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Mail Stop 3-8
March 9, 2005
By Facsimile and U.S. Mail
Mr. Steve Odland
Chairman and Chief Executive Officer
AutoZone, Inc.
123 South Front Street
Memphis, Tennessee 38103
Re: Form 10-K for the year ended August 28, 2004
Form 10-Q for the quarter ended November 20, 2004
File No. 1-10714
Dear Mr. Odland:
We have completed a review of your February 17, 2005
response
to our prior comment letter. Our review resulted in the following
accounting comments. All page references are keyed to the filings
you submitted in electronic form on EDGAR.
FORM 10-K FOR THE YEAR ENDED AUGUST 28, 2004
Exhibit 13.1
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations, page 4
Liquidity and Capital Resources
Financial Commitments, page 9
1. Your response to our prior comment 2 relating to purchase
obligations states that you do not generally enter into
unconditional
purchase obligations. Please explain to us what you mean by
"unconditional purchase obligations," and tell us if you enter
into
any agreements to purchase goods that are enforceable and legally
binding that generally specify the terms and the minimum
quantities
to be purchased. Refer to Item 303(a)(5)(ii)(D) of Regulation S-
K.
2. Your response to our prior comment 3 states that you excluded
from
the table contractual obligations that will require future cash
payments of nearly $100 million because you did not have firm
scheduled maturity dates. In future filings, disclose in a
footnote
to the table the nature and the amounts excluded and the reasons
why.
See Item 303(a)(5)(i) of Regulation S-K.
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note A - Significant Accounting Policies, Pages 19-22
Property and Equipment, page 20
3. We have read your response to our prior comment 7 relating to
the
lease term you use to determine the depreciation period of
leasehold
improvements. In future filings, please revise your disclosures
to
clarify how you define "remaining lease term" for these assets as
defined by paragraphs 5(f) of SFAS 13 and the reason why. In this
regard, please advise and revise future filings to indicate, if
so,
that the first renewal option included in the lease term is
reasonably assured.
4. You disclose in Form 8-K filed on March 2, 2005 that you expect
to
record in the second quarter of fiscal 2005 a one-time charge
estimated after-tax amount not to exceed $25 million relating to
the
cumulative non-cash adjustment for changes to your accounting for
leasehold improvements. Supplementally please advise us how you
have
calculated this adjustment including the components of the
adjustment. Further, please clarify for us the reason why the
impact
is only $1 million, after-tax, for fiscal 2005.
Revenue Recognition, page 20
5. We have read your response to our prior comment 8 regarding an
expansion of your disclosures relating to the POS arrangements
with
certain vendors. You state that sales relating to these type
arrangements in fiscal 2004 approximated 3% of total sales, or
$169.1
million, and that reporting such information in future filings
would
require system and process changes. It is our understanding that
you
had these type arrangements with only a very few vendors as of the
end of fiscal 2004, but that during fiscal 2005 you have continued
to
substantially expand the number of vendors being converted to POS
arrangements. We continue to believe that your future disclosures
should include the amount of sales included in the income
statement
relating to these types of POS arrangements for all periods
presented. Also discuss in MD&A the impact you anticipate these
arrangements will have on your liquidity and financial condition
in
future periods based on your current plans.
6. Please explain to us in more detail the conversion process with
your vendors including the percentage of vendors converted to
date.
Please also tell us the amount of related product sales through
February 12, 2005, and the amount of sales you estimate for fiscal
2005 based on your current plans of converting suppliers in the
future.
7. Please explain to us how vendors finance their purchase of
products from you as they are converted to a POS arrangement and
the
accounting entries you record when you sell existing inventory
back
to a supplier, including those sales where you finance the sale.
Tell
us the terms of the financing arrangements with you and if you
have
recourse. Tell us when the liability from the supplier for the
transition inventory is triggered, that is, at the time of your
conversion agreement or at the time of your sale to the consumer.
8. Explain to us who has risk of loss for the merchandise held by
you
under these POS arrangements and why. Tell us the dollar amount
of
your inventory suppliers have repurchased from you during fiscal
2005, and if you are obligated to sell all of the merchandise held
by
you under these arrangements.
9. Supplementally please show us what your revised disclosures
relating to these POS arrangements will look like in future
filings.
We may have further comment upon review of your response.
Note C - Accrued Expenses, Page 34
10. We have read your response to our prior comment 13 relating to
your reversal of all warranty liabilities on certain vendor
products
resulting in credits to earnings of $42 million during fiscal
2004.
Where vendors have not assumed all warranty obligations, we note
you
net vendor allowances against warranty liabilities. Please tell
us
the amount of warranty liabilities you estimated as of August 28,
2004 prior to the reduction for vendor allowances. Also, for each
period presented, please disclose the amount of allowances in
excess
of warranty liabilities reclassed to inventory. Please provide us
with support and your basis in GAAP for netting vendor allowances
against warranty liabilities that you are responsible for
providing
customers. Please address the requirements of FIN 39 in your
response.
General
Please send us your response to our comments within ten
days from the date of this letter. You should provide a cover
letter
keying your response to our comments, and provide the requested
supplementary information, if any. Where our comment requests you
to
revise future filings, we would expect that information to be
included in your next filing. If you believe complying with a
comment is not appropriate, please tell us why in your letter.
Your
supplemental response should be submitted in electronic form on
EDGAR
as a correspondence file. Refer to Rule 101 (a) of Regulation S-
T.
If you have any questions regarding our comments, please direct
them
to Milwood Hobbs at (202) 942-2846 or Donna Di Silvio at (202)
942-
1852 or, in their absence, to the undersigned at (202) 942-2823.
Any
other questions regarding disclosure issues maybe directed to H.
Christopher Owings at (202) 942-1900.
Sincerely,
Michael Moran
Accounting Branch Chief
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Mr. Steve Odland
AutoZone, Inc.
March 9, 2005
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