,416
|
)
|
|
(575,832
|
)
|
Total
stockholders’ equity
|
|
|
403,200
|
|
|
469,528
|
|
|
|
$
|
4,804,709
|
|
$
|
4,526,306
|
|
See
Notes to Consolidated Financial Statements.
Consolidated
Statements of Cash Flows
|
|
Year
Ended
|
|
(in
thousands)
|
|
August
25,
2007
(52
Weeks)
|
|
August
26,
2006
(52
Weeks)
|
|
August
27,
2005
(52
Weeks)
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
595,672
|
|
$
|
569,275
|
|
$
|
571,019
|
|
Adjustments
to reconcile net income to net cash provided
|
|
|
|
|
|
|
|
|
|
|
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
159,411
|
|
|
139,465
|
|
|
135,597
|
|
Deferred
rent liability adjustment
|
|
|
—
|
|
|
—
|
|
|
21,527
|
|
Amortization
of debt origination fees
|
|
|
1,719
|
|
|
1,559
|
|
|
2,343
|
|
Income
tax benefit from exercise of stock options
|
|
|
(16,523
|
)
|
|
(10,608
|
)
|
|
31,828
|
|
Deferred
income taxes
|
|
|
24,844
|
|
|
36,306
|
|
|
(16,628
|
)
|
Income
from warranty negotiations
|
|
|
—
|
|
|
—
|
|
|
(1,736
|
)
|
Share-based
compensation expense
|
|
|
18,462
|
|
|
17,370
|
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
20,487
|
|
|
37,900
|
|
|
(42,485
|
)
|
Merchandise
inventories
|
|
|
(160,780
|
)
|
|
(182,790
|
)
|
|
(124,566
|
)
|
Accounts
payable and accrued expenses
|
|
|
186,228
|
|
|
184,986
|
|
|
109,341
|
|
Income
taxes payable
|
|
|
17,587
|
|
|
28,676
|
|
|
(67,343
|
)
|
Other,
net
|
|
|
(1,913
|
)
|
|
608
|
|
|
29,186
|
|
Net
cash provided by operating activities
|
|
|
845,194
|
|
|
822,747
|
|
|
648,083
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(224,474
|
)
|
|
(263,580
|
)
|
|
(283,478
|
)
|
Purchase
of marketable securities
|
|
|
(94,615
|
)
|
|
(159,957
|
)
|
|
—
|
|
Proceeds
from sale of investments
|
|
|
86,921
|
|
|
145,369
|
|
|
—
|
|
Acquisitions
|
|
|
—
|
|
|
—
|
|
|
(3,090
|
)
|
Disposal
of capital assets
|
|
|
3,453
|
|
|
9,845
|
|
|
3,797
|
|
Net
cash used in investing activities
|
|
|
(228,715
|
)
|
|
(268,323
|
)
|
|
(282,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Net
(repayments of) proceeds from commercial paper
|
|
|
84,300
|
|
|
(51,993
|
)
|
|
(304,700
|
)
|
Proceeds
from issuance of debt
|
|
|
—
|
|
|
200,000
|
|
|
300,000
|
|
Repayment
of Senior Notes
|
|
|
—
|
|
|
(150,000
|
)
|
|
—
|
|
Net
proceeds from sale of common stock
|
|
|
58,952
|
|
|
38,253
|
|
|
64,547
|
|
Purchase
of treasury stock
|
|
|
(761,887
|
)
|
|
(578,066
|
)
|
|
(426,852
|
)
|
Income
tax benefit from exercise of stock options
|
|
|
16,523
|
|
|
10,608
|
|
|
—
|
|
Payments
of capital lease obligations
|
|
|
(11,360
|
)
|
|
—
|
|
|
—
|
|
Other
|
|
|
(7,911
|
)
|
|
(6,478
|
)
|
|
(349
|
)
|
Net
cash used in financing activities
|
|
|
(621,383
|
)
|
|
(537,676
|
)
|
|
(367,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(4,904
|
)
|
|
16,748
|
|
|
(2,042
|
)
|
Cash
and cash equivalents at beginning of year
|
|
|
91,558
|
|
|
74,810
|
|
|
76,852
|
|
Cash
and cash equivalents at end of year
|
|
$
|
86,654
|
|
$
|
91,558
|
|
$
|
74,810
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Interest
paid, net of interest cost capitalized
|
|
$
|
116,580
|
|
$
|
104,929
|
|
$
|
98,937
|
|
Income
taxes paid
|
|
$
|
299,566
|
|
$
|
267,913
|
|
$
|
339,245
|
|
Assets
acquired through capital lease
|
|
$
|
69,325
|
|
$
|
|
|
$
|
|
|
See
Notes to Consolidated Financial Statements.
Consolidated
Statements of Stockholders’ Equity
(in
thousands)
|
|
Common
Shares
Issued
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Treasury
Stock
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at August 28, 2004
|
|
|
89,393
|
|
$
|
894
|
|
$
|
414,231
|
|
$
|
580,147
|
|
$
|
(15,653
|
)
|
$
|
(808,226
|
)
|
$
|
171,393
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
571,019
|
|
|
|
|
|
|
|
|
571,019
|
|
Minimum
pension liability, net of
taxes of ($16,925)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,293
|
)
|
|
|
|
|
(25,293
|
)
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,160
|
|
|
|
|
|
5,160
|
|
Net
gains on outstanding derivatives,
net of taxes of $1,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,717
|
|
|
|
|
|
2,717
|
|
Reclassification
of derivative ineffectiveness
into earnings, net of
taxes of ($1,740)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,900
|
)
|
|
|
|
|
(2,900
|
)
|
Reclassification
of net gains on derivatives
into earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(612
|
)
|
|
|
|
|
(612
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
550,091
|
|
Purchase
of 4,822 shares of treasury
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(426,852
|
)
|
|
(426,852
|
)
|
Retirement
of treasury stock
|
|
|
(10,000
|
)
|
|
(100
|
)
|
|
(48,300
|
)
|
|
(780,890
|
)
|
|
|
|
|
829,290
|
|
|
—
|
|
Sale
of common stock under stock
option and stock purchase
plans
|
|
|
1,718
|
|
|
17
|
|
|
64,530
|
|
|
|
|
|
|
|
|
|
|
|
64,547
|
|
Income
tax benefit from exercise of stock
options
|
|
|
|
|
|
|
|
|
31,828
|
|
|
|
|
|
|
|
|
|
|
|
31,828
|
|
Balance
at August 27, 2005
|
|
|
81,111
|
|
|
811
|
|
|
462,289
|
|
|
370,276
|
|
|
(36,581
|
)
|
|
(405,788
|
)
|
|
391,007
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
569,275
|
|
|
|
|
|
|
|
|
569,275
|
|
Minimum
pension liability, net of
taxes of $14,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,532
|
|
|
|
|
|
22,532
|
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,410
|
)
|
|
|
|
|
(4,410
|
)
|
Unrealized
loss adjustment on marketable
securities, net of taxes of ($98)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(181
|
)
|
|
|
|
|
(181
|
)
|
Net
gains on outstanding derivatives,
net of taxes of $2,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,752
|
|
|
|
|
|
3,752
|
|
Reclassification
of net gains on derivatives
into earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(612
|
)
|
|
|
|
|
(612
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
590,356
|
|
Purchase
of 6,187 shares of treasury
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(578,066
|
)
|
|
(578,066
|
)
|
Retirement
of treasury stock
|
|
|
(4,600
|
)
|
|
(46
|
)
|
|
(27,633
|
)
|
|
(380,343
|
)
|
|
|
|
|
408,022
|
|
|
—
|
|
Sale
of common stock under stock
option and stock purchase
plans
|
|
|
729
|
|
|
7
|
|
|
38,246
|
|
|
|
|
|
|
|
|
|
|
|
38,253
|
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
17,370
|
|
|
|
|
|
|
|
|
|
|
|
17,370
|
|
Income
tax benefit from exercise of stock
options
|
|
|
|
|
|
|
|
|
10,608
|
|
|
|
|
|
|
|
|
|
|
|
10,608
|
|
Balance
at August 26, 2006
|
|
|
77,240
|
|
|
772
|
|
|
500,880
|
|
|
559,208
|
|
|
(15,500
|
)
|
|
(575,832
|
)
|
|
469,528
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
595,672
|
|
|
|
|
|
|
|
|
595,672
|
|
Minimum
pension liability, net of
taxes of $9,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,218
|
|
|
|
|
|
14,218
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,240
|
)
|
|
|
|
|
(3,240
|
)
|
Unrealized
gain adjustment on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
marketable
securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
|
|
104
|
|
Net
losses on outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
net of taxes of ($1,627)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,813
|
)
|
|
|
|
|
(2,813
|
)
|
Reclassification
of net gains on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
into earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(612
|
)
|
|
|
|
|
(612
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
603,329
|
|
Cumulative
effect of adopting SFAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,
net of taxes of ($1,089)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,707
|
)
|
|
|
|
|
(1,707
|
)
|
Purchase
of 6,032 shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
treasury
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(761,887
|
)
|
|
(761,887
|
)
|
Retirement
of treasury stock
|
|
|
(6,900
|
)
|
|
(68
|
)
|
|
(49,404
|
)
|
|
(608,831
|
)
|
|
|
|
|
658,303
|
|
|
—
|
|
Sale
of common stock under stock
option and stock purchase
plans
|
|
|
910
|
|
|
9
|
|
|
58,943
|
|
|
|
|
|
|
|
|
|
|
|
58,952
|
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
18,462
|
|
|
|
|
|
|
|
|
|
|
|
18,462
|
|
Income
tax benefit from exercise of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options
|
|
|
|
|
|
|
|
|
16,523
|
|
|
|
|
|
|
|
|
|
|
|
16,523
|
|
Balance
at August 25, 2007
|
|
|
71,250
|
|
$
|
713
|
|
$
|
545,404
|
|
$
|
546,049
|
|
$
|
(9,550
|
)
|
$
|
(679,416
|
)
|
$
|
403,200
|
|
See
Notes to Consolidated Financial Statements.
Notes
to Consolidated Financial Statements
Note
A - Significant Accounting Policies
Business:
AutoZone,
Inc. and its wholly owned subsidiaries (“AutoZone” or the “Company”) is
principally a retailer and distributor of automotive parts and accessories.
At
the end of fiscal 2007, the Company operated 3,933 domestic stores in the United
States and Puerto Rico, and 123 stores in Mexico. Each store carries an
extensive product line for cars, sport utility vehicles, vans and light trucks,
including new and remanufactured automotive hard parts, maintenance items,
accessories and non-automotive products. Many of the stores have a commercial
sales program that provides commercial credit and prompt delivery of parts
and
other products to local, regional and national repair garages, dealers and
service stations. The Company also sells the ALLDATA brand automotive diagnostic
and repair software. On the web at www.autozone.com, the Company sells
diagnostic and repair information, auto and light truck parts, and accessories.
Fiscal
Year: The
Company’s fiscal year consists of 52 or 53 weeks ending on the last Saturday in
August.
Basis
of Presentation: The
consolidated financial statements include the accounts of AutoZone, Inc. and
its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Use
of Estimates: Management
of the Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent liabilities
to prepare these financial statements. Actual results could differ from those
estimates.
Cash
Equivalents: Cash
equivalents consist of investments with original maturities of 90 days or less
at the date of purchase. Excluded from cash equivalents are investments in
money
market accounts, held by the Company’s wholly owned insurance captive that was
established during fiscal 2004. These investments approximated $5.2 million
at
August 25, 2007, and $8.0 million at August 26, 2006. They are included within
the other current assets caption and are recorded at cost, which approximates
market value, due to the short maturity of the investments. Also included in
cash equivalents are proceeds due from credit and debit card transactions with
settlement terms of less than 5 days. Credit and debit card receivables included
within cash equivalents were $22.7 million at August 25, 2007 and $21.6 million
at August 26, 2006.
