[COVER: PICTURE OF KEYCHAIN WITH "AUTOZONE" AND "FY 98" KEY RINGS]
1998 ANNUAL REPORT
<PAGE>
COMPANY DESCRIPTION
AutoZone is more than just the nation's leading auto parts chain. We sell
auto and light truck parts, chemicals and accessories in 38 states through
2,657
AutoZone and Chief stores. We also sell heavy-duty truck parts and accessories
through 43 TruckPro stores in 14 states, plus automotive diagnostic and repair
software through ALLDATA.
We cater to a broad range of customers. Our core customers are the
do-it-yourselfers, who work on their family cars. They're driven by a need for
transportation and to save money. We also sell to professional technicians who
work on other people's vehicles. They're driven by the need to make a living.
Both rely on us for quality, service, value and information.
AutoZone turned 19 years old on July 4, 1998. Our first store was in
Forrest City, Arkansas, and was the laboratory for developing many of our
customer service ideas. Those ideas became the foundation of the AutoZone
pledge:
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.
Today over 38,000 people work for AutoZone, TruckPro and ALLDATA. All
share the pride and responsibility of working for the leader in their
respective
industries.
<PAGE>
[BAR GRAPHS APPEAR HERE WITH THE FOLLOWING DATA:]
Sales Operating Net
($ millions) Profit Income
($ millions) ($ millions
3,243 382 228
2,691 321 195
2,243 269 167
1,808 228 139
1,508 191 116
94 95 96 97 98 94 95 96 97 98 94 95 96 97 98
Earnings Per Share After Tax Return on Capital
($)
1.48
1.28 19% 19%
1.11 18%
.93 16%
.78 14%
94 95 96 97 98 94 95 96 97 98
[PHOTO OF AUTOZONE STORE SIGN APPEARS HERE]
Financial Highlights
1998 1997 % Change
Sales $3,242,922,000 $2,691,440,000 +20%
Operating Profit $382,307,000 $321,351,000 +19%
Net Income $227,903,000 $195,008,000 +17%
Earnings Per Share $1.48 $1.28 +16%
Stockholders' Equity $1,302,057,000 $1,075,208,000 +21%
Number of Auto Parts Stores 2,657 1,728 +54%
<PAGE>
To our Customers, AutoZoners and Stockholders,
Fiscal 1998 will be remembered as the year AutoZone took the lead in
industry consolidation. ALLDATA was our only major acquisition entering the
year, but we ended with three new acquisitions on the books. We bought these
companies with the intention of either boosting our customer base or reaching
an entirely new segment of the parts market. We took a very strategic approach
to potential purchases. In fact, we turned down opportunities that didn't meet
thecriteria and value we needed.
[PHOTO OF TIM VARGO AND JOHN ADAMS APPEARS HERE]
[CAPTION] President Tim Vargo and Chairman John Adams
Here's an overview of this past year's acquisitions:
* Auto Palace with 112 stores in six states on February 17, 1998
* TruckPro with 43 stores in 14 states on May 1, 1998
* Chief Auto Parts with 560 stores in five states on June 29, 1998
We're pleased to say we completed these acquisitions without sacrificing
our focus on the core business. Concentrating on a more efficient operation
and our trademark customer service continues to show strong returns on earnings.
Sales, despite the dreaded El Nino and a winter that didn't take place, kept
pace with the growth we've seen in past years.
Specifically:
* Sales rose 20% to $3.24 billion
* Comparable store sales increased by 2%
* Net income increased 17% to $228 million
Our internal growth plans remain on track as well. Acquiring nearly 700
net stores did divert some resources, but we still opened 275 net new AutoZone
stores during the year. We also entered six new states and the District of
Columbia during FY98. Next year we plan to open 225 net new AutoZone stores
while also remodeling and converting the Chief stores.
While DIY customers will continue to drive our core business, we've begun
tapping markets that offer new opportunities for sales. These will become our
future legs for growth.
The commercial business was an early taste of this. While we've only been
selling to professional accounts for two years, we've already become one of the
top five wholesalers in the country. Of course we're not satisfied with that.
Learning better ways to serve the professional technician is a daily process
that shows lots of opportunities.
2
<PAGE>
TruckPro is another business that will help support our growth. The
heavy-duty truck parts industry is large and fragmented. If this sounds
familiar, it should. These are characteristics that described the DIY market
back when AutoZone first took the industry by storm.
The international auto parts market is without a big-name player. And
while we're careful to study each potential country individually, many have
some very attractive qualities in common. Lots of old cars and trucks.
Emerging economies that give families the opportunity to own their first
vehicles and very few places to get parts for those vehicles. And the
incredible number of big trucks on the roads outside of our borders presents
another avenue of growth for our TruckPro business.
These new ventures plus the continued growth of our store base offer
greater opportunities to leverage our systems and buying power.
As we approach the year 2000, we're making diligent efforts to see that
our computer systems will make that transition smoothly. We're also working
with a number of business partners, including external consultants, insurers,
vendors and financial institutions to address Y2K related issues. If you're
interested in more details about this plan, see the financial section in this
annual report.
We've been challenging the status quo for 19 years and being the industry
leader hasn't changed that strategy. In fact, our position in the industry
took a giant leap forward this year. Our acquisitions added stores and market
share, but more importantly they added talented people. AutoZone is now 38,000
people strong, and they are the driving force behind the most efficient
operation in auto parts.
/s/ John Adams /s/ Tim Vargo
John Adams Tim Vargo
Chairman & CEO President & COO
Customer Satisfaction Customer Satisfaction
[PHOTO OF KEYCHAIN APPEARS HERE WITH "AUTOZONE" ON KEYRING]
<PAGE>
Buckle up and turn the key.
We're just getting started.
<PAGE>
[PHOTO OF IGNITION SWITCH AND DASHBOARD OF CAR APPEARS HERE;
KEYCHAIN SAYS: "AutoZone" AND "FY 98"]
<PAGE>
WHAT DRIVES US
A cheer, some catchy acronyms and a pledge to put customers first. We
even throw in a line or two about keeping our stores clean and offering great
parts at great prices. It's what drives us, what keeps our eyes on the road.
Does that make us different from the other guys? No. Not the act of saying
it, anyway.
[PHOTO OF AUTOZONE EMPLOYEE WITH CUSTOMER USING TESTER ON CAR APPEARS HERE]
[CAPTION] Customers rely on us for
more than just quality parts
at great prices.
Just as there's more to owning a new car than learning the fancy gadgets
and soaking up that "new car" smell, there's more to giving great customer
service than a friendly smile and spit-shined linoleum. It takes a healthy
disrespect for the status quo. A general disgust with keeping up with the
Joneses.
We rely on innovation as our fuel for growth and let others run on
imitation. We make sure the objects in our rear-view mirror aren't closer than
they appear because we keep moving faster. What's more, because we're
constantly fine-tuning the business, we're squeezing more horsepower out of the
same fuel-efficient engine. We're experts on getting more for less. We have
to
be, because when the rubber hits the road, a customer with grease up to his
elbows will tell you he doesn't care about anything but the right part at the
right price, right now. Yes, there are other places he could go for that. But
he comes to AutoZone because we give him all of that plus a level of service
that helps make that tough job a littler easier.
[PHOTO OF EXTERIOR OF AUTOZONE STORE APPEARS HERE]
[CAPTION] AutoZone's clean, well-lit stores
broke the stereotype for the auto
parts business.
So when we say we're set on customer service, we're not just yanking your
timing chain. It's the foundation of our culture, and it's ours alone. It's
what drives us.
6
<PAGE>
[PHOTO OF KEYCHAIN APPEARS HERE;
KEYRING SAYS "CUSTOMER # 1"]
A guide to catchy acronyms
WITTDTJR - What It Takes To Do The Job Right
GOTTChA - Go Out To The Customer's Automobile
Drop/Stop-30/30- Drop what's in your hands and
stop what you're doing to greet customers
before They're 30 feet or 30 seconds into the
store.
7
<PAGE>
WHO'S ON BOARD
[PHOTO OF CD-ROM APPEARS HERE]
[CAPTION] We now sell a consumer version
of ALLDATA's repair software
under the Popular Mechanics
label.
Over 38,000 AutoZoners, thousands of stockholders and millions of
customers. And that's only the beginning. ALLDATA. Commercial Accounts. Auto
Palace. TruckPro. Chief.
AutoZoners satisfy customers, stockholders invest in our growth and
customers keep us in business. But what about the others?
ALLDATA is information - something every technician needs. And since
acquiring ALLDATA in 1996, we've increased the amount of information in their
electronic database by almost 300%.
[PHOTO OF AUTOZONE EMPLOYEE WITH COMMERCIAL CUSTOMER APPEARS HERE]
[CAPTION] Our Commercial Accounts help
their customers faster thanks to
our 30-minute delivery.
