UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the quarterly period ended | ||
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 |
.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol(s) |
| Name of Each Exchange on which Registered |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value –
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | |||
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2
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements.
AUTOZONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
February 11, | August 27, | |||||
(in thousands) | 2023 | 2022 | ||||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable |
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Merchandise inventories |
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Other current assets |
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Total current assets |
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Property and equipment: | ||||||
Property and equipment |
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Less: Accumulated depreciation and amortization |
| ( |
| ( | ||
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Operating lease right-of-use assets | | | ||||
Goodwill |
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Deferred income taxes |
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Other long-term assets |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders’ Deficit | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Current portion of operating lease liabilities | | | ||||
Accrued expenses and other |
| |
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Income taxes payable |
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Total current liabilities |
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Long-term debt |
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Operating lease liabilities, less current portion | | | ||||
Deferred income taxes |
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Other long-term liabilities |
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Commitments and contingencies | ||||||
Stockholders’ deficit: | ||||||
Preferred stock, authorized |
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Common stock, par value $ |
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Additional paid-in capital |
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Retained deficit |
| ( |
| ( | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Treasury stock, at cost |
| ( |
| ( | ||
Total stockholders’ deficit |
| ( |
| ( | ||
Total liabilities and stockholders' deficit | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
3
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Twelve Weeks Ended | Twenty-Four Weeks Ended | |||||||||||
February 11, | February 12, | February 11, | February 12, | |||||||||
(in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||
Net sales |
| $ | |
| $ | |
| $ | |
| $ | |
Cost of sales, including warehouse and delivery expenses | | | | | ||||||||
Gross profit | |
| | |
| | ||||||
Operating, selling, general and administrative expenses | | | | | ||||||||
Operating profit | | | | | ||||||||
Interest expense, net | | | | | ||||||||
Income before income taxes | |
| | |
| | ||||||
Income tax expense | | | | | ||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Weighted average shares for basic earnings per share |
| |
| |
| |
| | ||||
Effect of dilutive stock equivalents | | | | | ||||||||
Weighted average shares for diluted earnings per share |
| |
| |
| |
| | ||||
Basic earnings per share | $ | | $ | | $ | | $ | | ||||
Diluted earnings per share | $ | | $ | | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Twelve Weeks Ended | Twenty-Four Weeks Ended | |||||||||||
February 11, |
| February 12, |
| February 11, |
| February 12, | ||||||
(in thousands) |
| 2023 | 2022 | 2023 | 2022 | |||||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss): |
|
|
|
|
|
|
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| ||||
Foreign currency translation adjustments |
| |
| |
| |
| ( | ||||
Unrealized gains (losses) on marketable debt securities, net of taxes |
| |
| ( |
| ( |
| ( | ||||
Net derivative activities, net of taxes |
| |
| |
| |
| | ||||
Total other comprehensive income (loss) |
| |
| |
| |
| ( | ||||
Comprehensive income | $ | | $ | | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
4
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Four Weeks Ended | ||||||
| February 11, | February 12, | ||||
(in thousands) | 2023 | 2022 | ||||
Cash flows from operating activities: |
|
|
|
| ||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
| |||
Depreciation and amortization of property and equipment |
| |
| | ||
Other non-cash charges |
| |
| — | ||
Amortization of debt origination fees |
| |
| | ||
Deferred income taxes |
| ( |
| | ||
Share-based compensation expense |
| |
| | ||
Changes in operating assets and liabilities: |
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|
| |||
Accounts receivable |
| |
| ( | ||
Merchandise inventories |
| ( |
| ( | ||
Accounts payable and accrued expenses |
| ( |
| | ||
Income taxes |
| |
| | ||
Other, net |
| ( |
| ( | ||
Net cash provided by operating activities |
| |
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Cash flows from investing activities: |
|
|
|
| ||
Capital expenditures |
| ( |
| ( | ||
Purchase of marketable debt securities |
| ( |
| ( | ||
Proceeds from sale of marketable debt securities |
| |
| | ||
Investment in tax credit equity investments | ( | ( | ||||
Proceeds from disposal of capital assets and other, net |
| |
| | ||
Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities: |
|
|
|
| ||
Net proceeds from commercial paper |
| |
| | ||
Proceeds from issuance of debt |
| |
| — | ||
Repayment of debt | ( | ( | ||||
Net proceeds from sale of common stock |
| |
| | ||
Purchase of treasury stock | ( | ( | ||||
Repayment of principal portion of finance lease liabilities |
| ( | ( | |||
Other, net |
| ( |
| ( | ||
Net cash used in financing activities |
| ( |
| ( | ||
Effect of exchange rate changes on cash |
| |
| ( | ||
Net increase/(decrease) in cash and cash equivalents |
| |
| ( | ||
Cash and cash equivalents at beginning of period |
| |
| | ||
Cash and cash equivalents at end of period | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
5
AUTOZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
Twelve Weeks Ended February 11, 2023 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common | Additional | Other | ||||||||||||||||||