Marketable
Securities: During
fiscal 2006, the Company began investing a portion of its assets held by the
Company’s wholly owned insurance captive in marketable debt securities. The
Company accounts for these securities in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in
Debt and Equity Securities” (“SFAS 115”) and accordingly, classifies them as
available-for-sale. The Company includes the securities within the other current
assets caption and records the amounts at fair market value, which is determined
using quoted market prices at the end of the reporting period. Unrealized gains
and losses on these marketable securities are recorded in accumulated other
comprehensive income, net of tax.
The
Company’s available-for-sale financial instruments consisted of the following
at:
(in
thousands)
|
|
Amortized
Cost
Basis
|
|
Gross
Unrealized Gains
|
|
Gross
Unrealized Losses
|
|
Fair
Market
Value
|
|
|
|
$
|
57,245
|
|
$
|
33
|
|
$
|
(152
|
)
|
$
|
57,126
|
|
August
26, 2006
|
|
$
|
46,801
|
|
$
|
13
|
|
$
|
(292
|
)
|
$
|
46,522
|
|
The
debt
securities held at August 25, 2007, had contractual maturities ranging from
less
than one year to approximately 2 years. The Company did not realize any material
gains or losses on its marketable securities during fiscal 2007. Prior to 2006,
the Company did not invest in any securities required to be accounted for under
SFAS 115.
Accounts
Receivable: Accounts
receivable consists of receivables from customers and vendors, and are presented
net of an allowance for uncollectible accounts. AutoZone routinely grants credit
to certain of its commercial customers. The risk of credit loss in its trade
receivables is substantially mitigated by the Company’s credit evaluation
process, short collection terms and sales to a large number of customers, as
well as the low revenue per transaction for most of its sales. Allowances for
potential credit losses are determined based on historical experience and
current evaluation of the composition of accounts receivable. Historically,
credit losses have been within management’s expectations and the allowances for
uncollectible accounts were $17.7 million at August 25, 2007, and $13.7 million
at August 26, 2006. The Company routinely sells the majority of its receivables
to a third party at a discount for cash with limited recourse. AutoZone has
recorded a $1.8 million recourse reserve related to the $55.3 million in
outstanding factored receivables at August 25, 2007. The recourse reserve at
August 26, 2006 approximated $1.0 million related to the $53.4 million in
outstanding factored receivables.
Merchandise
Inventories: Inventories
are stated at the lower of cost or market using the last-in, first-out (LIFO)
method. Included in inventory are related purchasing, storage and handling
costs. Due to price deflation on the Company’s merchandise purchases, the
Company’s inventory balances are effectively maintained under the first-in,
first-out method as the Company’s policy is not to write up inventory for
favorable LIFO adjustments, resulting in cost of sales being reflected at the
higher amount. The cumulative balance of this unrecorded adjustment, which
will
be reduced upon experiencing price inflation on our merchandise purchases,
was
$227.9 million at August 25, 2007, and $198.3 million at August 26,
2006.
AutoZone
has entered into pay-on-scan (“POS”) arrangements with certain vendors, whereby
AutoZone will not purchase merchandise supplied by a vendor until that
merchandise is ultimately sold to AutoZone’s customers. Title and certain risks
of ownership remain with the vendor until the merchandise is sold to AutoZone’s
customers. Since the Company does not own merchandise under POS arrangements
until just before it is sold to a customer, such merchandise is not recorded
in
the Company’s balance sheet. Upon the sale of the merchandise to AutoZone’s
customers, AutoZone recognizes the liability for the goods and pays the vendor
in accordance with the agreed-upon terms. Although AutoZone does not hold title
to the goods, AutoZone controls pricing and has credit collection risk and
therefore, gross revenues under POS arrangements are included in net sales
in
the income statement. Sales of merchandise under POS arrangements approximated
$170.0 million in fiscal 2007, $390.0 million in fiscal 2006, and $460.0 million
in fiscal 2005. Merchandise under POS arrangements was $22.4 million at August
25, 2007 and $92.1 million at August 26, 2006.
Property
and Equipment: Property
and equipment is stated at cost. Depreciation and amortization are computed
principally using the straight-line method over the following estimated useful
lives: buildings, 40 to 50 years; building improvements, 5 to 15 years;
equipment, 3 to 10 years; and leasehold improvements, over the shorter of the
asset’s estimated useful life or the remaining lease term, which includes any
reasonably assured renewal periods. Depreciation and amortization include
amortization of assets under capital lease.
Impairment
of Long-Lived Assets: In
accordance with the provisions of Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), the Company evaluates the recoverability of the carrying amounts of the
assets covered by this standard annually and more frequently if events or
changes in circumstances indicate that the carrying value may not be
recoverable. As part of the evaluation, the Company reviews performance at
the
store level to identify any stores with current period operating losses that
should be considered for impairment. The Company compares the sum of the
undiscounted expected future cash flows with the carrying amounts of the assets.
If impairments are indicated, the amount by which the carrying amount of the
assets exceeds the fair value of the assets is recognized as an impairment
loss
where fair value is estimated based on discounted cash flows. No significant
impairment losses were recorded in the three years ended August 25,
2007.
Goodwill:
The
cost
in excess of fair value of identifiable net assets of businesses acquired is
recorded as goodwill. In accordance with the provisions of Statement of
Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”
(“SFAS 142”), goodwill has not been amortized since fiscal 2001, but an analysis
is performed at least annually to compare the fair value of the reporting unit
to the carrying amount to determine if any impairment exists. The Company
performs its annual impairment assessment in the fourth quarter of each fiscal
year, unless circumstances dictate more frequent assessments. No impairment
losses were recorded in the three years ended August 25, 2007.
Derivative
Instruments and Hedging Activities:
AutoZone
is exposed to market risk from, among other things, changes in interest rates,
foreign exchange rates and fuel prices. From time to time, the Company uses
various financial instruments to reduce such risks. To date, based upon the
Company’s current level of foreign operations, hedging costs and past changes in
the associated foreign exchange rates, no derivative instruments have been
utilized to reduce foreign exchange rate risk. All of the Company’s hedging
activities are governed by guidelines that are authorized by AutoZone’s Board of
Directors. Further, the Company does not buy or sell financial instruments
for
trading purposes.
AutoZone’s
financial market risk results primarily from changes in interest rates. At
times, AutoZone reduces its exposure to changes in interest rates by entering
into various interest rate hedge instruments such as interest rate swap
contracts, treasury lock agreements and forward-starting interest rate swaps.
The Company complies with Statement of Financial Accounting Standards Nos.
133,
137, 138 and 149 (collectively “SFAS 133”) pertaining to the accounting for
these derivatives and hedging activities which require all such interest rate
hedge instruments to be recorded on the balance sheet at fair value. All of
the
Company’s interest rate hedge instruments are designated as cash flow hedges.
Refer to “Note E - Derivative Instruments and Hedging Activities” for additional
disclosures regarding the Company’s derivative instruments and hedging
activities. Cash flows related to these instruments designated as qualifying
hedges are reflected in the accompanying consolidated statements of cash flows
in the same categories as the cash flows from the items being hedged.
Accordingly, cash flows relating to the settlement of interest rate derivatives
hedging the forecasted issuance of debt have been reflected upon settlement
as a
component of financing cash flows. The resulting gain or loss from such
settlement is deferred to other comprehensive loss and reclassified to interest
expense over the term of the underlying debt. This reclassification of the
deferred gains and losses impacts the interest expense recognized on the
underlying debt that was hedged and is therefore reflected as a component of
operating cash flows in periods subsequent to settlement. The periodic
settlement of interest rate derivatives hedging outstanding variable rate debt
is recorded as an adjustment to interest expense and is therefore reflected
as a
component of operating cash flows.
Foreign
Currency: The
Company accounts for its Mexican operations using the Mexican peso as the
functional currency and converts its financial statements from Mexican pesos
to
U.S. dollars in accordance with SFAS No. 52, “Foreign Currency Translation.” The
cumulative loss on currency translation is recorded as a component of
accumulated other comprehensive loss and approximated $15.8 million at August
25, 2007 and $12.5 million at August 26, 2006.
Self-Insurance
Reserves:
The
Company retains a significant portion of the risks associated with workers’
compensation, employee health, general, products liability, property and
automotive insurance. Through various methods, which include analyses of
historical trends and utilization of actuaries, the Company estimates the costs
of these risks. The actuarial estimated long-term portions of these liabilities
are recorded at our estimate of their net present value.
Deferred
Rent:
The
Company recognizes rent expense on a straight-line basis over the course of
the
lease term, which includes any reasonably assured renewal periods, beginning
on
the date the Company takes physical possession of the property (see “Note J -
Leases”). Differences between this calculated expense and cash payments are
recorded as a liability in accrued expenses and other liabilities on the
accompanying balance sheet. This deferred rent approximated $42.6 million as
of
August 25, 2007 and $31.1 million as of August 26, 2006.
Financial
Instruments: The
Company has financial instruments, including cash and cash equivalents, accounts
receivable, other current assets and accounts payable. The carrying amounts
of
these financial instruments approximate fair value because of their short
maturities. A discussion of the carrying values and fair values of the Company’s
debt is included in “Note F - Financing,” marketable securities is included in
“Note A - Marketable Securities,” and derivatives is included in “Note E-
Derivative Instruments and Hedging Activities.”
Income
Taxes: The
Company accounts for income taxes under the liability method. Deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Sales
and Use Taxes: Governmental
authorities assess sales and use taxes on the sale of goods and services. The
Company excludes taxes collected from customers in its reported sales results;
such amounts are reflected as accrued expenses and other until remitted to
the
taxing authorities.
Revenue
Recognition: The
Company recognizes sales at the time the sale is made and the product is
delivered to the customer. Revenue from sales are presented net of allowances
for estimated sales returns, which are based on historical return
rates.
A
portion
of the Company's transactions include the sale of auto parts that contain a
core
component. The core component represents the recyclable portion of the auto
part. Customers are not charged for the core component of the new part if a
used
core is returned at the point of sale of the new part; otherwise the Company
charges customers a specified amount for the core component. The Company refunds
that same amount upon the customer returning a used core to the store at a
later
date. The Company does not recognize sales or cost of sales for the core
component of these transactions when a used part is returned or expected to
be
returned from the customer.
Vendor
Allowances and Advertising Costs: The
Company receives various payments and allowances from its vendors based on
the
volume of purchases and for services that AutoZone provides to the vendors.
Monies received from vendors include rebates, allowances and promotional funds.
The amounts to be received are subject to purchase volumes and the terms of
the
vendor agreements, which generally do not state an expiration date, but are
subject to ongoing negotiations that may be impacted in the future based on
changes in market conditions, vendor marketing strategies and changes in the
profitability or sell-through of the related merchandise. The Company’s level of
advertising and other operating, selling, general and administrative
expenditures are not dependent on vendor allowances.
Rebates
and other miscellaneous incentives are earned based on purchases or product
sales and are accrued ratably over the purchase or sale of the related product,
but only if it is reasonably certain that the required volume levels will be
reached. These monies are recorded as a reduction of inventories and are
recognized as a reduction to cost of sales as the related inventories are sold.
