Securities and exchange commission


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percentage of net sales from 28.6% to 28.9%. The increase in the expense ratio

was primarily due to expenses incurred in connection with the introduction of

the call center and flexogram programs and increased net advertising expenses.

Net interest income for fiscal 1995 was $0.6 million compared with $2.2

million for fiscal 1994. The decrease in interest income was primarily due to

lower levels of invested cash. At August 26, 1995, the Company had short-term

borrowings, net of short-term investments, of $10.8 million compared with

short-term investments, net of short-term borrowings, of $53.9 million at August

27, 1994.

AutoZone's effective income tax rate was 39.2% of pre-tax income for

fiscal 1995 and 39.7% for fiscal 1994. The decrease in the tax rate was

primarily due to a change in the effective state tax rate due to expansion in

lower tax rate states.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements have been the funding of its

continued new store expansion program, the increase in distribution centers and

inventory requirements. The Company has opened 825 stores and constructed six

new distribution centers from the beginning of fiscal 1992 to August 31, 1996.

The Company has financed this growth through a combination of internally

generated funds and, to a lesser degree, borrowings. Net cash provided by

operating activities was $174.2 million in fiscal 1996, $180.1 million in fiscal

1995 and $128.3 million in fiscal 1994.

Capital expenditures were $288.2 million in fiscal 1996, $258.1 million in

fiscal 1995 and $173.0 million in fiscal 1994. The Company opened 280 stores in

fiscal 1996 and completed construction of a new distribution center in

Zanesville, Ohio, which commenced operations in February 1996. The Company

completed the construction of and relocation to its new Memphis headquarters in

the fall of 1995. Construction commitments totaled approximately $48 million at

August 31, 1996.

The Company's new store development program requires significant working

capital, principally for inventories. Historically, the Company has negotiated

extended payment terms from suppliers, minimizing the working capital required

by its expansion. The Company believes that it will be able to continue

financing much of its inventory growth by favorable payment terms from

suppliers, but there can be no assurance that the Company will be successful in

doing so.

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 borrowings. The Company

has revolving credit agreements with several banks providing for lines of credit

in an aggregate amount of $125 million, including an increase of $50 million in

January 1996. At August 31, 1996, the Company had available borrowings under

these agreements of $30.6 million.

At August 31, 1996, the Company had outstanding stock options to purchase

9,759,756 shares of Common Stock. Assuming all such options become vested and

are exercised, such options would result in proceeds of $175.3 million to the

Company. Such proceeds constitute an additional source for liquidity and capital

resources for the Company. For fiscal 1996, proceeds from sales of stock under

stock option and employee stock purchase plans were $17.7 million, including

related tax benefits.


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RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, Statement of Financial Accounting Standards No. 123,

"Accounting for Stock-Based Compensation" (SFAS 123) was issued. SFAS 123

encourages companies to adopt a fair value based method of accounting for

stock-based compensation plans in place of the intrinsic value based method

provided for by Accounting Principles Board Opinion No. 25, "Accounting for

Stock Issued to Employees" (APB 25). Companies which continue to apply the

provisions of APB 25 must make pro forma disclosures in the notes to their

financial statements of net income and earnings per share as if the fair value

based method of accounting defined in SFAS 123 had been applied. The Company

plans to adopt the pro forma disclosure provisions of SFAS 123 in fiscal year

1997.

In March 1995, Statement of Financial Accounting Standards No. 121,

"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to

be Disposed Of" (SFAS 121) was issued. SFAS 121 establishes accounting standards

for the recognition of the impairment of long-lived assets, certain identifiable

intangibles and goodwill related to those assets to be held and used, or to be

disposed of. The Company does not believe the adoption of SFAS 121 in fiscal

year 1997 will have a significant impact on the Company's financial condition or

results of operations.
INFLATION
The Company does not believe its operations have been materially affected

by inflation. The Company has been successful, in many cases, in mitigating the

effects of merchandise cost increases principally due to economies of scale

resulting from increased volumes of purchases, selective forward buying and the

use of alternative suppliers.
SEASONALITY AND QUARTERLY PERIODS
The Company's business is somewhat seasonal in nature, with the highest

sales occurring in the summer months of June through August, in which average

weekly per store sales historically have run about 20% to 30% higher than in the

slowest months of December through February. The Company's business is also

affected by weather conditions. Extremely hot or extremely cold weather tends to

enhance sales by causing parts to fail and spurring sales of seasonal products.

Mild or rainy weather tends to soften sales as parts' failure rates are lower in

mild weather and elective maintenance is deferred during periods of rainy

weather.

Each of the first three quarters of AutoZone's fiscal year consists of

twelve weeks and the fourth quarter consists of sixteen weeks (seventeen weeks

in fiscal 1996). Because the fourth quarter contains seasonally high sales

volume and consists of sixteen weeks (seventeen weeks in fiscal 1996) compared

to twelve weeks for each of the first three quarters, the Company's fourth

quarter represents a disproportionate share of the annual net sales and net

income. For fiscal 1996 and 1995, the fourth quarter represented 37.0% and

34.8%, respectively, of annual net sales and 40.3% and 39.6%, respectively, of

net income.

