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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report under section 13 or 15(d) of
the Securities Exchange Act of 1934
for the fiscal year ended August 29, 1998
or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to _________.
Commission file number 1-10714
AUTOZONE, INC.
(Exact name of registrant as specified in its charter)
Nevada 62-1482048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
123 South Front Street, Memphis, Tennessee 38103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (901) 495-6500
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock New York Stock Exchange
($.01 par value)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ( 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. [ ]
The aggregate market value of the 126,263,042 shares of voting stock of
the registrant held by non-affiliates of the registrant (excluding, for
this purpose, shares held by officers, directors, or 10% stockholders)
was $3,432,776,454 based on the last sales price of the Common Stock on
October 20, 1998 as reported on the New York Stock Exchange. The number
of shares of Common Stock outstanding as of October 20, 1998, was
150,361,561.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended August
29, 1998, are incorporated by reference into Parts I and II.
Portions of the definitive Proxy Statement dated October 30, 1998, for
the Annual Meeting of Stockholders to be held December 17, 1998, are
incorporated by reference into Part III.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K are
forward-looking statements. These statements discuss, among other
things, expected growth, domestic and international development and
expansion strategy, business strategies, and future performance. The
forward-looking statements are subject to risks, uncertainties and
assumptions including, without limitation, competition, product demand,
domestic and international economy, government approvals, inflation, the
ability to hire and retain qualified employees, the ability to convert
acquired stores in a profitable and timely manner, consumer debt levels
and the weather. Actual results may materially differ from anticipated
results. Please refer to the Risk Factors section of this Form 10-K for
more details.
PART I
ITEM 1. BUSINESS
INTRODUCTION
We are the nation's leading specialty retailer of automotive parts
and accessories, primarily focusing on do-it-yourself customers. We
began operations in 1979 and at August 29, 1998, operated 2,657 auto
parts stores in 38 states, under the "AutoZone" and "Chief" store names.
Each auto parts store carries an extensive product line for cars, vans
and light trucks, including new and re-manufactured automotive hard
parts, maintenance items, and accessories. At August 29, 1998, 1,385 of
our AutoZone stores also had a commercial sales program, which provides
commercial credit and prompt delivery of parts and other products to
local repair garages, dealers and service stations. We do not sell tires
nor do we perform automotive repairs or installations. We anticipate
converting all of the Chief stores to the AutoZone store name and
format.
In addition, we sell heavy-duty truck parts and accessories through
43 TruckPro stores and automotive diagnostic and repair information
software through our ALLDATA subsidiary.
At August 29, 1998, our auto parts stores were in the following
locations:
Alabama 79 Louisiana 73 Rhode Island 12
Arizona 70 Maryland 9 South Carolina 50
Arkansas 46 Massachusetts 52 Tennessee 110
California 436 Michigan 63 Texas 382
Colorado 37 Mississippi 62 Utah 20
Connecticut 20 Missouri 80 Vermont 1
Delaware 3 Nevada 34 Virginia 41
Florida 116 New Hampshire 10 Washington, DC 1
Georgia 100 New Mexico 24 West Virginia 14
Illinois 81 New York 42 Wisconsin 15
Indiana 93 North Carolina 92 Wyoming 3
Iowa 13 Ohio 174 ----
Kansas 43 Oklahoma 62
Kentucky 53 Pennsylvania 41 TOTAL 2,657
=====
RECENT DEVELOPMENTS
On October 21, 1998, we acquired the real estate associated with 100
Express auto parts stores from Pep Boys-Manny, Moe & Jack for
approximately $108 million. We intend to convert these store locations to
the AutoZone store name and format.
On November 4, 1998, we issued $150 million of 6% Notes due November
2003. The proceeds of the Notes will be used for general corporate
purposes and, pending such application, were used to pay down borrowings
under our bank credit facilities.
MARKETING AND MERCHANDISING STRATEGY
We are dedicated to providing customers with superior service,
value, and quality parts selection at conveniently located, well-designed
stores. Key elements of this strategy are:
CUSTOMER SERVICE
We believe that do-it-yourself auto parts customers value customer
service; therefore, customer service is the most important element in our
marketing and merchandising strategy. We emphasize that our AutoZoners
should always put customers first. To do so, we employ parts personnel
with technical expertise to advise customers regarding the correct part
type and application, utilize a wide range of training methods to educate
and motivate our AutoZoners, and provide store personnel with significant
opportunities for promotion and incentive compensation. Our electronic
parts catalogs assist in the selection of parts; we offer free testing of
starters, alternators, batteries, sensors and actuators; and we were
among the first auto parts companies to offer lifetime warranties on many
of the parts we sell. Our satellite system helps us to speed up credit
card and check approval processes and locate parts at neighboring
AutoZone stores. Our auto parts stores generally open at 8 a.m. and close
between 8 and 10 p.m. (with some open to midnight) Monday through
Saturday and typically open at 9 a.m. and close between 6 and 7 p.m. on
Sunday.
ALLDATA has developed a database system that provides comprehensive
and up-to-date automotive diagnostic, service and repair information,
which it markets to professional repair shops. ALLDATA also sells
computer software on CD-ROM for individual cars for use by do-it-
yourselfers.