For
all
allowances and promotional funds earned under vendor funding, the Company
applies the guidance pursuant to the Emerging Issues Task Force Issue No. 02-16,
“Accounting by a Customer (Including a Reseller) for Cash Consideration Received
from a Vendor” (“EITF 02-16”), by recording the vendor funds as a reduction of
inventories that are recognized as a reduction to cost of sales as the
inventories are sold. The Company’s vendor funding arrangements do not provide
for any reimbursement arrangements that are for specific, incremental,
identifiable costs that are permitted under EITF 02-16 for the funding to be
recorded as a reduction to advertising or other operating, selling, general
and
administrative expenses.
Advertising
expense was approximately $85.9 million in fiscal 2007, $78.1 million in fiscal
2006, and $90.3 million in fiscal 2005. The Company expenses advertising costs
as incurred.
Warranty
Costs: The
Company or the vendors supplying its products provide its customers with limited
warranties on certain products. Estimated warranty obligations for which the
Company is responsible are based on historical experience, provided at the
time
of sale of the product, and charged to cost of sales.
Shipping
and Handling Costs: The
Company does not generally charge customers separately for shipping and
handling. Substantially all the cost the Company incurs to ship products to
our
stores is included in cost of sales.
Pre-opening
Expenses: Pre-opening
expenses, which consist primarily of payroll and occupancy costs, are expensed
as incurred.
Earnings
Per Share: Basic
earnings per share is based on the weighted average outstanding common shares.
Diluted earnings per share is based on the weighted average outstanding shares
adjusted for the effect of common stock equivalents, which are primarily stock
options. Stock options that were not included in the diluted computation because
they would have been anti-dilutive were approximately 8,000 shares at August
25,
2007, 700,000 shares at August 26, 2006, and 1.0 million shares at August 27,
2005.
Stock
Options: At
August
25, 2007, the Company has stock option plans that provide for the purchase
of
the Company’s common stock by certain of its employees and directors, which are
described more fully in “Note B - Share-Based Payments.” Effective August 28,
2005, the Company adopted Statement of Financial Accounting Standards No. 123(R)
“Share-Based Payment” (“SFAS 123(R)”) and began recognizing compensation expense
for its share-based payments based on the fair value of the awards. See “Note B
- Share-Based Payments” for further discussion.
Recent
Accounting Pronouncements: The
Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN 48”) in June 2006. The
interpretation clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with SFAS No. 109, “Accounting
for Income Taxes.” FIN 48 will be effective for AutoZone’s fiscal year beginning
August 26, 2007. The Company has not determined the effect, if any, that the
adoption of FIN 48 will have on the Company’s financial position and results of
operations.
In
September 2006, the FASB issued FASB Statement No. 157, “Fair Value
Measurements” (“SFAS 157”). This new standard defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. SFAS 157 will
be
effective for AutoZone in fiscal 2009. The Company is still in the process
of
evaluating the impact, if any, that SFAS 157 will have on the Company’s
financial position and results of operations.
On
September 29, 2006, the FASB issued FASB Statement No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans -- An
Amendment of FASB Statements No. 87, 88, 106, and 132R" ("SFAS 158"). This
new
standard requires an employer to: (a) recognize in its statement of financial
position an asset for a plan's overfunded status or a liability for a plan's
underfunded status and (b) measure a plan's assets and its obligations that
determine its funded status as of the end of the employer's fiscal year (with
limited exceptions). Those changes will be reported in comprehensive income.
The
Company adopted the recognition and disclosure provisions of SFAS 158 during
2007 and will adopt the measurement date provisions in 2009. Please refer to
Note I (Pension and Savings Plan) for further description of this adoption.
In
February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS 159”). This new standard
permits entities to choose to measure many financial instruments and certain
other items at fair value. SFAS 159 will be effective for AutoZone in fiscal
2009. The Company is still in the process of evaluating the impact, if any,
that
it will have on the Company’s financial position and results of operations.
Note
B - Share-Based Payments
Effective
August 28, 2005, the Company adopted SFAS 123(R) and began recognizing
compensation expense for its share-based payments based on the fair value of
the
awards. Share-based payments include stock option grants and certain
transactions under the Company’s other stock plans. Prior to August 28, 2005,
the Company accounted for share-based payments using the intrinsic-value-based
recognition method prescribed by Accounting Principles Board Opinion (“APB”) No.
25, “Accounting for Stock Issued to Employees,” and SFAS No. 123, “Accounting
for Stock-Based Compensation” (“SFAS 123”). As options were granted at an
exercise price equal to the market value of the underlying common stock on
the
date of grant, no stock-based employee compensation cost was reflected in net
income prior to adopting SFAS 123(R). As the Company adopted SFAS 123(R) under
the modified-prospective-transition method, results from prior periods have
not
been restated.
In
accordance with SFAS 123(R), share-based compensation expense recognized since
August 27, 2005, is based on the following: a) grant date fair value estimated
in accordance with the original provisions of SFAS 123 for unvested options
granted prior to the adoption date; b) grant date fair value estimated in
accordance with the provisions of SFAS 123(R) for options granted subsequent
to
the adoption date; and c) the discount on shares sold to employees under
employee stock purchase plans post-adoption, which represents the difference
between the grant date fair value and the employee purchase price.
Total
share-based expense (a component of operating, selling, general and
administrative expenses) was $18.5 million related to stock options and share
purchase plans for fiscal 2007 and $17.4 million in the previous year. Beginning
in fiscal 2006, excess tax benefits, tax deductions in excess of recognized
compensation cost, are classified as a financing cash inflow in accordance
with
SFAS 123(R).
The
following sentence illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS 123
for
fiscal 2005. For fiscal 2005, the Company had net income of $571.0 million,
pro-forma stock-based employee compensation expense of $11.3 million, pro-forma
net income of $559.8 million and pro-forma basic and diluted EPS of $7.12 and
$7.03, respectively. The value of the options was estimated using the
Black-Scholes-Merton multiple option pricing model for the option grants.
Under
SFAS 123(R), forfeitures are estimated at the time of valuation and reduce
expense ratably over the vesting period. This estimate is adjusted periodically
based on the extent to which actual forfeitures differ, or are expected to
differ, from the previous estimate. Under SFAS 123 and APB 25, the Company
elected to account for forfeitures when awards were actually forfeited, at
which
time all previous pro forma expense disclosed for the forfeited awards ($7.3
million in fiscal 2005) was reversed to reduce pro forma expense for that
period.
AutoZone
grants options to purchase common stock to certain of its employees and
directors under various plans at prices equal to the market value of the stock
on the dates the options were granted. Options have a term of 10 years or 10
years and one day from grant date. Director options generally vest three years
from grant date. Employee options generally vest in equal annual installments
on
the first, second, third and fourth anniversaries of the grant date. Employees
and directors generally have 30 days after the service relationship ends, or
one
year after death, to exercise all vested options. The fair value of each option
grant is separately estimated for each vesting date. The fair value of each
option is amortized into compensation expense on a straight-line basis between
the grant date for the award and each vesting date. The Company has estimated
the fair value of all stock option awards as of the date of the grant by
applying the Black-Scholes-Merton multiple-option pricing valuation model.
The
application of this valuation model involves assumptions that are judgmental
and
highly sensitive in the determination of compensation expense.
The
weighted average for key assumptions used in determining the fair value of
options granted and a summary of the methodology applied to develop each
assumption are as follows:
|
|
Year
Ended
|
|
|
|
August
25,
2007
|
|
August
26,
2006
|
|
August
27,
2005
|
|
|
|
|
|
|
|
|
|
Expected
price volatility
|
|
|
26
|
%
|
|
35
|
%
|
|
36
|
%
|
Risk-free
interest rates
|
|
|
4.6
|
%
|
|
4.1
|
%
|
|
2.8
|
%
|
Weighted
average expected lives in years
|
|
|
3.9
|
|
|
3.3
|
|
|
3.5
|
|
Forfeiture
rate
|
|
|
10
|
%
|
|
10
|
%
|
|
n/a
|
|
Dividend
yield
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Expected
Price Volatility -
This is
a measure of the amount by which a price has fluctuated or is expected to
fluctuate. We use actual historical changes in the market value of our stock
to
calculate the volatility assumption as it is management’s belief that this is
the best indicator of future volatility. We calculate daily market value changes
from the date of grant over a past period representative of the expected life
of
the options to determine volatility. An increase in the expected volatility
will
increase compensation expense.
Risk-Free
Interest Rate -
This is
the U.S. Treasury rate for the week of the grant having a term equal to the
expected life of the option. An increase in the risk-free interest rate will
increase compensation expense.
Expected
Lives -
This is
the period of time over which the options granted are expected to remain
outstanding and is based on historical experience. Separate groups of employees
that have similar historical exercise behavior are considered separately for
valuation purposes. Options granted have a maximum term of ten years or ten
years and one day. An increase in the expected life will increase compensation
expense.
Forfeiture
Rate -
This is
the estimated percentage of options granted that are expected to be forfeited
or
canceled before becoming fully vested. This estimate is based on historical
experience. An increase in the forfeiture rate will decrease compensation
expense.
Dividend
Yield -
The
Company has not made any dividend payments nor does it have plans to pay
dividends in the foreseeable future. An increase in the dividend yield will
decrease compensation expense.
The
Company generally issues new shares when options are exercised. A summary of
outstanding stock options is as follows:
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
Outstanding
August 28, 2004
|
|
|
5,011,706
|
|
$
|
54.42
|
|
Granted
|
|
|
1,099,465
|
|
|
77.74
|
|
Exercised
|
|
|
(1,741,312
|
)
|
|
38.85
|
|
Canceled
|
|
|
(532,373
|
)
|
|
70.91
|
|
Outstanding
August 27, 2005
|
|
|
3,837,486
|
|
|
65.87
|
|
Granted
|
|
|
749,452
|
|
|
82.75
|
|
Exercised
|
|
|
(737,515
|
)
|
|
54.48
|
|
Canceled
|
|
|
(493,881
|
)
|
|
75.49
|
|
Outstanding
August 26, 2006
|
|
|
3,355,542
|
|
|
70.73
|
|
Granted
|
|
|
695,298
|
|
|
104.64
|
|
Exercised
|
|
|
(934,677
|
)
|
|
66.90
|
|
Canceled
|
|
|
(159,398
|
)
|
|
83.19
|
|
Outstanding
August 25, 2007
|
|
|
2,956,765
|
|
$
|
79.24
|
|
The
following table summarizes information about stock options outstanding at August
25, 2007:
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
(in
Years)
|
|
Number
Exercisable
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$22.00
- $75.64
|
|
|
1,181,091
|
|
$
|
58.44
|
|
|
5.04
|
|
|
884,233
|
|
$
|
52.67
|
|
$82.00
- $89.18
|
|
|
987,334
|
|
|
85.35
|
|
|
7.16
|
|
|
387,969
|
|
|
87.12
|
|
$89.30
- $103.44
|
|
|
744,262
|
|
|
101.59
|
|
|
8.89
|
|
|
40,000
|
|
|
95.32
|
|
$116.35
- 129.63
|
|
|
44,078
|
|
|
122.43
|
|
|
9.47
|
|
|
—
|
|
|
—
|
|
$22.00
- $129.63
|
|
|
2,956,765
|
|
$
|
79.24
|
|
|
6.78
|
|
|
1,312,202
|
|
$
|
64.15
|
|
At
August
25, 2007, the aggregate intrinsic value of all outstanding options was $130
million with a weighted average remaining contractual term of 6.8 years, of
which 1,312,202 of the outstanding options are currently exercisable with an
aggregate intrinsic value of $77.6 million, a weighted average exercise price
of
$64.15 and a weighted average remaining contractual term of 5.1 years. Shares
reserved for future option grants approximated 4.6 million at August 25, 2007.