AFTER TAX RETURN ON CAPITAL

[Bar Graph:

92: 17%

93: 18%

94: 19%

95: 19%

96: 18%]
SHAREHOLDERS' EQUITY ($ in millions)

[Bar Graph:

92: $278

93: $397

94: $528

95: $685

96: $866]


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CONSOLIDATED STATEMENTS OF INCOME

----------------------------------------------

Year Ended

----------------------------------------------

August 31, August 26, August 27,

1996 1995 1994

(53 Weeks) (52 Weeks) (52 Weeks)

---------- ---------- ----------

(in thousands, except per share data)
Net sales........................................................ $2,242,633 $1,808,131 $1,508,029

Cost of sales, including warehouse and delivery expenses......... 1,307,638 1,057,033 886,068

Operating, selling, general and administrative expenses.......... 666,061 523,440 431,219

---------- ---------- ----------

Operating profit................................................. 268,934 227,658 190,742

Interest income (expense) - net.................................. (1,969) 623 2,244

---------- ---------- ----------

Income before income taxes................................. 266,965 228,281 192,986

Income taxes..................................................... 99,800 89,500 76,600

---------- ---------- ----------

Net income................................................. $ 167,165 $ 138,781 $ 116,386

========== ========== ==========
Net income per share............................................. $ 1.11 $ 0.93 $ 0.78

========== ========== ==========
Average shares outstanding, including common

stock equivalents.......................................... 151,238 149,302 148,726

========== ========== ==========

See Notes to Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEETS

----------------------------------------------------


August 31, August 26,

1996 1995

---------- ----------

(in thousands except per share data)
ASSETS

Current assets:

Cash and cash equivalents.................................................... $ 3,904 $ 6,411

Accounts receivable.......................................................... 15,466 9,690

Merchandise inventories...................................................... 555,894 395,751

Prepaid expenses............................................................. 19,225 13,329

Deferred income taxes........................................................ 18,608 22,641

---------- ----------

Total current assets................................................... 613,097 447,822

Property and equipment:

Land ........................................................................ 190,660 140,953

Buildings and improvements................................................... 523,240 328,398

Equipment.................................................................... 248,275 188,351

Leasehold improvements and interests......................................... 36,708 29,785

Construction in progress..................................................... 62,283 104,869

---------- ----------

1,061,166 792,356

Less accumulated depreciation and amortization............................... 198,292 148,148

---------- ----------

862,874 644,208

Other assets:

Cost in excess of net assets acquired, net of accumulated amortization

of $7,467 in 1996 and $6,851 in 1995....................................... 17,187 17,803

Deferred income taxes........................................................ 2,938

Other assets................................................................. 2,301 1,945

---------- ----------

22,426 19,748

---------- ----------

$1,498,397 $1,111,778

========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable............................................................. $ 381,304 $ 300,578

Accrued expenses............................................................. 104,909 91,838

Checks outstanding, net...................................................... 20,005 5,863

Income taxes payable......................................................... 12,260 5,767

Revolving credit agreements.................................................. 94,400 9,500

Current portion of long-term debt............................................ 4,003

---------- ----------

Total current liabilities.............................................. 612,878 417,549

Other liabilities.................................................................. 19,937 8,318

Deferred income taxes.............................................................. 1,201

Commitments and contingencies......................................................

Shareholders' equity:

Preferred Stock, authorized 1,000 shares; no shares issued

and outstanding in 1996 and 1995...........................................

Common Stock, par value $.01 per share, authorized 200,000 shares; issued

and outstanding 150,137 shares in 1996 and

147,052 shares in 1995.................................................... 1,501 1,471

Additional paid-in capital................................................... 235,247 196,625

Retained earnings............................................................ 628,834 486,614

---------- ----------

865,582 684,710

---------- ----------
$1,498,397 $1,111,778

========== ==========


See Notes to Consolidated Financial Statements.

17

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CONSOLIDATED STATEMENTS OF CASH FLOWS

------------------------------------------

Year Ended

----------------------------------------

August 31, August 26, August 27,

1996 1995 1994

(53 Weeks) (52 Weeks) (52 Weeks)

---------- ---------- ----------

(in thousands)
Cash flows from operating activities:

Net income.................................................... $167,165 $138,781 $116,386

Adjustments to reconcile net income to net

cash provided by operating activities:

Depreciation and amortization of property

and equipment....................................... 62,919 47,733 32,429

Amortization of intangible and other assets............ 622 616 637

Deferred income tax expense (benefit).................. 6,082 (7,240) (331)

Net loss (gain) on disposals of property

and equipment....................................... (735) 832 632

Net increase in accounts receivable and

prepaid expenses.................................... (7,564) (6,091) (1,236)

