Notes to Consolidated Financial Statements
Note A —– Significant Accounting Policies
Business:AutoZone, Inc. and its wholly owned subsidiaries (“AutoZone” or the “Company”) isare principally a retailer and distributor of automotive parts and accessories. At the end of fiscal 2010,2012, the Company operated 4,389 domestic4,685 stores in the United States (“U.S.”) and, including Puerto Rico, and 238321 stores in Mexico. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products. In 2,4243,053 of the domestic stores, and 173 of theas well as select stores in Mexico, stores at the end of fiscal 2010,2012, the Company had a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts. The Company also sells the ALLDATA brand automotive diagnostic and repair software through www.alldata.com.www.alldata.com and www.alldatadiy.com. Additionally, the Company sells automotive hard parts, maintenance items, accessories and non-automotive products through www.autozone.com, and as part of ourthe Company’s commercial sales program,customers can make purchases through www.autozonepro.com.
The Company does not derive revenue from automotive repair or installation services.Fiscal Year:The Company’s fiscal year consists of 52 or 53 weeks ending on the last Saturday in August. Accordingly,Each of fiscal 2012, 2011 and 2010 represented 52 weeks ended on August 28, 2010, fiscal 2009 represented 52 weeks ended on August 29, 2009, and fiscal 2008 represented 53 weeks ended on August 30, 2008.
weeks.Basis of Presentation:The consolidated financial statements include the accounts of AutoZone, Inc. and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
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. Actual results could differ from those estimates.
Cash Equivalents:Cash equivalents consist of investments with original maturities of 90 days or less at the date of purchase. Cash equivalents include proceeds due from credit and debit card transactions with settlement terms of less than 5 days. Credit and debit card receivables included within cash and cash equivalents were $29.6$34.0 million at August 28, 201025, 2012 and $24.3$32.5 million at August 29, 2009.
Marketable Securities:The Company invests a portion of its assets held by the Company’s wholly owned insurance captive in marketable debt securities and classifies them as available-for-sale. The Company includes these securities within the other current assets and other long-term assets captions in the accompanying Consolidated Balance Sheets and records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period. A discussion of marketable securities is included in “Note E — Fair Value Measurements” and “Note F — Marketable Securities”.
27, 2011.Accounts Receivable:Accounts receivable consists of receivables from commercial customers and vendors, and are presented net of an allowance for uncollectible accounts. AutoZone routinely grants credit to certain of its commercial customers. The risk of credit loss in its trade receivables is substantially mitigated by the Company’s credit evaluation process, short collection terms and sales to a large number of customers, as well as the low revenuedollar value per transaction for most of its sales. Allowances for potential credit losses are determined based on historical experience and current evaluation of the composition of accounts receivable. Historically, credit losses have been within management’s expectations and the allowances for uncollectible accounts were $1.4$2.4 million at August 28, 2010,25, 2012, and $2.5$2.1 million at August 29, 2009.
Historically, certain receivables were sold to a third party at a discount for cash with limited recourse. At August 30, 2008, the Company had $55.4 million outstanding under this program. During the second quarter of fiscal 2009, AutoZone terminated its agreement to sell receivables to a third party.
27, 2011.Merchandise Inventories:Inventories are stated at the lower of cost or market using the last-in, first-out method for domestic inventories and the first-in, first out (“FIFO”) method for Mexico inventories. Included in inventory are related purchasing, storage and handling costs. Due to price deflation on the Company’s merchandise purchases, the Company’s domestic inventory balances are effectively maintained under the FIFO method. The Company’s policy is not to write up inventory in excess of replacement cost. The cumulative balance of this unrecorded adjustment, which will be reduced upon experiencing price inflation on our merchandise purchases, was $247.3$270.4 million at August 28, 2010,25, 2012, and $223.0$253.3 million at August 29, 2009.
27, 2011.
40Marketable Securities:The Company invests a portion of its assets held by the Company’s wholly owned insurance captive in marketable debt securities and classifies them as available-for-sale. The Company includes these securities within the Other current assets and Other long-term assets captions in the accompanying Consolidated Balance Sheets and records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period. A discussion of marketable securities is included in “Note E – Fair Value Measurements” and “Note F – Marketable Securities”.
Property and Equipment:Property and equipment is stated at cost. Depreciation and amortization are computed principally using the straight-line method over the following estimated useful lives: buildings, 40 to 50 years; building improvements, 5 to 15 years; equipment, 3 to 10 years; and leasehold improvements, over the shorter of the asset’s estimated useful life or the remaining lease term, which includes any reasonably assured renewal periods. Depreciation and amortization include amortization of assets under capital lease.