The weighted average grant date fair value of options granted was $29.04 during
fiscal 2007 and $22.86 during fiscal 2006. The intrinsic value of options
exercised was $47 million in fiscal 2007 and $27 million in fiscal 2006.
Under
the
AutoZone, Inc. 2003 Director Compensation Plan, a non-employee director may
receive no more than one-half of his or her director fees immediately in cash,
and the remainder of the fees must be taken in common stock or may be deferred
in units with value equivalent to the value of shares of common stock as of
the
grant date (“Stock Units”). At August 25, 2007, the Company has $2.6 million
accrued related to 21,323 director units issued under the current and prior
plans with 84,681 shares of common stock reserved for future issuance under
the
current plan.
Under
the
AutoZone, Inc. 2003 Director Stock Option Plan, each non-employee director
receives an option to purchase 1,500 shares of common stock on January 1 of
each
year, and each director who owns common stock or Stock Units worth at least
five
times the annual retainer fee receives an additional option to purchase 1,500
shares. In addition, each new director receives an option to purchase 3,000
shares upon election to the Board of Directors, plus a portion of the annual
directors’ option grant prorated for the portion of the year actually served in
office. These stock option grants are made at the fair market value as of the
grant date. At August 25, 2007, there were 95,552 outstanding options with
287,948 shares of common stock reserved for future issuance under this
plan.
During
June, 2007, the Board of Directors approved certain changes to the Director
Compensation Plan and Director Stock Option Plan. For further discussion on
the
changes, see the Proxy Statement for Annual Meeting of Stockholders on December
12, 2007.
The
Company recognized $1.1 million in expense related to the discount on the
selling of shares to employees and executives under various share purchase
plans
in fiscal 2007 and $884,000 in the prior year. The employee stock purchase
plan,
which is qualified under Section 423 of the Internal Revenue Code, permits
all
eligible employees to purchase AutoZone’s common stock at 85% of the lower of
the market price of the common stock on the first day or last day of each
calendar quarter through payroll deductions. Maximum permitted annual purchases
are $15,000 per employee or 10 percent of compensation, whichever is less.
Under
the plan, 39,139 shares were sold to employees in fiscal 2007, 51,167 shares
were sold to employees in fiscal 2006, and 59,479 shares were sold in fiscal
2005. The Company repurchased 65,152 shares at fair value in fiscal 2007, 62,293
shares at fair value in fiscal 2006, and 87,974 shares in fiscal 2005 from
employees electing to sell their stock. Issuances of shares under the employee
stock purchase plans are netted against repurchases and such repurchases are
not
included in share repurchases disclosed in “Note H - Stock Repurchase Program.”
At August 25, 2007, 385,897 shares of common stock were reserved for future
issuance under this plan. Additionally, executives may participate in the
Amended and Restated Executive Stock Purchase Plan, which permits all eligible
executives to purchase AutoZone’s common stock up to 25 percent of his or her
annual salary and bonus. Purchases under this plan were 1,257 shares in fiscal
2007, 811 shares in fiscal 2006, and 5,366 shares in fiscal 2005. At August
25,
2007, 263,037 shares of common stock were reserved for future issuance under
this plan.
On
December 13, 2006, stockholders approved the AutoZone, Inc. 2006 Stock Option
Plan and the AutoZone, Inc. Fourth Amended and Restated Executive Stock Purchase
Plan. There have been no other material modifications to the Company’s stock
plans during fiscal 2007, 2006, or 2005.
Note
C - Accrued Expenses and Other
Accrued
expenses consisted of the following:
(in
thousands)
|
|
August
25,
2007
|
|
August
26,
2006
|
|
|
|
|
|
|
|
Medical
and casualty insurance claims (current portion)
|
|
$
|
52,037
|
|
$
|
49,844
|
|
Accrued
compensation; related payroll taxes and benefits
|
|
|
101,467
|
|
|
101,089
|
|
Property
and sales taxes
|
|
|
61,570
|
|
|
54,623
|
|
Accrued
interest
|
|
|
22,241
|
|
|
25,377
|
|
Accrued
sales and warranty returns
|
|
|
8,634
|
|
|
8,238
|
|
Capital
lease obligations
|
|
|
16,015
|
|
|
—
|
|
Other
|
|
|
45,669
|
|
|
41,248
|
|
|
|
$
|
307,633
|
|
$
|
280,419
|
|
The
Company retains a significant portion of the insurance risks associated with
workers’ compensation, employee health, general, products liability, property
and automotive insurance. Beginning in fiscal 2004, a portion of these
self-insured losses is managed through a wholly owned insurance captive. The
Company maintains certain levels for stop-loss coverage for each self-insured
plan in order to limit its liability for large claims. The limits are per claim
and are $1.5 million for workers’ compensation, $500,000 for employee health,
and $1.0 million for general, products liability, property, and automotive.
Self-insurance costs are accrued based upon the aggregate of the liability
for
reported claims and an estimated liability for claims incurred but not reported.
Estimates are based on calculations that consider historical lag and claim
development factors.
The
Company or the vendors supplying its products provide its customers limited
warranties on certain products that range from 30 days to lifetime warranties.
In most cases, the Company’s vendors are primarily responsible for warranty
claims. Warranty costs relating to merchandise sold under warranty not covered
by vendors are estimated and recorded as warranty obligations at the time of
sale based on each product’s historical return rate. These obligations, which
are often funded by vendor allowances, are recorded as a component of accrued
expenses. For vendor allowances that are in excess of the related estimated
warranty expense for the vendor’s products, the excess is reclassified to
inventory and recognized as a reduction to cost of sales as the related
inventory is sold. Changes in the Company’s accrued sales and warranty returns
during the fiscal year were minimal.
Note
D - Income Taxes
The
provision for income tax expense consisted of the following:
|
|
Year
Ended
|
|
(in
thousands)
|
|
August
25,
2007
|
|
August
26,
2006
|
|
August
27,
2005
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
292,166
|
|
$
|
272,916
|
|
$
|
296,849
|
|
State
|
|
|
23,468
|
|
|
23,539
|
|
|
21,981
|
|
|
|
|
315,634
|
|
|
296,455
|
|
|
318,830
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
22,878
|
|
|
30,065
|
|
|
(11,271
|
)
|
State
|
|
|
1,966
|
|
|
6,241
|
|
|
(5,357
|
)
|
|
|
|
24,844
|
|
|
36,306
|
|
|
(16,628
|
)
|
|
|
$
|
340,478
|
|
$
|
332,761
|
|
$
|
302,202
|
|
A
reconciliation of the provision for income taxes to the amount computed by
applying the federal statutory tax rate of 35% to income before income taxes
is
as follows:
|
|
Year
Ended
|
|
(in
thousands)
|
|
August
25,
2007
|
|
August
26,
2006
|
|
August
27,
2005
|
|
|
|
|
|
|
|
|
|
Federal
tax at statutory U.S. income tax rate
|
|
$
|
327,653
|
|
$
|
315,713
|
|
$
|
305,627
|
|
State
income taxes, net
|
|
|
16,532
|
|
|
19,357
|
|
|
10,806
|
|
Tax
benefit on repatriation of foreign earnings
|
|
|
-
|
|
|
-
|
|
|
(16,351
|
)
|
Other
|
|
|
(3,707
|
)
|
|
(2,309
|
)
|
|
2,120
|
|
|
|
$
|
340,478
|
|
$
|
332,761
|
|
$
|
302,202
|
|
The
American Jobs Creation Act (the “Act”), signed into law in October 2004,
provided an opportunity to repatriate foreign earnings, reinvest them in the
United States, and claim an 85% dividend received deduction on the repatriated
earnings provided certain criteria were met. During fiscal 2005, the Company
determined that it met the criteria of the Act and began the process of
repatriating approximately $36.7 million from its Mexican subsidiaries. As
the
Company had previously provided deferred income taxes on these amounts, the
planned repatriation resulted in a $16.4 million reduction to income tax expense
for fiscal 2005. During fiscal 2006, the Company completed the originally
planned $36.7 million repatriation plus an additional $4.5 million in
accumulated earnings.
Significant
components of the Company’s deferred tax assets and liabilities were as
follows:
(in
thousands)
|
|
August
25,
2007
|
|
August
26,
2006
|
|
|
|
|
|
|
|
Net
deferred tax assets:
|
|
|
|
|
|
|
|
Domestic
net operating loss and credit carryforwards
|
|
$
|
18,573
|
|
$
|
18,694
|
|
Foreign
net operating loss and credit carryforwards
|
|
|
6,257
|
|
|
4,017
|
|
Insurance
reserves
|
|
|
13,683
|
|
|
13,748
|
|
Pension
|
|
|
-
|
|
|
9,167
|
|
Accrued
benefits
|
|
|
20,750
|
|
|
14,927
|
|
Other
|
|
|
15,640
|
|
|
15,291
|
|
Total
deferred tax assets
|
|
|
74,903
|
|
|
75,844
|
|
Less:
Valuation allowances
|
|
|
(8,154
|
)
|
|
(8,698
|
)
|
Net
deferred tax assets
|
|
|
66,749
|
|
|
67,146
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
8,296
|
|
|
13,118
|
|
Inventory
|
|
|
103,233
|
|
|
68,449
|
|
Derivatives
|
|
|
2,068
|
|
|
3,643
|
|
Pension
|
|
|
2,369
|
|
|
-
|
|
Prepaid
expenses
|
|
|
10,192
|
|
|
9,821
|
|
Other
|
|
|
1,412
|
|
|
1,576
|
|
Deferred
tax liabilities
|
|
|
127,570
|
|
|
96,607
|
|
Net
deferred tax liabilities
|
|
$
|
(60,821
|
)
|
$
|
(29,461
|
)
|
Deferred
taxes are not provided for earnings of non-U.S. subsidiaries as such earnings
are intended to be permanently reinvested in the business.
For
the
years ended August 25, 2007, and August 26, 2006, the Company had deferred
tax
assets of $9.1 million and $9.0 million from federal tax net operating losses
("NOLs") of $25.9 million and $25.7 million, and deferred tax assets of $1.8
million and $2.7 million from state tax NOLs of $51.3 million and $65.1 million,
respectively. As of August 25, 2007 the Company had deferred tax assets of
$3.1
million from Non-U.S. NOLs of $7.9 million. The federal, state, and Non-U.S.
NOLs expire between fiscal 2008 and fiscal 2027. The Company maintains a $7.2
million valuation allowance against certain federal and state NOLs resulting
primarily from annual statutory usage limitations. For the years ending August
25, 2007, and August 26, 2006, the Company had deferred tax assets of $10.9
million for federal, state and Non-U.S. income tax credit carryforwards. Certain
tax credit carryforwards have no expiration date and others will expire in
fiscal 2008 through fiscal 2017. A valuation allowance of $1.0 million has
been
established by the Company for credits subject to such expiration
periods.
Note
E - Derivative Instruments and Hedging Activities
AutoZone
has utilized interest rate swaps to convert variable rate debt to fixed rate
debt and to lock in fixed rates on future debt issuances. AutoZone reflects
the
current fair value of all interest rate hedge instruments in its consolidated
balance sheets as a component of other assets. All of the Company’s interest
rate hedge instruments are designated as cash flow hedges. The Company had
an
outstanding interest rate swap with a fair value of $5.8 million at August
25,
2007 and $10.2 million at August 26, 2006, to effectively fix the interest
rate
on the $300.0 million term loan entered into during December 2004. At August
28,
2004, the Company had an outstanding five-year forward-starting interest rate
swap with a notional amount of $300 million. This swap had a fair value of
$4.6
million at August 28, 2004 and was settled during November 2004 with no debt
being issued. Consequently, $4.6 million was recognized in earnings during
fiscal 2005.
