FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended MAY 4, 1996 ----------- 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) (901) 495-6500 ------------------------------------------------------------------ Registrant's telephone number, including area code ------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. 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 periods 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 APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. COMMON STOCK, $.01 PAR VALUE - 149,891,533 SHARES AS OF MAY 4, 1996 ------------------------------------------------------------------- 1

INDEX AUTOZONE, INC. PART I. FINANCIAL INFORMATION PAGE ----------------------------- ---- Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--May 4, 1996 and August 26, 1995 3 Condensed consolidated statements of income-- Twelve weeks and Thirty-Six weeks ended May 4, 1996 and May 6, 1995 4 Condensed consolidated statements of cash flows --Thirty-Six weeks ended May 4, 1996 and May 6, 1995 5 Notes to condensed consolidated financial statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION -------------------------- Item 4. Submission of Matters to a Vote of Security Holders 9 Item 6. Exhibits and Reports on Form 8-K 9 SIGNATURES 10 ---------- 2

CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> May 4, Aug. 26, 1996 1995 ------------- ------------ (Unaudited) (in thousands) <S> <C> <C> ASSETS Current assets: Cash and cash equivalents . . . . . . $ 4,782 $ 6,411 Accounts receivable. . . . . . . . . 15,083 9,690 Merchandise inventories. . . . . . . 531,255 395,751 Prepaid expenses . . . . . . . . . . 17,719 13,329 Deferred income taxes. . . . . . . . 23,853 22,641 ------------ ----------- Total current assets . . . . . . . 592,692 447,822 Property, plant and equipment: Property, plant and equipment. . . . 964,254 792,356 Less: Allowances for depreciation and amortization. . . (176,615) (148,148) ------------ ----------- 787,639 644,208 Other assets: Cost in excess of net assets acquired. . . . . . . . . 17,376 17,803 Deferred income taxes. . . . . . . . 4,070 - Other assets . . . . . . . . . . . . 2,231 1,945 ------------ ----------- 23,677 19,748 ------------ ----------- $ 1,404,008 $1,111,778 ------------ ----------- ------------ ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . $ 376,769 $ 300,578 Accrued expenses . . . . . . . . . . 106,024 91,838 Checks outstanding, net. . . . . . . 68 5,863 Income taxes payable . . . . . . . . 9,126 5,767 Revolving credit agreements. . . . . 97,775 9,500 Current portion of long-term debt. . - 4,003 ------------ ----------- Total current liabilities. . . . . 589,762 417,549 Other liabilities. . . . . . . . . . 19,371 8,318 Deferred income taxes. . . . . . . . - 1,201 Stockholders' equity . . . . . . . . 794,875 684,710 ------------ ----------- $ 1,404,008 $1,111,778 ------------ ----------- ------------ ----------- </TABLE> See Notes to Condensed Consolidated Financial Statements 3

AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <TABLE> <CAPTION> Twelve Weeks Ended Thirty-Six Weeks Ended -------------------- ----------------------- May 4, May 6, May 4, May 6, 1996 1995 1996 1995 ---------- ----------- ---------- ---------- (in thousands, except per share amounts) <S> <C> <C> <C> <C> Net Sales. . . . . . . . . . . . . . . . . . . . $ 524,175 $ 425,483 $1,413,042 $1,179,307 Cost of sales, including warehouse and delivery expense . . . . . . . . . . . . . 308,644 248,392 828,322 694,318 Operating, selling, general and administrative expenses. . . . . . . . . . . . 155,099 123,977 425,467 347,266 --------- --------- --------- --------- Operating profit . . . . . . . . . . . . . . . . 60,432 53,114 159,253 137,723 Interest income (expense), net . . . . . . . . . (727) - (727) 623 --------- --------- --------- --------- Income before income taxes . . . . . . . . . . . 59,705 53,114 158,526 138,346 Income taxes . . . . . . . . . . . . . . . . . . 22,100 20,700 58,800 54,462 --------- --------- --------- --------- Net income . . . . . . . . . . . . . . . . . $ 37,605 $ 32,414 $ 99,726 $ 83,884 --------- --------- --------- --------- Net income per share . . . . . . . . . . . . . . $ .25 $ .22 $ .66 $ .56 --------- --------- --------- --------- --------- --------- --------- --------- Average shares outstanding including common stock equivalents . . . . . . . . . . . 151,541 149,198 150,508 149,057 --------- --------- --------- --------- </TABLE> See notes to Condensed Consolidated Financial Statements 4

