Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x |
Quarterly report pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
For
the quarterly period ended November 17, 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
|
incorporation
or organization)
|
Identification
No.)
|
123
South Front Street
Memphis,
Tennessee 38103
(Address
of principal executive offices) (Zip Code)
(901)
495-6500
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See the 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 Exchange Act). Yes o No x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common
Stock, $.01 Par Value - 63,178,650 shares outstanding as of December 6,
2007.
TABLE
OF CONTENTS
PART
I.
FINANCIAL INFORMATION
Item
1.
Financial Statements
CONDENSED
CONSOLIDATED BALANCE SHEETS
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Item
2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item
3.
Quantitative and Qualitative Disclosures About Market Risk
Item
4.
Controls and Procedures
PART
II.
OTHER INFORMATION
Item
1.
Legal Proceedings
Item
1A.
Risk Factors
Item
2.
Changes in Securities and Use of Proceeds
Item
3.
Defaults Upon Senior Securities
Item
4.
Submission of Matters to a Vote of Security Holders
Item
5.
Other Information
Item
6.
Exhibits
SIGNATURES
EXHIBIT
INDEX
EX.12.1
RATIO OF EARNINGS TO FIXED CHARGES
EX.15.1
LETTER FROM ERNST & YOUNG LLP
EX.31.1
SECTION 302 CERTIFICATION OF PEO
EX.31.2
SECTION 302 CERTIFICATION OF PFO
EX.32.1
SECTION 906 CERTIFICATION OF PEO
EX.32.2
SECTION 906 CERTIFICATION OF PFO
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements.
AUTOZONE,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in
thousands)
|
|
November
17,
2007
|
|
August
25,
2007
|
|
ASSETS
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
79,813
|
|
$
|
86,654
|
|
Accounts
receivable
|
|
|
53,900
|
|
|
59,876
|
|
Merchandise
inventories
|
|
|
2,051,524
|
|
|
2,007,430
|
|
Other
current assets
|
|
|
134,500
|
|
|
116,495
|
|
Total
current assets
|
|
|
2,319,737
|
|
|
2,270,455
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
3,440,810
|
|
|
3,395,545
|
|
Less:
Accumulated depreciation and amortization
|
|
|
1,252,275
|
|
|
1,217,703
|
|
|
|
|
2,188,535
|
|
|
2,177,842
|
|
Other
assets
|
|
|
|
|
|
|
|
Goodwill,
net of accumulated amortization
|
|
|
302,645
|
|
|
302,645
|
|
Deferred
income taxes
|
|
|
36,280 |
|
|
21,331 |
|
Other
long-term assets
|
|
|
27,020
|
|
|
32,436
|
|
|
|
|
365,945
|
|
|
356,412
|
|
|
|
$
|
4,874,217
|
|
$
|
4,804,709
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,844,940
|
|
$
|
1,870,668
|
|
Accrued
expenses and other
|
|
|
326,129
|
|
|
307,633
|
|
Income
taxes payable
|
|
|
78,368
|
|
|
25,442
|
|
Deferred
income taxes
|
|
|
69,833
|
|
|
82,152
|
|
Total
current liabilities
|
|
|
2,319,270
|
|
|
2,285,895
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
2,161,070
|
|
|
1,935,618
|
|
Other
liabilities
|
|
|
222,824
|
|
|
179,996
|
|
Stockholders’
equity
|
|
|
171,053
|
|
|
403,200391,007
|
|
|
|
$
|
4,874,217
|
|
$
|
4,804,709
|
|
See
Notes to Condensed Consolidated Financial
Statements
AUTOZONE,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in
thousands, except per share amounts)
|
|
Twelve
Weeks Ended
|
|
|
|
November
17,
2007
|
|
|
November
18,
2006
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,455,655
|
|
$
|
1,393,069
|
|
Cost
of sales, including warehouse
|
|
|
|
|
|
|
|
and
delivery expenses
|
|
|
729,207
|
|
|
707,774
|
|
Operating,
selling, general and
|
|
|
|
|
|
|
|
administrative
expenses
|
|
|
489,073
|
|
|
462,299
|
|
Operating
profit
|
|
|
237,375
|
|
|
222,996
|
|
Interest