PRODUCTS
This table shows the types of products we sell in our auto parts
stores:
HARD PARTS MAINTENANCE ITEMS ACCESSORIES MISCELLANY
- ---------- ----------------- ----------- ----------
Alternators Antifreeze Floor Mats Air Fresheners
Batteries Brake Fluid Lights Dent Filler
Brake Drums, Rotors Oil Mirrors Hand Cleaner
Shoes & Pads Oil and Fuel Additives Stereos Paint
Carburetors Oil, Air, and Fuel Filters Repair Manuals
Clutches Power Steering Fluid Tools
Engines Transmission Fluid
Mufflers Wash and Wax Chemicals
Shock Absorbers Windshield Wipers
Spark Plugs
Starters
Struts
Water Pumps
Our auto parts stores generally offer between 16,000 and 21,000
stock keeping units ("SKUs") covering a broad range of vehicle types.
Each auto parts store carries the same basic product line with some
regional differences based on climate, demographics and age and type of
vehicle registration. Our "flexogram" program enables us to tailor our
hard parts inventory to the makes and models of the automobiles in each
store's trade area. The AutoZone stores sell a number of products,
including batteries, engines, starters, alternators, water pumps, brake
parts, and filters, under its private label names. We also offer a range
of products, consisting principally of hard parts, through our express
parts program, which provides overnight delivery of lower turnover
products to our AutoZone stores.
PRICING
We employ an everyday low price strategy and attempt to be the price
leader in hard parts categories. We believe that our prices overall
compare favorably to those of our competitors.
COMMERCIAL SALES PROGRAM
Our commercial sales program in the auto parts stores provides
credit and prompt delivery of parts and other products to local repair
garages, dealers and service stations. At August 29, 1998, this program
was offered in 1,385 AutoZone stores. Commercial customers generally pay
the same everyday low prices as paid by do-it-yourself customers.
STORE DESIGN AND VISUAL MERCHANDISING
We design and build stores for a high visual impact. AutoZone stores
have an industrial "high tech" appearance by utilizing colorful exterior
signage, exposed beams and ductwork, and brightly lighted interiors.
Maintenance products, accessories, and miscellaneous items are
attractively displayed for easy browsing by customers, with specialized
gravity-feed racks for batteries and, in many stores, oil. We employ a
uniform ("planogrammed") store layout system to promote consistent
merchandise presentation in all of our auto parts stores. In-store
signage and special displays aid customers in locating merchandise and
promoting products.
STORE DEVELOPMENT AND EXPANSION STRATEGY
This table shows the auto parts store development during the past five
fiscal years:
Fiscal Year
----------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Beginning Stores 783 933 1,143 1,423 1,728
New Stores (1) 151 210 280 308 952
Replaced Stores (2) 20 29 31 17 12
Closed Stores (2) (21) (29) (31) (20) (35)
---- ----- ----- ----- -----
Ending Stores 933 1,143 1,423 1,728 2,657
==== ===== ===== ===== =====
(1) Includes stores obtained through Chief and Auto Palace acquisitions
in 1998.
(2) Replaced stores are either relocations or conversions of existing
stores. Closed stores include replaced stores.
In 1998, we acquired ADAP, Inc., which was doing business as "Auto
Palace," and Chief Auto Parts Inc. We made the acquisitions to give us
locations and employees where we did not have many stores before.
We believe that expansion opportunities exist both in markets in
which we do not currently serve, and in markets where we can achieve a
larger presence, for both AutoZone and TruckPro stores. We attempt to
obtain high visibility sites in high traffic locations and undertake
substantial research prior to entering new markets. Key factors in
selecting new site and market locations include population, demographics,
vehicle profile, and number and strength of competitors' stores. We
generally seek to open new stores within or contiguous to existing market
areas and attempt to cluster development in new urban markets in a
relatively short period of time in order to achieve economies of scale in
advertising and distribution costs. In addition to continuing to
construct our own stores, we regularly evaluate potential acquisition
candidates in new as well as in existing markets.
Our net sales have grown significantly in recent years, increasing
from $1.5 billion in fiscal 1994 to $3.2 billion in fiscal 1998.
Continued growth and financial performance will be dependent, in large
part, upon our ability to open new stores on a profitable basis in
existing and new markets and also upon our ability to continue to
increase sales in existing stores. We make no assurance that we can
continue to open and operate new stores on a timely and profitable basis,
successfully integrate stores that we acquire from third parties or
continue to attain increases in comparable store sales.
STORE OPERATIONS
STORE FORMATS
As of August 29, 1998, we had auto parts stores in the following
square footage ranges:
SQUARE FOOTAGE NUMBER OF STORES
-------------- ----------------
Less than 4,000 280
4,000 to 7,000 1,608
More than 7,000 769
Substantially all AutoZone stores are based on standard store
formats resulting in generally consistent appearance, merchandising and
product mix. Approximately 85% to 90% of each store's square footage is
selling space, of which approximately 30% to 40% is dedicated to hard
parts inventory. The hard parts inventory area is fronted by a counter
which generally runs the depth or length of the store, dividing the hard
parts area from the remainder of the store. The remaining selling space
contains displays of accessories and maintenance items.
At the hard parts counter, we have knowledgeable parts personnel
available to assist customers with their parts needs utilizing our
proprietary electronic parts catalog with a video screen which is visible
to both the AutoZoner (employee) and the customer. The parts catalog will
suggest additional items that a customer should purchase in order to
properly install the part being purchased.
All of the auto parts stores of less than 4,000 square feet in size
are stores acquired from Chief Auto Parts. We have developed a format for
some of these stores which we believe will make them productive in the
AutoZone store system. In addition, some of these stores will be closed,
expanded or relocated.
Approximately 1,900 of our auto parts stores are freestanding, with
the balance principally located within strip shopping centers.