AUTOZONE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Thirty-Six Weeks Ended ------------------------------ May 4, May 6, 1996 1995 --------- --------- (in thousands) <S> <C> <C> Cash flows from operating activities: Net income . . . . . . . . . . . . . . . $ 99,726 $ 83,884 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . 41,540 29,361 Net increase in merchandise inventories (134,034) (44,751) Net increase in current liabilities. . 74,917 33,971 Other - net. . . . . . . . . . . . . . (3,544) (12,255) --------- --------- Net cash provided by operating activities . . . . . . . . . . . . 78,605 90,210 Cash flows from investing activities: Cash outflows for property, plant and equipment, net . . . . . . . . . . . (183,181) (166,771) Cash flows from financing activities: Net proceeds from debt. . . . . 84,272 12,580 Proceeds from sale of Common Stock including related tax benefit . . . 14,431 10,219 --------- --------- Net cash provided by financing activities . . . . . . . . 98,703 22,799 --------- --------- Net decrease in cash and cash equivalents. . (5,873) (53,762) Cash and cash equivalents at beginning of period . . . . . . . . . . 6,411 56,236 Beginning cash balance of pooled entity . . . . . . . . . . . . . . 4,244 - --------- --------- Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 4,782 $ 2,474 --------- --------- --------- --------- </TABLE> See notes to Condensed Consolidated Financial Statements 5

AUTOZONE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A--BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the twelve and thirty-six weeks ended May 4, 1996, are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 1996. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended August 26, 1995. NOTE B--INVENTORIES Inventories are stated at the lower of cost or market using the last-in, first-out (LIFO) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. NOTE C--SHORT-TERM DEBT On January 16, 1996, the Company increased its unsecured revolving credit agreements with a group of banks by $50,000,000 for a line of credit totaling $125,000,000 which extends until February 1, 1998. The rate of interest payable under the agreements is a function of the London Interbank Offered Rate (LIBOR), or the lending bank's base rate (or prime rate as such term may be used by the individual bank), at the option of the Company. At May 4, 1996, the Company's borrowings under the agreements were $97,775,000 and the weighted average interest rate was 5.59%. The revolving credit agreements contain a covenant limiting the amount of debt the Company may incur relative to its net worth. NOTE D--MERGER WITH ALLDATA CORPORATION On March 29, 1996, Alldata Corporation ("Alldata") became a wholly owned subsidiary of AutoZone in a stock-for-stock merger accounted for as a pooling of interests. 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. Under the terms of the merger agreement, AutoZone issued approximately 1.7 million shares of Common Stock and stock options covering approximately 200,000 shares of Common Stock. Financial information of Alldata has been included in the results of operations from the date of acquisition, and is included in the balance sheet as of May 4, 1996. Financial statements for periods prior to the date of combination have not been restated as the effect is not material to AutoZone's financial condition and results of operations. The assets and liabilities of Alldata were approximately $18 million and $21 million, respectively, at the date of combination. 6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TWELVE WEEKS ENDED MAY 4, 1996, COMPARED TO TWELVE WEEKS ENDED MAY 6, 1995 Net sales for the twelve weeks ended May 4, 1996 increased by $98.7 million, or 23.2%, over net sales for the comparable period of fiscal 1995. This increase was due to a comparable store 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 increases in net sales for stores opened since the beginning of fiscal 1995. At May 4, 1996 the Company had 1,298 stores in operation compared with 1,059 stores at May 6, 1995. Gross profit for the twelve weeks ended May 4 1996, was $215.5 million, or 41.1% of net sales, compared with $177.1 million, or 41.6% of net sales, during the comparable period for fiscal 1995. The decrease in the gross profit percentage was due primarily to increased sales mix of lower margin products such as batteries, Freon and antifreeze, a lower initial gross margin in commercial sales and to a LIFO credit in the prior year. Operating, selling, general and administrative expenses for the twelve weeks ended May 4, 1996 increased by $31.1 million over such expenses for the comparable period for fiscal 1995, and increased as a percentage of net sales from 29.1% to 29.6%. The increase in the expense ratio was due primarily to costs related to the acquisition of Alldata and to start up costs of the Company's commercial program, partially offset by lower advertising costs. The Company's effective income tax rate decreased from 39.0% of pre-tax income for the twelve weeks ended May 6, 1995 to 37.0% for the twelve weeks ended May 4, 1996. The decrease in the effective income tax rate is due to a reduction in state income taxes. THIRTY-SIX WEEKS ENDED MAY 4, 1996, COMPARED TO THIRTY-SIX WEEKS ENDED MAY 6, 1995 Net sales for the thirty-six weeks ended May 4, 1996 increased by $233.7 million, or 19.8%, over net sales for the comparable period of fiscal 1995. This increase was due to a comparable store sales increase of 5%, (which was primarily due to sales growth in the Company's newer stores), and increases in net sales for stores opened since the beginning of fiscal 1995. Gross profit for the thirty-six weeks ended May 4, 1996 was $584.7 million, or 41.4% of net sales, compared with $485.0 million, or 41.1% of net sales, during the comparable period for fiscal 1995. The increase in the gross profit percentage was due primarily to efficiencies in distribution costs and favorable results of second quarter physical inventories. Operating, selling, general and administrative expenses for the thirty-six weeks ended May 4, 1996 increased by $78.2 million over such expenses for the comparable period for fiscal 1995, and increased as a percentage of net sales from 29.4% to 30.1%. The increase in the expense ratio was due primarily to operating costs of the Company's second call center in Houston and start-up costs of the Company's commercial program (which program is still being implemented and has been unprofitable to date). During the thirty-six week period ending May 4, 1996, the Company increased the number of stores participating in the commercial program from three to 519. The Company's effective income tax rate decreased from 39.4% of pre-tax income for the thirty-six weeks ended May 6, 1995 to 37.1% for the thirty-six weeks ended May 4, 1996. The decrease in the effective income tax rate is due to a reduction in state income taxes. 7