Impairment of Long-Lived Assets:The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When such an event occurs, the Company compares the sum of the undiscounted expected future cash flows of the asset (asset group) with the carrying amounts of the asset. If the undiscounted expected future cash flows are less than the carrying value of the assets, the Company measures the amount of impairment loss as the amount by which the carrying amount of the assets exceeds the fair value of the assets. NoThere were no material impairment losses were recorded in the three years ended August 28, 2010.
25, 2012.Goodwill:The cost in excess of fair value of identifiable net assets of businesses acquired is recorded as goodwill. Goodwill has not been amortized since fiscal 2001, but an analysis is performed at least annually to compare the fair value of the reporting unit to the carrying amount to determine if any impairment exists. The Company performs its annual impairment assessment in the fourth quarter of each fiscal year, unless circumstances dictate more frequent assessments. No impairment losses were recorded in the three years ended August 28, 2010.25, 2012. Goodwill was $302.6 million as of August 28, 2010,25, 2012, and August 29, 2009.
27, 2011.Derivative Instruments and Hedging Activities:AutoZone is exposed to market risk from, among other things, changes in interest rates, foreign exchange rates and fuel prices. From time to time, the Company uses various financialderivative instruments to reduce such risks. To date, based upon the Company’s current level of foreign operations, no derivative instruments have been utilized to reduce foreign exchange rate risk. All of the Company’s hedging activities are governed by guidelines that are authorized by AutoZone’s Board of Directors.Directors (the “Board”). Further, the Company does not buy or sell financialderivative instruments for trading purposes.
AutoZone’s financial market risk results primarily from changes in interest rates. At times, AutoZone reduces its exposure to changes in interest rates by entering into various interest rate hedge instruments such as interest rate swap contracts, treasury lock agreements and forward-starting interest rate swaps. All of the Company’s interest rate hedge instruments are designated as cash flow hedges. Refer to “Note H —– Derivative Financial Instruments” for additional disclosures regarding the Company’s derivative instruments and hedging activities. Cash flows related to these instruments designated as qualifying hedges are reflected in the accompanying consolidated statementsConsolidated Statements of cash flowsCash Flows in the same categories as the cash flows from the items being hedged. Accordingly, cash flows relating to the settlement of interest rate derivatives hedging the forecasted issuance of debt have been reflected upon settlement as a component of financing cash flows. The resulting gain or loss from such settlement is deferred to Accumulated other comprehensive loss and reclassified to interest expense over the term of the underlying debt. This reclassification of the deferred gains and losses impacts the interest expense recognized on the underlying debt that was hedged and is therefore reflected as a component of operating cash flows in periods subsequent to settlement. The periodic settlement of interest rate derivatives hedging outstanding variable rate debt is recorded as an adjustment to interest expense and is therefore reflected as a component of operating cash flows.
Foreign Currency:The Company accounts for its Mexican operations using the Mexican peso as the functional currency and converts its financial statements from Mexican pesos to U.S. dollars. The cumulative loss on currency translation is recorded as a component of accumulatedAccumulated other comprehensive loss and approximated $44.7$50.3 million at August 28, 2010,25, 2012 and $45.5$36.4 million at August 29, 2009.
27, 2011.Self-Insurance Reserves:The Company retains a significant portion of the risks associated with workers’ compensation, employee health, general, products liability, property and vehicle insurance. Through various methods, which include analyses of historical trends and utilization of actuaries, the Company estimates the costs of these risks. The costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported. Estimates are based on calculations that consider historical lag and claim development factors. The long-term portions of these liabilities are recorded at ourthe Company’s estimate of their net present value.
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Deferred Rent:The Company recognizes rent expense on a straight-line basis over the course of the lease term, which includes any reasonably assured renewal periods, beginning on the date the Company takes physical possession of the property (see “Note M —– Leases”). Differences between this calculated expense and cash payments are recorded as a liability in accruedwithin the Accrued expenses and other and otherOther long-term liabilities captions in the accompanying Consolidated Balance Sheets.Sheets, based on the terms of the lease. Deferred rent approximated $67.6$86.9 million as of August 28, 2010,25, 2012, and $59.2$77.6 million as of August 29, 2009.
27, 2011.Financial Instruments: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 I —– Financing,” marketable securities is included in “Note F —– Marketable Securities,” and derivatives is included in “Note H —– Derivative Financial Instruments.”
Income Taxes:The Company accounts for income taxes under the liability 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. Our effective tax rate is based on income by tax jurisdiction, statutory rates, and tax saving initiatives available to usthe Company in the various jurisdictions in which we operate.