expense, net
|
|
|
28,062
|
|
|
27,093
|
|
Income
before income taxes
|
|
|
209,313
|
|
|
195,903
|
|
Income
taxes
|
|
|
76,797
|
|
|
72,014
|
|
Net
income
|
|
$
|
132,516
|
|
$
|
123,889
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
|
|
|
|
|
for
basic earnings per share
|
|
|
64,855
|
|
|
71,082
|
|
Effect
of dilutive stock equivalents
|
|
|
589
|
|
|
731
|
|
Adjusted
weighted average shares
|
|
|
|
|
|
|
|
for
diluted earnings per share
|
|
|
65,444
|
|
|
71,813
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
2.04
|
|
$
|
1.74
|
|
Diluted
earnings per share
|
|
$
|
2.02
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
See
Notes to Condensed Consolidated Financial Statements
AUTOZONE,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in
thousands)
|
|
Twelve
Weeks Ended
|
|
|
|
November
17, 2007
|
|
November
18, 2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
$
|
132,516
|
|
$
|
123,889
|
|
Adjustments
to reconcile net income to net
|
|
|
|
|
|
|
|
cash
provided by operating activities
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
39,692
|
|
|
35,554
|
|
Amortization
of debt origination fees
|
|
|
415
|
|
|
409
|
|
Income
tax benefit from exercise of options
|
|
|
(1,795
|
)
|
|
(5,798
|
)
|
Deferred
income taxes
|
|
|
(379
|
)
|
|
(802
|
)
|
Share-based
compensation expense
|
|
|
4,182
|
|
|
4,302
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
5,976
|
|
|
6,531
|
|
Merchandise
inventories
|
|
|
(44,094
|
)
|
|
(36,698
|
)
|
Accounts
payable and accrued expenses
|
|
|
(23,074
|
)
|
|
(50,123
|
)
|
Income
taxes payable
|
|
|
54,721
|
|
|
39,884
|
|
Other,
net
|
|
|
2,885
|
|
|
(5,185
|
)
|
Net
cash provided by operating activities
|
|
|
171,045
|
|
|
111,963
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(44,887
|
)
|
|
(52,198
|
)
|
Purchase
of marketable securities
|
|
|
(20,448
|
)
|
|
(27,770
|
)
|
Proceeds
from sale of marketable securities
|
|
|
5,282
|
|
|
8,790
|
|
Disposal
of capital assets and other, net
|
|
|
392
|
|
|
282
|
|
Net
cash used in investing activities
|
|
|
(59,661
|
)
|
|
(70,896
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Net
proceeds from commercial paper
|
|
|
264,370
|
|
|
6,200
|
|
Repayment
of debt
|
|
|
(38,918
|
)
|
|
(3,686
|
)
|
Net
proceeds from sale of common stock
|
|
|
8,766
|
|
|
26,109
|
|
Purchase
of treasury stock
|
|
|
(349,990
|
)
|
|
(90,767
|
)
|
Income
tax benefit from exercise of stock options
Payment
of capital lease obligations
|
|
|
1,795
(3,874
|
)
|
|
5,798
(2,270
|
)
|
Other,
net
|
|
|
(374
|
)
|
|
(650
|
)
|
Net
cash used in financing activities
|
|
|
(118,225
|
)
|
|
(59,266
|
)
|
Net
decrease in cash and cash equivalents
|
|
|
(6,841
|
)
|
|
(18,199
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
86,654
|
|
|
91,558
|
|
Cash
and cash equivalents at end of period
|
|
$
|
79,813
|
|
$
|
73,359
|
|
See
Notes to Condensed Consolidated Financial Statements
AUTOZONE,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
A- Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and Article
10
of Regulation S-X. Accordingly, they do not include all of the information
and
footnotes required by U.S. generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, including
normal recurring accruals, considered necessary for a fair presentation have
been included. Certain prior year amounts have been reclassified to conform
to
current year presentations. For further information, refer to the consolidated
financial statements and footnotes included in the 2007 Annual Report to
Shareholders for AutoZone, Inc. (“AutoZone” or the “Company”) for the year ended
August 25, 2007.