Commercial Accounts let us serve a different customer base. Although it
hasn't reached its potential, it has become an integral part of our business.
Every day we're learning better ways to serve our professional customers.
[PHOTO OF AUTO PALACE STORE APPEARS HERE]
[CAPTION] We acquired AutoPalace with
112 stores in six states and
gained an instant presence
in the Northeast.
Auto Palace offered a chance to quickly and economically establish
ourselves in a market that had never seen an AutoZone store before this year.
We've gained customer loyalty and completely transformed their stores into
AutoZone stores in less than a year.
[PHOTO OF TRUCKPRO EMPLOYEE APPEARS HERE]
[CAPTION] TruckPro's 43 stores in 14
states took us into the heavy-
duty truck parts business.
TruckPro might have been our smallest acquisition, but it's big in terms
of strategy. The heavy-duty truck parts market is fragmented and lacks a clear
industry leader, putting TruckPro in a very similar position to AutoZone 19
years ago. With our guidance and their established position in the industry, we
hope TruckPro's growth is equally impressive.
[PHOTO OF CHIEF AUTO PARTS STORE APPEARS HERE, WITH AUTOZONE STORE SIGN]
[CAPTION] Nearly 400 of the 560 stores
we acquired through Chief are
located in California.
Last year we touted our first California store. This year we're
operating over 400 California stores, thanks in large part to the acquisition of
Chief Auto Parts. The acquisition took some by surprise, but not those who
follow AutoZone closely. It has become AutoZone's way to seize opportunities to
acquire in markets where organic growth would take too long and cost too much.
Chief, TruckPro, Auto Palace, Commercial Accounts, ALLDATA, customers,
stockholders and over 38,000 AutoZoners. That's who's on board.
8
<PAGE>
[PHOTO OF KEYCHAIN APPEARS HERE;
KEYRINGS SAY: TruckPro, ALLDATA
Corporation, Auto Palace,
Chief, and Commercial Accounts]
Last year, our commercial trucks
logged over 42 million miles delivering
parts to our professional customers.
That's the equivalent of driving round
trip from our San Diego store to our
Boston store nearly 7,000 times.
9
<PAGE>
WHERE WE'RE HEADED
We've called it an odyssey. If you don't have a dictionary handy, it's
defined as an adventurous voyage or trip. For a more practical definition, you
can look at the landmarks we've seen during the past year alone. The opening
of our 2,000th store, three acquisitions and the entry into an entirely new
segment of the parts business.
[PHOTO OF AUTOZONE STORE APPEARS HERE]
[CAPTION] We're constantly looking for ways
to streamline our distribution
network to make it among the
most efficient in retailing
Are we going fast? We have to. Are we going too fast? We don't think
so. By keeping an eye on the charts and gauges that have guided things to this
point, we've managed to increase the speed without spinning out of control.
So what's around the next bend? Where are we headed? One possibility has
us setting down that U.S. atlas we know so well and picking up a globe.
Markets abroad have very real potential for the AutoZone concept. In fact, our
research is showing that we can fit as many stores outside of the United States
borders as we can within. Our trip outside the U.S. will begin this fiscal
year.
At the same time, we've increased our projection for store capacity inside
the United States to over 5,000. One reason for this upgrade is our small
store prototype that hit the market this past year. This 3,800 square foot
building is a model of efficiency and was designed to reach towns and
neighborhoods that lack the space or population needed for our typical 7,700
square foot store.
After finding creative ways to maximize the space, we've managed to pack
almost as many parts into this streamlined store.
[PHOTO OF AUTOZONE STORE UNDER CONSTRUCTION APPEARS HERE]
[CAPTION] We're only halfway to the 5,000
stores we believe the U.S.
can support. We currently operate
2,657 auto parts stores.
A smaller store means a smaller investment. And a smaller store with a lot
of parts means higher returns. We'll also take advantage of these efficiencies
as we remodel the Chief stores, which, on average, come in smaller buildings.
We're traveling to wherever our customers need us, whether it's down dusty
country roads or across sweltering city asphalt. We plot our odyssey around
those customers because they're the ones who decide where we're headed.
10
<PAGE>
[PHOTO OF GLOBE AND ATLAS APPEARS HERE]
It's no coincidence that this globe shows Mexico on top. This fall, AutoZone
will open its first international store in Nuevo Laredo, a city just across the
border from Laredo, TX.
11
<PAGE>
TEN-YEAR REVIEW
(in thousands, except per share data and selected operating data)
<TABLE>
<CAPTION>
5-Year 10-Year Fiscal Year Ended August
Compound Compound --------------------------
Growth Growth 1998 1997
--------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales........................................................... 22% 22% $3,242,922 $2,691,440
Cost of sales, including warehouse and delivery expenses............ 1,889,847 1,559,296
Operating, selling, general and administrative expenses............. 970,768 810,793
-------------------------
Operating profit.................................................... 22% 36% 382,307 321,351
Interest income (expense)........................................... (18,204) (8,843)
-------------------------
Income before income taxes.......................................... 21% 45% 364,103 312,508
Income taxes........................................................ 136,200 117,500
-------------------------
Net income.......................................................... 21% 47% $ 227,903 $ 195,008
=========================
Diluted earnings per share.......................................... 20% 44% $ 1.48 $ 1.28
=========================
Adjusted weighted average shares for diluted earnings per share..... 154,070 152,535
BALANCE SHEET DATA
Current assets...................................................... $1,117,090 $ 778,802
Working capital..................................................... 257,261 186,350
Total assets........................................................ 2,748,113 1,884,017
Current liabilities................................................. 859,829 592,452
Debt................................................................ 545,067 198,400
Stockholders' equity................................................ 1,302,057 1,075,208
SELECTED OPERATING DATA
Number of auto parts stores at beginning of year.................... 1,728 1,423
New stores...................................................... 952 308
Replacement stores.............................................. 12 17
Closed stores................................................... 23 3
Net new stores.................................................. 929 305
Number of auto parts stores at end of year.......................... 2,657 1,728
Total auto parts store square footage (000's)....................... 16,499 11,611
Percentage increase in auto parts square footage.................... 42% 23%
Percentage increase in auto parts comparable store net sales........ 2% 8%
Average net sales per auto parts store (000's)...................... $ 1,568 $ 1,691
Average net sales per auto parts store square foot.................. $ 238 $ 253
Total employment.................................................... 38,526 28,700
Gross profit - percentage of sales.................................. 41.7% 42.0%
Operating profit - percentage of sales.............................. 11.8% 11.9%
Net income - percentage of sales.................................... 7.0% 7.2%
Debt-to-capital - percentage........................................ 29.5% 15.6%
Inventory turnover.................................................. 2.3x 2.5x
Return on average equity............................................ 19% 20%
</TABLE>
12
<PAGE>
Ten-Year Review
(in thousands, except per share data and selected operating data)
<TABLE> Fiscal Year Ended August
<CAPTION> --------------------------------------------------------
1996* 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales........................................................... $2,242,633 $1,808,131 $1,508,029 $1,216,793
Cost of sales, including warehouse and delivery expenses............ 1,307,638 1,057,033 886,068 731,971
Operating, selling, general and administrative expenses............. 666,061 523,440 431,219 344,060
-------------------------------------------------------
Operating profit.................................................... 268,934 227,658 190,742 140,762
Interest income (expense)........................................... (1,969) 623 2,244 2,473
-------------------------------------------------------
Income before income taxes.......................................... 266,965 228,281 192,986 143,235
Income taxes........................................................ 99,800 89,500 76,600 56,300
-------------------------------------------------------
Net income.......................................................... $ 167,165 $ 138,781 $ 116,386 $ 86,935
=======================================================
Diluted earnings per share.......................................... $ 1.11 $ 0.93 $ 0.78 $ 0.59
=======================================================
Adjusted weighted average shares for diluted earnings per share..... 151,238 149,302 148,726 147,608
BALANCE SHEET DATA
Current assets...................................................... $ 613,097 $ 447,822 $ 424,402 $ 378,467
Working capital..................................................... 219 30,273 85,373 92,331
Total assets........................................................ 1,498,397 1,111,778 882,102 696,547
Current liabilities................................................. 612,878 417,549 339,029 286,136
Debt................................................................ 94,400 13,503 4,252 4,458
Stockholders' equity................................................ 865,582 684,710 528,377 396,613
SELECTED OPERATING DATA
Number of auto parts stores at beginning of year.................... 1,143 933 783 678
New stores...................................................... 280 210 151 107
Replacement stores.............................................. 31 29 20 20
Closed stores................................................... 0 0 1 2
Net new stores.................................................. 280 210 150 105
Number of auto parts stores at end of year.......................... 1,423 1,143 933 783
