AutoZone 2002 Annual Report Download

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Annual
Report
2002
Accelerating!
Sales • Earnings • Shareholder Value
Accelerating!
Sales • Earnings • Shareholder Value

Table of contents

  • Page 1
    Annual Report 2002 Accelerating! Sales • Earnings • Shareholder Value

  • Page 2
    ... t diagnostics, technical advice and easy on-line ordering. Reaching out to the professional technician, through our commercial business. S triving to build the most ef ficient par ts delivery system ever. Delivering the best instructive technology available through ALLDATA. We're 44,000 AutoZoners...

  • Page 3
    ... invested capital reached a record 19.8%. 102 new U.S. stores, 3,068 total stores across the country. AutoZone stock delivered a 52% annual return to shareholders...an ex t raordi n ary f oun dat i on f or f ut ure grow t h! Table of Contents Shareholder Letter Business Review . . Ten-Year Review...

  • Page 4
    ...AZ Commercial business, we grew an outstanding 20 percent. We expanded our selection of hard parts and the number of AutoZone stores equipped to handle commercial orders. T he Company dedicated a sales force to reach out to national customers, regional chains and independent automotive repair shops...

  • Page 5
    ... product displays-"Zones"-that encourage maintenance and enhancement. Zones feature filters, waxes, polishes and products that upgrade aging vehicles, such as car mats and seat covers. Our stores also offer products that personalize vehicles and that improve the driving experience, such as hands...

  • Page 6
    ... U.S. Retail Sales: $4.6 billion MARKET POSITION MARKET SHARE RETAIL MARKET SIZE MARKET GROWTH #1 12% $36 billion 5% five-year CAGR We're more than retailers. We're innovators creating excitement with our assortment, availability, assistance and trustworthy advice. 4 AZO Annual Report

  • Page 7
    ...," who change their own oil, wiper blades, batteries, belts and more. Memorable advertising, compelling merchandising and prominent product displays encourage drivers to extend the life of their vehicles through routine maintenance, timely repairs and upgraded accessories. Annual Report AZO 5

  • Page 8
    ...line, at www.autozone.com, we help troubleshoot problems through a series of questions about vehicles' symptoms. In-store and curbside, we have AS E ® cer tified par ts professionals, diagnostic specialists and equipment to decode the on-board computer systems in cars today. Through our Loan-a-Tool...

  • Page 9
    W ith nearly $60 billion in unperformed annual maintenance and 25 million activated check-engine lights, the industry's growth potential is phenomenal. At AutoZone, we view the oppor tunity as ours to capture and are pursuing it with a passion. Annual Report AZO 7

  • Page 10
    AutoZone AZ Commercial Sales: $532 million MARKET POSITION MARKET SHARE COMMERCIAL MARKET SIZE MARKET GROWTH #3 1% $47 billion +5% five-year CAGR We're more than suppliers. We're team players working against time to put a full range of quality parts in the hands of professional technicians. ...

  • Page 11
    ... Solutions support: 2,009 AutoZone stores across 44 states Our ALLDATA system offers commercial technicians access to our extensive database of automotive diagnostic and repair information. ALLDATA puts engine-specific diagnostics, electrical diagrams, repair information, recalls and technical...

  • Page 12
    ... thousands of small repair shops that rebuild broken par ts. With 39 company-owned stores, AutoZone is introducing a welcomed new way to buy auto parts and products in Mexico. We of fer high-quality products and services, a broad inventory selection and great value. While still a young market for us...

  • Page 13
    ...-engine...AutoZone.com, sabemos que tenemos disponible el mejor sistema de soluciones. Deseamos inspirar al...Zones...General Satisfacción del Cliente Creando incansablemente la mejor Zona en soluciones de vehículos! October 22, 2002 Annual Report AZO *SOURCE: Automotive Aftermarket Industry Association...

  • Page 14
    We're more than effectiv e managers. We're disciplined stewards of capital intent on growing sales profitably, controlling costs and meeting or exceeding our financial hurdles. SAME STORE SALES GROWTH CASH FLOW FROM OPERATIONS ($ in millions) $800 SG&A TO SALES RATIO OPERATING MARGIN Before ...

  • Page 15
    ... driving a more profitable product mix. At the same time, solid cost management and volume growth improved the efficiency of our supply chain. And, by purchasing national advertising instead of regional "spot" ads, we improved the cost-effectiveness of our marketing spending. The business press...

  • Page 16
    ...Sheet Data Current assets Working capital Total assets Current liabilities Debt Stockholders' equity Selected Operating Data Number of domestic auto parts stores at beginning of year New stores Replacement stores Closed stores Net new stores Number of domestic auto parts stores at end of year Number...