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| ||||||||
(in thousands) | Issued | Stock | Capital | Deficit | Loss | Stock | Total | |||||||||||||
Balance at November 19, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Total other comprehensive income |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Retirement of treasury shares | ( |
| ( |
| ( |
| ( |
| — |
| | — | ||||||||
Purchase of |
| — | — | — | — | — | ( |
| ( | |||||||||||
Issuance of common stock under stock options and stock purchase plans |
| |
| — |
| | — | — | — |
| | |||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| | ||||||
Balance at February 11, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( |
Twelve Weeks Ended February 12, 2022 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common | Additional | Retained | Other | |||||||||||||||||
| Shares |
| Common |
| Paid-in |
| Earnings |
| Comprehensive |
| Treasury |
| ||||||||
(in thousands) | Issued | Stock | Capital | (Deficit) | Loss | Stock | Total | |||||||||||||
Balance at November 20, 2021 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Total other comprehensive income |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Retirement of treasury shares |
| ( |
| ( |
| ( |
| ( |
| — |
| |
| — | ||||||
Purchase of |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Issuance of common stock under stock options and stock purchase plans |
| |
| — |
| | — | — | — |
| | |||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| | ||||||
Balance at February 12, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( |
Twenty-Four Weeks Ended February 11, 2023 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common | Additional | Other | ||||||||||||||||||
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| ||||||||
(in thousands) | Issued | Stock | Capital | Deficit | Loss | Stock | Total | |||||||||||||
Balance at August 27, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Total other comprehensive income |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Retirement of treasury shares |
| ( |
| ( |
| ( |
| ( |
| — |
| |
| — | ||||||
Purchase of |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Issuance of common stock under stock options and stock purchase plans |
| |
| |
| | — | — | — |
| | |||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| | ||||||
Balance at February 11, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( |
Twenty-Four Weeks Ended February 12, 2022 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common | Additional | Other | ||||||||||||||||||
| Shares |
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| ||||||||
(in thousands) | Issued | Stock | Capital | Deficit | Loss | Stock | Total | |||||||||||||
Balance at August 28, 2021 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Net income |
| — |
| — |
| — |
|
| — |
| — |
| | |||||||
Total other comprehensive loss |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Retirement of treasury shares |
| ( |
| ( |
| ( |
| ( |
| — |
| |
| — | ||||||
Purchase of |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Issuance of common stock under stock options and stock purchase plans |
| |
| |
| — | — | — |
| | ||||||||||
Share-based compensation expense |
| — |
| — |
|
| — |
| — |
| — |
| | |||||||
Balance at February 12, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( |
See Notes to Condensed Consolidated Financial Statements.
6
AUTOZONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A – General
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission’s (the “SEC”) rules and regulations. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and related notes included in the AutoZone, Inc. (“AutoZone” or the “Company”) Annual Report on Form 10-K for the year ended August 27, 2022.
Operating results for the twelve and twenty-four weeks ended February 11, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 26, 2023. Each of the first three quarters of AutoZone’s fiscal year consists of 12 weeks, and the fourth quarter consists of 16 or 17 weeks. The fourth quarters of fiscal 2023 and 2022 each have 16 weeks.
Recently Adopted Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance, which requires annual disclosures for entities receiving governmental assistance to provide more transparency. This ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted this ASU with its first quarter ended November 19, 2022 on a prospective basis. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements
In September 2022, the FASB issued ASU 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50). This ASU requires buyers in a supplier finance program to disclose sufficient qualitative and quantitative information about the program to allow a reader of the financial statements to understand the program’s nature, activity during the period, changes from period to period and the program’s potential magnitude. This ASU is effective for all companies for fiscal years beginning after December 15, 2022, including interim periods within those years, and requires retrospective adoption. Early adoption is permitted. The Company will adopt this standard beginning with its first quarter ending November 18, 2023. The Company is currently evaluating the new guidance to determine the impact the adoption will have on the Company’s disclosures.
R
Note B – Share-Based Payments
AutoZone maintains several equity incentive plans, which provide equity-based compensation to non-employee directors and eligible employees for their service to AutoZone, its subsidiaries or affiliates. The Company recognizes compensation expense for share-based payments based on the fair value of the awards at the grant date. Share-based payments include stock option grants, restricted stock grants, restricted stock unit grants, stock appreciation rights, discounts on shares sold to employees under share purchase plans and other awards. Additionally, directors’ fees are paid in restricted stock units with value equivalent to the value of shares of common stock as of the grant date. The change in fair value of liability-based stock awards is also recognized in share-based compensation expense.
Stock Options:
The Company made stock option grants for
7
purchase common stock to certain of its employees under its equity incentive plans at prices equal to the market value of the stock on the date of grant. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date.