Total auto parts store square footage (000's)....................... 9,437 7,480 5,949 4,839
Percentage increase in auto parts square footage.................... 26% 26% 23% 20%
Percentage increase in auto parts comparable store net sales........ 6% 6% 9% 9%
Average net sales per auto parts store (000's)...................... $ 1,702 $ 1,742 $ 1,758 $ 1,666
Average net sales per auto parts store square foot.................. $ 258 $ 269 $ 280 $ 274
Total employment.................................................... 26,800 20,200 17,400 15,700
Gross profit - percentage of sales.................................. 41.7% 41.5% 41.2% 39.8%
Operating profit - percentage of sales.............................. 12.0% 12.6% 12.6% 11.5%
Net income - percentage of sales.................................... 7.5% 7.7% 7.7% 7.1%
Debt-to-capital - percentage........................................ 9.8% 1.9% 0.8% 1.1%
Inventory turnover.................................................. 2.7x 2.9x 3.0x 3.2x
Return on average equity............................................ 22% 23% 25% 26%
</TABLE>
<TABLE> Fiscal Year Ended August
<CAPTION> -----------------------------------------------------
1992 1991* 1990 1989
-----------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales........................................................... $1,002,327 $817,962 $671,725 $535,843
Cost of sales, including warehouse and delivery expenses............ 602,956 491,261 416,846 341,130
Operating, selling, general and administrative expenses............. 295,701 247,355 205,609 169,786
-----------------------------------------------------
Operating profit.................................................... 103,670 79,346 49,270 24,927
Interest income (expense)........................................... 818 (7,295) (10,936) (9,799)
-----------------------------------------------------
Income before income taxes.......................................... 104,488 72,051 38,334 15,128
Income taxes........................................................ 41,200 27,900 14,840 6,200
-----------------------------------------------------
Net income.......................................................... $ 63,288 $ 44,151 $ 23,494 $ 8,928
=====================================================
Diluted earnings per share.......................................... $ 0.43 $ 0.33 $ 0.19 $ 0.07
=====================================================
Adjusted weighted average shares for diluted earnings per share..... 145,940 134,656 121,212 119,320
BALANCE SHEET DATA
Current assets...................................................... $ 279,350 $233,439 $191,736 $177,824
Working capital..................................................... 72,270 55,807 26,803 35,831
Total assets........................................................ 501,048 397,776 327,368 296,546
Current liabilities................................................. 207,080 177,632 164,933 141,993
Debt................................................................ 7,057 7,246 74,851 93,293
Stockholders' equity................................................ 278,120 204,628 80,356 54,592
SELECTED OPERATING DATA
Number of auto parts stores at beginning of year.................... 598 538 504 440
New stores...................................................... 82 60 38 70
Replacement stores.............................................. 14 4 7 7
Closed stores................................................... 2 0 4 6
Net new stores.................................................. 80 60 34 64
Number of auto parts stores at end of year.......................... 678 598 538 504
Total auto parts store square footage (000's)....................... 4,043 3,458 3,031 2,758
Percentage increase in auto parts square footage.................... 17% 14% 10% 19%
Percentage increase in auto parts comparable store net sales........ 15% 12% 13% 10%
Average net sales per auto parts store (000's)...................... $ 1,570 $ 1,408 $ 1,289 $ 1,135
Average net sales per auto parts store square foot.................. $ 267 $ 246 $ 232 $ 211
Total employment.................................................... 13,200 11,700 9,300 7,900
Gross profit - percentage of sales.................................. 39.8% 39.9% 37.9% 36.6%
Operating profit - percentage of sales.............................. 10.3% 9.7% 7.3% 4.6%
Net income - percentage of sales.................................... 6.3% 5.4% 3.5% 1.7%
Debt-to-capital - percentage........................................ 2.5% 3.4% 48.2% 63.1%
Inventory turnover.................................................. 3.0x 2.6x 2.4x 2.4x
Return on average equity............................................ 26% 31% 35% 18%
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year
Ended August
---------
1988
---------
<S> <C>
INCOME STATEMENT DATA
Net sales........................................................... $437,399
Cost of sales, including warehouse and delivery expenses............ 277,043
Operating, selling, general and administrative expenses............. 142,868
--------
Operating profit.................................................... 17,488
Interest income (expense)........................................... (8,826)
--------
Income before income taxes.......................................... 8,662
Income taxes........................................................ 3,770
--------
Net income.......................................................... $ 4,892
========
Diluted earnings per share.......................................... $ 0.04
========
Adjusted weighted average shares for diluted earnings per share..... 119,936
BALANCE SHEET DATA
Current assets...................................................... $137,098
Working capital..................................................... 35,226
Total assets........................................................ 232,977
Current liabilities................................................. 101,872
Debt................................................................ 77,138
Stockholders' equity................................................ 45,608
SELECTED OPERATING DATA
Number of auto parts stores at beginning of year.................... 396
New stores...................................................... 47
Replacement stores.............................................. 1
Closed stores................................................... 3
Net new stores.................................................. 44
Number of auto parts store at end of year........................... 440
Total auto parts store square footage (000's)...................... 2,318
Percentage increase in auto parts square footage.................... 14%
Percentage increase in auto parts comparable store net sales........ 6%
Average net sales per auto parts store (000's)...................... $ 1,046
Average net sales per auto parts store square foot.................. $ 201
Total employment.................................................... 7,100
Gross profit - percentage of sales.................................. 36.6%
Operating profit - percentage of sales.............................. 4.0%
Net income - percentage of sales.................................... 1.1%
Debt-to-capital - percentage........................................ 62.8%
Inventory turnover.................................................. 2.3x
Return on average equity............................................ 11%
</TABLE>
* 53 weeks. Comparable store sales, average net sales per store and average
net sales per store square foot for fiscal year 1996 and 1991 have been
adjusted to exclude net sales for the 53rd week.
13
<PAGE>
QUARTERLY SUMMARY
(Unaudited)
<TABLE>
<CAPTION>
Sixteen
Twelve Weeks Ended Weeks Ended
----------------------------------------------------------------------------------
(in thousands, except per share data)
November 22, February 14, May 9, August 29,
1997 1998 1998 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ..................................... $675,274 $607,097 $743,661 $1,216,890
Increase in comparable store sales ............ 7% 2% 2% 0%
Gross profit .................................. $280,441 $253,681 $311,080 $ 507,873
Operating profit .............................. 78,648 58,082 90,457 155,120
Income before income taxes .................... 76,146 55,054 86,240 146,663
Net income .................................... 47,546 34,354 53,940 92,063
Basic earnings per share ...................... 0.31 0.23 0.35 0.60
Diluted earnings per share .................... 0.31 0.22 0.35 0.60
Stock price range:
High ....................................... $ 32.75 $ 32.06 $ 36.25 $ 38.00
Low ........................................ $ 27.00 $ 23.75 $ 29.00 $ 26.63
</TABLE>
<TABLE>
<CAPTION>
November 23, February 15, May, 10 August 30,
1996 1997 1997 1997
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ..................................... $569,145 $538,012 $637,895 $ 946,388
Increase in comparable store sales ............ 7% 10% 7% 8%
Gross profit .................................. $240,298 $226,956 $268,975 $ 395,915
Operating profit .............................. 61,898 49,217 76,775 133,461
Income before income taxes .................... 60,725 47,107 74,103 130,573
Net income .................................... 37,975 29,407 46,103 81,523
Basic earnings per share ...................... 0.25 0.20 0.31 0.54
Diluted earnings per share .................... 0.25 0.19 0.30 0.53
Stock price range:
High ....................................... $ 30.63 $ 27.50 $ 26.13 $ 29.50
Low ........................................ $ 24.50 $ 20.13 $ 22.25 $ 22.25
</TABLE>
14
<PAGE>
Financial Review
The following table sets forth income statement data of AutoZone expressed
as a percentage of net sales for the periods indicated:
Fiscal Year Ended
--------------------------------------
August 29, August 30, August 31,
1998 1997 1996
--------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales, including warehouse
and delivery expenses 58.3 58.0 58.3
--------------------------------------
Gross profit 41.7 42.0 41.7
Operating, selling, general
and administrative expenses 29.9 30.1 29.7
--------------------------------------
Operating profit 11.8 11.9 12.0
Interest expense - net 0.6 0.3 0.1
Income taxes 4.2 4.4 4.4
--------------------------------------
Net income 7.0% 7.2% 7.5%
======================================
RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced the
Company's performance during the past three fiscal years, the following
Financial Review should be read in conjunction with the consolidated financial
statements presented in this annual report.