The Company recognizes liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires usthe Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company must determine the probability of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis or when new information becomes available to management. These reevaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, expirations due to statutes, and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to the tax accrual.
The Company classifies interest related to income tax liabilities, as income tax expense, and if applicable, penalties, are recognized as a component of incomeIncome tax expense. The income tax liabilities and accrued interest and penalties that are dueexpected to be payable within one year of the balance sheet date are presented as accruedwithin the Accrued expenses and other caption in the accompanying Consolidated Balance Sheets. The remaining portion of the income tax liabilities and accrued interest and penalties are presented as otherwithin the Other long-term liabilities caption in the accompanying Consolidated Balance Sheets because payment of cash is not anticipated within one year of the balance sheet date.
Sales and Use Taxes:Governmental authorities assess sales and use taxes on the sale of goods and services. The Company excludes taxes collected from customers in its reported sales results; such amounts are reflected as accruedincluded within the Accrued expenses and other caption until remitted to the taxing authorities.
Dividends:The Company currently does not pay a dividend on its common stock. The ability to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, any future payment of dividends would be dependent upon the Company’s financial condition, capital requirements, earnings and cash flow.
Revenue Recognition:The Company recognizes sales at the time the sale is made and the product is delivered to the customer. Revenue from sales are presented net of allowances for estimated sales returns, which are based on historical return rates.
A portion of the Company’sCompany's transactions include the sale of auto parts that contain a core component. The core component represents the recyclable portion of the auto part. Customers are not charged for the core component of the new part if a used core is returned at the point of sale of the new part; otherwise the Company charges customers a specified amount for the core component. The Company refunds that same amount upon the customer returning a used core to the store at a later date. The Company does not recognize sales or cost of sales for the core component of these transactions when a used part is returned or expected to be returned from the customer.
Vendor Allowances and Advertising Costs:The Company receives various payments and allowances from its vendors through a variety of programs and arrangements. Monies received from vendors include rebates, allowances and promotional funds. The amounts to be received are subject to the terms of the vendor agreements, which generally do not state an expiration date, but are subject to ongoing negotiations that may be impacted in the future based on changes in market conditions, vendor marketing strategies and changes in the profitability or sell-through of the related merchandise.
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Rebates and other miscellaneous incentives are earned based on purchases or product sales and are accrued ratably over the purchase or sale of the related product. These monies are generally recorded as a reduction of merchandise inventories and are recognized as a reduction to cost of sales as the related inventories are sold.
For arrangements that provide for reimbursement of specific, incremental, identifiable costs incurred by the Company in selling the vendors’ products, the vendor funds are recorded as a reduction to Operating, selling, general and administrative expenses in the period in which the specific costs were incurred.
The Company expenses advertising costs as incurred. Advertising expense, net of vendor promotional funds, was $74.7 million in fiscal 2012, $71.5 million in fiscal 2011, and $65.5 million in fiscal 2010, $72.1 million in fiscal 2009, and $86.2 million in fiscal 2008.2010. Vendor promotional funds, which reduced advertising expense, amounted to $19.7 million in fiscal 2012, $23.2 million in fiscal 2011, and $19.6 million in fiscal 2010, $9.7 million in fiscal 2009, and $2.9 in fiscal 2008.
2010.Cost of Sales and Operating, Selling, General and Administrative Expenses:The following illustrates the primary costs classified in each major expense category:
Total cost of merchandise sold, including:
Freight expenses associated with moving merchandise inventories from the Company’s vendors to the distribution centers and to the retail storesstores;
Vendor allowances that are not reimbursements for specific, incremental and identifiable costscosts;
Costs associated with operating the Company’s supply chain, including payroll and benefit costs, warehouse occupancy costs, transportation costs and depreciationdepreciation; and
Operating, Selling, General and Administrative Expenses
Payroll and benefit costs for store and store support employees;
Occupancy costs of store and store support facilities;
Depreciation and amortization related to retail and store support assets;
Transportation costs associated with commercial and hub deliveries;
Self insurance costs; and
Other administrative costs, such as credit card transaction fees, supplies, and travel and lodging
Warranty Costs:The Company or the vendors supplying its products provides the Company’s customers limited warranties on certain products that range from 30 days to lifetime. In most cases, the Company’s vendors are primarily responsible for warranty claims. Warranty costs relating to merchandise sold under warranty not covered by vendors are estimated and recorded as warranty obligations at the time of sale based on each product’s historical return rate. These obligations, which are often funded by vendor allowances, are recorded as a component of accrued expenses.within the Accrued expenses and other caption in the Consolidated Balance Sheets. For vendor allowances that are in excess of the related estimated warranty expense for the vendor’s products, the excess is recorded in inventory and recognized as a reduction to cost of sales as the related inventory is sold.