The
related gains and losses on interest rate hedges are deferred in stockholders’
equity as a component of other comprehensive income or loss. These deferred
gains and losses are recognized in income as a decrease or increase to interest
expense in the period in which the related cash flows being hedged are
recognized in expense. However, to the extent that the change in value of an
interest rate hedge instrument does not perfectly offset the change in the
value
of the cash flows being hedged, that ineffective portion is immediately
recognized in income. The Company’s hedge instruments have been determined to be
highly effective as of August 25, 2007.
The
following table summarizes the fiscal 2007 and 2006 activity in accumulated
other comprehensive loss as it relates to interest rate hedge
instruments:
(in
thousands)
|
|
Before-Tax
Amount
|
|
Income
Tax
|
|
After-Tax
Amount
|
|
|
|
|
|
|
|
|
|
Accumulated
net gains as of August 27, 2005
|
|
$
|
10,618
|
|
$
|
(1,589
|
)
|
$
|
9,029
|
|
Net
gains on outstanding derivatives
|
|
|
5,904
|
|
|
(2,152
|
)
|
|
3,752
|
|
Reclassification
of net gains on derivatives into earnings
|
|
|
(612
|
)
|
|
—
|
|
|
(612
|
)
|
Accumulated
net gains as of August 26, 2006
|
|
|
15,910
|
|
|
(3,741
|
)
|
|
12,169
|
|
Net
losses on outstanding derivatives
|
|
|
(4,440
|
)
|
|
1,627
|
|
|
(2,813
|
)
|
Reclassification
of net gains on derivatives into earnings
|
|
|
(612
|
)
|
|
—
|
|
|
(612
|
)
|
Accumulated
net gains as of August 25, 2007
|
|
$
|
10,858
|
|
$
|
(2,114
|
)
|
$
|
8,744
|
|
The
Company primarily executes derivative transactions of relatively short duration
with strong creditworthy counterparties. These counterparties expose the Company
to credit risk in the event of non-performance. The amount of such exposure
is
limited to the unpaid portion of amounts due to the Company pursuant to the
terms of the derivative financial instruments, if any. Although there are no
collateral requirements, if a downgrade in the credit rating of these
counterparties occurs, management believes that this exposure is mitigated
by
provisions in the derivative agreements which allow for the legal right of
offset of any amounts due to the Company from the counterparties with amounts
payable, if any, to the counterparties by the Company. Management considers
the
risk of counterparty default to be minimal.
As
of
August 25, 2007, the Company estimates $600,000 of gains currently included
in
accumulated other comprehensive income to be reclassed into earnings within
the
next 12 months.
Note
F - Financing
The
Company’s long-term debt consisted of the following:
(in
thousands)
|
|
August
25,
2007
|
|
August
26,
2006
|
|
Bank
Term Loan due December 2009, effective interest rate of 4.55%
|
|
$
|
300,000
|
|
$
|
300,000
|
|
5.875%
Senior Notes due October 2012, effective interest rate of
6.33%
|
|
|
300,000
|
|
|
300,000
|
|
5.5%
Senior Notes due November 2015, effective interest rate of
4.86%
|
|
|
300,000
|
|
|
300,000
|
|
4.75%
Senior Notes due November 2010, effective interest rate of
4.17%
|
|
|
200,000
|
|
|
200,000
|
|
4.375%
Senior Notes due June 2013, effective interest rate of
5.65%
|
|
|
200,000
|
|
|
200,000
|
|
6.95%
Senior Notes due June 2016, effective interest rate of
7.09%
|
|
|
200,000
|
|
|
200,000
|
|
6.5%
Senior Notes due July 2008
|
|
|
190,000
|
|
|
190,000
|
|
Commercial
paper, weighted average interest rate of 6.1% at August 25,
2007,
and
5.3% at August 26, 2006
|
|
|
206,700
|
|
|
122,400
|
|
Other
|
|
|
38,918
|
|
|
44,757
|
|
|
|
$
|
1,935,618
|
|
$
|
1,857,157
|
|
The
Company maintains $1.0 billion of revolving credit facilities with a group
of
banks to primarily support commercial paper borrowings, letters of credit and
other short-term unsecured bank loans. These facilities expire in May 2010,
may
be increased to $1.3 billion at AutoZone’s election, may include up to $200
million in letters of credit, and may include up to $100 million in capital
leases. As the available balance is reduced by commercial paper borrowings
and
certain outstanding letters of credit, the Company had $680.2 million in
available capacity under these facilities at August 25, 2007. The rate of
interest payable under the credit facilities is a function of Bank of America’s
base rate or a Eurodollar rate (each as defined in the facility agreements),
or
a combination thereof.
The
$300.0 million bank term loan entered in December 2004 was amended in April
2006
to have similar terms and conditions as the $1.0 billion credit facilities,
but
with a December 2009 maturity, and was further amended in August 2007 to reduce
the interest rate on Euro-dollar loans. That credit agreement with a group
of
banks provides for a term loan, which consists of, at the Company’s election,
base rate loans, Eurodollar loans or a combination thereof. The interest accrues
on base rate loans at a base rate per annum equal to the higher of the prime
rate or the Federal Funds Rate plus 1/2 of 1%. Interest accrues on Eurodollar
loans at a defined Eurodollar rate plus the applicable percentage, which can
range from 30 basis points to 90 basis points, depending upon the Company’s
senior unsecured (non-credit enhanced) long-term debt rating. Based on
AutoZone’s ratings at August 25, 2007, the applicable percentage on Eurodollar
loans is 35 basis points. The Company may select interest periods of one, two,
three or six months for Eurodollar loans, subject to availability. Interest
is
payable at the end of the selected interest period, but no less frequently
than
quarterly. AutoZone entered into an interest rate swap agreement on December
29,
2004, to effectively fix, based on current debt ratings, the interest rate
of
the term loan at 4.4%. AutoZone has the option to extend loans into subsequent
interest period(s) or convert them into loans of another interest rate type.
The
entire unpaid principal amount of the term loan will be due and payable in
full
on December 23, 2009, when the facility terminates. The Company may prepay
the
term loan in whole or in part at any time without penalty, subject to
reimbursement of the lenders’ breakage and redeployment costs in the case of
prepayment of Eurodollar borrowings.
During
April 2006, the $150.0 million Senior Notes maturing at that time were repaid
with an increase in commercial paper. On June 8, 2006, the Company issued
$200.0 million in 6.95% Senior Notes due 2016 under its existing shelf
registration statement filed with the Securities and Exchange Commission on
August 17, 2004. That shelf registration allowed the Company to sell up to
$300 million in debt securities to fund general corporate purposes, including
repaying, redeeming or repurchasing outstanding debt, and for working capital,
capital expenditures, new store openings, stock repurchases and acquisitions.
The remainder of the shelf registration was cancelled in February, 2007.
The
Company’s borrowings under its Senior Notes arrangements contain minimal
covenants, primarily restrictions on liens. Under its other borrowing
arrangements, covenants include limitations on total indebtedness, restrictions
on liens, a minimum fixed charge coverage ratio and a provision where repayment
obligations may be accelerated if AutoZone experiences a change in control
(as
defined in the agreements). All of the repayment obligations under the Company’s
borrowing arrangements may be accelerated and come due prior to the scheduled
payment date if covenants are breached or an event of default occurs. As of
August 25, 2007, the Company was in compliance with all covenants and expects
to
remain in compliance with all covenants.
All
of
the Company’s debt is unsecured. Scheduled maturities of long-term debt are as
follows:
Fiscal
Year
|
|
Amount
(in
thousands)
|
|
2008
|
|
$
|
435,618
|
|
2009
|
|
|
—
|
|
2010
|
|
|
300,000
|
|
2011
|
|
|
200,000
|
|
2012
|
|
|
—
|
|
Thereafter
|
|
|
1,000,000
|
|
|
|
$
|
1,935,618
|
|
The
maturities for fiscal 2008 are classified as long-term in the fiscal 2007
consolidated balance sheet as the Company has the ability and intention to
refinance them on a long-term basis.
The
fair
value of the Company’s debt was estimated at $1.928 billion as of August 25,
2007, and $1.825 billion as of August 26, 2006, based on the quoted market
prices for the same or similar issues or on the current rates available to
the
Company for debt of the same remaining maturities. Such fair value is less
than
the carrying value of debt by $7.6 million at August 25, 2007, and $32.3 million
at August 26, 2006.
Note
G - Interest Expense
Net
interest expense consisted of the following:
|
|
Year
Ended
|
|
(in
thousands)
|
|
August
25,
2007
|
|
August
26,
2006
|
|
August
27,
2005
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
123,311
|
|
$
|
112,127
|
|
$
|
104,684
|
|
Interest
income
|
|
|
(2,819
|
)
|
|
(2,253
|
)
|
|
(1,162
|
)
|
Capitalized
interest
|
|
|
(1,376
|
)
|
|
(1,985
|
)
|
|
(1,079
|
)
|
|
|
$
|
119,116
|
|
$
|
107,889
|
|
$
|
102,443
|
|
Note
H - Stock Repurchase Program
During
1998, the Company announced a program permitting the Company to repurchase
a
portion of its outstanding shares not to exceed a dollar maximum established
by
the Company’s Board of Directors. The program was most recently amended in June
2007 to increase the repurchase authorization to $5.9 billion from $5.4 billion.
From January 1998 to August 25, 2007, the Company has repurchased a total of
99.3 million shares at an aggregate cost of $5.4 billion.
The
following table summarizes our share repurchase activity for the following
fiscal years:
|
|
Year
Ended
|
|
(in
thousands)
|
|
August
25,
2007
|
|
August
26,
2006
|
|
August
27,
2005
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
761,887
|
|
$
|
578,066
|
|
$
|
426,852
|
|
Shares
|
|
|
6,032
|
|
|
6,187
|
|
|
4,822
|
|
Note
I - Pension and Savings Plans
Prior
to
January 1, 2003, substantially all full-time employees were covered by a defined
benefit pension plan. The benefits under the plan were based on years of service
and the employee’s highest consecutive five-year average compensation. On
January 1, 2003, the plan was frozen. Accordingly, pension plan participants
will earn no new benefits under the plan formula and no new participants will
join the pension plan.
On
January 1, 2003, the Company’s supplemental defined benefit pension plan for
certain highly compensated employees was also frozen. Accordingly, plan
participants will earn no new benefits under the plan formula and no new
participants will join the pension plan.
In
September 2006, the FASB issued SFAS No. 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans, an amendment of
FASB
Statements No. 87, 88, 106, and 132(R)" (“SFAS 158”). SFAS 158
requires plan sponsors of defined benefit pension and other postretirement
benefit plans (collectively postretirement benefit plans) to: recognize the
funded status of their postretirement benefit plans in the statement of
financial position; recognize the gains or losses and prior service costs or
credits as a component of other comprehensive income, net of tax, that arise
during the period but are not recognized as components of net periodic benefit
cost pursuant to SFAS No. 87, "Employers' Accounting for Pensions" (SFAS
87); measure the fair value of plan assets and benefit obligations as of the
date of the fiscal year-end statement of financial position; and provide
additional disclosures about certain effects on net periodic benefit cost for
the next fiscal year that arise from delayed recognition of the gains or losses,
prior service costs or credits, and transition asset or obligation.
For
the
fiscal year ending August 25, 2007, we adopted the recognition and disclosure
provisions of SFAS 158. The effect of adopting SFAS 158 on the
Company’s financial condition at August 25, 2007 has been included in the
accompanying consolidated financial statements as described below.