Net increase in merchandise inventories................ (158,673) (61,687) (73,996)

Net increase in accounts payable, accrued expenses

and checks outstanding.............................. 94,916 64,666 57,348

Net increase (decrease) in income taxes payable..................... 6,493 578 (4,477)

Net change in other assets and liabilities............. 2,930 1,880 885

-------- -------- --------

Net cash provided by operating activities........... 174,155 180,068 128,277
Cash flows from investing activities:

Cash outflows for property and equipment...................... (288,182) (258,060) (172,975)

Proceeds from disposals of property and equipment............. 8,680 1,364 1,237

-------- -------- --------

Net cash used in investing activities............... (279,502) (256,696) (171,738)
Cash flows from financing activities:

Repayment of long-term debt................................... (4,003) (249) (206)

Net increase in revolving credit agreements................... 84,900 9,500

Net proceeds from sale of Common Stock, including

related tax benefit........................................ 17,699 17,552 14,078

Principal collections on subscription notes receivable........ 1,300

-------- -------- --------

Net cash provided by financing activities........... 98,596 26,803 15,172

-------- -------- --------
Net decrease in cash and cash equivalents........................... (6,751) (49,825) (28,289)

Cash and cash equivalents at beginning of year...................... 6,411 56,236 84,525

Beginning cash balance of pooled entity............................. 4,244

-------- -------- --------

Cash and cash equivalents at end of year............................ $ 3,904 $ 6,411 $ 56,236

======== ======== ========

Supplemental cash flow information:

Interest paid, net of interest cost capitalized............... $ 1,971 $ 160 $ 85

Income taxes paid............................................. $ 69,791 $ 81,862 $ 70,203


See Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

--------------------------------


Additional Subscription

Common Paid-in Retained Notes

Stock Capital Earnings Receivable Total

------ ---------- -------- ------------ --------

(in thousands)

Balance at August 28, 1993......................... $1,441 $165,025 $231,447 $ (1,300) $396,613

Net income......................................... 116,386 116,386

Principal collections on subscription notes

receivable......................................... 1,300 1,300

Sale of 1,303 shares of Common Stock under

stock option and stock purchase plans......... 13 2,985 2,998

Tax benefit of exercise of stock options........... 11,080 11,080

------ --------- -------- ---------- --------

Balance at August 27, 1994......................... 1,454 179,090 347,833 - 528,377

Net income......................................... 138,781 138,781

Sale of 1,635 shares of Common Stock under

stock option and stock purchase plans......... 17 5,335 5,352

Tax benefit of exercise of stock options........... 12,200 12,200

Balance at August 26, 1995......................... 1,471 196,625 486,614 - 684,710

Net income......................................... 167,165 167,165

Equity of pooled entity issued (1,697 shares)...... 17 20,936 (24,945) (3,992)

Sale of 1,386 shares of Common Stock under

stock option and stock purchase plans......... 13 6,836 6,849

Tax benefit of exercise of stock options........... 10,850 10,850

------ --------- -------- ---------- --------

Balance at August 31, 1996......................... $1,501 $235,247 $628,834 $ - $865,582

====== ========= ======== =========== ========


See Notes to Consolidated Financial Statements.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES

BUSINESS: The Company is a specialty retailer of automotive parts and

accessories. At the end of fiscal 1996, the Company operated 1,423 stores in 27

states.

FISCAL YEAR: The Company's fiscal year consists of 52 or 53 weeks ending on

the last Saturday in August.

BASIS OF PRESENTATION: The consolidated financial statements include the

accounts of AutoZone, Inc., and its wholly owned subsidiaries (the Company). All

significant intercompany transactions and balances have been eliminated in

consolidation.

MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost or

market using the last-in, first-out (LIFO) method. The Company believes that the

LIFO method of inventory valuation results in a better matching of current costs

and revenues. A number of retailers use the first-in, first-out (FIFO) method of

inventory valuation. Cost of sales was approximately $100,000, $3,600,000 and

$4,400,000 less in fiscal 1996, 1995 and 1994, respectively than if the FIFO

method had been used.

PROPERTY AND EQUIPMENT: Property and equipment is stated at cost.

Depreciation is computed principally by the straight-line method over the

estimated useful lives of the assets. Leasehold interests and improvements are

amortized over the terms of the leases.

AMORTIZATION: The cost in excess of net assets acquired is amortized by the

straight-line method over 40 years.

PREOPENING EXPENSES: Preopening expenses, which consist primarily of

payroll and occupancy costs, are expensed as incurred.

ADVERTISING COSTS: The Company expenses advertising costs as incurred.

Advertising expense, net of vendor rebates, was approximately $23,129,000,

$18,531,000 and $9,306,000 in fiscal 1996, 1995 and 1994, respectively.

WARRANTY COSTS: The Company provides the retail consumer with a warranty on

certain products. Estimated warranty obligations are provided at the time of

sale of the product.