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 increased by $551.5 million or 20.5% over net
sales for fiscal 1997. This increase was due to a comparable store net sales
increase of 2% (which was primarily due to sales growth in the Company's newer
auto parts stores and the added sales of the Company's commercial program) and
an increase in net sales of $485.7 million for stores opened or acquired since
the beginning of fiscal 1997. At August 29, 1998, the Company had 2,657 auto
parts stores in operation, a net increase of 929 stores, including the
acquisition of 112 and 560 auto parts stores acquired in February and June 1998
respectively.
Gross profit for fiscal 1998 was $1,353.1 million, or 41.7% of net sales,
compared with $1,132.1 million, or 42.0% of net sales, for fiscal 1997. The
decrease in gross profit percentage was due primarily to lower commodities
gross margins coupled with lower gross margins in certain recently acquired
stores.
Operating, selling, general and administrative expenses for fiscal 1998
increased by $160.0 million over such expenses for fiscal 1997 and decreased as
a percentage of net sales from 30.1% to 29.9%. The decrease in the expense
ratio was primarily due to commercial expense leverage and additional
cooperative advertising funds received from vendors partially offset by higher
occupancy costs primarily in recently acquired stores.
Net interest expense for fiscal 1998 was $18.2 million compared with $8.8
million for fiscal 1997. The increase in interest expense was primarily due to
higher levels of borrowings as a result of the acquisitions.
AutoZone's effective income tax rate was 37.4% of pre-tax income for
fiscal 1998 and 37.6% for fiscal 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 increased by $448.8 million or 20.0% over net
sales for fiscal 1996. This increase was due to a comparable store net sales
increase of 8% (which was primarily due to sales growth in the Company's newer
stores and the added sales of the Company's commercial program) and an increase
in net sales of $313.1 million for stores opened since the beginning of fiscal
1996, offset by net sales for the 53rd week of fiscal 1996. At August 30, 1997,
the Company had 1,728 stores in operation, a net increase of 305 stores, or
approximately 23% in new store square footage for the year.
Gross profit for fiscal 1997 was $1,132.1 million, or 42.0% of net sales,
compared with $935.0 million, or 41.7% of net sales, for fiscal 1996. The
increase in gross profit percentage was due primarily to improved leveraging of
warehouse and delivery expenses.
Operating, selling, general and administrative expenses for fiscal 1997
increased by $144.7 million over such expenses for fiscal 1996 and increased as
a percentage of net sales from 29.7% to 30.1%. The increase in the expense
ratio
was primarily due to operating costs of ALLDATA and to costs of the Company's
commercial program.
Net interest expense for fiscal 1997 was $8.8 million compared with $2.0
million for fiscal 1996. The increase in interest expense was primarily due to
higher levels of borrowings.
AutoZone's effective income tax rate was 37.6% of pre-tax income for
fiscal 1997 and 37.4% for fiscal 1996.
15
<PAGE>
FINANCIAL MARKET RISK
Financial market risks relating to the Company's operations result
primarily from changes in interest rates. The Company enters into interest rate
swaps to minimize the risk associated with its financing activities. The swap
agreements are contracts to exchange fixed or variable rates for floating
interest rate payments periodically over the life of the instruments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements have been the funding of its
continued new store expansion program, inventory requirements and more
recently, acquisitions. The Company has opened or acquired 1,874 net new auto
parts stores and constructed four new distribution centers from the beginning of
fiscal 1994 to August 29, 1998. Cash flow generated from store operations
provides the Company with a significant source of liquidity. Net cash provided
by operating activities was $366.8 million in fiscal 1998, $177.6 million in
fiscal 1997, and $174.9 million in fiscal 1996. The significant increase in net
cash provided by operating activities in fiscal 1998 is due primarily to
improved inventory turnover, excluding acquisitions, coupled with favorable
payment terms.
In fiscal 1998, the Company invested $337.2 million in capital assets and
had a net cash outlay of $365.5 million for acquisitions including the
retirement of the acquired companies' debt. Acquisitions included Chief Auto
Parts, with stores primarily in California, Auto Palace, with stores primarily
in the Northeast, and a truck parts chain, TruckPro. Capital expenditures were
$337.2 million in fiscal 1998, $295.4 million in fiscal 1997, and $280.2
million in fiscal 1996. The Company opened or acquired 929 net new auto parts
stores and 43 truck parts stores in fiscal 1998. Construction commitments
totaled approximately $76 million at August 29, 1998.
The Company's new store development program requires significant working
capital, principally for inventories. Historically, the Company has negotiated
extended payment terms from suppliers, minimizing the working capital required
by its expansion. The Company believes that it will be able to continue
financing much of its inventory growth by favorable payment terms from
suppliers, but there can be no assurance that the Company will be successful in
obtaining such terms.
In July 1998, the Company sold $200 million of 6.5% Debentures due July
15, 2008 at a discount. Interest on the Debentures is payable semi-annually on
January 15 and July 15 of each year, beginning January 15, 1999. The Debentures
may be redeemed at any time at the option of the Company. Proceeds were used to
repay portions of the Company's long-term variable rate bank debt and for
general corporate purposes.
The Company has a commercial paper program that allows borrowing up to
$500 million. As of August 29, 1998, there were borrowings of $305 million
outstanding under the program. In connection with the program, the Company has
a credit facility with a group of banks for up to $350 million and a 364-day
$150 million credit facility with another group of banks. Borrowings under the
commercial paper program reduce availability under the credit facilities. As of
August 29, 1998, the Company had $34 million outstanding under the $350 million
credit facility which expires in December 2001. There were no amounts
outstanding under the $150 million credit facility at August 29,1998. Both of
the revolving credit facilities contain a covenant limiting the amount of debt
the Company may incur relative to its total capitalization.
In fiscal 1998, the Company announced plans to repurchase up to $100
million of the Company's common stock in the open market. Under this plan, in
fiscal 1998 the Company repurchased nearly one million shares of its common
stock for $28.7 million.
Subsequent to year end, the Company announced an agreement to acquire real
estate and real estate leases for approximately 100 Express auto parts stores
from Pep Boys for approximately $108 million. If consummated, the transaction
would not have a material impact on the fiscal 1999 financial position or
consolidated operating results.
The Company anticipates that it will rely primarily on internally
generated funds to support a majority of its capital expenditures, working
capital requirements, and treasury stock repurchases. The balance will be funded
through borrowings. The Company anticipates no difficulty in obtaining such
long-term financing in view of its credit rating and favorable experiences in
the debt market in the past. In addition to the available credit lines mentioned
above, the Company may sell up to $200 million of public debt under shelf
registration statements filed with the Securities and Exchange Commission.
YEAR 200 CONVERSION
The Company began addressing the Year 2000 issue in June 1996 and
implemented a formal Year 2000 project office in May 1997. As of August 29,
1998, the Company had completed over half of its conversion efforts. The
Company anticipates completing the conversion and testing of all known remaining
programs by July 31, 1999.
The total estimated cost of the Year 2000 project is $12 million, which is
being expensed as incurred. As of August 29, 1998, approximately $3 million of
the $12 million cost of conversion had been incurred. All of the related costs
are being funded through operating cash flows. These costs are an immaterial
part of the overall information technology budget. No major information
technology projects or programs have been deferred.
16
<PAGE>
In addition to internal system activities, the Company is addressing Year
2000 issues which do not normally fall under information technology such as
embedded chip equipment and the compliance status of business partners.
Although the Company believes that the ongoing assessment and testing will
minimize the Company's risks, there is no guarantee that there will not be an
adverse effect on the Company if third parties, such as merchandise vendors,
service providers, or utility companies are not Year 2000 compliant.
Although the Company does not anticipate any major business disruptions as
a result of Year 2000 issues, it is possible that certain disruptions may occur
including loss of communications with stores, distribution centers, or business
partners; inability to process transactions in a timely manner or loss of
power. The Company is currently developing contingency plans which should be
finalized by July 31, 1999. Elements of the Company's contingency plans may
include: switching vendors, back-up systems or manual processes, and the
stockpiling of certain products prior to the Year 2000.
The cost of conversion and the completion date are based on management's
best estimates and may be updated as additional information becomes available.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," and No. 131, "Disclosures about Segments of an
Enterprise and Related Information." In February 1998, the FASB issued SFAS No.
132, "Employers' Disclosure about Pensions and Other Postretirement Benefits."
All statements are effective for financial statements issued for fiscal years
beginning after December 15, 1997. The Company plans to adopt all three
statements in the 1999 fiscal year.
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. Adoption of this statement will have
no impact on the Company's consolidated financial position or results of
operations.
SFAS No. 131 revises existing guidelines about the level of financial
disclosure of a Company's operations by requiring inclusion of selected
information about operating segments in financial statements. The adoption of
this statement requires only additional reporting and will not have an impact
on the Company's reported results.
SFAS No. 132 establishes standards for the reporting of information about
pensions and other postretirement benefits. Adoption of this statement will not
materially change the Company's current reporting of pension and other
postretirement benefits.