SFAS 158's provisions regarding the change in the measurement date of
postretirement benefit plans will require the Company to change its measurement
date, beginning in fiscal year 2009, from May 31 to its fiscal year end
date.
SFAS 158
requires the Company to recognize the funded status, which is the difference
between the fair value of plan assets and the projected benefit obligations,
of
its postretirement benefit plans in the August 25, 2007 Consolidated Statement
of Financial Position, with a corresponding adjustment to accumulated other
comprehensive income (AOCI), net of tax. The adjustment to AOCI at adoption
represents the net unrecognized actuarial losses and unrecognized prior service
costs, both of which were previously netted against the plans' funded status
in
the Company’s Consolidated Statements of Financial Position pursuant to the
provisions of SFAS 87. These amounts will be subsequently recognized as net
periodic pension expense pursuant to the Company’s historical accounting policy
for amortizing such amounts.
The
effects of adopting the provisions of SFAS 158 on our Consolidated Statement
of
Financial Position at August 25, 2007 are presented in the following
table:
Pension
Balances Recorded
(in
thousands)
|
|
Prior
to Adopting SFAS 158
|
|
Effective
of Adopting SFAS 158
|
|
As
Reported
|
|
Other
non-current assets
|
|
$
|
8,780
|
|
$
|
(2,796
|
)
|
$
|
5,984
|
|
Current
liabilities
|
|
|
2,991
|
|
|
-
|
|
|
2,991
|
|
Deferred
income tax liability, net
|
|
|
2,255
|
|
|
(1,089
|
)
|
|
1,166
|
|
Accumulated
other comprehensive loss
|
|
$
|
746
|
|
$
|
1,707
|
|
$
|
2,453
|
|
The
investment strategy for pension plan assets is to utilize a diversified mix
of
domestic and international equity portfolios, together with other investments,
to earn a long-term investment return that meets the Company’s pension plan
obligations. Active management and alternative investment strategies are
utilized within the plan in an effort to minimize risk, while realizing
investment returns in excess of market indices.
The
weighted average asset allocation for our pension plan assets was as follows
at
June 30:
|
|
2007
|
|
2006
|
|
|
|
Current
|
|
Target
|
|
Current
|
|
Target
|
|
Domestic
equities
|
|
|
30.7
|
%
|
|
33.5
|
%
|
|
32.0
|
%
|
|
27.0
|
%
|
International
equities
|
|
|
27.8
|
|
|
23.0
|
|
|
24.5
|
|
|
30.9
|
|
Alternative
investments
|
|
|
27.7
|
|
|
30.5
|
|
|
30.5
|
|
|
27.9
|
|
Real
estate
|
|
|
11.2
|
|
|
11.0
|
|
|
11.0
|
|
|
12.2
|
|
Cash
and cash equivalents
|
|
|
2.6
|
|
|
2.0
|
|
|
2.0
|
|
|
2.0
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
The
measurement date for the Company’s defined benefit pension plans is May 31 of
each fiscal year.
The
following table sets forth the plans’ funded status and amounts recognized in
the Company’s financial statements:
|
|
August
25,
|
|
August
26,
|
|
(in
thousands)
|
|
2007(1)
|
|
2006
|
|
|
|
|
|
|
|
Change
in Projected Benefit Obligation:
|
|
|
|
|
|
Projected
benefit obligation at beginning of year
|
|
|
154,942
|
|
$
|
176,325
|
|
Interest
cost
|
|
|
9,593
|
|
|
9,190
|
|
Actuarial
gains
|
|
|
(550
|
)
|
|
(26,783
|
)
|
Benefits
paid
|
|
|
(2,921
|
)
|
|
(3,790
|
)
|
Benefit
obligations at end of year
|
|
$
|
161,064
|
|
$
|
154,942
|
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
$
|
126,892
|
|
$
|
107,551
|
|
Actual
return on plan assets
|
|
|
27,797
|
|
|
17,600
|
|
Employer
contributions
|
|
|
10,573
|
|
|
6,187
|
|
Benefits
paid
|
|
|
(2,921
|
)
|
|
(3,790
|
)
|
Administrative
expenses
|
|
|
(1,120
|
)
|
|
(656
|
)
|
Fair
value of plan assets at end of year
|
|
$
|
161,221
|
|
$
|
126,892
|
|
|
|
|
|
|
|
|
|
Reconciliation
of funded status:
|
|
|
|
|
|
|
|
Funded
(underfunded) status of the plans
|
|
$
|
157
|
|
|
($28,050
|
)
|
Contributions
from measurement date to fiscal year-end
|
|
|
2,836
|
|
|
3,017
|
|
Unrecognized
net actuarial losses
|
|
|
-
|
|
|
21,464
|
|
Unamortized
prior service cost
|
|
|
-
|
|
|
105
|
|
Net
amount recognized
|
|
$
|
2,993
|
|
|
($3,464
|
)
|
|
|
|
|
|
|
|
|
Amount
Recognized in the Statement of Financial
Position:
|
|
|
|
|
|
|
|
Noncurrent
other assets
|
|
$
|
5,984
|
|
|
-
|
|
Current
liabilities
|
|
|
(2,991
|
)
|
|
(7,006
|
)
|
Long-term
liabilities
|
|
|
-
|
|
|
(21,044
|
)
|
Intangible
assets
|
|
|
-
|
|
|
105
|
|
Accumulated
other comprehensive loss
|
|
|
-
|
|
|
24,481
|
|
Net
amount recognized
|
|
$
|
2,993
|
|
|
($3,464
|
)
|
|
|
|
|
|
|
|
|
Amount
Recognized in AOCI and not yet reflected in Net
Periodic
|
|
|
|
|
|
|
|
Benefit
Cost:
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
|
($3,830
|
)
|
|
|
|
Prior
service cost
|
|
|
(159
|
)
|
|
|
|
AOCI
|
|
|
(3,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Amount
Recognized in AOCI and not yet reflected in Net
Periodic
|
|
|
|
|
|
|
|
Benefit
Cost and expected to be amortized in next year’s
net
|
|
|
|
|
|
|
|
periodic
benefit cost:
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
$
|
97
|
|
|
|
|
Prior
service cost
|
|
|
99
|
|
|
|
|
Amount
recognized
|
|
$
|
196
|
|
|
|
|
(1)
Incorporates the provisions of SFAS 158 adopted on August 25,
2007.
|
|
Year
Ended
|
|
|
|
August
25,
|
|
August
26,
|
|
August
27,
|
|
(in
thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
|
Interest
cost
|
|
$
|
9,593
|
|
$
|
9,190
|
|
$
|
8,290
|
|
Expected
return on plan assets
|
|
|
(10,343
|
)
|
|
(8,573
|
)
|
|
(8,107
|
)
|
Amortization
of prior service cost
|
|
|
(54
|
)
|
|
(627
|
)
|
|
(644
|
)
|
Recognized
net actuarial losses
|
|
|
751
|
|
|
5,645
|
|
|
1,000
|
|
Net
periodic benefit cost
|
|
$
|
(53
|
)
|
$
|
5,635
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
The
actuarial assumptions were as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
Weighted
average discount rate
|
|
|
6.25
|
%
|
|
6.25
|
%
|
|
5.25
|
%
|
Expected
long-term rate of return on assets
|
|
|
8.00
|
%
|
|
8.00
|
%
|
|
8.00
|
%
|
As
the
plan benefits are frozen, increases in future compensation levels no longer
impact the calculation and there is no service cost. The discount rate is
determined as of the measurement date with the assistance of actuaries, who
calculate the yield on a portfolio of high-grade corporate bonds with cash
flows
that generally match our expected benefit payments in future years. The expected
long-term rate of return on plan assets is based on the historical relationships
between the investment classes and the capital markets, updated for current
conditions. Prior service cost is amortized over the estimated average remaining
service period of active plan participants as of the date the prior service
base
is established, and the unrecognized actuarial loss is amortized over the
estimated remaining service period of 7.81 years at August 25,
2007.
The
Company makes annual contributions in amounts at least equal to the minimum
funding requirements of the Employee Retirement Income Security Act of 1974.
The
Company contributed $13.4 million to the plans in fiscal 2007, $9.2 million
to
the plans in fiscal 2006, and no contributions to the plans in fiscal 2005.
Based on current projections, we expect to contribute approximately $3.0 million
to the plan in fiscal 2008; however, a change to the expected cash funding
may
be impacted by a change in interest rates or a change in the actual or expected
return on plan assets.
Based
on
current assumptions about future events, benefit payments are expected to be
paid as follows for each of the following plan years. Actual benefit payments
may vary significantly from the following estimates:
Plan
Year Ending December 31
|
|
Amount
(in
thousands)
|
|
2007
|
|
$
|
3,506
|
|
2008
|
|
|
4,114
|
|
2009
|
|
|
4,742
|
|
2010
|
|
|
5,318
|
|
2011
|
|
|
5,847
|
|
2012
- 2016
|
|
|
39,101
|
|
The
Company has a 401(k) plan that covers all domestic employees who meet the plan’s
participation requirements. The plan features include Company matching
contributions, immediate 100% vesting of Company contributions and a savings
option to 25% of qualified earnings. The Company makes matching contributions,
per pay period, up to a specified percentage of employees’ contributions as
approved by the Board of Directors. The Company made matching contributions
to
employee accounts in connection with the 401(k) plan of $9.5 million in fiscal
2007, $8.6 million in fiscal 2006, and $8.4 million in fiscal 2005.
Note
J - Leases
The
Company leases some of its retail stores, distribution centers, facilities,
land
and equipment, including vehicles. Most of these leases are operating leases
and
include renewal options, at the Company’s election, and some include options to
purchase and provisions for percentage rent based on sales. Rental expense
was
$152.5 million in fiscal 2007, $143.9 million in fiscal 2006, and $150.6 million
in fiscal 2005. Percentage rentals were insignificant.
The
Company has a fleet of vehicles used for delivery to our commercial customers
and travel for members of field management. The majority of these vehicles
are
held under capital lease. At August 25, 2007, the Company had capital lease
assets of $54.4 million, net of accumulated amortization of $11.2 million,
and
capital lease obligations of $55.1 million. The $16.0 million current portion
of
these obligations was recorded as a component of other current liabilities
and
the $39.1 million long-term portion was recorded as a component of other
long-term liabilities in the consolidated balance sheet.
Based
on
clarifications from the Securities and Exchange Commission, during fiscal 2005,
the Company completed a detailed review of its accounting for rent expense
and
expected useful lives of leasehold improvements. The Company noted
inconsistencies in the periods used to amortize leasehold improvements and
the
periods used to straight-line rent expense. The Company revised its policy
to
record rent for all operating leases on a straight-line basis over the lease
term, including any reasonably assured renewal periods and the period of time
prior to the lease term that the Company is in possession of the leased space
for the purpose of installing leasehold improvements. Differences between
recorded rent expense and cash payments are recorded as a liability in accrued
expenses and other long-term liabilities on the balance sheet. This deferred
rent approximated $42.6 million on August 25, 2007 and $31.1 million on August
26, 2006. Additionally, all leasehold improvements are amortized over the lesser
of their useful life or the remainder of the lease term, including any
reasonably assured renewal periods, in effect when the leasehold improvements
are placed in service. During the quarter ended February 12, 2005, the Company
recorded an adjustment in the amount of $40.3 million pre-tax ($25.4 million
after-tax), which lowered fiscal 2005 diluted earnings per share by $0.32.
This
adjustment included the impact on prior years, to reflect additional
amortization of leasehold improvements and additional rent expense as if this
new policy had always been followed by the Company. The impact of the adjustment
on any prior year would have been immaterial.