Freestanding large format stores typically have parking for approximately
45 to 50 cars on a lot of approximately 3/4 to one acre. Smaller
AutoZone stores typically have parking for approximately 25 to 40 cars
and are usually located on a lot of approximately 1/2 to 3/4 acre.
STORE PERSONNEL AND TRAINING
Each AutoZone store typically employs from 9 to 20 AutoZoners,
including a manager and an assistant manager. AutoZoners typically have
prior automotive experience. Although we rely primarily on on-the-job
training, we also provide formal training programs, which include regular
store meetings on specific sales and product issues, standardized
training manuals and a specialist program where AutoZoners can obtain
certification in several areas of technical expertise from both the
company and from independent certification agencies. Training is
supplemented with frequent store visits by management.
Store managers get financial incentives through performance-based
bonuses and grants of stock options. In addition, our growth has provided
opportunities for the promotion of qualified AutoZoners. We believe
these opportunities are important to attract, motivate and retain quality
personnel.
Our stores are primarily supervised through area advisors who
oversee approximately five to six stores each and who report to district
managers. District managers with approximately 45 to 60 stores each, in
turn, report to eight regional managers. Purchasing, merchandising,
advertising, accounting, cash management, store development, systems
technology and support and other store support functions are centralized
in our store support center in Memphis, Tennessee. We believe that this
centralization enhances consistent execution of our merchandising and
marketing strategy at the store level.
STORE AUTOMATION
All AutoZone stores have proprietary electronic parts catalogs that
provide parts information based on the make, model and year of an
automobile. The catalog display screens are placed on the hard parts
counter where both AutoZoners and customers can view the screen. In
addition, our satellite system enables the AutoZone stores to speed up
credit card and check approval processes and locate parts at neighboring
AutoZone stores.
All AutoZone stores utilize our computerized Store Management
System, which includes bar code scanning and point-of-sale data
collection terminals. The Store Management System provides
administrative assistance and improved personnel scheduling at the store
level, as well as enhanced merchandising information and improved
inventory control. We believe the Store Management System also enhances
customer service through faster processing of transactions and simplified
warranty and product return procedures.
PURCHASING AND DISTRIBUTION
Merchandise is selected and purchased for all AutoZone and TruckPro
stores at our store support center in Memphis. No one class of product
accounts for as much as 10% of our total sales. In fiscal 1998, we
purchased products from approximately 300 suppliers and no single
supplier accounted for more than 7% of our total purchases. During
fiscal year 1998, our ten largest suppliers accounted for approximately
33% of our purchases. We generally have few long-term contracts for the
purchase of merchandise. We believe that we have excellent relationships
with suppliers. We also believe that alternative sources of supply exist,
at similar cost, for substantially all types of product sold.
Substantially all of our merchandise is shipped by vendors to our
distribution centers. Orders are typically placed by stores on a weekly
basis with orders shipped from the warehouse in our trucks on the
following day.
COMPETITION
We compete principally in the do-it-yourself and, more recently, the
commercial automotive aftermarket. Although the number of competitors
and the level of competition experienced by our stores varies by market
area, the automotive aftermarket is fragmented and generally very
competitive. We principally compete using store location, customer
service, product selection, product warranty and price. While we believe
that we compete effectively across the United States, some of our
competitors have been operating longer in particular geographic areas and
may be more familiar with particular regional needs or may have a name
more recognizable in a particular region.
In addition to competing with other auto parts retailers, we compete
with jobber stores, which principally sell to wholesale accounts and
installers, but also have significant sales to do-it-yourself customers.
In addition, we also compete with mass merchants which sell automotive
maintenance products such as oil, filters, windshield wiper blades, wash
and wax chemicals, and batteries.
Recently, several large auto parts chains have merged or announced
plans to merge. We do not know what impact these mergers will have upon
competition in the retail automotive aftermarket.
TRADEMARKS AND PATENTS
We have registered several service marks and trademarks in the
United States Patent and Trademark office, including our service mark
"AutoZone" and trademarks "AutoZone," "Duralast," "Valucraft," "Ultra
Spark," "Deutsch," "Albany," "ALLDATA" and "TruckPro". We believe that
the "AutoZone" service mark and trademarks have become an important
component in our merchandising and marketing strategy.
In the 1998 fiscal year we were granted a patent by the Patent and
Trademark Office for a starter and alternator tester which is being used
exclusively in our AutoZone stores. This tester gives us greater testing
accuracy and improved customer service.
EMPLOYEES
As of August 29, 1998, we employed approximately 38,500 persons,
approximately 27,400 of whom were employed full-time. Approximately 90%
of our employees were employed in stores or in direct field supervision,
approximately 7% in distribution centers and approximately 3% in store
support functions.
We have never experienced any material labor disruption, and believe
that our labor relations are generally good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists our executive officers. The title of each
executive officer includes the words "Customer Satisfaction" which
reflects our commitment to customer service as part of our marketing and
merchandising strategy. Officers are elected by and serve at the
discretion of the Board of Directors.
JOHNSTON C. ADAMS, JR., 50 -- CHAIRMAN, CHIEF EXECUTIVE OFFICER, AND
DIRECTOR
Johnston C. Adams, Jr., has been a director since 1996. Mr. Adams
was elected Chairman and Chief Executive Officer in March 1997, had been
President and Chief Executive Officer since December 1996, and had been
Vice Chairman and Chief Operating Officer since March 1996. Previously,
he was Executive Vice President-Distribution since 1995. From 1990 to
1994, Mr. Adams was a co-owner of Nicotiana Enterprises, Inc., a food
distribution company. From 1983 to 1990, Mr. Adams was President of the
Miami Division of Malone & Hyde., Inc. ("Malone & Hyde"), AutoZone's
former parent company.