INFLATION
The Company does not believe its operations have been materially affected
by inflation. The Company has been successful, in many cases, in mitigating the
effects of merchandise cost increases principally due to economies of scale
resulting from increased volumes of purchases, selective forward buying and the
use of alternative suppliers.
SEASONALITY AND QUARTERLY PERIODS
The Company'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 historically have been about 20% to 30% higher than in
the slowest months of December through February. The Company's business is also
affected by weather conditions. Extremely hot or extremely cold weather tends
to enhance sales by causing parts to fail and spurring sales of seasonal
products. Mild or rainy weather tends to soften sales as parts' failure rates
are lower in mild weather and elective maintenance is deferred during periods of
rainy weather.
Each of the first three quarters of AutoZone's fiscal year consists of
twelve weeks and the fourth quarter consists of sixteen weeks. Because the
fourth quarter contains the seasonally high sales volume and consists of
sixteen weeks, compared to twelve weeks for each of the first three quarters,
the Company's fourth quarter represents a disproportionate share of the annual
net sales and net income. The fourth quarter of fiscal 1998 represented 37.5% of
annual net sales and 40.4% of net income; the fourth quarter of fiscal 1997
represented 35.2% of annual net sales and 41.8% of net income.
FORWARD LOOKING STATEMENTS
Certain statements contained in the Financial Review and elsewhere in this
annual report are forward-looking statements. These statements discuss, among
other things, expected growth, domestic and international development and
expansion strategy, business strategies, future revenues and future
performance. The forward-looking statements are subject to risks, uncertainties
and assumptions including, but not limited to competition, product demand,
domestic and international economies, government approvals and regulations, the
ability to hire and retain qualified employees, the ability to convert acquired
stores in a timely and profitable manner, inflation and the weather. Actual
results may materially differ from anticipated results.
17
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
August 29, August 30, August 31,
1998 1997 1996
(52 Weeks) (52 Weeks) (53 Weeks)
--------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net sales $3,242,922 $2,691,440 $2,242,633
Cost of sales, including warehouse and delivery expenses 1,889,847 1,559,296 1,307,638
Operating, selling, general and administrative expenses 970,768 810,793 666,061
- ---------------------------------------------------------------------------------------------------------------
Operating profit 382,307 321,351 268,934
Interest expense - net 18,204 8,843 1,969
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 364,103 312,508 266,965
Income taxes 136,200 117,500 99,800
- ---------------------------------------------------------------------------------------------------------------
Net income $ 227,903 $ 195,008 $ 167,165
- ---------------------------------------------------------------------------------------------------------------
Weighted average shares for basic earnings per share 152,160 150,726 148,476
Effect of dilutive stock options 1,910 1,809 2,762
- ---------------------------------------------------------------------------------------------------------------
Adjusted weighted average shares for diluted earnings per share 154,070 152,535 151,238
- ---------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.50 $ 1.29 $ 1.13
- ---------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.48 $ 1.28 $ 1.11
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 29, August 30,
1998 1997
-------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
ASSETS Current assets:
Cash and cash equivalents $ 6,631 $ 4,668
Accounts receivable 42,252 18,713
Merchandise inventories 966,560 709,446
Prepaid expenses 37,532 20,987
Deferred income taxes 61,964 24,988
Income taxes receivable 2,151
-------------------------------------------------------------------------------------------------
Total current assets 1,117,090 778,802
Property and equipment:
Land 320,203 243,587
Buildings and improvements 851,083 682,710
Equipment 374,465 267,536
Leasehold improvements and interests 82,273 45,667
Construction in progress 150,461 97,411
-------------------------------------------------------------------------------------------------
1,778,485 1,336,911
Less accumulated depreciation and amortization 350,979 255,783
-------------------------------------------------------------------------------------------------
1,427,506 1,081,128
Other assets:
Cost in excess of net assets acquired, net of accumulated
amortization of $9,096 in 1998 and $8,084 in 1997 181,315 16,570
Deferred income taxes 3,510 4,339
Other assets 18,692 3,178
-------------------------------------------------------------------------------------------------
203,517 24,087
-------------------------------------------------------------------------------------------------
$2,748,113 $1,884,017
-------------------------------------------------------------------------------------------------
LIABILITIES AND Current liabilities:
STOCKHOLDERS' Accounts payable $ 683,372 $ 449,793
EQUITY Accrued expenses 176,457 122,580
Income taxes payable 20,079
-------------------------------------------------------------------------------------------------
Total current liabilities 859,829 592,452
Long-term debt 545,067 198,400
Other liabilities 41,160 17,957
Commitments and contingencies (See notes G and H)
Stockholders' equity:
Preferred Stock, authorized 1,000 shares; no shares issued
Common Stock, par value $.01 per share, authorized 200,000 shares;
153,039 shares issued and 152,086 shares outstanding in 1998 and
151,313 issued and outstanding shares in 1997 1,530 1,513
Additional paid-in-capital 277,528 249,853
Retained earnings 1,051,745 823,842
Treasury stock, at cost (28,746)
-------------------------------------------------------------------------------------------------
Total stockholders' equity 1,302,057 1,075,208
-------------------------------------------------------------------------------------------------
$2,748,113 $1,884,017
-------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
-------------------------------------
August 29, August 30, August 31,
1998 1997 1996
(52 Weeks) (52 Weeks) (53 Weeks)
-------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 227,903 $ 195,008 $ 167,165
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment 95,464 77,163 62,919
Amortization of intangible and other assets 1,135 658 622
Deferred income tax expense (benefit) 20,241 (7,781) 6,082
Net increase in accounts receivable and prepaid expenses (15,260) (5,009) (7,564)
Net increase in merchandise inventories (47,285) (153,552) (158,673)
Net increase in accounts payable and accrued expenses 127,683 66,155 94,916
Net change in income taxes payable and receivable (22,230) 7,819 6,493
Net change in other assets and liabilities (20,813) (2,898) 2,930
---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 366,838 177,563 174,890
Cash flows from investing activities:
Acquisitions (100,031)
Capital expenditures (337,202) (295,417) (280,237)
---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (437,233) (295,417) (280,237)
Cash flows from financing activities:
Repayment of acquired companies' debt (265,429)
Increase in commercial paper 305,000
Proceeds from debentures 197,751
Net increase (decrease) in revolver (164,350) 104,000 84,900
Repayment of long-term debt (4,003)
Net proceeds from sale of Common Stock, including related tax benefit 27,692 14,618 17,699
Purchase of Treasury Stock (28,746)
Other 173
---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 72,091 118,618 98,596
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,696 764 (6,751)
Cash and cash equivalents at beginning of year 4,668 3,904 6,411
Cash provided by acquisitions/mergers 267 4,244
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 6,631 $ 4,668 $ 3,904
- ---------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid, net of interest cost capitalized $ 17,042 $ 8,779 $ 1,971
Income taxes paid $ 122,529 $ 109,681 $ 69,791
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at August 26, 1995 $1,471 $196,625 $ 486,614 $ -- $ 684,710
Net income 167,165 167,165
Equity of pooled entity (issued 1,697 shares) 17 20,936 (24,945) (3,992)
Sale of 1,386 shares of Common Stock under stock
option and stock purchase plans 13 6,836 6,849
Tax benefit of exercise of stock options 10,850 10,850
----------------------------------------------------------------------------
Balance at August 31, 1996 1,501 235,247 628,834 865,582
Net income 195,008 195,008
Sale of 1,176 shares of Common Stock under stock
option and stock purchase plans 12 7,676 7,688
Tax benefit of exercise of stock options 6,930 6,930
----------------------------------------------------------------------------
Balance at August 30, 1997 1,513 249,853 823,842 1,075,208
Net income 227,903 227,903
Sale of 1,726 shares of Common Stock under stock
option and stock purchase plans 17 11,475 11,492
Tax benefit of exercise of stock options 16,200 16,200
Purchase of 953 shares of Treasury Stock (28,746) (28,746)
----------------------------------------------------------------------------
Balance at August 29, 1998 $1,530 $277,528 $ 1,051,745 $ (28,746) $ 1,302,057
----------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Significant Accounting Policies
Business: The Company is principally a specialty retailer of automotive
parts and accessories. At the end of fiscal 1998, the Company operated 2,657
auto parts stores in 38 states. In addition, the Company sells heavy duty truck
parts and accessories through its 43 TruckPro stores in 14 states and
automotive diagnostic and repair information software through its ALLDATA
subsidiary.
Fiscal Year: The Company's fiscal year consists of 52 or 53 weeks ending
on the last Saturday in August.
Basis of Presentation: The consolidated financial statements include the
accounts of AutoZone, Inc. and its wholly owned subsidiaries (the Company). All
significant intercompany transactions and balances have been eliminated in
consolidation.
