AutoZone 2003 Annual Report Download

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2003 ANNUAL REPORT
®

Table of contents

  • Page 1
    ® 2 0 0 3 A N N U A L R E P O R T

  • Page 2

  • Page 3
    ... H T S Selected Financial Data (Dollars in millions, except per share data) Fiscal Year Ended August 1999 2000 2001* 2001 2002 2003 Consolidated Statement of Operations Data Net Sales Operating Profit Diluted Earnings per Share After-Tax Return on Invested Capital Same Store Sales Growth SG...

  • Page 4
    ... AutoZone stores hold the #1 position in the $34 billion* Do-It-Yourself (DIY) automotive aftermarket with a market share of 14 percent. With 3,219 company-owned and operated stores across all 48 of the continental United States, our goal is to drive even greater market growth. 2 AZ Commercial...

  • Page 5
    ...: AutoZone de Mexico Page 16 With 49 stores primarily along the U.S. border, Mexico is proving to be a country with solid long-term growth potential for our unique AutoZone store format. The Financial Performance Zone Page 17 We're passionate value creators. U.S. Retail 85% AZ Commercial 12...

  • Page 6
    We're AutoZone 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. 2

  • Page 7
    We're motivated from marketing to merchandising, from supplier relationships to customer service, we're out to deliver the very best in vehicle solutions. 3

  • Page 8
    We're disciplined in our pursuit of profitable growth. Ultimately, it must build shareholder value. We apply financial disciplines to new project ideas to determine whether the risk and potential return of any change are appropriate to the level of investment. 4

  • Page 9
    We're determined to seize our industry's tremendous growth potential. 5

  • Page 10
    We're passionate about simplifying repairs, demystifying technology, promoting safety and providing solutions. 6

  • Page 11
    We're relentless in every aspect of our business in order to satisfy our customers. 7

  • Page 12
    We're in the Zone, providing state-of-the-art diagnostics, trusted advice, easy on-line ordering, and rapid delivery of quality parts to automotive technicians. 8 Record Sales Record Operating Margins Record Net Income Record Earnings Per Share Record Return on Invested Capital

  • Page 13
    ... Commercial business, sales to professional repair shops advanced a remarkable 27 percent. Taking advantage of the national reach, extensive inventories and efficient supply chain of our AutoZone stores, AZ Commercial drove incremental sales, income and return on invested capital, with minimal added...

  • Page 14
    ... expansion. processing. Special attention-getting "Red Zones" feature popular new customization items such as seat covers, car mats and fun neon light kits, in addition to a wide array of filters, waxes, polishes and driving accessories. Truly, we are making our in-store experience more exciting...

  • Page 15
    ... country. Seeking best practices also led to our implementation of a new "pay-on-scan" initiative. It partners us with our suppliers to drive customer sales, while reducing expenses and improving working capital up and down the supply chain. Innovation abounds in our AZ Commercial business, too. By...

  • Page 16
    ... year, and a presence in all 48 We have only just begun! #1 Growth Priori ty: U.S. Retail The U.S. Retail business is AutoZone's number one vehicle for growth. It represents 85% of the total company's sales in fiscal 2002, and is at the core of our company's founding. From the first store opened...

  • Page 17
    We're unsurpassed in the automotive aftermarket, intent on leading industry growth, increasing our market share, expanding our national reach and driving greater demand. 13

  • Page 18
    14

  • Page 19
    ... over $670 million in sales this past year, AZ Commercial, our second growth priority, represents just over 12% of the total company's sales. This business caters to the professional installer segment of the market and is further defined by either servicing larger chain accounts or smaller "up and...

  • Page 20
    ... parts retailers make Mexico an ideal market for AutoZone. This past year, we opened 10 new stores to finish fiscal 2003 with 49 locations. To further solidify our Mexico presence we opened our first in-country distribution facility solely dedicated to supplying our growing number of Mexico stores...

  • Page 21
    ... built greater market share and achieved 27 percent same store growth in our AZ Commercial Business. Truly, it was a year of significant achievement. Will AutoZone continue to buy back its shares? Yes, as long as repurchases are accretive to earnings. Repurchasing shares helps us manage our overall...

  • Page 22
    ... Working capital (deficit) 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 of Mexico auto...

  • Page 23
    ... and decrease cost of goods sold by $43 million, both as a result of the adoption of Emerging Issues Task Force Issue No. 02-16 regarding vendor funding. (2) 53 weeks. Comparable store sales, average net sales per domestic auto parts store and average net sales per store square foot for fiscal...

  • Page 24
    ... Mexico. We also sell parts and accessories online at autozone.com. 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 and accessories. We also have a commercial sales...

  • Page 25
    ... reflected lower product costs, more efficient supply chain costs, reduced inventory shrinkage, the benefits of more strategic and disciplined pricing due to category management and the addition of more value-added, highmargin merchandise than in the 2001 fiscal year. Operating, selling, general and...

  • Page 26
    ... vendors, as evidenced by the higher accounts payable to inventory ratio. AutoZone's primary capital requirement has been the funding of its continued new store development program. From the beginning of fiscal 1999 to August 30, 2003, we have opened 562 net new domestic auto parts stores. Net cash...

  • Page 27
    Financial Review (continued) We expect to open approximately 195 new stores during fiscal 2004. 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 by...

  • Page 28
    ...lifetime warranties are provided to our customers by AutoZone or the vendors supplying its products. 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...

  • Page 29
    ... inventories are sold. The new accounting pronouncement for vendor funding does not impact the way AutoZone runs its business or its relationships with vendors. It does, however, require the deferral of certain vendor funding which is calculated based upon vendor inventory turns. Based on the timing...