Shipping and Handling Costs:The Company does not generally charge customers separately for shipping and handling. Substantially all the costs the Company incurs to ship products to our stores are included in cost of sales.
Pre-opening Expenses:Pre-opening expenses, which consist primarily of payroll and occupancy costs, are expensed as incurred.
Earnings per Share:Basic earnings per share is based on the weighted average outstanding common shares. Diluted earnings per share is based on the weighted average outstanding common shares adjusted for the effect of common stock equivalents, which are primarily stock options. There were no30,000 stock options excluded from the diluted earnings per share computation because theythat would have been anti-dilutive atas of August 25, 2012. There were no options excluded for the years ended August 27, 2011 and August 28, 2010. There were approximately 30,000 shares excluded at August 29, 2009, and approximately 31,000 shares excluded at August 30, 2008.
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Share-Based Payments:Share-based payments include stock option grants and certain other transactions under the Company’s stock plans. The Company recognizes compensation expense for its share-based payments based on the fair value of the awards. See “Note B —– Share-Based Payments” for further discussion.
RecentRisk and Uncertainties: In fiscal 2012, one class of similar products accounted for 10 percent of the Company’s total revenues, and one vendor supplied more than 10 percent of the Company’s total purchases. No other class of similar products accounted for 10 percent or more of total revenues, and no other individual vendor provided more than 10 percent of total purchases.
Recently Adopted Accounting Pronouncements:In October 2009,December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13,2010-28,Revenue Arrangements with Multiple DeliverablesIntangibles – Goodwill and Other, which amends Accounting Standards Codification (“ASC”) Topic 605 (formerly Emerging Issues Task Force Issue No. 00-21,350,Revenue ArrangementsIntangibles – Goodwill and Other. ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with Multiple Deliverableszero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment analysis if it is more likely than not that a goodwill impairment exists based on a qualitative assessment of adverse factors. The Company adopted this standard in fiscal 2012, and it did not have an impact on the consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04,Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs), which amends ASC Topic 820,Fair Value Measurement. ThisThe purpose of ASU addresses2011-04 is to clarify the accountingintent about the application of existing fair value measurement and disclosure requirements and to change a particular principle or requirement for multiple-deliverable revenue arrangementsmeasuring fair value or for disclosing information about fair value measurements. The Company adopted this standard in the third quarter of fiscal 2012, and it had no impact on the consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05,Presentation of Comprehensive Income, which amends ASC Topic 220,Comprehensive Income. The objective of ASU 2011-05 is to enable vendorsimprove the comparability, consistency and transparency of financial reporting and to accountincrease the prominence of items reported in other comprehensive income. The update requires entities to present items of net income, items of other comprehensive income and total comprehensive income in one continuous statement or two separate consecutive statements, and entities are no longer allowed to present items of other comprehensive income in the statement of stockholders’ equity. ASU 2011-05 also states that reclassification adjustments between other comprehensive income and net income are presented separately on the face of the financial statements. However, the FASB issued ASU 2011-12 in December 2011, which deferred the effective date pertaining to these reclassification adjustments out of accumulated other comprehensive income until the FASB was able to reconsider operational concerns. All other requirements in ASU 2011-05 are not affected by ASU 2011-12. The Company has early adopted ASU 2011-05 effective August 25, 2012, and it had no impact on the consolidated financial statements.
Recently Issued Accounting Pronouncements: In August 2011, the FASB issued ASU 2011-08,Intangibles – Goodwill and Other,which amends ASC Topic 350,Intangibles – Goodwill and Other. The purpose of ASU 2011-08 is to simplify how an entity tests goodwill for deliverables separately ratherimpairment. Entities will assess qualitative factors to determine whether it is more likely than asnot that a combined unit. This ASUreporting unit’s fair value is less than its carrying value. In instances where the fair value is determined to be less than the carrying value, entities will be effective prospectively for revenue arrangements entered into commencing withperform the Company’s first fiscal quarter beginning August 29, 2010.two-step quantitative goodwill impairment test. The Company does not expect the provisions of ASU 2009-132011-08 to have a material effect on theimpact to its consolidated financial statements.