TIMOTHY D. VARGO, 47 -- PRESIDENT, CHIEF OPERATING OFFICER, AND DIRECTOR
Timothy D. Vargo has been a director since 1996 and was elected
President and Chief Operating Officer in March 1997. Previously, Mr.
Vargo had been Vice Chairman and Chief Operating Officer since 1996,
Executive Vice President-Merchandising and Systems Technology since 1995
and had been Senior Vice President-Merchandising in 1995. Mr. Vargo was
Senior Vice President-Merchandising from 1986 to 1992 and was Director of
Stores for AutoZone from 1984 to 1986.
LAWRENCE E. EVANS, 54 -- EXECUTIVE VICE PRESIDENT - STORE DEVELOPMENT
AND ASSISTANT SECRETARY
Lawrence E. Evans has been Executive Vice President-Store
Development since 1995. Previously he was Senior Vice President-
Development from 1993 to 1995 and Vice President-Real Estate since 1992.
Mr. Evans was Director of Real Estate from 1991, and had been an attorney
for either Malone & Hyde or AutoZone since 1986. Mr. Evans was first
employed by Malone & Hyde from 1969 until 1976 and returned to Malone &
Hyde in 1986.
ROBERT J. HUNT, 49 -- EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
AND DIRECTOR
Robert J. Hunt was elected a director in September 1997 and has been
Executive Vice President and Chief Financial Officer since 1994. Prior
to that time, Mr. Hunt was Executive Vice President, Chief Financial
Officer, and a Director of The Price Company from 1991 to 1993.
Previously, Mr. Hunt had been employed by Malone & Hyde since 1984, where
he was Executive Vice President and Chief Financial Officer from 1988 to
1991.
GERALD E. COLLEY, 46 -- SENIOR VICE PRESIDENT-STORES
Gerald E. Colley was elected Senior Vice President-Stores in October
1997. He had been Vice President-Stores since April 1997, and had been a
Regional Manager since February 1997. Previously, Mr. Colley had been an
Executive Vice President for Tire Kingdom, Inc., in 1996, and had been
President of Rose Auto Stores Florida, Inc., in 1995. Prior to that time
Mr. Colley had been employed by AutoZone since 1987, and had been a Vice
President from 1988 to 1995.
HARRY L. GOLDSMITH, 47 -- SENIOR VICE PRESIDENT, SECRETARY, AND GENERAL
COUNSEL
Harry L. Goldsmith was elected Senior Vice President, Secretary and
General Counsel in 1996. Previously he was Vice President, General
Counsel and Secretary from 1993 to 1996.
MICHAEL E. LONGO, 37 -- SENIOR VICE PRESIDENT - DISTRIBUTION
Michael E. Longo has been Senior Vice President - Distribution since
March of 1998. Prior to that time, he had been Vice President -
Distribution since 1996, and a Director of Distribution since 1993. Mr.
Longo began working with AutoZone in 1992.
ANTHONY DEAN ROSE, JR., 38 -- SENIOR VICE PRESIDENT - ADVERTISING
Anthony Dean Rose, Jr. has been Senior Vice President-Advertising
since 1995. Prior to that time, he had been Vice President-Advertising
since 1989 and a Director of Advertising since 1987. Mr. Rose has been
employed by AutoZone or Malone & Hyde since 1982.
STEPHEN W. VALENTINE, 36 -- SENIOR VICE PRESIDENT - INTERNATIONAL
Stephen W. Valentine has been Senior Vice President-International
since October 1998, and had been Senior Vice President-Systems Technology
and Support since 1995. Prior to that time, he had been Vice President-
Systems Technology and Support since 1994, and a Director of Store
Management Systems since 1990. Mr. Valentine began working with AutoZone
in 1989.
DAVID J. WILHITE, 36 -- SENIOR VICE PRESIDENT - MERCHANDISING
David J. Wilhite was elected Senior Vice President-Merchandising in
September 1997. Previously Mr. Wilhite was a Vice President-
Merchandising since 1996. He has been an employee of AutoZone or Malone
& Hyde since 1984.
MICHAEL E. BUTTERICK, 47 -- VICE PRESIDENT - CONTROLLER
Michael E. Butterick has been Vice President-Controller since 1995.
Prior to that time, Mr. Butterick was Chief Financial Officer of United
Medical Incorporated from 1993 to 1995. From 1990 to 1993 Mr. Butterick
was Vice President-Finance of the Mid South General Merchandise Division,
a division of Fleming Companies. Previously, Mr. Butterick had been
employed by Malone & Hyde or AutoZone since 1983, where he was Controller
of AutoZone from 1986 to 1990.
ANDREW M. CLARKSON, 61 -- DIRECTOR AND CHAIRMAN OF THE FINANCE COMMITTEE
Andrew M. Clarkson has been a director since 1986 and is an employee
serving as Chairman of the Finance Committee. Mr. Clarkson had been Vice
President and Treasurer in 1986, Senior Vice President and Treasurer from
1986 to 1988, was Secretary from 1988 to 1993 and was Treasurer from 1990
to 1995. Previously, Mr. Clarkson was Chief Financial Officer of Malone
& Hyde from 1983 to 1988.
RISK FACTORS
GROWTH STRATEGY
We have significantly increased our store count in the past five
fiscal years, growing from 783 stores at August 28, 1993, to 2,657 stores
at August 29, 1998, an average store count increase per year of 28%. We
do not expect that we can continue our store count growth rate at the
historic pace. In addition, a portion of our total sales increases each
year results from increases in sales at existing stores. We cannot make
any assurance that we can continue to increase same store sales as our
stores mature in their markets.