FINANCIAL INSTRUMENTS: The Company has certain financial instruments which

include cash, accounts receivable, accounts payable, checks outstanding and

revolving credit agreements. The carrying amounts of these financial instruments

approximate fair value because of their short maturities.

INCOME TAXES: The Company accounts for income taxes under the liability

method. Under this method, deferred tax assets and liabilities are determined

based on differences between financial reporting and tax bases of assets and

liabilities and are measured using the enacted tax rates and laws that will be

in effect when the differences are expected to reverse.

NET INCOME PER SHARE: Net income per share of common stock is computed

using the weighted average number of shares of common stock outstanding during

each period, including common stock equivalents, consisting of stock options

calculated using the treasury stock method, when dilutive.

CASH EQUIVALENTS: Cash equivalents consist of investments with maturities

of 90 days or less at the date of purchase.

USE OF ESTIMATES: Management of the Company has made a number of estimates

and assumptions relating to the reporting of assets and liabilities and the

disclosure of contingent liabilities to prepare these financial statements in

conformity with generally accepted accounting principles. Actual results could

differ from these estimates.

IMPAIRMENT OF LONG-LIVED ASSETS: SFAS No. 121, "Accounting for the

Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," is

effective for fiscal years beginning after December 15, 1995. This statement

requires that long-lived assets and certain identifiable intangibles to be held

and used by an entity be reviewed for impairment whenever events or changes in

circumstances indicate that the carrying amount of an asset may not be

recoverable. Also, in general, long-lived assets and certain identifiable

intangibles to be disposed of should be reported at the lower of carrying amount

or fair values less cost to sell. The impact of this new standard is not

expected to have a material effect on the Company's financial position or

results of operations.
NOTE B - ACCRUED EXPENSES

Accrued expenses consist of the following:

AUGUST 31, AUGUST 26,

1996 1995

--------- -------

(in thousands)
Medical and casualty

insurance claims $ 33,800 $36,835

Accrued compensation

and related payroll taxes 18,490 19,489

Ad valorem and sales taxes 21,485 18,101

Other 31,134 17,413

--------- -------

$ 104,909 $91,838

========= =======
NOTE C - INCOME TAXES
At August 31, 1996, the Company has net operating loss carryforwards (NOLs)

of approximately $14.5 million that expire in years 2000 through 2009. Those

carryforwards resulted from the Company's acquisition of ALLDATA Corp. (see Note

J - Business Combination). The use of the NOLs is limited to future taxable

earnings of ALLDATA Corp. and is subject to annual limitations. A valuation

allowance of $5,573,000 has been recognized to offset the deferred tax assets

related to those carryforwards. If realized, the tax benefit for those NOLs will

reduce income tax expense.
The provision for income taxes consists of the following:

YEAR ENDED

-------------------------------------

AUGUST 31, AUGUST 26, AUGUST 27,

1996 1995 1994

--------- --------- ----------

(in thousands)

Current:
Federal $86,469 $81,460 $63,150

State 7,249 15,280 13,781

------- ------- -------

93,718 96,740 76,931
Deferred:

Federal 5,531 (6,160) (250)

State 551 (1,080) (81)

------- ------- -------

6,082 (7,240) (331)

------- ------- -------

$99,800 $89,500 $76,600

======= ======= =======


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- --------------------------------------------------------------------------------

Significant components of the Company's deferred tax assets and liabilities

are as follows:

AUGUST 31, AUGUST 26,

1996 1995

--------- ---------

(in thousands)
Deferred tax assets:

Insurance reserves $11,282 $13,078

Unearned income 6,296

Net operating loss carryforwards 5,573

Other 5,767 11,874

------- -------

28,918 24,952

Less valuation allowance (5,573)

------- -------

23,345 24,952

Deferred tax liabilities:

Property and equipment 1,799 3,512

------- -------

Net deferred tax assets $21,546 $21,440

======= =======
A reconciliation of the provision for income taxes to the amount computed

by applying the federal statutory tax rate of 35% to income before income taxes

is as follows:

Year Ended

-----------------------------------

August 31, August 26, August 27,

1996 1995 1994

------- ------- -------

(in thousands)
Expected tax at

statutory rate $93,438 $79,898 $67,545

State income

taxes, net 5,070 9,230 8,905

Other 1,292 372 150

------- ------- -------

$99,800 $89,500 $76,600

======= ======= =======
Income tax benefits resulting from the exercise of certain non-qualified

employee stock options were credited to additional paid-in capital because no

expense was charged to income for financial reporting purposes in respect of

such options.
NOTE D - FINANCING ARRANGEMENTS
On January 16, 1996, the Company increased its unsecured revolving credit

agreements (the Revolver) with a group of banks by $50,000,000 for a line of

credit totaling $125,000,000. The rate of interest payable under the Revolver is

a function of the London Interbank Offered Rate (LIBOR) or the lending bank's

base rate (or prime rate as defined by an individual bank), at the option of the

Company. The commitments made under the Revolver expire on February 1, 1998, but

may be extended for additional eighteen month periods with the consent of the

lenders. At August 31, 1996, the Company's borrowings under the Revolver were

$94,400,000 and the average interest rate was 5.67% and 6.06% at fiscal year-end

1996 and 1995, respectively. During the commitment period, the Company is

obligated to pay a fee of .125% per annum for the unused portion of the

$125,000,000 commitment. The Revolver contains a covenant limiting the amount of

debt the Company may incur relative to its net worth.

