AutoZone 2006 Annual Report Download
Download and view the complete annual report
Please find the complete 2006 AutoZone annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.-
1 -
2 -
3 -
4 -
5 -
6 -
7 -
8 -
9 -
10 -
11 -
12 -
13
-
14
-
15
-
16
-
17
-
18
-
19
-
20
-
21
-
22
-
23
-
24
-
25
-
26
-
27
-
28
-
29
-
30
-
31
-
32
-
33
-
34
-
35
-
36
-
37
-
38
-
39
-
40
-
41
-
42
-
43
-
44
 |
 |
®
®
2006AnnualReport
AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZoners
alwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysput
customersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomers
first!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!
AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZoners
alwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysput
customersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomers
first!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!AutoZonersalwaysputcustomersfirst!
Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandprod-
ucts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsand
products.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourparts
andproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowour
partsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknow
ourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.We
knowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.
Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandproducts.Weknowourpartsandprod-
Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslook
great!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstores
lookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Our
storeslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslook
great!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstores
lookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Our
storeslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslook
great!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstoreslookgreat!Ourstores
We’vegotthebestmerchandiseattherightprice.We’vegotthebestmerchandiseattherightprice.We’vegotthebestmerchan-
diseattherightprice.We’vegotthebestmerchandiseattherightprice.We’vegotthebestmerchandiseattherightprice.We’ve
gotthebestmerchandiseattherightprice.We’vegotthebestmerchandiseattherightprice.We’vegotthebestmerchandiseat
therightprice.We’vegotthebestmerchandiseattherightprice.We’vegotthebestmerchandiseattherightprice.We’vegotthe
bestmerchandiseattherightprice.We’vegotthebestmerchandiseattherightprice.We’vegotthebestmerchandiseattheright
price.We’vegotthebestmerchandiseattherightprice.We’vegotthebestmerchandiseattherightprice.We’vegotthebestmer-
chandiseattherightprice.We’vegotthebestmerchandiseattherightprice.We’vegotthebestmerchandiseattherightprice.
We’vegotthebestmerchandiseattherightprice.We’vegotthebestmerchandiseattherightprice.We’vegotthebestmerchan-
Weknowourpartsandproducts.
AutoZonersalwaysputcustomersfirst!
LivingthePledge !
Ourstoreslookgreat!
We’vegotthebestmerchandise
attherightprice.
Table of contents
-
Page 1
...put฀customers฀ t!฀AutoZoners฀always฀put฀customers฀first!฀AutoZoners฀always฀put฀customers฀first!฀AutoZoners฀always฀put฀customers฀first!฀ ฀know฀our฀parts฀and฀products.฀We฀know฀our฀parts฀and฀products.฀We฀know฀our฀parts฀and฀products... -
Page 2
Focusing฀on฀"the฀basics"- Dedicated฀to฀exceeding฀customer฀expectations Selected฀Financial฀Data Fiscal Year Ended August (Dollars in millions, except per share data) 39 2002 2003 2004 2005 2006 Net Sales Operating Profit 1 Diluted Earnings per Share 2 18 $ 5,326 771 21 ... -
Page 3
...฀know฀our฀parts฀and฀products. Our฀stores฀look฀great! We've฀got฀the฀best฀merchandise฀at฀the฀right฀price. AutoZone฀Pledge,฀est.฀1986 sm Dear฀Customers,฀AutoZoners,฀and฀Stockholders: Fiscal 2006 was another record year for AutoZone. We increased sales to... -
Page 4
... sure they have brake fluid and brake parts cleaner when they are completing a brake job, we owe this to our customers. Some consider this focus to be a related selling practice and it is. But more importantly it is about making sure our customers have the tools, products, knowledge and advice to... -
Page 5
... information. We time stamped every segment of our commercial transactions and soon developed customer-level key performance indicators. We've taken several hundred Commercial programs and rolled a new test built on the learnings from our PDAs, customer feedback and additional smaller tests... -
Page 6
฀AutoZoners฀Living฀the฀Pledge 4 -
Page 7
® AutoZone's฀2006฀ Financial Section Selected Financial and Operating Data Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm ... -
Page 8
... The calculation includes cost of sales related to pay-on-scan sales, which were $198.1MM for the 52 weeks ended August 26, 2006 and $234.6MM for the 52 weeks ended August 25, 2005. (7) After-tax return on invested capital is calculated as after-tax operating profit (excluding rent and restructuring... -
Page 9
... of fiscal 2005 includes 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. The second quarter of fiscal 2005 also includes a $15.3 million income... -
Page 10
... 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... -
Page 11
..., 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... -
Page 12
... and systems. In addition to the building and land costs, our new store development program requires working capital, predominantly for non-POS inventories. Historically, we have negotiated extended payment terms from suppliers, reducing the working capital required. We believe that we will be able... -