This update will be effective for the Company’s fiscal year ending August 31, 2013.Note B —– Share-Based Payments
Total share-based compensation expense (a component of operating,Operating, selling, general and administrative expenses) was $19.1$33.4 million related to stock options and share purchase plans for fiscal 2010,2012, $26.6 million for fiscal 2011, and $19.1 million for fiscal 2009, and $18.4 million for fiscal 2008.2010. As of August 28, 2010,25, 2012, share-based compensation expense for unvested awards not yet recognized in earnings is $16.9$25.6 million and will be recognized over a weighted average period of 2.5 years. Tax deductions in excess of recognized compensation cost are classified as a financing cash inflow.
On December 15, 2010, the Company’s stockholders approved the 2011 Equity Incentive Award Plan (the “2011 Plan”), allowing the Company to provide equity-based compensation to non-employee directors and employees for their service to AutoZone or its subsidiaries or affiliates. Under the 2011 Plan, participants may receive equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, deferred stock, stock payments, performance share awards and other incentive awards structured by the Board and the Compensation Committee of the Board. Prior to the Company’s adoption of the 2011 Plan, equity-based compensation was provided to employees under the 2006 Stock Option Plan and to non-employee directors under the 2003 Director Compensation Plan (the “2003 Comp Plan”) and the 2003 Director Stock Option Plan (the “2003 Option Plan”).
The Company grants options to purchase common stock to certain of its employees and directors under various plansits plan at prices equal to the market value of the stock on the date of grant. Options have a term of 10 years or 10 years and one day from grant date. Director options generally vest three years from grant date. Employee options generally vest in equal annual installments on the first, second, third and fourth anniversaries of the grant date. Employeesdate and directors generally have 30 or 90 days after the service relationship ends, or one year after death, to exercise all vested options. The fair value of each option grant is separately estimated for each vesting date. 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.
In addition to the 2011 Plan, on December 15, 2010, the Company adopted the 2011 Director Compensation Program (the “2011 Program”), which states that non-employee directors will receive their compensation in awards of restricted stock units under the 2011 Plan. Under the 2011 Program, restricted stock units are granted the first day of each calendar quarter. The number of restricted stock units granted each quarter is determined by dividing one-fourth of the amount of the annual retainer by the fair market value of the shares of common stock as of the grant date. The restricted stock units are fully vested on the date they are issued and are paid in shares of the Company’s common stock subsequent to the non-employee director ceasing to be a member of the Board.
The 2011 Program replaced the 2003 Comp Plan and the 2003 Option Plan. Under the 2003 Comp Plan, non-employee directors could receive no more than one-half of their director fees immediately in cash, and the remainder of the fees was required to be taken in common stock or stock appreciation rights. The director had the option to elect to receive up to 100% of the fees in stock or defer all or part of the fees in units with value equivalent to the value of shares of common stock as of the grant date. At August 25, 2012, the Company has $6.7 million accrued related to 18,241 outstanding units issued under the 2003 Comp Plan and prior plans, and there was $5.9 million accrued related to 19,709 outstanding units issued as of August 27, 2011. No additional shares of stock or units will be issued in future years under the 2003 Comp Plan.
Under the 2003 Option Plan, each non-employee director received an option grant on January 1 of each year, and each new non-employee director received an option to purchase 3,000 shares upon election to the Board, plus a portion of the annual directors’ option grant prorated for the portion of the year actually served. These stock option grants were made at the fair market value as of the grant date and generally vested three years from the grant date. There were 104,679 and 125,614 outstanding options under the 2003 Option Plan as of August 25, 2012 and August 27, 2011, respectively. No additional shares of stock or units will be issued in future years under the 2003 Option Plan.
The Company has estimated the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense.
The following table presents the weighted average for key assumptions used in determining the fair value of options granted and the related share-based compensation expense:
| | | | | | | | | | | | | |
| | | Year Ended | |
| | | August 28, | | | August 29, | | | August 30, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Expected price volatility | | | 31 | % | | | 28 | % | | | 24 | % |
| Risk-free interest rates | | | 1.8 | % | | | 2.4 | % | | | 4.1 | % |
| Weighted average expected lives in years | | | 4.3 | | | | 4.1 | | | | 4.0 | |
| Forfeiture rate | | | 10 | % | | | 10 | % | | | 10 | % |
| Dividend yield | | | 0 | % | | | 0 | % | | | 0 | % |
| | | | | | | | | | | | |
| | | Year Ended | |
| | | August 25,
2012 | | | August 27,
2011 | | | August 28,
2010 | |
Expected price volatility | | | 28 | % | | | 31 | % | | | 31 | % |
Risk-free interest rates | | | 0.7 | % | | | 1.0 | % | | | 1.8 | % |
Weighted average expected lives (in years) | | | 5.4 | | | | 4.3 | | | | 4.3 | |
Forfeiture rate | | | 10 | % | | | 10 | % | | | 10 | % |
Dividend yield | | | 0 | % | | | 0 | % | | | 0 | % |
The following methodologies were applied in developing the assumptions used in determining the fair value of options granted:
Expected price volatility—– This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. The Company uses actual historical changes in the market value of ourits stock to calculate the volatility assumption as it is management’s belief that this is the best indicator of future volatility. We calculateThe Company calculates daily market value changes from the date of grant over a past period representative of the expected life of the options to determine volatility. An increase in the expected volatility will increase compensation expense.