Interest costs of $2,416,000 in fiscal 1996, $981,000 in fiscal 1995 and

$446,000 in fiscal 1994 were capitalized.
NOTE E - EQUITY
The Company has issued options to purchase Common Stock to certain

shareholders and employees. A summary of outstanding stock options is as

follows:

EXERCISE PRICE NUMBER

PER SHARE OF SHARES

--------------- ---------
Outstanding August 27, 1994 $ 0.63 - $29.00 9,147,829

Granted 23.38 - 26.38 2,356,855

Exercised 0.63 - 9.17 (1,532,139)

Canceled 1.63 - 29.00 (468,564)

--------------- ---------

Outstanding August 26, 1995 0.67 - 29.00 9,503,981

Assumed 2.24 - 4.86 221,841

Granted 25.13 - 35.13 1,621,395

Exercised 0.67 - 14.31 (1,332,588)

Canceled 4.89 - 28.25 (254,873)

--------------- ---------

Outstanding August 31, 1996 $ 0.79 - $35.13 9,759,756

=============== =========
Options to purchase 2,901,140 shares at August 31, 1996, and 3,211,405

shares at August 26, 1995, were exercisable. Shares reserved for future grants

were 725,363 shares at August 31, 1996, and 2,091,885 shares at August 26, 1995.

The Company also has an employee stock purchase plan under which all

eligible employees may purchase Common Stock at no less than 85% of fair market

value (determined quarterly) through regular payroll deductions. Annual

purchases are limited to $4,000 per employee. Under the plan, 226,541 shares

were sold in fiscal 1996 and 228,571 shares were sold in fiscal 1995, including

173,572 and 125,219 shares, respectively, purchased by the Company for sale

under the plan. A total of 473,068 shares of Common Stock is reserved for future

issuance under this plan.
NOTE F - PENSION PLAN
Substantially all full-time employees are covered by a defined benefit

pension plan. The benefits are based on years of service and the employee's

highest consecutive five-year average compensation.

The Company's funding policy is to make annual contributions in amounts at

least equal to the minimum funding requirements of the Employee Retirement

Income Security Act of 1974.


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The following table sets forth the plan's funded status and amounts

recognized in the Company's financial statements (in thousands):

AUGUST 31, AUGUST 26,

1996 1995

-------- --------
Actuarial present value of

accumulated benefit

obligation, including vested

benefits of $17,225 in 1996

and $12,946 in 1995 $ 20,400 $ 15,444

======== ========

Projected benefit obligation

for service rendered to date $ 31,533 $ 23,348

Less plan assets at fair value,

primarily stocks and

cash equivalents 27,367 18,616

-------- --------

Projected benefit obligation

in excess of plan assets 4,166 4,732

Unrecognized prior service cost (427) (564)

Unrecognized net loss from past

experience different from that

assumed and effects of changes

in assumptions (3,470) (3,799)

Unrecognized net asset 268 418

-------- --------

Accrued pension cost $ 537 $ 787

======== ========
Net pension cost included the following components (in thousands):
Year Ended

---------------------------------------

August 31, August 26, August 27,

1996 1995 1994

------- ------- -------

Service cost of

benefits earned

during the year $ 4,580 $ 3,536 $ 2,876

Interest cost on

projected benefit

obligation 1,748 1,367 1,097

Actual return on

plan assets (3,677) (1,289) (1,527)

Net amortization

and deferral 2,518 481 1,261

------- ------- -------

Net periodic

pension cost $ 5,169 $ 4,095 $ 3,707

======= ======= =======
The actuarial present value of the projected benefit obligation was

determined using weighted-average discount rates of 7.93% and 7.5% at August 31,

1996, and August 26, 1995, respectively, and assumed increases in future

compensation levels of 6%. The expected long-term rate of return on plan assets

was 7%. Prior service cost is amortized over the estimated average remaining

service lives of the plan participants, and the unrecognized net experience gain

or loss is amortized over five years.
NOTE G - LEASES
A substantial portion of the Company's retail stores and certain equipment

are leased. Most of these leases include renewal options and some include

options to purchase and provisions for percentage rent based on sales.

Rental expense was $30,626,000 for fiscal 1996, $26,460,000 for fiscal 1995

and $28,113,000 for fiscal 1994. Percentage rentals were insignificant.

