TEXT-Moody's affirms AutoZone's ratings, revises outlook


(The following statement was released by the rating agency)


Approximately $1.2 Billion in Debt Instruments Affected

NEW YORK, Sept 29 - Moody's Investors Service confirmed AutoZone Inc.'s ratings and changed the rating outlook to negative from stable based on the company's more aggressive financial policy of repurchasing shares partially with debt and thereby modestly increasing its adjusted leverage. The confirmation of the ratings reflects the strength of AutoZone's sales and operating cash flow, its leading market share, nationwide franchise and the expectation that demand for Do-It-Yourself and commercial automotive parts will remain robust. After three years of stable debt levels, adjusted leverage has started to rise, albeit modestly, as AutoZone has resumed the repurchase of shares with partial debt funding. Fiscal 2003 cash flow before share repurchases of nearly $538.8 million was well below gross share repurchases of about $891.6 million.

Moody's anticipates that AutoZone could continue to repurchase shares in excess of free cash flow over the intermediate term. Should the company's business and operating cash flow remain strong and should margins continue to expand, the current ratings can accommodate higher adjusted leverage. Should adjusted leverage rise significantly above current levels, or if the business slows or margins fall, AutoZone's ratings could be downgraded. AutoZone is the leading retailer of automotive parts, serving the DIY and commercial segments. Given the fragmentation of the market, however, the company's share is probably in the high single digits. AutoZone's national scope, vendor relationships and operating efficiency have allowed the company to achieve solid comparable store sales of 3% in fiscal year ended August 30, 2003. Margin improvement from increasing store productivity, marketing initiatives and high private label penetration has generated operating cash flow well in excess of capital expenditures, but not sufficient to entirely fund high share repurchase levels. Ratings confirmed: Senior unsecured notes and debentures at Baa2. Multiple seniority shelf at (P) Baa2 for senior debt and (P) Baa3 for subordinated debt. Commercial paper at Prime-2. Headquartered in Memphis, AutoZone, Inc. sells auto and light truck parts and accessories through its 3219 stores in the United States and 49 in Mexico.



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