INTEGRATION OF ACQUISITIONS
In addition to opening our own store locations, we acquired 672 auto
parts stores from Chief Auto Parts and Auto Palace in the 1998 fiscal
year. We have converted the Auto Palace stores to the AutoZone store name
and format, and intend to make a similar conversion for the Chief stores.
We can make no assurances as to our ability to convert the Chief stores
in a timely or profitable manner. In addition, other auto parts retailers
competing in California, Chief's principal market, and in New England,
Auto Palace's principal market, have been in those markets for a longer
period of time, have a trade name more recognizable than the name
AutoZone in those markets, and may have a better understanding of the
particular customer needs and expectations in these markets. In addition,
the Chief stores are substantially smaller than our traditionally sized
AutoZone auto parts stores and therefore, the Chief stores, even after
conversion, may not achieve the sales and profitability of a traditional
AutoZone store.
EMPLOYEES
We have an ever-increasing need for qualified employees. In fiscal
year 1998, our consolidated employee count increased from approximately
28,700 at the beginning of the year to about 38,500, a 34% increase in
the year. We can make no assurances that we can continue to hire and
retain qualified employees at current wage rates.
COMPETITION
Recently, several large auto parts chains have merged or announced
plans to merge. We do not know what impact these mergers will have upon
competition in the retail automotive aftermarket. If our merging
competitors are able to achieve efficiencies in their mergers, then there
may be greater competitive pressures in the markets in which they are
strongest.
DEMAND FOR PRODUCTS
Demand for products sold by our stores depends on many factors. In
the short term, it may depend upon:
* the weather, as vehicle maintenance may be deferred during
periods of inclement weather.
* the economy, as during periods of good economic conditions,
more of our do-it-yourself customers may pay others to repair and
maintain their cars instead of working on their own cars. This
factor is tempered by our commercial parts sales program which
sells parts to installers. In periods of declining economic
conditions, both do-it-yourself and do-it-for-me customers may
defer vehicle maintenance or repair.
For the long term, demand for our products may depend upon:
* the quality of the vehicles manufactured by the original
vehicle manufacturers, and the length of the warranty offered on
new vehicles.
* the law. Contrary to the terms of the federal Clean Air
Act, the U.S. Environmental Protection Agency has adopted
regulations that would limit access to computerized diagnostic
information (commonly referred to as "on-board diagnostics")
relating to vehicle emission systems on cars and light trucks
beginning with the 1996 model year. These regulations have been
challenged by several automotive aftermarket trade associations.
However, we cannot make any prediction as to the outcome of these
challenges. If these regulations are found to be proper and are
fully enacted, do-it-yourself customers and commercial installers
not associated with the original manufacturers will have little
or no access to on-board diagnostic information for vehicles,
which may limit their ability to diagnose, maintain, or repair
the emissions systems of vehicles.
INTERNATIONAL DEVELOPMENT
We intend to open auto parts stores in Mexico during the 1999 fiscal
year. Although we believe that there is great potential for auto parts
stores in the fragmented international auto parts market, we have no
experience opening or operating stores outside of the United States, and
no assurances can be made that we can open stores in any other country in
a timely or profitable manner.
VENDORS
Recently, several of our vendors have merged and others have
announced plans to merge. Further vendor consolidation could limit the
number of vendors from which we may purchase products and could
materially affect the prices we pay for these products.
ITEM 2. PROPERTIES
This table shows the square footage and number of leased and owned
properties for our auto parts stores:
NO. OF STORES SQUARE FOOTAGE
------------- --------------
Leased 1,282 7,115,287
Owned 1,375 9,384,212
----- ---------
Total 2,657 16,499,499
===== ==========
We have 3,479,192 square feet in our distribution centers, all of
which is owned, except for 815,992 square feet which is leased. The
distribution centers are located in Arizona, California, Georgia,
Illinois, Louisiana, Ohio, Tennessee, and Texas.
Our store support center, which we own, is located in Memphis,
Tennessee, and consists of 360,000 square feet.
We also own and lease other properties which are not material
in the aggregate.
ITEM 3. LEGAL PROCEEDINGS
AutoZone, Inc., and its wholly-owned subsidiary AutoZone Stores, Inc.,
were defendants in a purported class action entitled "Joe C. Proffitt,
Jr., on behalf of himself and all others similarly situated, vs.
AutoZone, Inc., and AutoZone Stores, Inc.," filed in the Circuit Court
for Jefferson County, Tennessee, on or about October 17, 1997. In the
complaint, which was similar to other class action complaints filed
against several other retailers of aftermarket automotive batteries, the
plaintiff alleges that we sold "old," "used," or "out of warranty"
automotive batteries to customers as if the batteries were new, and
purported to state causes of action for unfair or deceptive acts or
practices, breach of contract, breach of duty of good faith and fair
dealing, intentional misrepresentation, fraudulent concealment, civil
conspiracy, and unjust enrichment. The plaintiff was seeking an
accounting of all moneys wrongfully received, compensatory and punitive
damages, as well as plaintiff's costs. On May 21, 1998, on the
plaintiff's motion, the court dismissed the case without prejudice.
Chief Auto Parts Inc., a wholly-owned subsidiary of AutoZone, Inc.,
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,
vs. 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 plaintiffs' motion
for class certification on December 7, 1996. On February 6, 1998, the
Court of Appeals reversed the Superior Court's order denying class
certification and remanded the case to the Superior Court for further
proceedings. On November 16, 1998, the Superior Court certified the
class.