Operating
results for the twelve weeks ended November 17, 2007 are not necessarily
indicative of the results that may be expected for the fiscal year ending August
30, 2008. Each of the first three quarters of AutoZone’s fiscal year consists of
12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarter
for fiscal 2007 had 16 weeks and for fiscal 2008 has 17 weeks. Additionally,
the
Company’s business is somewhat seasonal in nature, with the highest sales
generally occurring in the spring and summer months of March through August
and
the lowest sales generally occurring in the winter months of December through
February.
Note
B- Share-Based Payments
Share-based
compensation transactions are accounted for in accordance with the provisions
of
Statement of Financial Accounting Standards (“SFAS”) No. 123(R) “Share-Based
Payment.” AutoZone recognizes compensation expense for share-based payments
based on the fair value of the awards at the grant date. Share-based payments
include stock option grants and the discount on shares sold to employees under
various share purchase plans.
Total
share-based expense (a component of operating, selling, general and
administrative expenses) was $4.2 million for the twelve week period ended
November 17, 2007 and was $4.3 million for the comparable prior year period.
AutoZone
grants options to purchase common stock to some of its employees and directors
under various plans at prices equal to the market value of the stock on the
dates the options are granted. Options have a term of 10 years or 10 years
and
one day from grant date. Director options generally vest three years from the
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 employment 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 key assumptions used in determining the fair value of options granted
in
the twelve week period ended November 17, 2007 are as follows:
Expected
price volatility
|
|
|
24.4
|
%
|
Risk-free
interest rate
|
|
|
4.1
|
%
|
Weighted
average expected lives in years
|
|
|
4.0
|
|
Forfeiture
rate
|
|
|
10.0
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
The
Company generally issues new shares when options are exercised. A summary of
stock option activity since our most recent fiscal year end is as follows:
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
August 25, 2007
|
|
|
2,956,765
|
|
$
|
79.24
|
|
Granted
|
|
|
619,240
|
|
|
115.38
|
|
Exercised
|
|
|
(115,213
|
)
|
|
78.43
|
|
Canceled
|
|
|
(22,044
|
)
|
|
82.90
|
|
Outstanding
November 17, 2007
|
|
|
3,438,748
|
|
$
|
85.75
|
|
There
have been no modifications to the Company’s share-based compensation plans
during the twelve week period ended November 17, 2007.
Note
C- Income Taxes
AutoZone
adopted Financial Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes,” (“FIN 48”) on August 26, 2007. FIN
48 prescribes a recognition threshold that a tax position is required to meet
before being recognized in the financial statements and provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition issues. The adoption of FIN 48
resulted in a charge to the beginning balance of retained earnings of $26.9
million at the date of adoption. Including this cumulative effect amount, total
unrecognized tax benefits upon adoption were $49.2 million. Of this total,
$23.8
million represents unrecognized tax benefits that, if recognized, would reduce
the Company’s effective tax rate.
The
major jurisdictions where the Company files income tax returns are the United
States and Mexico. Generally, returns filed for tax years 2003 through 2007
remain open and subject to examination by the relevant tax authorities. The
Company is typically engaged in various tax examinations at any given time,
both
by U. S. federal and state taxing jurisdictions and Mexican tax authorities.
As
a result of tax audit closings, settlements, and the expiration of statutes
to
examine such returns in various jurisdictions over the next 12 months, the
Company estimates that the amount of unrecognized tax benefits could be reduced
by approximately $30.5 million.