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Risk-free interest rate—– This is the U.S. Treasury rate for the week of the grant having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.
Expected lives—– This is the period of time over which the options granted are expected to remain outstanding and is based on historical experience. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Options granted have a maximum term of ten years or ten years and one day. An increase in the expected life will increase compensation expense.
Forfeiture rate—– This is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. This estimate is based on historical experience at the time of valuation and reduces expense ratably over the vesting period. An increase in the forfeiture rate will decrease compensation expense. This estimate is evaluated periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.
Dividend yield—– The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. An increase in the dividend yield will decrease compensation expense.
The weighted average grant date fair value of options granted was $94.71 during fiscal 2012, $58.57 during fiscal 2011, and $40.75 during fiscal 2010, $34.06 during fiscal 2009, and $30.28 during fiscal 2008.2010. The intrinsic value of options exercised was $65$176.5 million in fiscal 2010, $292012, $100.0 million in fiscal 2009,2011, and $29$64.8 million in fiscal 2008.2010. The total fair value of options vested was $21$32.6 million in fiscal 2010, $162012, $20.7 million in fiscal 20092011 and $18$20.7 million in fiscal 2008.
2010.The Company generally issues new shares when options are exercised. The following table summarizes information about stock option activity for the year ended August 28, 2010:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Weighted- | | | | |
| | | | | | | | | | | Average | | | | |
| | | | | | | Weighted | | | Remaining | | | | |
| | | | | | | Average | | | Contractual | | | Aggregate | |
| | | Number | | | Exercise | | | Term | | | Intrinsic Value | |
| | | of Shares | | | Price | | | ( in years) | | | (in thousands) | |
| | | | | | | | | | | | | | | | | |
| Outstanding — August 29, 2009 | | | 3,095,352 | | | $ | 98.73 | | | | | | | | | |
| Granted | | | 496,580 | | | | 143.49 | | | | | | | | | |
| Exercised | | | (683,548 | ) | | | 79.08 | | | | | | | | | |
| Canceled | | | (34,178 | ) | | | 116.49 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Outstanding — August 28, 2010 | | | 2,874,206 | | | | 110.93 | | | | 6.48 | | | $ | 298,115 | |
| | | | | | | | | | | | | | | | |
| Exercisable | | | 1,509,720 | | | | 94.12 | | | | 5.08 | | | | 181,970 | |
| | | | | | | | | | | | | | | | |
| Expected to vest | | | 1,228,037 | | | | 129.53 | | | | 8.03 | | | | 104,531 | |
| | | | | | | | | | | | | | | | |
| Available for future grants | | | 3,194,942 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Under the AutoZone, Inc. 2003 Director Compensation Plan, a non-employee director may receive no more than one-half of their director fees immediately in cash, and the remainder of the fees must be taken in common stock. The director may elect to receive up to 100% of the fees in stock or defer all or part of the fees in units (“Director Units”) with value equivalent to the value of shares of common stock as of the grant date. At August 28, 2010, the Company has $4.1 million accrued related to 19,228 Director Units issued under the current and prior plans with 76,415 shares of common stock reserved for future issuance under the current plan. At August 29, 2009, the Company has $2.6 million accrued related to 17,506 Director Units issued under the current and prior plans.