  • Page 17
    ...500 $ 195,008 $ 1.28 152,535 778,802 186,350 1,884,017 592,452 198,400 1,075,208 $ Fiscal Year Ended August 1996 (1) 1995 $ 2,242,633 1,307,638 666,061 268,934 (1,969) 266,965 99,800 $ 167... 105 783 - 4,839 6,180 20% 9% 1,666 $ 274 $ 15,700 3.19 x 15.02 x 18.7% 0.88 2,599 $ 26% Annual Report AZO 15

  • Page 18
    ... per share data) Net sales Increase in comparable store sales Gross profit Operating profit Income before income taxes Net income Twelve Weeks Ended November 17, February 9, May 4, 2001 2002 2002 $ 1,176,052 $ 1,081,311 $ 1,224,810 9% 12% 9% $ 516,136 $ 474,900 $ 541,984 155,504 121,149 182,433...

  • Page 19
    ... at autozone.com. Each auto parts store carries an extensive product line for cars, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items and accessories. We also have a commercial sales program in the United States (AZ Commercial) that provides commercial...

  • Page 20
    ... in closed stores. All of the scheduled recalls and disposals of inventory took place during fiscal 2002. The reserve was adequate to cover losses incurred. Asset writedowns and contractual obligations aggregating $29.9 million related to the planned sale of TruckPro, our heavy-duty truck parts...

  • Page 21
    ... in comparable store sales, or sales for domestic auto parts stores opened at least one year. New store sales in fiscal year 2002 contributed two percentage points and net sales from the 53rd week contributed approximately two percentage points of the increase. Comparable store sales increased as...

  • Page 22
    ... rate debt associated with AutoZone's $115 million term loan. The remaining $75 million of swaps expire throughout fiscal years 2003 and 2004, and are used to hedge the variable rate debt associated with commercial paper borrowings. Additionally, at August 31, 2002, we held treasury lock agreements...

  • Page 23
    ...capital assets in fiscal 2002 compared with $169.3 million in fiscal year 2001 and $249.7 million in fiscal year 2000. In fiscal 2002, we opened 102 new auto parts stores in the U.S. and 18 in Mexico, replaced 15 U.S. stores and closed 53 U.S. stores. During the year we sold TruckPro, our heavy-duty...

  • Page 24
    ... to year end, we repurchased 1.1 million shares in partial settlement of the forward purchase contract outstanding at August 31, 2002, at an average cost of $69.91 per share. At times, we utilize equity forward agreements to facilitate our repurchase of common stock and to lock in current market...

  • Page 25
    ... through economies of scale, selective forward buying and the use of alternative suppliers. Seasonality and Quarterly Periods AutoZone's business is somewhat seasonal in nature, with the highest sales occurring in the summer months of June through August, in which average weekly per store sales...

  • Page 26
    ...share data) Net sales Cost of sales, including warehouse and delivery expenses Operating, selling, general and administrative expenses Restructuring and impairment charges Operating profit Interest expense - net August 31, 2002 (53 weeks) $ 5,325,510 2,950,123 1,604,379 - 771,008 79,860 Year Ended...

  • Page 27
    ... per share data) August 31, 2002 August 25, 2001 Assets Current assets Cash and cash equivalents Accounts receivable Merchandise inventories Prepaid expenses Deferred income taxes Total current assets Property and equipment Land Buildings and improvements Equipment Leasehold improvements and...

  • Page 28
    ... from sale of business Proceeds from disposal of capital assets Notes receivable from officers Net cash used in investing activities Cash flows from financing activities: Net change in commercial paper Net proceeds from debentures/ notes Net change in unsecured bank loans Net proceeds from sale of...

  • Page 29
    ...interest rate swap contracts and treasury lock agreements Comprehensive income Repayments of notes receivable from officers Purchase of 12,591 shares of treasury stock Retirement of 12,000 shares of treasury stock (120) Sale of 2,563 shares of common stock under stock option and stock purchase plans...

  • Page 30
    ... Columbia and 39 auto parts stores in Mexico. The Company also sells products online at autozone.com. In addition, the Company sells automotive diagnostic and repair software through ALLDATA and through alldatadiy.com. Fiscal Year: The Company's fiscal year consists of 52 or 53 weeks ending on the...

  • Page 31
    ... on its Consolidated Financial Statements. In June 2002, the Financial Accounting Standards Board issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Annual Report AZO 29

  • Page 32
    ... recalls and disposals of inventory took place during fiscal 2002 and the reserve was adequate to cover all losses incurred. The Company recorded asset writedowns and contractual obligations aggregating $29.9 million related to the planned sale of TruckPro, its heavy-duty truck parts subsidiary...