The
Company accrues interest on unrecognized tax benefits as a component of income
tax expense. Penalties, if incurred, would be recognized as a component of
income tax expense. Upon adoption of FIN 48, the Company had approximately
$16.3
million of such accrued interest and penalties included in accrued liabilities
associated with unrecognized tax benefits.
Note
D- 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, delivery 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. The Company’s policy is not to write up inventory in excess of
replacement cost, resulting in cost of sales being reflected at the higher
amount. The cumulative balance of this unrecorded adjustment, which is reduced
upon experiencing price inflation on our merchandise purchases, was $226.4
million at November 17, 2007, and $227.9 million at August 25,
2007.
Note
E- Pension Plans
The
(income) cost components of net periodic benefit income related to our pension
plans for all periods presented are as follows:
|
|
Twelve
Weeks Ended
|
(in
thousands)
|
|
|
November
17,
2007
|
|
|
November
18,
2006
|
|
|
|
|
|
|
|
|
|
Interest
cost
|
|
$
|
2,299
|
|
$
|
2,214
|
|
Expected
return on plan assets
|
|
|
(3,008
|
)
|
|
(2,387
|
)
|
Amortization
of prior service cost
|
|
|
23
|
|
|
(12
|
)
|
Amortization
of net loss
|
|
|
22
|
|
|
173
|
|
Net
periodic benefit income
|
|
$
|
(664
|
)
|
$
|
(12
|
)
|
The
Company makes contributions in amounts at least equal to the minimum funding
requirements of the Employee Retirement Income Security Act of 1974. During
the
twelve week period ended November 17, 2007, the Company made $1.3 million in
contributions to the plan and expects to fund approximately $2 million during
the remainder of this fiscal year.
Note
F- Long-Term Debt
The
Company’s long-term debt consisted of the following:
(in
thousands)
|
|
November
17,
2007
|
|
August
25,
2007
|
|
|
|
|
|
|
|
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 5.1% at
November
17, 2007, and 6.1% at August 25, 2007
|
|
|
471,070
|
|
|
206,700
|
|
Other
|
|
|
-
|
|
|
38,918
|
|
|
|
$
|
2,161,070
|
|
$
|
1,935,618
|
|
Balances
maturing in the next twelve months are classified as long-term in the
accompanying condensed consolidated balance sheets as the Company has the
ability and intent to refinance them on a long-term basis.
Note
G- Stock Repurchase Program
On
June
6, 2007, the Board of Directors increased the Company’s cumulative share
repurchase authorization limit from $5.4 billion to $5.9 billion. From January
1, 1998 to November 17, 2007, the Company has repurchased a total of 102.2
million shares at an aggregate cost of $5.792 billion; including 2,897,744
shares of its common stock at an aggregate cost of $350.0 million during the
twelve week period ended November 17, 2007. Considering cumulative repurchases
as of November 17, 2007, the Company has $108.3 million remaining under this
authorization to repurchase its common stock.
Note
H- Comprehensive Income
|
|
Twelve
Weeks Ended
|
|
(in
thousands)
|
|
|
November
17,
2007
|
|
|
November
18,
2006
|
|
|
|
|
|
|
|
|
|
Net
income, as reported
|
|
$
|
132,516
|
|
$
|
123,889
|
|
Foreign
currency translation adjustment
|
|
|
812
|
|
|
630
|
|
Net
impact from derivative instruments
|
|
|
(3,542
|
)
|
|
(1,715
|
)
|
Unrealized
gains from marketable securities
|
|
|
246
|
|
|
64
|
|
Comprehensive
income
|
|
$
|
130,032
|
|
$
|
122,868
|
|
Comprehensive
income includes foreign currency translation adjustments; the impact from
certain derivative financial instruments designated and effective as cash flow
hedges, including changes in fair value, as applicable, and the reclassification
of gains and/or losses from accumulated other comprehensive loss to net income
to offset the earnings impact of the underlying items being hedged; and changes
in the fair value of certain investments classified as available for sale.