Minimum annual rental commitments under non-cancelable operating leases are

as follows (in thousands):

Year Amount

---- ------
1997 $ 29,742

1998 26,788

1999 23,130

2000 20,678

2001 16,456

Thereafter 66,520

--------

$183,314

========
NOTE H - RELATED PARTY TRANSACTIONS
Management fees of $272,000 for fiscal 1996, $371,000 for fiscal 1995 and

$402,000 for fiscal 1994 were paid to KKR Associates, which directly and through

several limited partnerships, of which it is a general partner, owned

approximately 13% and 43% of the Company's outstanding Common Stock at August

31, 1996 and August 26, 1995, respectively.
NOTE I - COMMITMENTS AND CONTINGENCIES
Construction commitments, primarily for new stores, totaled approximately

$48 million at August 31, 1996.

The Company is a party to various claims and lawsuits arising in the normal

course of business which, in the opinion of management, are not, singularly or

in aggregate, material to the Company's financial position or results of

operations.

The Company is self-insured for workers' compensation, automobile, general

and product liability losses. The Company is also self-insured for health care

claims for eligible active employees. The Company maintains certain levels of

stop loss coverage for each self-insured plan. Self-insurance costs are accrued

based upon the aggregate of the liability for reported claims and an estimated

liability for claims incurred but not reported.
NOTE J - BUSINESS COMBINATION
On March 29, 1996, ALLDATA Corp. (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 August 31, 1996.

Financial statements for periods prior to the date of combination have not been

restated as the effect is not material to the Company's financial condition and

results of operations. The assets and liabilities of ALLDATA were approximately

$17.4 million and $21.4 million, respectively, at the date of combination.

22
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MANAGEMENT'S REPORT
AutoZone's management takes responsibility for the integrity and

objectivity of the financial statements in this annual report. These financial

statements were prepared from accounting records which management believes

fairly and accurately reflect the operations and financial position of AutoZone.

The financial statements in this report were prepared in conformity with

generally accepted accounting principles. In certain instances, management used

its best estimates and judgments based upon currently available information and

management's view of current conditions and circumstances.

Management maintains a system of internal controls designed to provide

reasonable assurance that assets are protected from improper use and accounted

for in accordance with its policies and that transactions are recorded

accurately in the Company's records. The concept of reasonable assurance is

based upon a recognition that the cost of the controls should not exceed the

benefit derived.

The financial statements of AutoZone have been audited by Ernst & Young

LLP, independent auditors. Their accompanying report is based on an audit

conducted in accordance with generally accepted auditing standards, including a

review of internal accounting controls and financial reporting matters.

/s/ Robert J. Hunt

- ------------------

Robert J. Hunt

Executive Vice President - Finance

Chief Financial Officer

Customer Satisfaction
REPORT OF INDEPENDENT AUDITORS
Shareholders

AutoZone, Inc.,
We have audited the accompanying consolidated balance sheets of AutoZone,

Inc. as of August 31, 1996, and August 26, 1995, and the related consolidated

statements of income, shareholders' equity and cash flows for each of the three

years in the period ended August 31, 1996. These financial statements are the

responsibility of the Company's management. Our responsibility is to express an

opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing

standards. Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,

in all material respects, the consolidated financial position of AutoZone, Inc.

at August 31, 1996, and August 26, 1995, and the consolidated results of its

operations and its cash flows for each of the three fiscal years in the period

ended August 31, 1996, in conformity with generally accepted accounting

principles.

/s/ ERNST & YOUNG LLP
Memphis, Tennessee

September 23, 1996

CORPORATE INFORMATION
TRANSFER AGENT AND REGISTRAR

First Chicago Trust Company of New York

P.O. Box 2500

Jersey City, New Jersey 07303-2500

(800) 446-2617

(201) 324-0498
STOCK EXCHANGE LISTING

New York Stock Exchange

Ticker Symbol: AZO
AUDITORS

Ernst & Young LLP

Memphis, Tennessee
CORPORATE OFFICES

123 South Front Street

Memphis, Tennessee 38103-3607

(901) 495-6500
AUTOZONE WEB SITE

http://www.autozone.com

ANNUAL MEETING

The Annual Meeting of Shareholders of AutoZone will

be held at 10:00 a.m. on December 12, 1996, at

AutoZone Corporate Offices, 123 South Front Street,

Memphis, Tennessee.
SEC FORM 10-K/QUARTERLY REPORTS

AutoZone does not produce quarterly reports because

the information is not timely and is costly to distribute.

Shareholders may obtain free of charge a copy of the

Company's annual report on Form 10-K as filed with

the Securities and Exchange Commission or our

quarterly press releases by writing to Shareholder

Relations, P.O. Box 2198, Memphis, Tennessee 38101-

9842.
Copies of all documents filed by the company with

the Securities and Exchange Commission, including

Form 10-K and Form 10-Q, are also available at the

SEC's EDGAR server at http://www.sec.gov.
SHAREHOLDERS OF RECORD

As of August 31, 1996, there were 2,772

shareholders of record.