Under the AutoZone, Inc. 2003 Director Stock Option Plan (the “Director Stock Option Plan”), each non-employee director receives an option grant on January 1 of each year, and each new non-employee director receives an option to purchase 3,000 shares upon election to the Board of Directors, plus a portion of the annual directors’ option grant prorated for the portion of the year actually served in office. Under the Director Compensation Program, each non-employee director may choose between two pay options, and the number of stock options a director receives under the Director Stock Option Plan depends on which pay option the director
25, 2012:
| | | | | | | | | | | | | | | | |
| | | Number
of Shares | | | Weighted
Average
Exercise
Price | | | Weighted-
Average
Remaining
Contractual
Term
(in years) | | | Aggregate
Intrinsic
Value
(in
thousands) | |
Outstanding – August 27, 2011 | | | 2,630,194 | | | $ | 132.32 | | | | | | | | | |
Granted | | | 407,130 | | | | 330.12 | | | | | | | | | |
Exercised | | | (712,524 | ) | | | 107.84 | | | | | | | | | |
Canceled | | | (62,121 | ) | | | 227.53 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding – August 25, 2012 | | | 2,262,679 | | | | 173.01 | | | | 6.40 | | | $ | 435,062 | |
| | | | | | | | | | | | | | | | |
Exercisable | | | 1,236,652 | | | | 120.55 | | | | 5.03 | | | | 302,402 | |
| | | | | | | | | | | | | | | | |
Expected to vest | | | 1,026,027 | | | | 236.25 | | | | 8.05 | | | | 118,969 | |
| | | | | | | | | | | | | | | | |
Available for future grants | | | 2,420,546 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
45
chooses. Directors who elect to be paid only the base retainer receive, on January 1 during their first two years of services as a director, an option to purchase 3,000 shares of AutoZone common stock. After the first two years, such directors receive, on January 1 of each year, an option to purchase 1,500 shares of common stock, and each such director who owns common stock or Director Units worth at least five times the base retainer receive an additional option to purchase 1,500 shares. Directors electing to be paid a supplemental retainer in addition to the base retainer receive, on January 1 during their first two years of service as a director, an option to purchase 2,000 shares of AutoZone common stock. After the first two years, such directors receive an option to purchase 500 shares of common stock, and each such director who owns common stock or Director Units worth at least five times the base retainer receive an additional option to purchase 1,500 shares. These stock option grants are made at the fair market value as of the grant date. At August 28, 2010, there are 137,016 outstanding options with 210,484 shares of common stock reserved for future issuance under this plan.
The Company recognized
$1.0$1.5 million in expense related to the discount on the selling of shares to employees and executives under various share purchase plans in fiscal
2010, $0.92012, $1.4 million in fiscal
20092011 and
$0.7$1.0 million in fiscal
2008.2010. The
employee stock purchase plan,Sixth Amended and Restated AutoZone, Inc. Employee Stock Purchase Plan (the “Employee Plan”), which is qualified under Section 423 of the Internal Revenue Code, permits all eligible employees to purchase AutoZone’s common stock at 85% of the lower of the market price of the common stock on the first day or last day of each calendar quarter through payroll deductions. Maximum permitted annual purchases are $15,000 per employee or 10 percent of compensation, whichever is less. Under the
plan,Employee Plan, 19,403 shares were sold to employees in fiscal 2012, 21,608 shares were sold to employees in fiscal 2011, and 26,620 shares were sold to employees in fiscal
2010, 29,1472010. The Company repurchased 24,113 shares
were sold to employeesat fair value in fiscal
2009, and 36,1472012, 30,864 shares
were sold to employeesat fair value in fiscal
2008. The Company repurchased2011, and 30,617 shares at fair value in fiscal 2010
37,190 shares at fair value in fiscal 2009, and 39,235 shares at fair value in fiscal 2008 from employees electing to sell their stock. Issuances of shares under the
employee stock purchase plansEmployee Plan are netted against repurchases and such repurchases are not included in share repurchases disclosed in “Note K
—– Stock Repurchase Program.” At August
28, 2010, 293,98325, 2012, 252,972 shares of common stock were reserved for future issuance under
this plan. the Employee Plan.Once executives have reached the maximum purchases under the employee stock purchase plan,Employee Plan, the Fifth Amended and Restated Executive Stock Purchase Plan (the “Executive Plan”) permits all eligible executives to purchase AutoZone’s common stock up to 25 percent of his or her annual salary and bonus. Purchases under this planthe Executive Plan were 3,937 shares in fiscal 2012, 1,719 shares in fiscal 2011, and 1,483 shares in fiscal 2010, 1,705 shares in fiscal 2009, and 1,793 shares in fiscal 2008.2010. At August 28, 2010, 258,05625, 2012, 252,400 shares of common stock were reserved for future issuance under this plan.