The plaintiffs allege that Chief had a policy and practice of
denying hourly employees in California mandated rest periods during their
scheduled work hours. The plaintiffs are seeking damages, restitution,
disgorgement of profits, statutory penalties, declaratory relief,
injunctive relief, prejudgment interest, and reasonable attorney fees,
expenses and costs. We are unable to predict the outcome of this lawsuit
at this time, but believe that the potential damages recoverable by any
single plaintiff against Chief are minimal. However, if the plaintiff
class were to prevail on all of its claims, the aggregate amount of
damages could be substantial. We are vigorously defending against this
action.
We are also a party to various claims and lawsuits arising in the
ordinary course of business, which, in the opinion of management, are
not, singularly or in the aggregate, material to our results of
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Common Stock Market Prices for our common stock as traded on the New
York Stock Exchange as shown on page 14 of the Annual Report to
Stockholders for the fiscal year ended August 29, 1998 are incorporated
herein by reference.
At October 20, 1998, we had 3,225 stockholders of record, excluding
the number of beneficial owners whose shares were represented by security
position listings.
On May 1, 1998, as a portion of the consideration for the
acquisition of the assets of TruckPro Limited Partnership, we transferred
to certain owners of TruckPro 30,000 shares of common stock, $0.01 par
value. The transaction was exempt from registration under Section 4(2)
of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data contained in the Ten-Year Review on pages 12
and 13 of the Annual Report to Stockholders for the fiscal year ended
August 29, 1998, are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Review on pages 15 through 17 of the Annual Report to
Stockholders for the fiscal year ended August 29, 1998, are incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The section entitled "Financial Market Risk" on page 16 of the
Annual Report to Stockholders for the fiscal year ended August 29, 1998,
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related notes included on pages 18
through 27 and the quarterly summary on page 14 of the Annual Report to
Stockholders for the fiscal year ended August 29, 1998, are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference
to Part I of this document and to the definitive Proxy Statement dated
October 30, 1998, filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 in connection with the annual meeting of
stockholders to be held December 17, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference
to the definitive Proxy Statement dated October 30, 1998, filed pursuant
to Regulation 14A under the Securities Exchange Act of 1934 in connection
with the annual meeting of stockholders to be held December 17, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
definitive Proxy Statement dated October 30, 1998, filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934 in connection
with the annual meeting of stockholders to be held December 17, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference
to the definitive Proxy Statement dated October 30, 1998, filed pursuant
to Regulation 14A under the Securities Exchange Act of 1934 in connection
with the annual meeting of stockholders to be held December 17, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
The following financial statements included on pages 18 through
27 in the Annual Report to Stockholders for the fiscal year
ended August 29, 1998, are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Statements of Income for the fiscal years ended
August 29, 1998, August 30, 1997, and August 31, 1996
Consolidated Balance Sheets as of August 29, 1998, and August
30, 1997
Consolidated Statements of Stockholders' Equity for the fiscal
years ended August 29, 1998, August 30, 1997, and August 31,
1996
Consolidated Statements of Cash Flows for the fiscal years
ended August 29, 1998, August 30, 1997, and August 31, 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedule II - Valuation and Qualifying
Accounts
All other schedules are omitted because the information is not
required or because the information required is included in the
financial statements or notes thereto.
3. The following exhibits are filed as a part of this report:
3.1 Articles of Incorporation of AutoZone, Inc. Incorporated
by reference to Exhibit 3.1 to the Form 10-K for the
fiscal year ended August 27, 1994.
3.2 Amendment to Articles of Incorporation of AutoZone, Inc.,
dated December 16, 1993, to increase its authorized shares
of common stock to 200,000,000. Incorporated by reference
to Exhibit 3.2 to the Form 10-K for the fiscal year ended
August 27, 1994.
3.3 Amended and Restated By-laws of AutoZone, Inc.
4.1 Form of Common Stock Certificate. Incorporated by
reference to Exhibit 4.1 to Pre-Effective Amendment No. 2
to the Registration Statement filed on Form S-1 under the
Securities Act of 1933 (No. 33-45649).
4.2 Registration Rights Agreement between AutoZone, Inc. and
J. Dale Dawson and Judith S. Dawson dated May 1, 1998.
Incorporated by reference to the Form 10-Q for the quarter
ended May 9, 1998.
4.3 Senior Indenture, dated as of July 22, 1998, between
AutoZone, Inc. and the First National Bank of Chicago.
Incorporated by reference to Exhibit 4.1 to the Form 8-K
dated July 17, 1998.
*10.1 Director Stock Option Plan. Incorporated by reference to
Exhibit 4.1 to the Form S-8 (No. 333-48981) dated March
31, 1998.
*10.2 1998 Director Compensation Plan. Incorporated by reference
to Exhibit 4.1 to the Form S-8 (No. 333-48979) dated March
31, 1998.
*10.3 Amended and Restated Stock Option Plan, as amended on
February 26, 1991. Incorporated by reference to Exhibit
10.4 to the Form S-1 (No. 33-39197) filed April 1, 1991.
*10.4 Amendment No. 1 dated December 18, 1992, to the Amended
and Restated Stock Option Plan. Incorporated by reference
to Exhibit 10.5 to the Form 10-K for the fiscal year ended
August 28, 1993.
*10.5 Amended and Restated 1996 Stock Option Plan. Incorporated
by reference to Exhibit 10.2 to the Form 10-Q for the
quarter ended November 22, 1997.