Comprehensive income for all periods presented is as follows:
Report
of
Independent Registered Public Accounting Firm
The
Board
of Directors and Stockholders
AutoZone,
Inc.
We
have
reviewed the condensed consolidated balance sheet of AutoZone, Inc. as of
November 17, 2007, the related condensed consolidated statements of income
for
the twelve week periods ended November 17, 2007 and November 18, 2006, and
the
condensed consolidated statements of cash flows for the twelve week periods
ended November 17, 2007 and November 18, 2006. These financial statements are
the responsibility of the Company’s management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based
on
our review, we are not aware of any material modifications that should be made
to the condensed consolidated financial statements referred to above for them
to
be in conformity with U.S. generally accepted accounting
principles.
We
have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet
of
AutoZone, Inc. as of August 25, 2007, and the related consolidated statements
of
income, changes in stockholders’ equity, and cash flows for the year then ended,
not presented herein, and, in our report dated October 19, 2007, we expressed
an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of August 25, 2007 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
|
|
|
|
|
/s/
Ernst & Young LLP |
|
|
Memphis,
Tennessee |
|
December 11, 2007 |
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Overview
We
are
the nation’s leading specialty retailer and a leading distributor of automotive
parts and accessories. As of November 17, 2007, we operated 4,096 stores
including 124 stores in Mexico, compared with 3,912 stores including 100 stores
in Mexico at November 18, 2006. 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 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.
Operating
results for the twelve weeks ended November 17, 2007, are not necessarily
indicative of the results that may be expected for the fiscal year ending August
30, 2008. Each of the first three quarters of our fiscal year consists of 12
weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarter
for
fiscal 2007 had 16 weeks and for fiscal 2008 has 17 weeks. Additionally, our
business is somewhat seasonal in nature, with the highest sales generally
occurring in the spring and summer months of March through August and the lowest
sales generally occurring in the winter months of December through
February.
Twelve
Weeks Ended November
17, 2007,
Compared
with Twelve Weeks Ended November 18, 2006
Net
sales for the twelve weeks ended November 17, 2007, increased $62.6 million
to
$1.456 billion, or 4.5% over net sales of $1.393 billion for the comparable
prior year period. This increase in sales was primarily driven by sales from
new
stores and domestic comparable store sales (sales for domestic stores opened
at
least one year), which increased 1.3%. Domestic retail sales increased 3.6%,
domestic commercial sales increased 4.3%, and combined sales from our ALLDATA
and Mexico operations increased 21.7%.
Gross
profit for the twelve weeks ended November 17, 2007, was $726.4 million, or
49.9% of net sales, compared with $685.3 million, or 49.2% of net sales, during
the comparable prior year period. Gross profit as a percentage of sales was
favorable primarily due to our ongoing category management initiatives as well
as a shift in sales mix to higher margin categories.
Operating,
selling, general and administrative expenses for the twelve weeks ended November
17, 2007, were $489.1 million, or 33.6% of net sales, compared with $462.3
million, or 33.2% of net sales, during the comparable prior year period. The
increase in operating expenses, as a percentage of sales, was primarily due
to
higher occupancy costs.
Interest
expense, net for the twelve weeks ended November 17, 2007, was $28.1 million
compared with $27.1 million during the comparable prior year period. This
increase was primarily due to higher average borrowing levels over the
comparable prior year period. Average borrowings for the twelve weeks ended
November 17, 2007, were $2.035 billion, compared with $1.955 billion for the
comparable prior year period. Weighted average borrowing rates were 5.6% at
November 17, 2007, and 5.7% at November 18, 2006.
Our
effective income tax rate was 36.7% of pretax income for the twelve weeks ended
November 17, 2007, and 36.8% for the comparable prior year period. The actual
annual rate for fiscal 2008 will depend on a number of factors, including the
amount and source of operating income and the timing and nature of discrete
income tax events.