Merchandise Inventories: Inventories are stated at the lower of cost or
market using the last-in, first-out (LIFO) method.
Property and Equipment: Property and equipment is stated at cost.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets. Leasehold interests and improvements are
amortized over the terms of the leases.
Amortization: The cost in excess of net assets acquired is amortized by
the straight-line method over 40 years.
Preopening Expenses: Preopening expenses, which consist primarily of
payroll and occupancy costs, are expensed as incurred.
Advertising Costs: The Company expenses advertising costs as incurred.
Advertising expense, net of vendor rebates, was approximately $30,109,000 in
fiscal 1998, $27,271,000 in fiscal 1997 and $25,442,000 in fiscal 1996.
Warranty Costs: The Company provides the retail consumer with a warranty
on certain products. Estimated warranty obligations are provided at the time of
sale of the product.
Financial Instruments: The Company has certain financial instruments which
include cash, accounts receivable and accounts payable. The carrying amounts of
these financial instruments approximate fair value because of their short
maturities or variable interest rates. The Company uses derivative financial
instruments for purposes other than trading to minimize the risk associated
with financing activities. Settlements of interest rate swaps are accounted for
by recording the net interest received or paid as an adjustment to interest
expense on a current basis. Gains or losses resulting from market movements
are not recognized. Contracts that effectively meet risk reduction and
correlation criteria are recorded using hedge accounting. Hedges of anticipated
transactions are deferred and recognized when the hedged transaction occurs.
Income Taxes: The Company accounts for income taxes under the liability
method. Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Cash Equivalents: Cash equivalents consist of investments with maturities
of 90 days or less at the date of purchase.
Use of Estimates: Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Net Income Per Share: In fiscal 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 replaces primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effect of options. Diluted earnings per share
is based on the weighted average outstanding shares reduced by the effect of
stock options. All earnings per share amounts for all periods presented have
been restated to conform with SFAS No. 128 requirements.
Reclassifications: Certain prior year amounts have been reclassified to
conform to current year presentation.
Impairment of Long-Lived Assets: The Company complies with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Also, in general, long-
lived assets and certain identifiable intangibles to be disposed of should be
reported at the lower of carrying amount or fair value less cost to sell.
Comprehensive Income: In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 is effective for interim and annual periods beginning after December 15,
1997, although earlier adoption is permitted. This statement establishes
standards for reporting and display of comprehensive income and its components.
This statement requires only additional reporting, therefore its adoption in
fiscal 1999 will have no effect on the Company's results of operations or
financial position.
Disclosures about Segments of an Enterprise and Related Information: In
June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Statement No. 131 revises existing
guidelines for financial disclosure of a Company's operations and is effective
for fiscal years beginning after December 15, 1997, although earlier
application is permitted. The adoption of this statement requires only
additional reporting and will not have any effect on the Company's consolidated
financial position or results of operations. The Company will adopt this
statement in fiscal 1999.
Pensions and Other Postretirement Benefits: In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." Although earlier adoption is permitted, this
statement is effective for periods beginning after December 15, 1997. SFAS No.
132 establishes new standards for the reporting of information about pension and
other postretirement benefits. Adoption of SFAS No. 132 should not result in
any significant changes in the Company's presentation of pension and other
postretirement benefits. The Company will adopt SFAS No. 132 in fiscal 1999.
22
<PAGE>
Note B - Accrued Expenses
Accrued expenses consist of the following:
August 29, August 30,
1998 1997
-------------------------
(in thousands)
Medical and casualty
insurance claims $ 40,640 $ 35,121
Accrued compensation
and related payroll taxes 37,684 26,481
Property and sales taxes 38,506 27,161
Other 59,627 33,817
-------------------------
$176,457 $122,580
=========================
Note C - Income Taxes
At August 29, 1998, the Company has net operating loss carryforwards
(NOLs) of approximately $60 million that expire in years 2000 through 2018.
These carryforwards resulted from the Company's acquisition of ALLDATA
Corporation during fiscal 1996 and Chief Auto Parts Inc. and ADAP, Inc. (which
had been doing business as "Auto Palace") in fiscal 1998. The use of the NOLs is
limited to future taxable earnings of these companies and is subject to annual
limitations. A valuation allowance of $15,902,000 in fiscal 1998 and $5,247,000
in fiscal 1997 relates to those carryforwards.
The provision for income tax expense (benefit) consists of the following:
Year Ended
---------------------------------------
August 29, August 30, August 31,
1998 1997 1996
---------------------------------------
(in thousands)
Current:
Federal $103,810 $114,113 $86,469
State 12,149 11,168 7,249
---------------------------------------
115,959 125,281 93,718
Deferred:
Federal 19,665 (6,427) 5,531
State 576 (1,354) 551
---------------------------------------
20,241 (7,781) 6,082
---------------------------------------
$136,200 $117,500 $99,800
=======================================
Significant components of the Company's deferred tax assets and
liabilities are as follows:
August 29, August 30,
1998 1997
-----------------------
(in thousands)
Deferred tax assets:
Net operating loss and credit carryforwards $26,303 $ 5,247
Insurance reserves 13,847 12,078
Warranty reserves 7,778 7,171
Deferred lease expense 6,694
Accrued vacation 4,387 2,537
Other 29,690 9,823
-----------------------
88,699 36,856
Less valuation allowance 15,902 5,247
-----------------------
72,797 31,609
=======================
Deferred tax liabilities:
Property and equipment 4,104
Accrued property taxes 3,219 2,282
-----------------------
7,323 2,282
-----------------------
Net deferred tax assets $65,474 $29,327
=======================
A reconciliation of the provision for income taxes to the amount computed
by applying the federal statutory tax rate of 35% to income before income taxes
is as follows:
Year Ended
--------------------------------------
August 29, August 30, August 31,
1998 1997 1996
--------------------------------------
(in thousands)
Expected tax at statutory rate $127,436 $109,378 $93,438
State income taxes, net 8,271 6,379 5,070
Other 493 1,743 1,292
--------------------------------------
$136,200 $117,500 $99,800
======================================
23
<PAGE>
Note D - Financing Arrangements
The Company's long-term debt at the end of fiscal 1998 and 1997 consisted
of the following:
August 29, August 30,
1998 1997
-------------------------
(in thousands)
6.5% Debentures due July 15, 2008; redeemable
at any time at the option of the Company $200,000 $
Commercial paper, 5.7% weighted average rate 305,000
Unsecured bank loan, floating interest rate
averaging 5.8% at August 29, 1998 and
August 30, 1997; payable in December 2001 34,050 198,400
Other 6,017
-------------------------
Total long term debt $545,067 $198,400
=========================
In July 1998, the Company sold $200 million of 6.5% Debentures due July
15, 2008 at a discount. Interest on the Debentures is payable semi-annually on
January 15 and July 15 of each year, beginning January 15, 1999. Proceeds were
used to repay portions of the Company's long-term variable rate bank debt and
for general corporate purposes.
The Company has a commercial paper program that allows borrowing up to
$500 million. As of August 29, 1998, there were borrowings of $305 million
outstanding under the program. In connection with the program, the Company has
a credit facility with a group of banks for up to $350 million and a 364-day
$150 million credit facility with another group of banks. Borrowings under the
commercial paper program reduce availability under the credit facilities. There
were no amounts outstanding under the $150 million credit facility at August
29, 1998. Outstanding commercial paper and revolver borrowings at August 29,
1998 are classified as long-term debt as it is the Company's intention to
refinance them on a long-term basis.
The rate of interest payable under the revolving credit agreements is a
function of the London Interbank Offered Rate (LIBOR) or the lending bank's
base rate (as defined in the agreement) at the option of the Company. In
addition, the $350 million credit facility contains a competitive bid rate
option. Both of the revolving credit facilities contain a covenant limiting the
amount of debt the Company may incur relative to its total capitalization. These
facilities are available to support domestic commercial paper borrowings and to
meet cash requirements.
Maturities of long-term debt are $339 million for fiscal 2002 and $206
million thereafter.
Interest costs of $2,280,000 in fiscal 1998, $2,119,000 in fiscal 1997,
and $2,416,000 in fiscal 1996 were capitalized.
The estimated fair value of the 6.5% Debentures, which are publicly
traded, was approximately $199 million based on the market price at August 29,
1998. The estimated fair values of all other long-term borrowings approximates
their carrying value primarily because of their variable interest rates.
