AutoZone 2005 Annual Report Download

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®
Live the Pledge
’05Annual Report

Table of contents

  • Page 1
    ® '05 Live the Pledge Annual Report

  • Page 2
    ...22 172 22 2 21 44 131 116 68 129 197 22 93 109 1 6 15 29 15 47 9 35 6 66 74 128 44 61 2 2005 Sales by Strategic Priority 3,592 U.S. Stores Across All 48 Continental United States and Puerto Rico 81 Mexico Stores Across 11 Mexican States U.S. Retail - 84% Commercial - 13% Mexico / Other - 3%

  • Page 3
    ... Pledge AutoZoners always put customers first! We know our parts and products. Our stores look great! We've got the best merchandise at the right price. This sentence is first because it is here where our business is won and lost. Putting the customer first is about fast and friendly service...

  • Page 4

  • Page 5
    ... to the customer that is at the center of our operating plan for 2006. Our Vision is: Relentlessly create the most exciting Zone for vehicle solutions! Our three strategic priorities remain U.S. Retail, Commercial, and Mexico. Since being named President and CEO in March, our team has performed...

  • Page 6
    ... training. We will increase the number of AutoZoners with ASE 7 (Automotive Service Excellence) certifications. Our customers deserve that. We will continue to focus on helping our 6 customers complete the job right, the first time, with the right 5 parts, at the right price! From the store manager...

  • Page 7
    ... AutoZone Pledge AutoZoners always put customers first! We know our parts and products. Our stores look great! We've got the best merchandise at the right price. Our goal is simple: AutoZone promises to have well trained employees focused on providing trustworthy advice. We're opening more stores...

  • Page 8

  • Page 9
    ...of retail! Commercial:฀Continued฀Significant฀Growth฀Opportunities Commercial, our second strategic priority, is a far newer business for AutoZone than the DIY segment. We've grown the business to roughly $720 million in just 10 years! Sitting today with only an approximate 1.5%* market share...

  • Page 10
    ...฀individuals.฀ It฀is฀these฀executives฀who฀work฀tirelessly฀to฀create฀the฀AutoZone฀ that฀exists฀today.฀We฀lead฀as฀a฀team,฀and฀we฀win฀as฀a฀team.฀ Through฀their฀continued฀guidance,฀the฀Company฀is฀well฀฀ positioned฀for฀a฀strong...

  • Page 11
    ... the industry. We introduced clean, well lit, well merchandised stores that were in convenient locations for our customers. This innovation continues today. -Bob Olsen, Executive Vice President, Supply Chain, Information Technology, Mexico and Store Development We pledge to create a more inviting...

  • Page 12

  • Page 13
    ... the long term. We've got a superb team in place to lead this renewed effort, and we've launched new initiatives to jumpstart our sales performance. At the core of the business for us sits the Commercial Specialist. This AutoZoner handles all the day-to-day orders from our professional customers. In...

  • Page 14
    ... Laredo and a store support center in Monterrey. Mexico represents superb growth opportunities. Our stores in Mexico have customized inventory and are unique to the Mexican automotive landscape as most competition is poorly capitalized and dedicated to very specific lines of products and services...

  • Page 15
    ... some of the strongest brands in the automotive aftermarket. And, the only place you can get them is at AutoZone! It also means we must have the coverage we need at the right price. Not most of the time, all the time-period. -Jim Shea, Executive Vice President, Merchandising and Marketing Live the...

  • Page 16

  • Page 17
    ...Yes. AutoZone is well positioned to profitably grow sales. We have a clear plan for the future and a strong team to execute it. I look forward to updating you on our continued success well into the future. Living the Pledge, Bill฀Rhodes President and Chief Executive Officer Customer Satisfaction

  • Page 18
    ... '01 '02 '03 '04 '05 0 '01* '02 '03 '04 '05 * Excludes impact from restructuring and impairment charges. * Excludes impact from restructuring and impairment charges. Total Shares Outstanding 120 (in millions) 250 New Store Openings 100 200 80 150 60 100 40 50 20 0 '01 '02 '03...

  • Page 19
    ... to use pay-on-scan as one of our tools to manage working capital, as we are quite pleased with the traction we've gained thus far in such a short amount of time. The amount of inventory on pay-on-scan at the end of this past fourth quarter was just under 10% of total merchandise, and has helped to...

  • Page 20
    ... share Balance฀Sheet฀Data (6) Current assets Working capital (deficit) Total assets Current liabilities Debt Stockholders' equity Selected฀Operating฀Data (11) Number of domestic stores at beginning of year New stores Replacement stores Closed stores Net new stores Number of domestic stores...

  • Page 21
    ... related to lease accounting, which includes the impact on prior years, and reflects additional amortization of leasehold improvements and additional rent expense. The second quarter of fiscal 2005 also includes a $15.3 million income tax benefit primarily from the planned one-time repatriation...

  • Page 22
    ... stores open at least one year, decreased 2% from the prior year. ALLDATA and Mexico sales increased over prior year, contributing 0.5 percentage points of the total increase. While our average ticket increased over prior year, the number of transactions with both our DIY and commercial customers...

  • Page 23
    ... payment terms with our vendors. The increase in merchandise inventories, required to support new store development and sales growth, has largely been financed by our vendors, as evidenced by the higher accounts payable to inventory ratio. Contributing to this improvement is the use of pay-on-scan...

  • Page 24
    ... historical rates during fiscal 2006, 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 non-POS inventories. Historically...

  • Page 25
    ... in our balance sheet. The 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 receivables related to the credit program are sold to...

  • Page 26
    ... participants earn no new benefits under the plan formulas, and no new participants may join the plans. The material assumptions for fiscal 2005 are an expected long-term rate of return on plan assets of 8.0% and a discount rate of 5.25%. For additional information regarding AutoZone's qualified and...