Net
income for the twelve week period ended November 17, 2007, increased by $8.6
million to $132.5 million, and diluted earnings per share increased by 17.4%
to
$2.02 from $1.73 in the comparable prior year period. The impact on current
quarter diluted earnings per share from the stock repurchases since the end
of
the comparable prior year period was an increase of $0.09.
Liquidity
and Capital Resources
The
primary source of our liquidity is our cash flows realized through the sale
of
automotive parts and accessories. For the twelve weeks ended November 17, 2007,
our net cash flows from operating activities provided $171.0 million as compared
with $112.0 million during the comparable prior year period. The most
significant increase is due to improvements in accounts payable as our cash
flows from operating activities continue to benefit from our inventory purchases
being largely financed by our vendors. Our accounts payable to inventory ratio
was 90% at November 17, 2007 and 88% at November 18, 2006.
Our
net
cash flows from investing activities for the twelve weeks ended November 17,
2007, used $59.7 million as compared with $70.9 million used in the comparable
prior year period. Capital expenditures for the twelve weeks ended November
17,
2007, were $44.9 million compared to $52.2 million for the comparable prior
year
period. During this twelve week period, we opened 41 stores, including 1 new
store in Mexico. In the comparable prior year period, we opened 40 domestic
stores. We expect to invest in our business consistently with historical rates
during fiscal 2008, primarily related to our new store development program
and
enhancements to existing stores and other infrastructure. Investing cash flows
were also impacted by our wholly-owned insurance captive, which purchased $20.4
million in marketable securities and sold $5.2 million in marketable securities
during the twelve week period ended November 17, 2007. During the comparable
prior year period, this captive purchased $27.8 million in marketable securities
and sold $8.8 million in marketable securities.
Our
net
cash flows from financing activities for the twelve weeks ended November 17,
2007, used $118.2 million compared to $59.3 million used in the comparable
prior
year period. Net proceeds from commercial paper borrowings were $264.4 million
versus $6.2 million in the comparable prior year period. Repayment of debt
was
$38.9 million as compared to $3.7 million in the comparable prior year period.
Stock repurchases were $350.0 million in the current period as compared with
$90.8 million in the comparable prior year period. For the twelve weeks ended
November 17, 2007, proceeds from the sale of common stock and exercises of
stock
options provided $10.6 million, including $1.8 million in related tax benefits.
In the comparable prior year period, proceeds from the sale of common stock
and
exercises of stock options provided $31.9 million, including $5.8 million in
related tax benefits.
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 market in the past.
Credit
Ratings
At
November 17, 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 November 17, 2007, Moody’s and
Standard & Poor’s had AutoZone listed as having a “stable” outlook. On
December 5, 2007, Standard & Poor’s revised the credit outlook for AutoZone
to “negative” from “stable”. 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 could increase, as we could 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, which expire in May 2010,
may
be increased to $1.3 billion at AutoZone’s election, allow up to $200 million in
letters of credit, and allow 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 $415.8 million in available
capacity under these facilities at November 17, 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
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 November 17,
2007, we were in compliance with all covenants and expect to remain in
compliance with all covenants.
Stock
Repurchases
On
June
6, 2007, the Board of Directors increased the Company’s cumulative share
repurchase authorization from $5.4 billion to $5.9 billion. From January 1,
1998
to November 17, 2007 we have repurchased a total of 102.2 million shares at
an
aggregate cost of $5.792 billion; including 2,897,744 shares of our common
stock
at an aggregate cost of $350.0 million during the twelve week period ended
November 17, 2007. Considering cumulative repurchases as of November 17, 2007,
the Company has $108.3 million remaining under this authorization to repurchase
our common stock.
Off-Balance
Sheet Arrangements
In
conjunction with our commercial sales program, we offer credit to some of our
commercial customers. Certain of the receivables related to the credit program
are sold to a third party at a discount for cash with limited recourse. We
have
established a reserve for this recourse. At November 17, 2007, the receivables
facility had an outstanding balance of $56.8 million and the balance of the
recourse reserve was approximately $1.6 million.