Page 13
... amounts accrued within deferred rent and closed store obligations reflected in our consolidated balance sheets. (4) The Company retains a significant portion of the risks associated with workers compensation, employee health, general, products liability, property, and automotive insurance. As these... -
Page 14
...฀Results฀of฀Operations (continued) 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 a third party at a discount for cash with limited recourse. AutoZone has recorded a reserve for... -
Page 15
...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... -
Page 16
.... 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... -
Page 17
... fuel used to distribute our products. Accordingly, mark-to-market gains and losses related to such fuel swap contracts are recorded each period in cost of sales as a component of distribution costs. As of August 27, 2005, the then current month's fuel swap contract was outstanding with a settlement... -
Page 18
...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." Fiscal Year Ended August (in thousands, except per share... -
Page 19
...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... -
Page 20
... of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment that AutoZone, Inc. maintained effective internal control over financial reporting as of August 26, 2006, is fairly stated, in all material respects... -
Page 21
... of AutoZone, Inc. as of August 26, 2006 and August 27, 2005, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended August 26, 2006. These financial statements are the responsibility of the Company's management. Our... -
Page 22
... (in thousands, 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... -
Page 23
... and cash equivalents Accounts receivable Merchandise inventories Other current assets Total current assets Property and equipment: Land Buildings and improvements Equipment Leasehold improvements Construction in progress Less: Accumulated depreciation and amortization Goodwill, net of accumulated... -
Page 24
... from commercial paper Proceeds from issuance of debt Repayment of Senior Notes Net proceeds from sale of common stock Purchase of treasury stock Settlement of interest rate hedge instruments Income tax benefit from exercise of stock options Other Net cash used in financing activities Net increase... -
Page 25
...taxes of $2,152 Reclassification of net gains on derivatives into earnings Comprehensive income Purchase of 6,187 shares of treasury stock Retirement of treasury stock Sale of common stock under stock option and stock purchase plans Share-based compensation expense Tax benefit from exercise of stock... -
Page 26
... 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... -
Page 27
... 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... -
Page 28
... 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 to the vendors. Monies received from vendors include rebates, allowances and promotional funds... -
Page 29
... 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... -
Page 30
... 123 to options granted under the Company's stock plans in all periods presented. For purposes of this pro forma disclosure, the value of the options is estimated using Black-Scholes-Merton multiple option pricing model for all option grants. Year Ended (in thousands, except per share data) August... -
Page 31
...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... -
Page 32
... cost related to non-vested awards not yet recognized was $16.9 million with a weighted average remaining expense recognition period of 1.1 years. Under the AutoZone, Inc. 2003 Director Stock Option Plan, on January 1 of each year, each non-employee director receives an option to purchase... -
Page 33
... 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... -
Page 34
... operating loss and credit carryforwards Foreign net operating loss and credit carryforwards Insurance reserves Closed store reserves Pension Accrued benefits Other Total deferred tax assets Less: Valuation allowances Net deferred tax assets Deferred tax liabilities: Property and equipment Inventory... -
Page 35
... 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... -
Page 36
...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 4.55%. AutoZone has the option to extend loans into subsequent interest period(s) or convert them into loans... -
Page 37
... 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... -
Page 38
... date are used as a guide in establishing the weighted average discount rate. 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... -
Page 39
.... Note฀J-Leases฀ Some of the Company's retail stores, distribution centers, facilities and equipment are leased. Most of these leases 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... -
Page 40
... 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... -
Page 41
..., 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:" Year Ended (in thousands) August฀26,฀ 2006 $4,989,266... -
Page 42
..., at the J.R. Hyde, III 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... -
Page 43
...Inc. William฀C.฀Rhodes,฀III President and CEO AutoZone, Inc. (1) Audit Committee (2) Compensation Committee (3) Nominating and Corporate Governance Committee * Committee Chair Earl฀G.฀Graves,฀Jr.(1,3) President and CEO Earl G. Graves Publishing Dr.฀N.฀Gerry฀House (2) President and... -
Page 44
® 123 South Front Street Memphis, Tennessee 38103-3607 (901) 495-6500 www.autozone.com ® g n i v ! i e L g ฀ Pl e d ฀ e h t