  • Page 27
    ...30 days to lifetime are provided to our customers by AutoZone or the vendors supplying our 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 28
    ... the instruments were executed to economically hedge the consumption of diesel fuel used to distribute our products. Accordingly, mark-to-market gains and losses related to such fuel swap contracts are recorded in cost of sales as a component of distribution costs. As of August 27, 2005, the current...

  • Page 29
    ... 26, 2000. (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 equity at August 25...

  • Page 30
    ... issued their report concurring with management's assessment, which is included in this Annual Report. Certifications Compliance with NYSE Corporate Governance Listing Standards On November 29, 2004, the Company submitted to the New York Stock Exchange the Annual CEO Certification required pursuant...

  • Page 31
    ... standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of AutoZone, Inc. as of August 27, 2005 and August 28, 2004 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period...

  • Page 32
    ... Registered Public Accounting Firm To the Board of Directors and Stockholders of AutoZone, Inc. We have audited the accompanying consolidated balance sheets of AutoZone, Inc. as of August 27, 2005 and August 28, 2004, and the related consolidated statements of income, stockholders' equity and cash...

  • Page 33
    ... except per share data) Net sales Cost of sales, including warehouse and delivery expenses Operating, selling, general and administrative expenses Operating profit Interest expense, net Income before income taxes Income taxes Net income Weighted average shares for basic earnings per share Effect of...

  • Page 34
    ... Balance Sheets August฀27,฀฀ 2005 August 28, 2004 (in thousands, except per share data) Assets Current assets: Cash and cash equivalents Accounts receivable Merchandise inventories Other current assets Total current assets Property and equipment: Land Buildings and improvements Equipment...

  • Page 35
    ...interest rate hedge instruments Other Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental cash flow information: Interest paid, net of interest cost capitalized...

  • Page 36
    ... of net gains on derivatives into earnings Comprehensive income Purchase of 4,822 shares of treasury stock Retirement of treasury stock Sale of common stock under stock option and stock purchase plans Tax benefit of exercise of stock options Balance฀at฀August฀27,฀2005 See Notes...

  • Page 37
    ... service stations. The Company also sells the ALLDATA brand automotive diagnostic and repair software. On the web, the Company sells automotive diagnostic and repair information and auto and light truck parts through www.autozone.com. Fiscal Year The Company's fiscal year consists of 52 or 53 weeks...

  • Page 38
    ... were recorded in the three years ended August 27, 2005. 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...

  • Page 39
    ... from sales are presented net of allowances for estimated sales returns, which are based on historical return rates. 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...

  • Page 40
    ... on August 28, 2005, which is the beginning of its next fiscal year. As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using APB 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly...

  • Page 41
    ... and casualty insurance claims (current portion) Accrued compensation; related payroll taxes and benefits Property and sales taxes Accrued interest Accrued sales and warranty returns Other The Company is self-insured for workers' compensation, vehicle, general and product liability and property...

  • Page 42
    ... 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...

  • Page 43
    ..., 2005. The rate of interest payable under the credit facilities is a function of the London Interbank Offered Rate ("LIBOR"), the lending bank's base rate (as defined in the facility agreements) or a competitive bid rate at the option of the Company. Commercial paper and other short-term borrowings...

  • Page 44
    ...year. Proceeds were used to repay a $250 million bank term loan, $150 million in 6% Senior Notes and to reduce commercial paper borrowings. During November 2003, the Company settled all then outstanding interest rate hedge instruments, including interest rate swap contracts, treasury lock agreements...

  • Page 45
    ... fiscal years: Year Ended (in thousands) August฀27,฀ 2005 $426,852 4,822 August 28, 2004 $848,102 10,194 August 30, 2003 $891,095 12,266 Amount Shares Note฀H-Employee฀Stock฀Plans The Company has granted options to purchase common stock to some of its employees and directors under...

  • Page 46
    ...Restated Executive Stock Purchase Plan permits senior Company executives to purchase common stock up to 25 percent of their annual salary and bonus after the limits under the employee stock purchase plan have been exceeded. Purchases under this plan were 5,366 shares in fiscal 2005, 11,005 shares in...

  • Page 47
    ... cost: Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized net actuarial losses Curtailment gain Net periodic benefit cost $ 4,969 The actuarial assumptions were as follows: 2005 Weighted average discount rate Expected long-term rate of return...

  • Page 48
    ... Total minimum payments required Amount (in thousands) $141,169 126,651 107,223 86,473 70,516 435,293 $967,325 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...

  • Page 49
    ... San Diego County District Attorney later joined the suit. The lawsuit alleges that AutoZone failed to follow various state statutes and regulations governing the storage and handling of used motor oil and other materials collected for recycling or used for cleaning AutoZone stores and parking lots...

  • Page 50
    ... Store Support Center, 123 South Front Street, Memphis, Tennessee. AutoZone฀Web฀Sites Investor Relations: http://www.autozoneinc.com Company Web Site: http://www.autozone.com Stock฀Exchange฀Listing New York Stock Exchange Ticker Symbol: AZO Auditors Ernst & Young LLP Memphis, Tennessee Code...

  • Page 51
    ...฀success฀story฀in฀American฀business฀history.฀We฀enjoy฀industry฀leading฀ earnings฀and฀returns฀on฀capital.฀It฀is฀an฀honor฀to฀share฀our฀successes฀and฀future฀plans฀with฀you,฀our฀customers,฀ AutoZoners,฀and฀stockholders฀who฀continue...

  • Page 52
    ® 123 South Front Street Memphis, Tennessee 38103-3607 (901) 495-6500 www.autozone.com ®