Since
fiscal year end, we have cancelled, issued new and modified existing stand-by
letters of credit that are primarily renewed on an annual basis to cover premium
and deductible payments to our workers’ compensation carrier. Our total standby
letters of credit commitment at November 17, 2007 was $113.3 million compared
with $113.3 million at August 25, 2007, and our total surety bonds commitment
at
November 17, 2007, was $11.4 million compared with $11.3 million at August
25,
2007.
We
have
entered into pay-on-scan (“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 control pricing and 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 $11.2 million for the twelve weeks ended November 17, 2007, and
$65.2 million for the twelve weeks ended November 18, 2006. Merchandise under
POS arrangements was $23.2 million at November 17, 2007, and $22.4 million
at
August 25, 2007.
Critical
Accounting Policies
As
of the
date of this filing, we made the following change to our critical accounting
policies from those disclosed in Part II, Item 7, of our Annual Report on Form
10-K for the fiscal year ended August 25, 2007.
As
discussed in “Note C - Income Taxes” to the accompanying unaudited condensed
consolidated financial statements, AutoZone adopted Financial Accounting
Standards Board Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes,” (“FIN 48”) on August 26, 2007. The adoption of FIN 48 resulted in
a charge to the beginning balance of retained earnings of $26.9 million at
the
date of adoption. We previously accounted for such contingent liabilities in
accordance with Statement of Financial Accounting Standards No. 5, “Accounting
for Contingencies” (“SFAS 5”). Under FIN 48, we recognize tax benefits only for
income tax positions that are more likely than not to be sustained upon
examination by tax authorities. The amount recognized is measured as the largest
amount of benefit that is greater than 50 percent likely to be realized upon
settlement with the taxing authority. Unrecognized tax benefits are tax benefits
claimed in our returns or expected to be claimed in our returns that do not
meet
these recognition and/or the measurement standards. We classify interest and
penalties, if applicable, related to income tax liabilities as a component
of
income tax expense.
Forward-Looking
Statements
Certain
statements contained in this Quarterly Report on Form 10-Q 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 our Annual Report
on Form 10-K for the fiscal year ended August 25, 2007, for more information
related to those risks.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk.
|
At
November 17, 2007, the only material changes to our instruments and positions
that are sensitive to market risk since the disclosures in our 2007 Annual
Report to Shareholders was the $264.4 million net increase in commercial paper
and the purchase of $20.4 million in marketable securities, partially offset
by
the sale of $5.2 million in short-term investments, to support the
self-insurance reserves in our wholly-owned insurance captive.
The
fair value of our debt was estimated at $2.179 billion as of November
17,
2007,
and $1.928 billion as of August 25, 2007, based on the quoted market prices
for
the same or similar debt issues or on the current rates available to AutoZone
for debt of the same remaining maturities. Such fair value is greater than
the
carrying value of debt by $17.8 million at November
17, 2007,
and less than the carrying value of debt by $7.6 million at August 25, 2007.
Considering the effect of any interest rate swaps designated and effective
as
cash flow hedges, we had $471.1 million of variable rate debt outstanding at
November 17,
2007,
and $245.6 million of variable rate debt outstanding at August 25, 2007. At
these borrowing levels for variable rate debt, a one percentage point increase
in interest rates would have had an unfavorable annual impact on our pre-tax
earnings and cash flows of $2.5 million in fiscal 2007 and $1.7 million in
fiscal 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 November 17,
2007,
and August 25, 2007. A one percentage point increase in interest rates would
reduce the fair value of our fixed rate debt by $60.2 million at November
17,
2007
and
$60.8 million at August 25, 2007.
Item
4. Controls
and Procedures.