23
26
OFFICERS

-----------------------------------------------------------------------


Executive Vice Presidents Vice Presidents HARRY L. GOLDSMITH

Customer Satisfaction Customer Satisfaction General Counsel

and Secretary

JOSEPH R. HYDE III LAWRENCE E. EVANS RICHARD F. ADAMS JR.

Chairman and CEO Store Development Business Planning Phillip J. Jackson

Customer Satisfaction & Analysis Distribution

ROBERT J. HUNT

JOHNSTON C. ADAMS JR. Chief Financial Officer MICHAEL B. BAIRD MICHAEL E. LONGO

Vice Chairman and COO Stores Distribution

Customer Satisfaction SHAWN P. MCGHEE

Merchandising DAVID W. BARCZAK WILLIAM R. MCCAWLEY JR.

TIMOTHY D. VARGO Real Estate Stores

Vice Chairman

Customer Satisfaction JON A. BASCOM STEVEN R. MCCLANAHAN

Senior Vice Presidents Systems Technology Stores

THOMAS S. HANEMANN Customer Satisfaction & Support

President GRANTLAND E. MCGEE JR.

Customer Satisfaction ANTHONY D. ROSE JR. B. CRAIG BLACKWELL Stores

Advertising Stores

JOHN MINERVINI

STEPHEN W. VALENTINE FRANCIS C. BROWN III Business Development

Other Corporate Officers Systems Technology Human Resources

Customer Satisfaction & Support WILLIAM E. SHULL III

MICHAEL E. BUTTERICK Stores

SHEILA GRACE STUEWE Controller

Treasurer DAVID WILHITE

MARK A. CORDOVA Merchandising

DONALD R. RAWLINS Stores

Assistant Secretary

BRETT D. EASLEY

Merchandising Systems

BOARD OF DIRECTORS

------------------------------------------------------------


JOSEPH R. HYDE III DR. N. GERRY HOUSE ROBERT I. MACDONNELL GEORGE R. ROBERTS

Chairman and CEO Superintendent General Partner General Partner

Customer Satisfaction Memphis City Schools Kohlberg, Kravis, Roberts Kohlberg, Kravis, Roberts
JOHNSTON C. ADAMS JR. JAMES F. KEEGAN MICHAEL W. MICHELSON RONALD A. TERRY

Vice Chairman and COO Managing Director General Partner Retired Chairman

Customer Satisfaction Weibel Huffman Keegan, Inc. Kohlberg, Kravis, Roberts First Tennessee

National Corporation

TIMOTHY D. VARGO HENRY R. KRAVIS JOHN E. MOLL

Vice Chairman General Partner Retired President

Customer Satisfaction Kohlberg, Kravis, Roberts The Fleming Companies, Inc.
THOMAS S. HANEMANN

President

Customer Satisfaction
ANDREW M. CLARKSON

Chairman

Finance Committee

Customer Satisfaction

24
27

[Graphic: Map of United States showing number of AutoZone locations per state:]

1,423 STORES

27 STATES


[Alabama 74

Arizona 52

Arkansas 37

Colorado 24

Florida 61

Georgia 87

Illinois 43

Indiana 66

Kansas 7

Kentucky 42

Louisiana 68

Michigan 9

Mississippi 58

Missouri 56

New Mexico 22

North Carolina 79

Ohio 138

Oklahoma 56

Pennsylvania 10

South Carolina 41

Tennessee 102

Texas 239

Utah 15

Virginia 23

West Virginia 12

Wisconsin 1

Wyoming 1]

STORES OPENED FISCAL YEAR 1996

ALABAMA GEORGIA LOUISIANA (CONT.) OHIO SOUTH CAROLINA

Anniston (R) Atlanta New Orleans Amelia Aiken

Bay Minette Bainbridge Plaquemine Amherst Camden

Birmingham (R) Cornelia Sulphur Boardman Darlington

Clanton Decatur (2) Brunswick Laurens

Florence East Point MISSISSIPPI Bucyrus Lexington

Fort Payne Fayetteville Brandon Calcutta Rock Hill

Gadsden Hephzibah Canton Centerville

Huntsville Kennesaw Greenville (R) Chillicothe TENNESSEE

Leeds Marietta Indianola Conneaut Cordova

Madison Martinez Iuka Delphos Dickson (R)

Monroeville Statesboro Jackson (R) East Liverpool Greeneville (R)

Oneonta Thomasville (R) Lucedale Fostoria Harriman

Prichard Thomson Magee Geneva Jackson

Thomasville Warner Robins Olive Branch Georgetown Jefferson City

Tuscaloosa Winder Philadelphia Hamilton La Follette

Tuscumbia Ripley Harrison Madison (R)

ILLINOIS Senatobia Heath Martin

ARIZONA Belleville Tupelo Ironton Memphis (1, 2R)

Casa Grande (R) Harrisburg Waynesboro Logan Morristown

Coolidge Joliet West Point Lorain Murfreesboro

Glendale Litchfield Marysville Nashville (2, 1R)