The weighted average fair value of the stock option awards granted during the twenty-four week periods ended February 11, 2023 and February 12, 2022, using the Black-Scholes-Merton multiple-option pricing valuation model, was $
Twenty-Four Weeks Ended | |||||
| February 11, |
| February 12, |
| |
| 2023 | 2022 | |||
Expected price volatility |
| | % | | % |
Risk-free interest rate |
| | % | | % |
Weighted average expected lives (in years) |
|
|
| ||
Forfeiture rate |
| | % | | % |
Dividend yield |
| | % | | % |
During the twenty-four week period ended February 11, 2023, and the comparable prior year period,
As of February 11, 2023, total unrecognized share-based expense related to stock options, net of estimated forfeitures, was approximately $
Restricted Stock Units:
Restricted stock unit awards are valued at the market price of a share of the Company’s stock on the date of grant. Grants of employee restricted stock units vest ratably on an annual basis over a
As of February 11, 2023, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $
Transactions related to restricted stock units for the twenty-four weeks ended February 11, 2023 were as follows:
Weighted- | |||||
| Number |
| Average Grant | ||
of Shares | Date Fair Value | ||||
Nonvested at August 27, 2022 |
| | $ | | |
Granted |
| | | ||
Vested |
| ( | | ||
Forfeited |
| ( | | ||
Nonvested at February 11, 2023 |
| | $ | |
Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) for the twelve and twenty-four week periods ended February 11, 2023, was $
8
For the twelve and twenty-four week periods ended February 11, 2023,
See AutoZone’s Annual Report on Form 10-K for the year ended August 27, 2022 and other filings with the SEC, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan, the AutoZone, Inc. 2020 Omnibus Incentive Award Plan and the Director Compensation Program.
Note C – Fair Value Measurements
The Company defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company uses the fair value hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are set forth below:
Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2 inputs—inputs other than quoted market prices included within Level 1 that are observable, either directly or indirectly, for the asset or liability.
Level 3 inputs—unobservable inputs for the asset or liability, which are based on the Company’s own assumptions as there is little, if any, observable activity in identical assets or liabilities.
Marketable Debt Securities Measured at Fair Value on a Recurring Basis
The Company’s marketable debt securities measured at fair value on a recurring basis were as follows:
February 11, 2023 | ||||||||||||
(in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||
Other current assets | $ | | $ | — | $ | — | $ | | ||||
Other long-term assets |
| | |
| — |
| | |||||
$ | | $ | | $ | — | $ | |
August 27, 2022 | ||||||||||||
(in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||
Other current assets | $ | | $ | | $ | — | $ | | ||||
Other long-term assets |
| |
| |
| — |
| | ||||
$ | | $ | | $ | — | $ | |
At February 11, 2023, the fair value measurement amounts for assets and liabilities recorded in the accompanying Condensed Consolidated Balance Sheets consisted of short-term marketable debt securities, which are included within Other current assets, and long-term marketable debt securities, which are included in Other long-term assets. The Company’s marketable debt securities are typically valued at the closing price in the principal active market as of the last business day of the quarter or through the use of other market inputs relating to the securities, including benchmark yields and reported trades. The fair values of the marketable debt securities, by asset class, are described in “Note D – Marketable Debt Securities.”
9
Financial Instruments not Recognized at Fair Value
The Company has financial instruments, including cash and cash equivalents, accounts receivable, other current assets and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short maturities. A discussion of the carrying values and fair values of the Company’s debt is included in “Note G – Financing.”
Note D – Marketable Debt Securities
Marketable debt securities are carried at fair value, with unrealized gains and losses, net of income taxes, recorded in Accumulated other comprehensive loss until realized, and any credit risk related losses are recognized in net income in the period incurred. The Company’s basis for determining the cost of a security sold is the “Specific Identification Model.”
The Company’s available-for-sale marketable debt securities consisted of the following:
February 11, 2023 | ||||||||||||
| Amortized |
| Gross |
| Gross |
| ||||||
Cost | Unrealized | Unrealized | Fair | |||||||||
(in thousands) | Basis | Gains | Losses | Value | ||||||||
Corporate debt securities | $ | | $ | — | $ | ( | $ | | ||||
Government bonds |
| |
| |
| ( |
| | ||||
Mortgage-backed securities |
| |
| — |
| ( |
| | ||||
Asset-backed securities and other |
| |
| |
| ( |
| | ||||
$ | | $ | | $ | ( | $ | |
August 27, 2022 | ||||||||||||
| Amortized |
| Gross |
| Gross |
| ||||||
Cost | Unrealized | Unrealized | Fair | |||||||||
(in thousands) | Basis | Gains | Losses | Value | ||||||||
Corporate debt securities | $ | | $ | | $ | ( | $ | | ||||
Government bonds |
| |
| — |
| ( |
| | ||||
Mortgage-backed securities |
| |
| — |
| ( |
| | ||||
Asset-backed securities and other |
| |
| — |
| ( |
| | ||||
$ | | $ | | $ | ( | $ | |