Minimum
annual rental commitments under non-cancelable operating leases and capital
leases were as follows at the end of fiscal 2007:
|
|
(amounts
in thousands)
|
|
|
|
Operating
|
|
Capital
|
|
Fiscal
Year
|
|
Leases
|
|
Leases
|
|
2008
|
|
$
|
171,163
|
|
$
|
16,015
|
|
2009
|
|
|
155,446
|
|
|
15,535
|
|
2010
|
|
|
136,524
|
|
|
13,393
|
|
2011
|
|
|
117,452
|
|
|
10,404
|
|
2012
|
|
|
97,532
|
|
|
7,163
|
|
Thereafter
|
|
|
634,135
|
|
|
-
|
|
Total
minimum payments required
|
|
$
|
1,312,252
|
|
|
62,510
|
|
Less:
interest
|
|
|
|
|
|
(7,422
|
)
|
Present
value of minimum capital lease payments
|
|
|
|
|
$
|
55,088
|
|
In
connection with the Company’s December 2001 sale of the TruckPro business, the
Company subleased some properties to the purchaser for an initial term of not
less than 20 years. The Company’s remaining aggregate rental obligation at
August 25, 2007 of $25.3 million is included in the above table, but the
obligation is entirely offset by the sublease rental agreement.
Note
K - Commitments and Contingencies
Construction
commitments, primarily for new stores, totaled approximately $23.8 million
at
August 25, 2007.
The
Company had $113.3 million in outstanding standby letters of credit and $11.3
million in surety bonds as of August 25, 2007, which all have expiration periods
of less than one year. A substantial portion of the outstanding standby letters
of credit (which are primarily renewed on an annual basis) and surety bonds
are
used to cover reimbursement obligations to our workers’ compensation carriers.
There are no additional contingent liabilities associated with these instruments
as the underlying liabilities are already reflected in our consolidated balance
sheet. The standby letters of credit and surety bonds arrangements have
automatic renewal clauses.
Note
L - Litigation
AutoZone,
Inc. is a defendant in a lawsuit entitled "Coalition for a Level Playing Field,
L.L.C., et al., v. AutoZone, Inc. et al.," filed in the U.S. District Court
for
the Southern District of New York in October 2004. The case was filed by more
than 200 plaintiffs, which are principally automotive aftermarket warehouse
distributors and jobbers (collectively “Plaintiffs”), against a number of
defendants, including automotive aftermarket retailers and aftermarket
automotive parts manufacturers. In the amended complaint, the plaintiffs allege,
inter alia, that some or all of the automotive aftermarket retailer defendants
have knowingly received, in violation of the Robinson-Patman Act (the “Act”),
from various of the manufacturer defendants benefits such as volume discounts,
rebates, early buy allowances and other allowances, fees, inventory without
payment, sham advertising and promotional payments, a share in the
manufacturers' profits, benefits of pay on scan purchases, implementation of
radio frequency identification technology, and excessive payments for services
purportedly performed for the manufacturers. Additionally, a subset of
plaintiffs alleges a claim of fraud against the automotive aftermarket retailer
defendants based on discovery issues in a prior litigation involving similar
Robinson-Patman Act claims. In the prior litigation, the discovery dispute,
as
well as the underlying claims, were decided in favor of AutoZone and the other
automotive aftermarket retailer defendants who proceeded to trial, pursuant
to a
unanimous jury verdict which was affirmed by the Second Circuit Court of
Appeals. In the current litigation, plaintiffs seek an unspecified amount of
damages (including statutory trebling), attorneys' fees, and a permanent
injunction prohibiting the aftermarket retailer defendants from inducing and/or
knowingly receiving discriminatory prices from any of the aftermarket
manufacturer defendants and from opening up any further stores to compete with
plaintiffs as long as defendants allegedly continue to violate the Act. The
Company believes this suit to be without merit and is vigorously defending
against it. Defendants have filed motions to dismiss all claims with prejudice
on substantive and procedural grounds. Additionally, the Defendants have sought
to enjoin plaintiffs from filing similar lawsuits in the future. If granted
in
their entirety, these dispositive motions would resolve the litigation in
Defendants' favor.
On
June
22, 2005, the Attorney General of the State of California, in conjunction with
District Attorneys for San Bernardino, San Joaquin and Monterey Counties, filed
suit in the San Bernardino County Superior Court against AutoZone, Inc. and
its
California subsidiaries. The San Diego County District Attorney later joined
the
suit. The lawsuit alleges that AutoZone failed to follow various state statutes
and regulation governing the storage and handling of used motor oil and other
materials collected for recycling or used for cleaning AutoZone stores and
parking lots. The suit sought $12 million in penalties and injunctive relief.
On
June 1, 2007, AutoZone and the State entered into a Stipulated Final Judgment
by
Consent. The Stipulated Final Judgment amended the suit to also allege weights
and measures (pricing) violations. Pursuant to this Judgment, AutoZone is
enjoined from committing these types of violations and agreed to pay civil
penalties in the amount of $1.8 million, including $1.5 million in cash and
a
$300,000 credit for work performed to insure compliance.
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 other proceedings cannot be ascertained,
the Company does not currently believe that, in the aggregate, these matters
will result in liabilities material to the Company’s financial condition,
results of operations or cash flows.
Note
M - Segment Reporting
The
Company manages its business on the basis of one reportable segment. See “Note A
- Significant Accounting Policies” for a brief description of the Company’s
business. As of August 25, 2007, the majority of the Company’s operations were
located within the United States. Other operations include ALLDATA and the
Mexico locations, each of which comprises less than 3% of consolidated net
sales. The following data is presented in accordance with Statement of Financial
Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and
Related Information:”
(in
thousands)
|
|
August
25,
2007
|
|
August
26,
2006
|
|
August
27,
2005
|
|
|
|
|
|
|
|
|
|
Primary
business focus:
|
|
|
|
|
|
|
|
Domestic
Retail
|
|
$
|
5,160,511
|
|
$
|
4,989,266
|
|
$
|
4,795,648
|
|
Domestic
Commercial
|
|
|
705,567
|
|
|
708,715
|
|
|
718,150
|
|
Other
|
|
|
303,726
|
|
|
250,374
|
|
|
197,084
|
|
Net
sales
|
|
$
|
6,169,804
|
|
$
|
5,948,355
|
|
$
|
5,710,882
|
|
Quarterly
Summary (1)
(unaudited)
|
|
Twelve
Weeks Ended
|
|
Sixteen
Weeks
Ended
|
|
(in
thousands, except per share
data)
|
|
November
18,
2006
|
|
February
10,
2007
|
|
May
5,
2007
|
|
August
25,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,393,069
|
|
$
|
1,300,357
|
|
$
|
1,473,671
|
|
$
|
2,002,707
|
|
Increase
(decrease) in domestic
comparable
store sales
|
|
|
0.3
|
%
|
|
(0.3
|
)%
|
|
0.4
|
%
|
|
(0.2
|
)%
|
Gross
profit
|
|
|
685,295
|
|
|
639,212
|
|
|
735,399
|
|
|
1,004,344
|
|
Operating
profit
|
|
|
222,996
|
|
|
188,923
|
|
|
264,977
|
|
|
378,369
|
|
Income
before income taxes
|
|
|
195,903
|
|
|
162,105
|
|
|
237,862
|
|
|
340,279
|
|
Net
income
|
|
|
123,889
|
|
|
103,016
|
|
|
151,591
|
|
|
217,175
|
|
Basic
earnings per share
|
|
|
1.74
|
|
|
1.46
|
|
|
2.19
|
|
|
3.26
|
|
Diluted
earnings per share
|
|
|
1.73
|
|
|
1.45
|
|
|
2.17
|
|
|
3.23
|
|
(in
thousands, except per share data)
|
|
November
19,
2005
|
|
February
11,
2006
|
|
May
6,
2006
|
|
August
26,
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,338,076
|
|
$
|
1,253,815
|
|
$
|
1,417,433
|
|
$
|
1,939,031
|
|
Increase
(decrease) in domestic
comparable
store sales
|
|
|
0.8
|
%
|
|
0.4
|
%
|
|
2.1
|
%
|
|
(0.9
|
)%
|
Gross
profit
|
|
|
655,529
|
|
|
616,190
|
|
|
704,041
|
|
|
962,761
|
|
Operating
profit
|
|
|
205,293
|
|
|
178,345
|
|
|
253,169
|
|
|
373,118
|
|
Income
before income taxes
|
|
|
181,554
|
|
|
154,012
|
|
|
228,248
|
|
|
338,222
|
|
Net
income
|
|
|
114,374
|
|
|
97,022
|
|
|
144,428
|
|
|
213,451
|
|
Basic
earnings per share
|
|
|
1.49
|
|
|
1.26
|
|
|
1.90
|
|
|
2.94
|
|
Diluted
earnings per share
|
|
|
1.48
|
|
|
1.25
|
|
|
1.89
|
|
|
2.92
|
|
(1) |
The
sum of quarterly amounts may not equal the annual amounts reported
due to
rounding and due to per share amounts being computed independently
for
each quarter while the full year is based on the annual weighted
average
shares outstanding.
|
Item
9. Changes In and Disagreements with Accountants on Accounting
and Financial
Disclosure
Not
applicable.
Item
9A. Controls and Procedures
As
of
August 25, 2007, an evaluation was performed under the supervision and with
the
participation of AutoZone’s management, including the Chief Executive Officer
and the Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of August 25, 2007.
Based
on that evaluation, our management, including the Chief Executive Officer and
the Chief Financial Officer, concluded that our disclosure controls and
procedures were effective. During or subsequent to the fiscal year ended August
25, 2007, there were no changes in our internal controls that have materially
affected or are reasonably likely to materially affect internal controls over
financial reporting.
Item
9B. Other Information
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
The
information set forth in Part I of this document in the section entitled
“Executive Officers of the Registrant,” is incorporated herein by reference in
response to this item. Additionally, the information contained in AutoZone,
Inc.’s Proxy Statement dated October 22, 2007, in the sections entitled
“Proposal 1 - Election of Directors” and “Section 16(a) Beneficial Ownership
Reporting Compliance,” is incorporated herein by reference in response to this
item.
The
Company has adopted a Code of Ethical Conduct for Financial Executives that
applies to its chief executive officer, chief financial officer, chief
accounting officer and persons performing similar functions. The Company has
filed a copy of this Code of Ethical Conduct as Exhibit 14.1 to this Form 10-K.
The Company has also made the Code of Ethical Conduct available on its investor
relations website at http://www.autozoneinc.com.
Item
11. Executive Compensation
The
information contained in AutoZone, Inc.’s Proxy Statement dated October 22,
2007, in the section entitled “Executive Compensation,” is incorporated herein
by reference in response to this item.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
information contained in AutoZone, Inc.’s Proxy Statement dated October 22,
2007, in the sections entitled “Security Ownership of Management” and “Security
Ownership of Certain Beneficial Owners,” is incorporated herein by reference in
response to this item.
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Not
applicable.
Item
14. Principal Accountant Fees and Services
The
information contained in AutoZone, Inc.’s Proxy Statement dated October 22,
2007, in the section entitled “Proposal 2 - Ratification of Independent
Registered Public Accounting Firm,” is incorporated herein by reference in
response to this item.