Mesa (R) Paris MISSOURI Mason Newport

Phoenix (2, 3R) Salem Aurora Mentor on the Lake Rogersville

Tucson (1,1R) Waterloo Bolivar Milford Selmer

Cape Girardeau (R) Mt. Vernon Sparta

ARKANSAS INDIANA Carthage North Madison

Fort Smith Bloomington Dexter Oxford TEXAS

Harrison Boonville Florissant (R) Painesville Angleton

Pine Bluff Crawfordsville Jackson Parma Arlington

Russellville (R) Evansville Joplin Perrysburg Belton

Siloam Springs Indianapolis (2) Lebanon Sandusky Benbrook

Jeffersonville Macon St. Clairsville Clute (R)

COLORADO Lawrenceburg Mehlville (1, 1R) Symmes Township Corpus Christi

Aurora Martinsville Mexico Warren (2) De Soto

Ft. Morgan Princeton Nevada Washington Court Hse Denison

Wheat Ridge Salem Perryville Wintersville El Campo

Tell City Springfield (2) Woodlawn El Paso (3, 1R)

FLORIDA Troy Wooster Gainesville

Bartow KANSAS Warrensburg Youngstown (4) Garland (2)

Bermuda Chanute Hewitt

Clermont Ft. Scott NEW MEXICO OKLAHOMA Hidalgo

Crystal River Independence Deming Hugo Houston (3, 1R)

Dade City Iola Farmington (R) Mustang Lancaster

Deland Parsons Las Cruces Pryor Laredo

Dunedin Pittsburg Tahlequah Lockhart

Ensley NORTH CAROLINA Tulsa (2) Pearland

Eustis KENTUCKY Asheville Wagoner San Antonio (3, 1R)

Inverness Beaver Dam Belmont Weatherford Santa Fe

Leesburg Cynthiana Charlotte (2, 1R) Woodward Waco

Marianna Florence Dunn (R)

Melbourne Harrodsburg Greensboro (4, 2R) PENNSYLVANIA VIRGINIA

Ocala (2) Leitchfield Lumberton Allison Park Charlottesville

Orange City London Mooresville East Rochester Cheasapeake

Orlando (3) Maysville Morehead City Greenville Newport News

Palm Bay Nicholasville Mount Airy Grove City Norfolk

Pensacola Owensboro (2) Reidsville Hermitage Richmond

Quincy Princeton Rockingham Huntingdon

Sanford Roxboro New Castle WEST VIRGINIA

St. Cloud LOUISIANA Smithfield Sharon Logan

Winter Haven (2) Arabi (R) Tarboro Uniontown Moundsville

Bastrop Washington Waynesburg New Martinsville

Franklinton Wilmington Oak Hill

Marrero Winston-Salem


(R) - Indicates replacement store.

[AUTOZONE LOGO]



1

EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT

Subsidiary State of Organization or Incorporation

- ---------- --------------------------------------

Alldata Corporation Delaware

AutoZone Development Corporation Nevada

AutoZone Marketing Company Nevada

AutoZone Properties, Inc. Nevada

AutoZoners, Inc. Nevada

AutoZone Stores, Inc. Nevada

AutoZone Texas, L.P. Delaware


1

EXHIBIT 23.1
Consent of Independent Auditors
Shareholders and Board of Directors

AutoZone, Inc.
We consent to the incorporation by reference in this Annual Report (Form

10-K) of AutoZone, Inc. of our report dated September 23, 1996, included in the

1996 Annual Report to Shareholders of AutoZone, Inc.
Our audits also included the financial statement schedule of AutoZone, Inc.

listed in Item 14(a). This schedule is the responsibility of the Company's

management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when

considered in relation to the basic financial statements taken as a whole,

presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration

Statement (Form S-8 No. 33-41308) pertaining to the AutoZone, Inc. Employee

Stock Purchase Plan and the Registration Statement (Form S-8 and Form S-3 No.

33-41618) pertaining to the Amended and Restated Stock Option Plan of AutoZone,

Inc. of our report dated September 23, 1996, with respect to the financial

statements of AutoZone, Inc. incorporated by reference and the schedule

included in the Annual Report (Form 10-K) for the year ended August 31, 1996.


/s/ ERNST & YOUNG LLP


Memphis, Tennessee

November 26, 1996



5



THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL

STATEMENTS FOR FISCAL YEAR ENDED AUGUST 31, 1996, AND IS QUALIFIED IN ITS

ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.



1,000


YEAR

AUG-31-1996


AUG-27-1995


AUG-31-1996

3,904

0

15,466

0

555,894

613,097


198,292

1,498,397

612,878

0


0


0

1,501

864,081

1,498,397

2,242,633

2,242,633

1,307,638

1,307,638

666,061

0

1,969

266,965

99,800

167,165

0

0

0

167,165

1.11

1.11
1   2   3   4   5   6

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