  • Page 30
    ... vendor funding • For fiscal 2003, a $4.7 million pre-tax gain associated with the settlement of certain liabilities and the repayment of a note associated with the fiscal 2002 sale of the TruckPro business • For fiscal 2002, the favorable impact of the additional week of the 53-week fiscal year...

  • Page 31
    ..., to net income. 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). Fiscal Year Ended August (in thousands, except per share and percentage data) 2003 $ 517...

  • Page 32
    ...-tax gain associated with the settlement of certain liabilities and the payment of a note from the TruckPro sale in December 2001, and a $10.0 million pre-tax negative impact and the reclassification of certain vendor funding to increase operating expenses by $53 million and decrease cost of goods...

  • Page 33
    ...Review...(in thousands, except per share and percentage data) Fiscal 2001 Results of Operations...Net sales Cost of goods sold Gross profit Operating expenses Restructuring and impairment charges Operating profit Interest expense, net Income before taxes Income taxes Net income Diluted earnings per share...

  • Page 34
    ...except per 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 Income before income taxes Income taxes Net income Weighted average shares for...

  • Page 35
    ... Common stock, par value $.01 per share, authorized 200,000 shares; 100,670 shares issued and 88,708 shares outstanding in 2003 and 109,962 shares issued and 99,268 shares outstanding in 2002 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost...

  • Page 36
    ... from officers Net cash used in investing activities Cash flows from financing activities: Net change in commercial paper Proceeds from issuance of debt Repayment of debt Net proceeds from sale of common stock Purchase of treasury stock Settlement of interest rate hedge instruments Other Net cash...

  • Page 37
    ... from officers Purchase of 12,591 shares of treasury stock Retirement of 12,000 shares of treasury stock Sale of 2,563 shares of common stock under stock option and stock purchase plans Tax benefit of exercise of stock options Balance at August 31, 2002 Net income Minimum pension liability net of...

  • Page 38
    ... and 49 auto parts 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 and accessories. In addition, the Company also has a domestic commercial program that...

  • Page 39
    ... No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, no stock-based employee compensation cost is reflected in net income, as options are granted under those plans at an exercise price equal to the market value of the underlying common stock on the date of...

  • Page 40
    Year Ended (in thousands, except per share data) Reported net income Deduct total incremental stock-based compensation expense determined under fair-value-based method for all awards, net of related tax effects Pro forma net income Basic earnings per share: As reported Pro forma Diluted earnings per...

  • Page 41
    ...'s $115 million term loan. The remaining $75 million of swaps, with expiration dates throughout fiscal years 2003 and 2004, were designated to hedge the variable rate debt associated with commercial paper borrowings. Additionally, at August 31, 2002, the Company held treasury lock agreements with...

  • Page 42
    ... 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...

  • Page 43
    ...,398 4,108 - 12,847 119,533 (14,367) 105,166 6,218 - - 6,070 12,288 $ 92,878 Net deferred tax assets: Net operating loss and credit carryforwards Insurance reserves Warranty reserves Closed store reserves Inventory Minimum pension liability Other Total deferred tax assets Less: Valuation allowance...

  • Page 44
    .... This filing will allow the Company to sell up to $500 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. No debt has...

  • Page 45
    ... fiscal 2003. Accordingly, the adoption of SFAS 150 had no impact on the Company's Consolidated Financial Statements. Note I - Employee Stock Plans The Company has granted options to purchase common stock to some of its employees and directors under various plans at prices equal to the market value...

  • Page 46
    ... 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. Note J - Pension and Savings Plans Prior to January 1, 2003, substantially all full-time employees were covered by...

  • Page 47
    ...: Fair value of plan assets at beginning of year Loss on plan assets Company contributions Benefits paid Administrative expenses Fair value of plan assets at end of year Reconciliation of funded status: Underfunded status of the plans Unrecognized net actuarial losses Unamortized prior service cost...

  • Page 48
    ...and 12% for year two. The expected long-term rate of return on plan assets was 8.0% at August 30, 2003, and August 31, 2002, and 9.5% at August 25, 2001. Prior service cost is amortized over the estimated average remaining service lives of the plan participants and the unrecognized actuarial loss is...

  • Page 49
    ...of the scheduled 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...

  • Page 50
    ... certain levels for stop loss coverage for each self-insured plan. 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. Note N - Segment Reporting The Company manages its business on the basis...

  • Page 51
    ... ended August 30, 2003, in conformity with accounting principles generally accepted in the United States. As discussed in Note A, Vendor Allowances and Advertising Costs, to the consolidated financial statements, in fiscal year 2003 the Company adopted Emerging Issues Task Force Issue No. 02-16...

  • Page 52
    ... that may require attention. Management assessed the Company's system of internal control over financial reporting as of August 30, 2003, in relation to criteria for effective internal control over financial reporting described in "Internal Control-Integrated Framework" issued by the Committee...

  • Page 53
    .... AutoZone Web Sites Investor Relations: www.autozoneinc.com Company Web Site: www.autozone.com Annual Meeting The Annual Meeting of Stockholders of AutoZone will be held at 8:30 a.m., CST, on December 11, 2003, at the J.R. Hyde III Store Support Center, 123 South Front Street, Memphis, Tennessee...

  • Page 54
    ...S. Woolard Jr. Professor of Corporate Governance University of Delaware Marsha J. Evans (2) President and CEO American Red Cross Earl G. Graves, Jr. (1) President and COO Earl G. Graves Publishing Dr. N. Gerry House (2) President and CEO Institute for Student Achievement J. R. Hyde, III Chairman GTx...

  • Page 55
    ® 123 South Front Street Memphis, Tennessee 38103-3607 (901) 495-6500 www.autozone.com ®