LIQUIDITY AND CAPITAL RESOURCES For the thirty-six weeks ended May 4, 1996, net cash of $78.6 million was provided by the Company's operations versus $90.2 million for the comparable period of fiscal year 1995. The comparative decrease in cash provided by operations is due primarily to increased inventory due to forward buying, opening of the new Zanesville, Ohio, distribution center and opening of new stores, which was offset by higher net income, depreciation, and leverage of accounts payable. Capital expenditures for the thirty-six weeks ended May 4, 1996 were $183.2 million. The Company anticipates that capital expenditures for fiscal 1996 as a whole will be approximately $275 million to $285 million. Year- to-date, the Company opened 155 new stores and 22 stores that replaced existing stores. The Company expects to open approximately 257 new stores and approximately 30 replacement stores during fiscal 1996. The Company anticipates that it will rely on internally generated funds to support a majority of its capital expenditures and working capital requirements; the balance of such requirements will be funded through short-term borrowings. The Company has revolving credit agreements with several banks providing for lines of credit in an aggregate maximum amount of $125 million, including an increase of $50 million in January 1996. At May 4, 1996, the Company had borrowings outstanding under these credit agreements of $97.8 million. 8

PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) There were no matters submitted to a vote by security holders during the twelve weeks ended May 4, 1996. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are filed as 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 By-laws of AutoZone, Inc. Incorporated by reference to Exhibit 3.2 to the February 1992 Form S-1 4.1 Form of Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 2 to the February 1992 Form S-1. 4.2 Registration Rights Agreement, dated as of February 18, 1987, by and among AutoShack, Inc. and certain stockholders. Incorporated by reference to Exhibit 4.9 to the form S-1 Registration Statement filed by the Company under the Securities Act (No. 33-39197), (the "April 1991 Form S-1"). 4.3 Amendment to the Registration Rights Agreement dated as of August 1, 1993. Incorporated by reference to Exhibit 4.1 to the Form S-3 Registration Statement filed by the Company under the Securities Act (No. 33-67550) 10.1 Agreement and Plan of Merger between AutoZone, Inc., Alldata Corporation, and DataZone Acquisition Corporation, dated February 6, 1996, incorporated by reference to Annex I to the Form S-4 filed February 20, 1996 (Reg. No. 333-01506). 11.1 Statement re: Computation of earnings per share is included herein. 27.1 Financial Data Schedule (b) Reports on Form 8-K During the twelve weeks ended May 4, 1996, the Company filed a report on Form 8-K dated March 6, 1996, stating: On March 2, 1996, Johnston C. Adams, Jr., was elected Vice Chairman and Chief Operating Officer, Timothy D. Vargo was elected Vice Chairman, and Shawn P. McGhee was promoted to Executive Vice President - Merchandising. Messrs. Adams and Vargo were also elected to the Board of Directors. 9