PART
IV
Item
15. Exhibits, Financial Statement Schedules
The
following information required under this item is filed as part of this
report
(a)
Financial Statements
The
following financial statements, related notes and reports of independent
registered public accounting firm are filed with this Annual Report in Part
II,
Item 8:
Report
of Independent Registered Public Accounting Firm on Internal Control
Over
Financial Reporting
|
|
31
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
32
|
|
|
|
Consolidated
Statements of Income for the fiscal years ended August 25, 2007,
August
26, 2006,
and
August 27, 2005
|
|
33
|
|
|
|
Consolidated
Balance Sheets as of August 25, 2007, and August 26, 2006
|
|
34
|
|
|
|
Consolidated
Statements of Cash Flows for the fiscal years ended August 25, 2007,
August 26, 2006,
and
August 27, 2005
|
|
35
|
|
|
|
Consolidated
Statements of Stockholders’ Equity for the fiscal years ended August 25,
2007, August 26, 2006,
and
August 27, 2005
|
|
36
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
37
|
(b) Exhibits
The
Exhibit Index following this document’s signature pages is incorporated herein
by reference in response to this item.
(c)
Financial Statement Schedules
Schedules
are omitted because the information is not required or because the information
required is included in the financial statements or notes thereto.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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/
William C. Rhodes, III |
|
William
C. Rhodes, III
Chairman,
President and
Chief
Executive Officer
(Principal
Executive Officer)
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Dated:
October 22, 2007
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
SIGNATURE
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TITLE
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DATE
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/s/
William C. Rhodes, III
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Chairman,
President and Chief Executive Officer
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October
22, 2007
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William
C. Rhodes, III
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(Principal
Executive Officer)
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/s/
William T. Giles
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Chief
Financial Officer and Executive Vice President,
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October
22, 2007
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William
T. Giles
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Finance,
Information Technology and Store Development
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(Principal
Financial Officer)
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/s/
Charlie Pleas, III
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Senior
Vice President, Controller
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October
22, 2007
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Charlie
Pleas, III
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(Principal
Accounting Officer)
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/s/
Charles M. Elson
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Director
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October
22, 2007
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Charles
M. Elson
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/s/
Sue E. Gove
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Director
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October
22, 2007
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Sue
E. Gove
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/s/
Earl G. Graves, Jr.
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Director
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October
22, 2007
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Earl
G. Graves, Jr.
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/s/
N. Gerry House
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Director
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October
22, 2007
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N.
Gerry House
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/s/
J.R. Hyde, III
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Director
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October
22, 2007
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J.R.
Hyde, III
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/s/
W. Andrew McKenna
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Director
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October
22, 2007
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W.
Andrew McKenna
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/s/
George R. Mrkonic, Jr.
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Director
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October
22, 2007
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George
R. Mrkonic, Jr.
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/s/
Theodore W. Ullyot
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Director
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October
22, 2007
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Theodore
W. Ullyot
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EXHIBIT
INDEX
3.1
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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.
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3.2
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Fourth
Amended and Restated By-laws of AutoZone, Inc. Incorporated by reference
to Exhibit 99.2 to the Form 8-K dated September 28,
2007.
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4.1
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Senior
Indenture, dated as of July 22, 1998, between AutoZone, Inc. and
the First
National Bank of Chicago. Incorporated by reference to Exhibit 4.1
to the
Form 8-K dated July 17, 1998.
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4.2
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Fourth
Amended and Restated AutoZone, Inc. Employee Stock Purchase Plan.
Incorporated by reference to Exhibit 99.1 to the Form 8-K dated September
28, 2007.
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4.3
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Indenture
dated as of August 8, 2003, between AutoZone, Inc. and Bank One Trust
Company, N.A. Incorporated by reference to Exhibit 4.1 to the Form
S-3
(No. 333-107828) filed August 11, 2003.
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*10.1
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Fourth
Amended and Restated Director Stock Option Plan. Incorporated by
reference
to Exhibit 10.1 to the Form 10-Q for the quarter ended May 4,
2002.
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*10.2
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Second
Amended and Restated 1998 Director Compensation Plan. Incorporated
by
reference to Exhibit 10.2 to the Form 10-K for the fiscal year ended
August 26, 2000.
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*10.3
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Third
Amended and Restated 1996 Stock Option Plan. Incorporated by reference
to
Exhibit 10.3 to the Form 10-K for the fiscal year ended August 30,
2003.
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*10.4
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Form
of Incentive Stock Option Agreement. Incorporated by reference to
Exhibit
10.2 to the Form 10-Q for the quarter ended November 23,
2002.
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*10.5
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Form
of Non-Qualified Stock Option Agreement. Incorporated by reference
to
Exhibit 10.1 to the Form 10-Q for the quarter ended November 23,
2002.
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*10.6
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AutoZone,
Inc. Executive Deferred Compensation Plan. Incorporated by reference
to
Exhibit 10.3 to the Form 10-Q for the quarter ended February 12,
2000.
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*10.7
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Form
of Amended and Restated Employment and Non-Compete Agreement between
AutoZone, Inc. and various executive officers. Incorporated by reference
to Exhibit 10.1 to the Form 10-Q for the quarter ended November 22,
1999.
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*10.8
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Form
of Employment and Non-Compete Agreement between AutoZone, Inc., and
various officers. Incorporated by reference to Exhibit 10.2 to the
Form
10-Q for the quarter ended November 18, 2000.
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*10.9
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AutoZone,
Inc. 2003 Director Stock Option Plan. Incorporated by reference to
Appendix C to the definitive proxy statement dated November 1, 2002,
for
the annual meeting of stockholders held December 12,
2002.
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*10.10
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AutoZone,
Inc. 2003 Director Compensation Plan. Incorporated by reference to
Appendix D to the definitive proxy statement dated November 1, 2002,
for
the annual meeting of stockholders held December 12,
2002.
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*10.11
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Amended
and Restated AutoZone, Inc. Executive Deferred Compensation Plan.
Incorporated by reference to Exhibit 10.1 to the Form 10-Q for the
quarter
ended February 15, 2003.
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*10.12
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Amended
and Restated Employment and Non-Compete Agreement between Steve Odland
and
AutoZone, Inc., dated October 23, 2003. Incorporated by reference
to
Exhibit 10.1 to the Form 10-Q for the quarter ended November 22,
2003.
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10.13
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Amended
and Restated Five-Year Credit Agreement dated as of May 17, 2004,
among
AutoZone, Inc., as borrower, the several lenders from time to time
party
thereto, and Fleet National Bank, as Administrative Agent and Citicorp
USA, Inc., as Syndication Agent. Incorporated by reference to Exhibit
10.1
to the Form 10-Q for the quarter ended May 8, 2004.
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10.14
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AutoZone,
Inc.
2005 Executive Incentive Compensation Plan. Incorporated by reference
to
Exhibit A to the Company’s Proxy Statement dated October 27, 2004, for the
Annual Meeting of Stockholders held December 16, 2004.
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10.15
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Credit
Agreement dated as of December 23, 2004, among AutoZone, Inc., as
Borrower, the Several Lenders from time to time party thereto, Fleet
National Bank, as Administrative Agent, Wachovia Bank, National
Association, as Syndication Agent, Wachovia Capital Markets, LLC,
as Joint
Lead Arranger and Sole Book Manager, Banc of America Securities LLC
as
Joint Lead Arranger, and Calyon New York Branch, BNP Paribas and
Regions
Bank as Co-Documentation Agents. Incorporated by reference to Exhibit
10.1
to Form 8-K dated December 23, 2004 (filed with the Securities and
Exchange Commission on December 29, 2004).
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10.16
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Lenders’
consent to extend the termination date of the Company’s Amended and
Restated 5-Year Credit Agreement dated as of May 17, 2004 for an
additional period of one year, to May 17, 2010. Incorporated by reference
to Exhibit 10.2 to the Form 10-Q for the quarter ended May 7,
2005.
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10.17
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Lenders’
consent to extend the termination date of the Company’s Amended and
Restated 364-Day Credit agreement dated as of May 17, 2004 for an
additional period of 364 days, to May 15, 2006. Incorporated by reference
to Exhibit 10.3 to the Form 10-Q for the quarter ended May 7,
2005.
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*10.18
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Description
of severance agreement between AutoZone, Inc. and William
C. Rhodes, III.
Incorporated by reference to Exhibit 10.22 to the Form 10-K for the
fiscal
year ended August 27, 2005, and the Form 8-K dated September 28,
2007.
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10.19
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Agreement
dated as of October 19, 2005, between AutoZone, Inc. and Michael
E. Longo.
Incorporated by reference to Exhibit 10.1 to the Form 10-Q for the
quarter
ended May 6, 2006.
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10.20
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Offer
letter dated April 13, 2006, to William T. Giles. Incorporated by
reference to Exhibit 10.2 to the Form 10-Q for the quarter ended
May 6,
2006.
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10.21
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First
Amendment dated as of May 5, 2006, to the Credit Agreement dated
as of
December 23, 2004, among AutoZone, Inc., as Borrower, the Several
Lenders
from time to time party thereto, Bank of America, N.A, as Administrative
Agent, and Wachovia Bank, National Association, as Syndication Agent.
Incorporated by reference to Exhibit 10.3 to the Form 10-Q for the
quarter
ended May 6, 2006.
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10.22
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Second
Amendment dated as of August 3, 2007, to the Credit Agreement dated
as of
December 23, 2004, (as amended by the First Amendment to Credit Agreement
dated as of May 5, 2006) among AutoZone, Inc., as Borrower, the Several
Lenders from time to time party thereto, Bank of America, N.A, as
Administrative Agent, and Wachovia Bank, National Association, as
Syndication Agent.
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10.23
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Four-Year
Credit Agreement dated as of May 5, 2006, among AutoZone, Inc. as
Borrower, the Several Lenders from time to time party thereto, Bank
of
America, N.A., as Administrative Agent, and Citicorp USA, Inc. as
Syndication Agent. Incorporated by reference to Exhibit 10.4 to the
Form
10-Q for the quarter ended May 6, 2006.
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10.24
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Second
Amended and Restated Five-Year Credit Agreement dated as of May 5,
2006,
among AutoZone, Inc. as Borrower, the Several Lenders from time to
time
party thereto, Bank of America, N.A. as Administrative Agent and
Swingline
Lender, and Citicorp USA, Inc. as Syndication Agent. Incorporated
by
reference to Exhibit 10.5 to the Form 10-Q for the quarter ended
May 6,
2006.
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10.25
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AutoZone,
Inc. 2006 Stock Option Plan. Incorporated by reference to Appendix
A to
the definitive proxy statement dated October 25, 2006, for the annual
meeting of stockholders held December 13, 2006.
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10.26
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Form
of Stock Option Agreement.
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10.27
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AutoZone,
Inc. Fourth Amended and Restated Executive Stock Purchase Plan.
Incorporated by reference to Appendix B to the definitive proxy statement
dated October 25, 2006, for the annual meeting of stockholders held
December 13, 2006.
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10.28
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Agreement
dated January 19, 2007, between AutoZone, Inc. and Bradley W. Bacon.
Incorporated by
reference
to Exhibit 99.1 to the Form 8-K dated January 19, 2007.
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10.29
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Offer
letter dated March 19, 2007, to Larry Roesel. Incorporated by reference
to
Exhibit 10.1 to the Form 10-Q for the quarter ended May 5,
2007.
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12.1
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Computation
of Ratio of Earnings to Fixed
Charges.
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14.1
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Code
of Ethical Conduct. Incorporated by reference to Exhibit 14.1 of
the Form
10-K for the fiscal year ended August 30, 2003.
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21.1
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Subsidiaries
of the Registrant.
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23.1
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Consent
of Ernst & Young LLP.
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31.1
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Certification
of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934, as Adopted Pursuant to
Section
302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification
of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934, as Adopted Pursuant to
Section
302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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32.2
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Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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*
Management contract or compensatory plan or arrangement.