An
evaluation was performed under the supervision and with the participation of
our
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls
and
procedures as of November 17, 2007. Based on that evaluation, our management,
including the Chief Executive Officer and Chief Financial Officer, concluded
that our disclosure controls and procedures were effective as of November 17,
2007. During or subsequent to the quarter ended November 17, 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.
PART
II. OTHER INFORMATION
Item
1.
|
Legal
Proceedings.
|
As
of the date of this filing, there have been no additional material legal
proceedings or material developments in the legal proceedings disclosed in
Part
I, Item 3, of our Annual Report on Form 10-K for the fiscal year ended August
25, 2007.
As
of the date of this filing, there have been no material changes in our risk
factors from those disclosed in Part I, Item 1A, of our Annual Report on Form
10-K for the fiscal year ended August 25, 2007.
Item
2.
|
Changes
in Securities and Use of
Proceeds.
|
Shares
of
common stock repurchased by the Company during the quarter ended November 17,
2007, were as follows:
Issuer
Repurchases of Equity Securities
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
|
|
August
26, 2007 to
September
22, 2007
|
|
|
-
|
|
$
|
-
|
|
|
99,254,053
|
|
$
|
458,281,384
|
|
September
23, 2007 to
October
20, 2007
|
|
|
1,968,784
|
|
|
120.32
|
|
|
101,222,837
|
|
|
221,401,458
|
|
October
21, 2007 to
November
17, 2007
|
|
|
928,960
|
|
|
121.76
|
|
|
102,151,797
|
|
|
108,291,573
|
|
Total
|
|
|
2,897,744
|
|
$
|
120.78
|
|
|
102,151,797
|
|
$
|
108,291,573
|
|
All
of
the above repurchases were part of publicly announced plans that were authorized
by the Company’s Board of Directors for the purchase of a maximum of $5.9
billion in common shares as of November 17, 2007. The program was initially
announced in January 1998, and 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.
Item
3.
|
Defaults
Upon Senior Securities.
|
Not
applicable.
Item
4.
|
Submission
of Matters to a Vote of Security
Holders.
|
Not
applicable
Item
5.
|
Other
Information.
|
Not
applicable.
Item
6. Exhibits.
The
following exhibits are filed as part of this report:
|
3.1
|
Restated
Articles of Incorporation of AutoZone, Inc. incorporated by reference
to
Exhibit 3.1 to the Form 10-Q for the quarter ended February 13,
1999.
|
|
|
|
|
3.2
|
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.
|
|
|
|
|
12.1
|
Computation
of Ratio of Earnings to Fixed Charges.
|
|
|
|
|
15.1
|
Letter
Regarding Unaudited Interim Financial Statements.
|
|
|
|
|
31.1 |
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. |
|
|
|
|
31.2 |
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. |
|
|
|
|
32.1 |
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. |
|
|
|
|
32.2 |
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. |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|
AUTOZONE,
INC. |
|
|
|
|
By:
|
/s/ WILLIAM
T.
GILES |
|
William T. Giles |
|
Chief Financial Officer, Executive
Vice
President, |
|
Finance,
Information Technology and Store Development
|
|
(Principal Financial
Officer) |
|
|
|
|
By: |
/s/
CHARLIE PLEAS,
III |
|
Charlie Pleas, III |
|
Senior Vice President,
Controller |
|
(Principal
Accounting Officer)
|
Dated: December 14, 2007 |
|
EXHIBIT
INDEX
The
following exhibits are filed as part of this report:
|
3.1
|
Restated
Articles of Incorporation of AutoZone, Inc. incorporated by reference
to
Exhibit 3.1 to the Form 10-Q for the quarter ended February 13,
1999.
|
|
|
|
|
3.2
|
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.
|
|
|
|
|
12.1
|
Computation
of Ratio of Earnings to Fixed Charges.
|
|
|
|
|
15.1
|
Letter
Regarding Unaudited Interim Financial Statements.
|
|
|
|
|
31.1 |
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. |
|
|
|
|
31.2 |
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. |
|
|
|
|
32.1 |
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. |
|
|
|
|
32.2 |
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. |