Note E - Employee Stock Plans
The Company has granted options to purchase common stock to certain
employees and directors under various plans at prices equal to the market value
of the stock on the dates the options were granted. Options are generally
exercisable over a three to seven year period, and generally expire in 10 years
after the grant. A summary of outstanding stock options is as follows:
Wtd. Avg. Number
Exercise Price of Shares
---------------------------
Outstanding August 26, 1995 $14.77 9,503,981
Assumed 4.46 221,841
Granted 28.50 1,621,395
Exercised 4.55 (1,332,588)
Canceled 24.38 (254,873)
---------------------------
Outstanding August 31, 1996 17.96 9,759,756
Granted 22.69 2,707,370
Exercised 4.93 (1,032,989)
Canceled 25.54 (834,883)
---------------------------
Outstanding August 30, 1997 19.84 10,599,254
Granted 31.13 1,692,272
Exercised 7.39 (1,738,882)
Canceled 25.40 (795,780)
---------------------------
Outstanding August 29, 1998 $23.56 9,756,864
===========================
The following table summarizes information about stock options outstanding
at August 29, 1998:
Options Outstanding Options Exercisable
-----------------------------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Range of Exercise No. of Exercise Contractual No. of Exercise
Price Options Price Life (in years) Options Price
- -----------------------------------------------------------------------------
$ 1.00 - 9.17 1,053,319 $ 4.47 2.44 1,044,403 $ 4.47
14.31 - 22.69 1,454,961 18.96 7.48 294,961 14.31
22.88 - 25.13 2,325,478 24.70 7.22 117,203 25.13
25.25 - 27.25 2,130,191 25.92 6.11 380,943 25.31
27.38 - 35.13 2,792,915 30.40 8.58 105,000 28.30
- -----------------------------------------------------------------------------
$ 1.00 - 35.13 9,756,864 $23.56 6.89 1,942,510 $12.59
=============================================================================
Options to purchase 1,942,510 shares at August 29, 1998, and 2,619,363
shares at August 30, 1997, were exercisable. Shares reserved for future grants
were 2,699,468 shares at August 29, 1998, and 4,199,055 at August 30, 1997.
24
<PAGE>
Pro forma information is required by SFAS No. 123, "Accounting for
Stock-Based Compensation." In accordance with the provisions of SFAS No. 123,
the Company applies APB Opinion 25 and related interpretations in accounting
for its stock option plans and accordingly, no compensation expense for stock
options has been recognized. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at the grant
date as prescribed in SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below. The
effects of applying SFAS No. 123 and the results obtained through the use of
the Black-Scholes option pricing model in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
fiscal 1996. Additional awards in future years are anticipated.
Year Ended
----------------------------------
August 29, August 30, August 31,
1998 1997 1996
Net Income ----------------------------------
($000) As reported $227,903 $195,008 $167,165
Pro forma $221,803 $191,118 $165,992
Basic Earnings
per share As reported $1.50 $1.29 $1.13
Pro forma $1.46 $1.27 $1.12
Diluted Earnings
per share As reported $1.48 $1.28 $1.11
Pro forma $1.44 $1.26 $1.10
The weighted-average fair value of the stock options granted during fiscal 1998
was $12.17, during fiscal 1997 was $9.26 and during fiscal 1996 was $12.25. The
fair value of each option granted is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 1998, 1997 and 1996: expected price volatility of
.34; risk-free interest rates ranging from 4.56 to 5.98 percent; and expected
lives between 3.75 and 8.0 years.
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 regular payroll deductions. Annual purchases are
limited to $4,000 per employee. Under the plan, 232,389 shares were sold in
fiscal 1998 and 308,141 shares were sold in fiscal 1997. The Company
re-purchased 275,526 shares in fiscal 1998 and 168,362 shares in fiscal 1997
for sale under the plan. A total of 1,567,611 shares of Common Stock is reserved
for future issuance under this plan.
During fiscal 1998, the Company adopted the 1998 Directors Stock Option
Plan. Under the stock option plan, each non-employee director was automatically
granted an option to purchase 1,000 shares of common stock on the plan's
adoption date. Each non-employee director will receive additional options to
purchase 1,000 shares of common stock on January 1 of each year. In addition,
so long as the non-employee director owns common stock valued at least equal to
five times the value of the annual fee paid to such director, that director
will receive an additional option to purchase 1,000 shares as of December 31 of
each year.
In March 1998, the Company adopted the Directors Compensation Plan. Under
this plan, a director may receive no more than one-half of the annual and
meeting fees immediately in cash, and the remainder of the fees must be taken
in either common stock or the fees may be deferred in units with value
equivalent to the value of shares of common stock as of the grant date ("stock
appreciation rights").
Note F - Pension and Savings Plan
Substantially all full-time employees are covered by a defined benefit
pension plan. The benefits are based on years of service and the employee's
highest consecutive five-year average compensation.
The Company makes annual contributions in amounts at least equal to the
minimum funding requirements of the Employee Retirement Income Security Act of
1974.
The following table sets forth the plan's funded status and amounts
recognized in the Company's financial statements (in thousands):
August 29, August 30,
1998 1997
-------------------------
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$36,338 in 1998 and $22,005 in 1997 $43,600 $26,886
=========================
Projected benefit obligation
for service rendered to date $53,971 $42,687
Less plan assets at fair value, primarily stocks
and cash equivalents 54,565 39,598
-------------------------
Projected benefit obligation in excess of
(less than) plan assets (594) 3,089
Unrecognized prior service cost 5,934 (289)
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions (9,282) (3,721)
Unrecognized net asset 118
-------------------------
Accrued pension cost $(3,942) $ (803)
=========================
Net pension cost included the following components (in thousands):
Year Ended
---------------------------------
August 29, August 30, August 31,
1998 1997 1996
---------------------------------
Service cost of benefits earned
during the year $7,001 $6,034 $4,580
Interest cost on projected benefit
obligation 3,047 2,496 1,748
Actual return on plan assets (7,241) (5,616) (3,677)
Net amortization and deferral 2,741 2,820 2,518
---------------------------------
Net periodic pension cost $5,548 $5,734 $5,169
=================================
The actuarial present value of the projected benefit obligation was
determined using weighted-average discount rates of 6.93% and 7.94% at August
29, 1998 and August 30, 1997, respectively. The assumed increases in future
compensation levels were generally 5-10% based on age in fiscal 1998 and 6% in
fiscal 1997 and 1996. The expected long-term rate of return on plan assets was
9.5%, 9.5% and 7% at August 29, 1998, August 30, 1997 and August 31, 1996,
respectively. Prior service cost is amortized over the estimated average
remaining service lives of the plan participants, and the unrecognized net
experience gain or loss is amortized over five years.
During fiscal 1998, the Company established a defined contribution plan
("401(k)") pursuant to Section 401(k) of the Internal Revenue Code. The 401(k)
covers substantially all employees that meet certain service requirements. The
Company makes matching contributions, on an annual basis, up to specified
percentages of employees' contributions as approved by the Board of Directors.
25
<PAGE>
Note G - Leases
A portion of the Company's retail stores and certain equipment are leased.
Most of these leases include renewal options and some include options to
purchase and provisions for percentage rent based on sales.
Rental expense was $56,410,000 for fiscal 1998, $39,078,000 for fiscal
1997 and $30,626,000 for fiscal 1996. Percentage rentals were insignificant.
Minimum annual rental commitments under non-cancelable operating leases
are as follows (in thousands):
Year Amount
--------------------------
1999 $ 92,863
2000 85,232
2001 74,704
2002 60,080
2003 47,954
Thereafter 169,201
--------------------------
$530,034
==========================
Note H - Commitments and Contingencies
Construction commitments, primarily for new stores, totaled approximately
$76 million at August 29, 1998.
Chief, a wholly owned subsidiary of the Company, is a defendant in a class
action entitled "Doug Winfrey, et al. on their own behalf and on behalf of a
class and all others similarly situated, v. Chief Auto Parts Inc. et al." filed
in The Superior Court of California, County of San Joaquin on August 22, 1995
and then transferred to The Superior Court of California, County of San
Francisco on October 26, 1995. The Superior Court denied the plaintiff's motion
for class certification on December 7, 1996. On February 6, 1998, the Court of
Appeal reversed the Superior Court's order denying class certification. No
substantive proceedings regarding the merits of this lawsuit have yet occurred.
The plaintiffs allege that Chief had a policy and practice of denying
hourly employees in California mandated rest periods during their scheduled
hours of work. The plaintiffs are seeking damages, restitution, disgorgement of
profits, statutory penalties, declaratory relief, injunctive relief,
prejudgment interest, and reasonable attorneys fees, expenses and costs.
Management is unable to predict the outcome of this lawsuit at this time. The
Company believes that the potential damages recoverable by any single plaintiff
against Chief are minimal. However, if the plaintiff class were to prevail on
all their claims, the amount of damages could be substantial. Chief is
vigorously defending against this action.
The Company is a party to various claims and lawsuits arising in the
normal course of business which, in the opinion of management, are not,
singularly or in aggregate, material to the Company's financial position or
results of operations.
