AutoZone 2004 Annual Report Download - page 20
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1.9percentagepointsoftheincrease;ALLDATAandMexicosaleswhichcontributed0.5percentagepointsoftheincrease,whileTruckPro
salesintheprioryearof$47.6millionreducedtheincreaseby0.9percentagepoints.
Grossprofitforfiscal2003was$2.515billion,or46.1%ofnetsales,comparedwith$2.375billion,or44.6%ofnetsalesforfiscal2002.
Thisimprovementwasdrivenby$8.7millioningainsfromwarrantynegotiationsandtheadoptionofEITF02-16thatreclassified$42.6
millioninvendorfundingtocostofsales.PriortotheadoptionofEITF02-16,vendorfundingwasreflectedasareductiontooperating,
selling,generalandadministrativeexpenses.Fiscal2002alsobenefitedfrom$50.4millioningrossprofitgeneratedduringthe53rdweek
ofthatyearascomparedtothe52weekfiscal2003.Theremainingimprovementsingrossprofitandgrossmarginreflecttheadditive
impactofnewmerchandise,areductioninourproductwarrantyexpense,andthebenefitofmorestrategicanddisciplinedpricingderived
fromourcategorymanagementsystem.
Operating,selling,generalandadministrativeexpensesforfiscal2003decreasedto$1.597billion,or29.3%ofnetsales,from$1.604
billion,or30.1%ofsalesforfiscal2002.TheadoptionofEITF02-16increasedoperatingexpensesduringfiscal2003by$52.6million
duetothereclassificationofvendorfunding.Fiscal2003expenseswerefurtherimpactedbya$4.6milliongainasaresultofthedisposition
ofpropertiesassociatedwiththefiscal2001restructuringandimpairmentchargesanda$4.7milliongainassociatedwiththesettlement
of certain liabilities and the repayment of a note associated with the sale of the TruckPro business in December 2001. The remaining
decreasesinoperating,selling,generalandadministrativeexpensesreflectourrelentlessexpensediscipline,inparticular,theleveragingof
salariesandinformationtechnologyspendingduringfiscal2003.
Interestexpense,netforfiscal2003was$84.8millioncomparedwith$79.9millionduringfiscal2002.Theincreaseininterestexpense
forfiscal2003wasprimarilyduetohigherlevelsofdebtcomparedwiththe2002fiscalyear.Weightedaverageborrowingsforfiscal2003
were$1.5billion,comparedwith$1.3billionforfiscal2002;and,weightedaverageborrowingrates,excludingtheimpactofdebtamorti-
zationandfacilityfees,remainedrelativelyflatat4.4%forbothfiscalyears.
AutoZone’seffectiveincometaxratedeclinedslightlyto37.9%ofpre-taxincomeforfiscal2003ascomparedto38.1%forfiscal2002.
Netincomefor fiscal 2003increased by20.9% to $517.6 million,and dilutedearningsper shareincreasedby 33.5% to $5.34from
$4.00reportedfortheyear-agoperiod.Theimpactofthefiscal2003stockrepurchasesondilutedearningspershareinfiscal2003was
anincreaseof$0.19.
SeasonalityandQuarterlyPeriods
AutoZone’sbusinessissomewhatseasonalinnature,withthehighestsalesoccurringinthesummermonthsofJunethroughAugust,in
whichaverage weekly per-store saleshistorically havebeenabout 15% to 25%higherthaninthe slower monthsof Decemberthrough
February.Duringshortperiodsoftime,astore’ssalescanbeaffectedbyweatherconditions.Extremelyhotorextremelycoldweathermay
enhancesalesbycausingpartstofailandspurringsalesofseasonalproducts.Mildorrainyweathertendstosoftensalesaspartsfailure
ratesarelowerinmildweatherandelectivemaintenanceisdeferredduringperiodsofrainyweather.Overthelongerterm,theeffectsof
weatherbalanceout,aswehavestoresthroughouttheUnitedStates.
EachofthefirstthreequartersofAutoZone’sfiscalyearconsistsof12weeks,andthefourthquarterconsistsof16weeks(17weeksin
fiscal2002).Becausethefourthquartercontainstheseasonallyhighsalesvolumeandconsistsof16weeks(17weeksinfiscal2002),
comparedwith12weeksforeachofthefirstthreequarters,ourfourthquarterrepresentsadisproportionateshareoftheannualnetsales
andnetincome.Thefourthquarteroffiscal2004represented32.6%ofannualsalesand37.0%ofnetincome;thefourthquarteroffiscal
2003 represented 33.5% of annual net sales and 40.1% of net income; and the fourth quarter of fiscal 2002 represented 34.6% of
annual net sales and 41.6% of net income. Fiscal 2002 consisted of 53 weeks, with the fiscal fourth quarter including 17 weeks.
Accordingly,thefourthquarteroffiscal2002includedthebenefitofanadditionalweekofnetsalesof$109.1millionandnetincomeof
$18.3million.
LiquidityandCapitalResources
Netcashprovidedbyoperatingactivitieswas$638.4millioninfiscal2004,$720.8millioninfiscal2003and$736.2millioninfiscal
2002.Theprimarysourceofourliquidityisourcashflowsrealizedthroughthesaleofautomotivepartsandaccessories.Ournew-store
developmentprogramrequiresworkingcapital,predominantlyforinventories.Theyear-over-yearchangeinaccountspayableandaccrued
expenses was impacted by a $67.0 million decline in accrued warranty obligations related to the $42.1 million in gains from warranty
negotiationswithcertainvendorsandthesettlementofwarrantyclaims.Thesewarrantynegotiationshaveresultedintheshiftingofthe
warrantyliabilitytothevendors.Duringthepastthreefiscalyears,wehaveimprovedouraccountspayabletoinventoryratioto92%at
August28,2004,from90%atAugust30,2003,and85%atAugust31,2002.Contributingtothisimprovementhasbeentheyear-over-
yearincreaseinvendorpayablesasaresultofourabilitytoextendpaymenttermswithourvendors.PriortoMay8,2004,wehadentered
intoarrangementswithcertainvendorsandbanksthat,throughourissuanceofnegotiableinstrumentstoourvendors,thevendorscould