  • Page 33
    ... impairment test, or from the annual impairment test that was performed during the fourth quarter of fiscal 2002. The pro forma effects of the adoption of SFAS 142 on the results of operations for periods prior to fiscal year 2002 are as follows: (in thousands, except per share data) Reported net...

  • Page 34
    ... follows: August 31, 2002 August 25, 2001 $ 25,226 22,804 23,684 25,585 14,256 24,598 136,153 (14,792) 121,361 (in thousands) Net deferred tax assets: Net operating loss and credit carryforwards Insurance reserves Warranty reserves Closed store reserves Inventory reserves Other $ Less: Valuation...

  • Page 35
    ...Exchange Commission. This filing will allow the Company to sell as much as $500 million in debt securities to fund general corporate purposes, including repaying, redeeming or repurchasing existing debt, and/ or to fund working capital, capital expenditures, new store openings, stock repurchases and...

  • Page 36
    ...market price of the underlying common stock. Subsequent to year end, the Company purchased 1.1 million shares in partial settlement of the forward contract outstanding at August 31, 2002, at an average cost of $69.91 per share. Note I - Employee Stock Plans...202 6,500 2,113,185 34 AZO Annual Report

  • Page 37
    ... at August 31, 2002, and 7.5 million shares at August 26, 2000. The Company also has an employee stock purchase plan under which all eligible employees may purchase common stock at 85% of fair market value (determined quarterly) through payroll deductions. Maximum permitted annual purchases are $15...

  • Page 38
    ... 1 of each year. New directors receive options to purchase 3,000 shares plus a grant of an option to purchase a number of shares equal to the annual option grant, prorated for the time in service for the year. Under the Second Amended and Restated Directors Compensation Plan a director may receive...

  • Page 39
    ... Board of Directors. The Company made matching contributions to employee accounts in connection with the 401(k) plan of $1.4 million in fiscal years 2002 and 2001 and $1.2 million in fiscal 2000. Note K - Sale of TruckPro Business In December 2001, the Company's heavy-duty truck parts business was...

  • Page 40
    ...." (in thousands) Primary business focus: Net sales: U.S. Retail AZ Commercial Other August 31, 2002 Year Ended August 25, 2001 August 26, 2000 $ 4,621,234 531,776 172,500 $ 5,325,510 $ 4,134,326 443,533 240,326 $ 4,818,185 $ 3,871,424 396,729 214,543 $ 4,482,696 38 AZO Annual Report

  • Page 41
    .... Management is responsible for maintaining a system of internal control over financial reporting that provides reasonable assurance, at an appropriate cost-benefit relationship, about the reliability of financial reporting. The system contains self-monitoring mechanisms, and is regularly tested by...

  • Page 42
    ...Longo†Operations, AZ Commercial & ALLDATA Robert D. Olsen†Mexico & Store Development William C. Rhodes III†Supply Chain & Information Technology Daisy L. Vanderlinde†Human Resources & Loss Prevention Stephany L. Goodnight Assistant Controller †Required to file reports under Section...

  • Page 43
    ...Phil Jackson Larry Fussy Mark Palazola Tim Briggs Brett Easley Craig Blackwell Jack Mitchell Dennis Tolivar Bob Olsen Don Rawlins Bill Rhodes 33. 34. 35. 36. 37. Dean Rose Jon Bascom Randy Turner Scott Webb Mike Longo 38. 39. 40. 41. Jay Cook Mike Broderick Dave Nichols Eric Gould Annual Report...

  • Page 44
    ..., Charles M. Elson, Marsha J. Evans, Edward S. Lampert and W. Andrew McKenna Steve Odland Chairman, President & CEO Charles M. Elson (1, 3* ) Edgar S. Woolard Jr. Professor of Corporate Governance University of Delaware Marsha J. Evans (2) President & CEO American Red Cross Earl G. Graves, Jr...

  • Page 45
    Corporate Information Transfer Agent and Registrar EquiServe Trust Company, N.A. P.O. Box 43069 Providence, RI 02940-3069 (877) 282-1168 (816) 843-4299 http:/ / www.equiserve.com Stock Exchange Listing New York Stock Exchange Ticker Symbol: AZO Auditors Ernst & Young LLP Memphis, Tennessee Store ...

  • Page 46
    1 2 3 S o u t h Fr o n t S t r e e t M e m p h i s , Te n n e s s e e 3 8 1 0 3 - 3 6 0 7 ( 9 0 1 ) 4 9 5 -6 5 0 0 w w w. a u t o z o n e . c o m AutoZoners always put customers first. We know our parts and products. Our stores look great. And, we've got the best merchandise at the right price!