*10.6 Employment and Non-Compete Agreement between John C.
Adams, Jr., and AutoZone, Inc., dated June 11, 1997.
Incorporated by reference to the Form 10-K for the fiscal
year ended August 29, 1997.
*10.7 Employment and Non-Compete Agreement between Timothy D.
Vargo, and AutoZone, Inc., dated June 11, 1997.
Incorporated by reference to the Form 10-K for the fiscal
year ended August 29, 1997.
*10.8 Employment and Non-Compete Agreement between Robert J.
Hunt, and AutoZone, Inc., dated June 11, 1997.
Incorporated by reference to the Form 10-K for the fiscal
year ended August 29, 1997.
*10.9 Employment and Non-Compete Agreement between Stephen W.
Valentine, and AutoZone, Inc., dated July 7, 1997.
Incorporated by reference to the Form 10-K for the fiscal
year ended August 29, 1997.
*10.10 Employment and Non-Compete Agreement between Harry L.
Goldsmith, and AutoZone, Inc., dated June 11, 1997.
Incorporated by reference to the Form 10-K for the fiscal
year ended August 29, 1997.
*10.11 Executive Incentive Compensation Plan. Incorporated by
reference to Exhibit A to the definitive Proxy Statement
dated November 14, 1994.
10.12 Amended and Restated Agreement between J.R. Hyde, III,
and AutoZone, Inc., dated October 23, 1997. Incorporated
by reference to Exhibit 10.1 to the Form 10-Q for the
quarter ended November 22, 1997.
10.13 Credit Agreement dated as of February 23, 1998 among
AutoZone, Inc., the several lenders from time to time
party thereto, and NationsBank, N.A. as Agent and SunTrust
Bank, Nashville, N.A. as Documentation Agent. Incorporated
by reference to Exhibit 10.1 the Form 10-Q for the quarter
ended May 9, 1998.
10.14 Credit Agreement among AutoZone, Inc., as Borrower, the
several lenders from time to time party thereto,
NationsBank, N.A., as Agent, and SunTrust Bank, Nashville,
N.A. as Co-Agent, dated December 20, 1996. Incorporated by
reference to the Form 10-Q for the quarter ended February
15, 1997.
10.15 Amendment No. 1 to Credit Agreement among AutoZone, Inc.,
as Borrower, the several lenders from time to time party
thereto, NationsBank, N.A., as Agent, and SunTrust Bank,
Nashville, N.A. as Co-Agent, dated December 20, 1996.
Incorporated by reference to Exhibit 10.2 to the Form 10-Q
for the quarter ended February 14, 1998.
13.1 Annual Report to Stockholders for the fiscal year ended
August 29, 1998. Incorporated by reference to the Annual
Report filed with the Securities and Exchange Commission
via EDGAR pursuant to Rule 101(b)(1) of Regulation S-T.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
__________________
*Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
The Registrant filed the following reports on Form 8-K during the
fiscal quarter ended August 29, 1998:
1. May 11, 1998: The Registrant reported that it had executed a
definitive agreement to acquire the outstanding common stock of
Chief Auto Parts Inc.
2. July 29, 1998: The Registrant reported that it had closed the
acquisition of Chief Auto Parts Inc., and filed the purchase
agreement as an exhibit.
3. July 17, 1998: The Registrant filed exhibits on Form 8-K related
to its offering of 6 1/2 % Debentures due 2008, registered under the
Securities Act of 1933 on Form S-3 (No. 333-58565).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AUTOZONE, INC.
By: /S/ J.C. ADAMS, JR. November 25, 1998
---------------------------------
J.C. Adams, Jr.
Chairman, Chief Executive Officer
and Director
(Principal Executive Officer)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ J.C. ADAMS, JR. Chairman, Chief Executive November 25, 1998
- ---------------------------- Officer and Director
J.C. Adams, Jr. (Principal Executive Officer)
/s/ TIMOTHY D. VARGO President, Chief Operating November 25, 1998
- ---------------------------- Officer, and Director
Timothy D. Vargo
/s/ ROBERT J. HUNT Executive Vice President, Chief November 25, 1998
- ---------------------------- Financial Officer and Director
Robert J. Hunt (Principal Financial Officer)
/s/ MICHAEL E. BUTTERICK Vice President and Controller November 25, 1998
- ----------------------------
Michael E. Butterick (Principal Accounting Officer)
/s/ ANDREW M. CLARKSON Director November 25, 1998
- ----------------------------
Andrew M. Clarkson
- ---------------------------- Director
N. Gerry House
/s/ J.R. HYDE, III Director November 25, 1998
- ----------------------------
J.R. Hyde, III
/s/ JAMES F. KEEGAN Director November 25, 1998
- ----------------------------
James F. Keegan
/s/ MICHAEL W. MICHELSON Director November 25, 1998
- ----------------------------
Michael W. Michelson
/s/ RONALD A. TERRY Director November 25, 1998
- ----------------------------
Ronald A. Terry
/s/ GEORGE R. ROBERTS Director November 25, 1998
- ----------------------------
George R. Roberts
SCHEDULE II
AUTOZONE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
COL A COL B COL C COL D COL E
ADDITIONS
-------------------------------------
Balance (1) (2)
Beginning of Charged to Costs Charged to Other Deductions- Balance at
CLASSIFICATION Period and Expenses Accounts-Describe Describe End of Period
-------------- ------------ ---------------- ----------------- ------------ -------------
Year Ended August 31, 1996:
Reserve for warranty claims $12,613 $26,982 $25,443 (1) $14,152
Other reserves 9,229 9,015
Year Ended August 30, 1997:
Reserve for warranty claims $14,152 $40,303 $35,333 (1) $19,122
Other reserves 9,015 11,227
Year Ended August 29, 1998:
Reserve for warranty claims $19,122 $58,511 $56,847 (1) $20,786
Other reserves 11,227 14,296
(1) Cost of product for warranty replacements, net of salvage and amounts collected from customers.