The Company is self-insured for workers' compensation, automobile, general
and product liability losses. The Company is also self-insured for health care
claims for eligible active employees. The Company maintains certain levels of
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 I - Business Combinations
In February 1998, the Company acquired ADAP, Inc. ("Auto Palace"). The
acquisition added 112 automotive parts and accessories stores in the Northeast.
In May 1998, the Company acquired the assets and liabilities of TruckPro, L.P.,
including the service mark "TruckPro." The 43 TruckPro stores in 14 states
specialize in the sale of heavy duty truck parts.
Additionally, in June 1998, the Company acquired Chief Auto Parts Inc. for
approximately $280 million, including the assumption of approximately $205
million of indebtedness. Chief operated 560 auto parts stores primarily in
California. The purchase price for Chief has been preliminarily allocated in
the consolidated financial statements and the final adjustment may differ from
the preliminary allocation.
Results of operations for acquisitions are included with the Company since
each respective acquisition date. The purchase method of accounting for
acquisitions was utilized for all transactions and, therefore, the acquired
assets and liabilities were recorded at their estimated fair values at the date
of acquisition. The goodwill associated with these transactions is being
amortized over 40 years.
The fair value of the assets and liabilities recorded as a result of these
transactions is as follows (in thousands):
Cash and cash equivalents $ 267
Receivables 22,786
Inventories 209,829
Property and equipment 104,640
Goodwill 166,013
Deferred income taxes 56,388
Accounts payable (106,947)
Accrued liabilities (52,826)
Debt (271,273)
Other (28,846)
--------
Total cash purchase price $100,031
========
The following unaudited pro forma results of operations assume that the
acquisitions and the related financing transactions occurred at the beginning
of the periods presented.
Year Ended
-------------------------------------
August 29, August 30,
1998 1997
-------------------------------------
(in thousands, except per share data)
Net sales $3,758,700 $3,397,300
Net income $ 221,200 $ 189,200
Diluted earnings per share $ 1.44 $ 1.24
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the business combinations and related transactions been consummated
as of the above dates, nor is it necessarily indicative of future operating
results.
Note J - Subsequent Event
The Company announced an agreement to acquire real estate and real estate
leases for approximately 100 Express auto parts stores from Pep Boys for
approximately $108 million. The transaction is subject to various contingencies
and is anticipated to be closed by the end of the first quarter of fiscal 1999.
If consummated, the transaction would not have a material impact on the fiscal
1999 financial position or consolidated operating results.
26
<PAGE>
MANAGEMENT'S REPORT
AutoZone's management takes responsibility for the integrity and
objectivity of the financial statements in this annual report. These financial
statements were prepared from accounting records which management believes
fairly and accurately reflect the operations and financial position of
AutoZone.
The financial statements in this report were prepared in conformity with
generally accepted accounting principles. In certain instances, management
used its best estimates and judgments based upon currently available information
and management's view of current conditions and circumstances.
Management maintains a system of internal controls designed to provide
reasonable assurance that assets are protected from improper use and accounted
for in accordance with its policies and that transactions are recorded
accurately in the Company's records. The concept of reasonable assurance is
based upon a recognition that the cost of the controls should not exceed the
benefit derived.
The financial statements of AutoZone have been audited by Ernst & Young
LLP, independent auditors. Their accompanying report is based on an audit
conducted in accordance with generally accepted auditing standards, including a
review of internal accounting controls and financial reporting matters.
/s/ Robert J. Hunt
Robert J. Hunt
Executive Vice President - Finance
Chief Financial Officer
Customer Satisfaction
CORPORATE INFORMATION
Transfer Agent and Registrar Auditors
First Chicago Trust Company of New York Ernst & Young LLP
P.O. Box 2500 Memphis, Tennessee
Jersey City, New Jersey 07303-2500
(800) 756-8200 Store Support Center
(201) 324-0498 Memphis, Tennessee 38103-3607
http://www.fctc.com/share.html (901) 495-6500
Stock Exchange Listing AutoZone Web Site
New York Stock Exchange http://www.autozone.com
Ticker Symbol:AZO
REPORT OF INDEPENDENT AUDITORS
Stockholders
AutoZone, Inc.,
We have audited the accompanying consolidated balance sheets of AutoZone,
Inc. as of August 29, 1998 and August 30, 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended August 29, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
AutoZone, Inc. at August 29, 1998 and August 30, 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended August 29, 1998 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Memphis, Tennessee
September 30, 1998
Annual Meeting
The Annual Meeting of Stockholders of AutoZone will be held at 10 a.m. on
December 17, 1998, at AutoZone's store support center, 123 South Front Street,
Memphis, Tennessee.
Form 10-K/Quarterly Reports
Stockholders may obtain free of charge a copy of the Company's annual report on
Form 10-K and quarterly reports on 10-Q as filed with the Securities and
Exchange Commission or our quarterly press releases by writing to Stockholder
Relations, P.O. Box 2198, Memphis, Tennessee 38101.
Copies of all documents filed by the company with the Securities and Exchange
Commission, including Form 10-K and Form 10-Q, are also available at the SEC's
EDGAR server at http://www.sec.gov.
Stockholders of Record
As of September 30, 1998, there were 3,218 stockholders of record, excluding
the number of beneficial owners whose shares were represented by security
position listings.
27
<PAGE>
OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
JOHN C. ADAMS, JR. Executive Vice Presidents Senior Vice Presidents Vice Presidents JAMES A. ETZKORN
Chairman and CEO Customer Satisfaction Customer Satisfaction Customer Satisfaction Systems Technology
Customer Satisfaction & Support
TIMOTHY D. VARGO LAWRENCE E. EVANS GERALD E. COLLEY RICHARD F. ADAMS, JR. CLETE FADDIS
President and COO Store Development Stores Stores Merchandising Analysis Stores
& Support
ROBERT J. HUNT HARRY L. GOLDSMITH MICHAEL B. BAIRD LARRY FUSSY
Chief Financial Officer General Counsel President & COO, Stores
& Secretary TruckPro
MICHAEL E. LONGO DAVID W. BARCZAK WM. DAVID GILMORE
Distribution Real Estate Store Design
Other Corporate Officers & Construction
Customer Satisfaction
ANTHONY D. ROSE, JR. JON A. BASCOM FRANK B. GOODMAN,
Advertising Systems Technology III
EMMA JO KAUFFMAN & Support Business Panning
Assistant Treasurer & Analysis
DONALD R. RAWLINS STEPHEN W. VALENTINE B. CRAIG BLACKWELL CLIFFORD E. GREEN
Assistant Secretary International Stores Merchandising
DAVID J. WILHITE MICHAEL E. BUTTERICK PATRICIA K. GREENBERGER
Merchandising Controller Financial Planning
& Control
WILLIAM L. CONE MARK D. HAMM
Loss Prevention System Technology
& Support
BRETT D. EASLEY PHILLIP J. JACKSON
President, ALLDATA Distribution
TARA C. ELLIOTT WILLIAM R. MCCAWLEy, Jr.
Treasurer Stores
[Vice Presidents
Customer Satisfaction
continued]
STEVEN R. MCCLANAHAN
Stores
GRANTLAND E. MCGEE, JR.
Stores
JOHN MINERVINI
Business Development
JACK MITCHELL
Supplier Quality
THOMAS NEWBERN
Stores
DAVID W. NICHOLS
Stores
ROBERT F. OSSWALD
AutoZoner Development
& Training
MARK A. PALAZOLA
Purchasing
WILLIAM C. RHODES, III
Operations Analysis
& Support
RICHARD C. SMITH
Stores
DENNIS P. TOLIVAR, SR.
Stores
</TABLE>
BOARD OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
JOHN C. ADAMS, JR. Dr. N. GERRY HOUSE (2) JOSEPH R. HYDE, III MICHAEL W. MICHELSON (3)
Chairman and CEO Superintendent Former Chairman and CEO General Partner
Customer Satisfaction Memphis City Schools Customer Satisfaction Kohlberg Kravis Roberts
& Co. LLC
ANDREW M. CLARKSON (3*) ROBERT J. HUNT JAMES F. KEEGAN (1*,2) GEORGE R. ROBERTS
Chairman Executive Vice President Chairman General Partner
Finance Committee and CFO Staff Line, Inc. Kohlberg Kravis Roberts
Customer Satisfaction Customer Satisfaction & Co. LLC
RONALD A. TERRY (1,2*)
Retired Chairman
First Tennessee
National Corporation
TIMOTHY D. VARGO
President and COO
Customer Satisfaction
</TABLE>
(1) Audit Committee
(2) Compensation Committee
(3) Finance Committee
(*) Committee Chairman
28
<PAGE>
[AUTOZONE(R) Logo]