SIGNATURES Pursuant to the requirements 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\ ROBERT J. HUNT -------------------------------- Robert J. Hunt Executive Vice President and Chief Financial Officer-Customer Satisfaction (Principal Financial Officer) BY \s\ Michael E. Butterick -------------------------------- Michael E. Butterick Vice President Controller-Customer Satisfaction (Principal Accounting Officer) Dated: May 20, 1996 10

STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (Unaudited) (in thousands, except per share data) <TABLE> <CAPTION> Twelve Weeks Ended Thirty-Six Weeks Ended ---------------------------- ---------------------------- May 4, May 6, May 4, May 6, 1996 1995 1996 1995 -------- -------- -------- -------- <S> <C> <C> <C> <C> Primary: Average shares outstanding 148,670 146,287 147,831 145,930 Net effect of dilutive stock options, based on the treasury stock method, using average fair market value 2,871 2,911 2,677 3,127 -------- -------- -------- -------- Total shares used in computation 151,541 149,198 150,508 149,057 -------- -------- -------- -------- -------- -------- -------- -------- Net income $ 37,605 $ 32,414 $ 99,726 $ 83,884 -------- -------- -------- -------- -------- -------- -------- -------- Per share amount $ .25 $ .22 $ .66 $ .56 -------- -------- -------- -------- -------- -------- -------- -------- Fully diluted: Average shares outstanding 148,670 146,287 147,831 145,930 Net effect of dilutive stock options, based on the treasury stock method, using higher of average or ending fair market value 3,750 2,911 4,151 3,127 -------- -------- -------- -------- Total shares used in computation 152,420 149,198 151,982 149,057 -------- -------- -------- -------- -------- -------- -------- -------- Net income $ 37,605 $ 32,414 $ 99,726 $ 83,884 -------- -------- -------- -------- -------- -------- -------- -------- Per share amount $ .25 $ .22 $ .66 $ .56 -------- -------- -------- -------- -------- -------- -------- -------- </TABLE> 11

<TABLE> <S> <C>

<ARTICLE> 5 <LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q FOR THE PERIOD ENDED MAY 4, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. </LEGEND> <MULTIPLIER> 1,000 <S> <C> <PERIOD-TYPE> OTHER <FISCAL-YEAR-END> AUG-31-1996 <PERIOD-START> FEB-11-1996 <PERIOD-END> MAY-04-1996 <CASH> 4,782 <SECURITIES> 0 <RECEIVABLES> 15,083 <ALLOWANCES> 0 <INVENTORY> 531,255 <CURRENT-ASSETS> 592,692 <PP&E> 964,254 <DEPRECIATION> 176,615 <TOTAL-ASSETS> 1,404,008 <CURRENT-LIABILITIES> 589,762 <BONDS> 0 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 0 <OTHER-SE> 794,875 <TOTAL-LIABILITY-AND-EQUITY> 1,404,008 <SALES> 1,413,042 <TOTAL-REVENUES> 1,413,042 <CGS> 828,322 <TOTAL-COSTS> 425,467 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 727 <INCOME-PRETAX> 158,526 <INCOME-TAX> 58,800 <INCOME-CONTINUING> 99,726 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 99,726 <EPS-PRIMARY> 0.66 <EPS-DILUTED> 0.66 </TABLE>