EXHIBIT INDEX
3.1 Articles of Incorporation of AutoZone, Inc. Incorporated
by reference to Exhibit 3.1 to the Form 10-K for the
fiscal year ended August 27, 1994.
3.2 Amendment to Articles of Incorporation of AutoZone, Inc.,
dated December 16, 1993, to increase its authorized shares
of common stock to 200,000,000. Incorporated by reference
to Exhibit 3.2 to the Form 10-K for the fiscal year ended
August 27, 1994.
3.3 Amended and Restated By-laws of AutoZone, Inc.
4.1 Form of Common Stock Certificate. Incorporated by
reference to Exhibit 4.1 to Pre-Effective Amendment No. 2
to the Registration Statement filed on Form S-1 under the
Securities Act of 1933 (No. 33-45649).
4.2 Registration Rights Agreement between AutoZone, Inc. and
J. Dale Dawson and Judith S. Dawson dated May 1, 1998.
Incorporated by reference to the Form 10-Q for the quarter
ended May 9, 1998.
4.3 Senior Indenture, dated as of July 22, 1998, between
AutoZone, Inc. and the First National Bank of Chicago.
Incorporated by reference to Exhibit 4.1 to the Form 8-K
dated July 17, 1998.
*10.1 Director Stock Option Plan. Incorporated by reference to
Exhibit 4.1 to the Form S-8 (No. 333-48981) dated March
31, 1998.
*10.2 1998 Director Compensation Plan. Incorporated by reference
to Exhibit 4.1 to the Form S-8 (No. 333-48979) dated March
31, 1998.
*10.3 Amended and Restated Stock Option Plan, as amended on
February 26, 1991. Incorporated by reference to Exhibit
10.4 to the Form S-1 (No. 33-39197) filed April 1, 1991.
*10.4 Amendment No. 1 dated December 18, 1992, to the Amended
and Restated Stock Option Plan. Incorporated by reference
to Exhibit 10.5 to the Form 10-K for the fiscal year ended
August 28, 1993.
*10.5 Amended and Restated 1996 Stock Option Plan. Incorporated
by reference to Exhibit 10.2 to the Form 10-Q for the
quarter ended November 22, 1997.
*10.6 Employment and Non-Compete Agreement between John C.
Adams, Jr., and AutoZone, Inc., dated June 11, 1997.
Incorporated by reference to the Form 10-K for the fiscal
year ended August 29, 1997.
*10.7 Employment and Non-Compete Agreement between Timothy D.
Vargo, and AutoZone, Inc., dated June 11, 1997.
Incorporated by reference to the Form 10-K for the fiscal
year ended August 29, 1997.
*10.8 Employment and Non-Compete Agreement between Robert J.
Hunt, and AutoZone, Inc., dated June 11, 1997.
Incorporated by reference to the Form 10-K for the fiscal
year ended August 29, 1997.
*10.9 Employment and Non-Compete Agreement between Stephen W.
Valentine, and AutoZone, Inc., dated July 7, 1997.
Incorporated by reference to the Form 10-K for the fiscal
year ended August 29, 1997.
*10.10 Employment and Non-Compete Agreement between Harry L.
Goldsmith, and AutoZone, Inc., dated June 11, 1997.
Incorporated by reference to the Form 10-K for the fiscal
year ended August 29, 1997.
*10.11 Executive Incentive Compensation Plan. Incorporated by
reference to Exhibit A to the definitive Proxy Statement
dated November 14, 1994.
10.12 Amended and Restated Agreement between J.R. Hyde, III,
and AutoZone, Inc., dated October 23, 1997. Incorporated
by reference to Exhibit 10.1 to the Form 10-Q for the
quarter ended November 22, 1997.
10.13 Credit Agreement dated as of February 23, 1998 among
AutoZone, Inc., the several lenders from time to time
party thereto, and NationsBank, N.A. as Agent and SunTrust
Bank, Nashville, N.A. as Documentation Agent. Incorporated
by reference to Exhibit 10.1 the Form 10-Q for the quarter
ended May 9, 1998.
10.14 Credit Agreement among AutoZone, Inc., as Borrower, the
several lenders from time to time party thereto,
NationsBank, N.A., as Agent, and SunTrust Bank, Nashville,
N.A. as Co-Agent, dated December 20, 1996. Incorporated by
reference to the Form 10-Q for the quarter ended February
15, 1997.
10.15 Amendment No. 1 to Credit Agreement among AutoZone, Inc.,
as Borrower, the several lenders from time to time party
thereto, NationsBank, N.A., as Agent, and SunTrust Bank,
Nashville, N.A. as Co-Agent, dated December 20, 1996.
Incorporated by reference to Exhibit 10.2 to the Form 10-Q
for the quarter ended February 14, 1998.
13.1 Annual Report to Stockholders for the fiscal year ended
August 29, 1998. Incorporated by reference to the Annual
Report filed with the Securities and Exchange Commission
via EDGAR pursuant to Rule 101(b)(1) of Regulation S-T.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
__________________
*Management contract or compensatory plan or arrangement.