the Executive Plan.Note C —– Accrued Expenses and Other
Accrued expenses and other consisted of the following:
| | | | | | | | | |
| | | August 28, | | | August 29, | |
| (in thousands) | | 2010 | | | 2009 | |
| | | | | | | | | |
| Medical and casualty insurance claims (current portion) | | $ | 60,955 | | | $ | 65,024 | |
| Accrued compensation, related payroll taxes and benefits | | | 134,830 | | | | 121,192 | |
| Property, sales, and other taxes | | | 102,364 | | | | 92,065 | |
| Accrued interest | | | 31,091 | | | | 32,448 | |
| Accrued gift cards | | | 22,013 | | | | 16,337 | |
| Accrued sales and warranty returns | | | 14,679 | | | | 12,432 | |
| Capital lease obligations | | | 21,947 | | | | 16,735 | |
| Other | | | 44,489 | | | | 25,038 | |
| | | | | | | |
| | | $ | 432,368 | | | $ | 381,271 | |
| | | | | | | |
| | | | | | | | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | |
Medical and casualty insurance claims (current portion) | | $ | 63,484 | | | $ | 55,896 | |
Accrued compensation, related payroll taxes and benefits | | | 151,669 | | | | 151,419 | |
Property, sales, and other taxes | | | 97,542 | | | | 89,675 | |
Accrued interest | | | 39,220 | | | | 33,811 | |
Accrued gift cards | | | 29,060 | | | | 27,406 | |
Accrued sales and warranty returns | | | 17,276 | | | | 16,269 | |
Capital lease obligations | | | 29,842 | | | | 25,296 | |
Other | | | 49,992 | | | | 49,555 | |
| | | | | | | | |
| | $ | 478,085 | | | $ | 449,327 | |
| | | | | | | | |
The Company retains a significant portion of the insurance risks associated with workers’ compensation, employee health, general, products liability, property and vehicle insurance. A portion of these self-insured losses is managed through a wholly owned insurance captive. The Company maintains certain levels for stop-loss coverage for each self-insured plan in order to limit its liability for large claims. The limits are per claim and are $1.5 million for workers’ compensation and property, $0.5 million for employee health, and $1.0 million for general, products liability, and vehicle.
46
Note D —– Income Taxes
The provision for income tax expense consisted of the following:
| | | | | | | | | | | | | |
| | | Year Ended | |
| | | August 28, | | | August 29, | | | August 30, | |
| (in thousands) | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Current: | | | | | | | | | | | | |
| Federal | | $ | 397,062 | | | $ | 303,929 | | | $ | 285,516 | |
| State | | | 34,155 | | | | 26,450 | | | | 20,516 | |
| | | | | | | | | | |
| | | | 431,217 | | | | 330,379 | | | | 306,032 | |
| | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | |
| Federal | | | (3,831 | ) | | | 46,809 | | | | 51,997 | |
| State | | | (5,192 | ) | | | (491 | ) | | | 7,754 | |
| | | | | | | | | | |
| | | | (9,023 | ) | | | 46,318 | | | | 59,751 | |
| | | | | | | | | | |
| Income tax expense | | $ | 422,194 | | | $ | 376,697 | | | $ | 365,783 | |
| | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | | | August 28,
2010 | |
Current: | | | | | | | | | | | | |
Federal | | $ | 449,670 | | | $ | 391,132 | | | $ | 397,062 | |
State | | | 47,386 | | | | 39,473 | | | | 34,155 | |
| | | | | | | | | | | | |
| | | 497,056 | | | | 430,605 | | | | 431,217 | |
Deferred: | | | | | | | | | | | | |
Federal | | | 28,379 | | | | 49,698 | | | | (3,831 | ) |
State | | | (2,822 | ) | | | (5,031 | ) | | | (5,192 | ) |
| | | | | | | | | | | | |
| | | 25,557 | | | | 44,667 | | | | (9,023 | ) |
| | | | | | | | | | | | |
Income tax expense | | $ | 522,613 | | | $ | 475,272 | | | $ | 422,194 | |
| | | | | | | | | | | | |
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 28, | | | August 29, | | | August 30, | |
| (in thousands) | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Federal tax at statutory U.S. income tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
| State income taxes, net | | | 1.6 | % | | | 1.6 | % | | | 1.8 | % |
| Other | | | (0.2 | %) | | | (0.2 | %) | | | (0.5 | %) |
| | | | | | | | | | |
| Effective tax rate | | | 36.4 | % | | | 36.4 | % | | | 36.3 | % |
| | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | | | August 28,
2010 | |
Federal tax at statutory U.S. income tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
State income taxes, net | | | 2.0 | % | | | 1.7 | % | | | 1.6 | % |
Other | | | (1.0 | %) | | | (0.8 | %) | | | (0.2 | %) |
| | | | | | | | | | | | |
Effective tax rate | | | 36.0 | % | | | 35.9 | % | | | 36.4 | % |
| | | | | | | | | | | | |
Significant components of the Company’sCompany's deferred tax assets and liabilities were as follows:
| | | | | | | | | |
| | | August 28, | | | August 29, | |
| (in thousands) | | 2010 | | | 2009 | |
| Deferred tax assets: | | | | | | | | |
| Domestic net operating loss and credit carryforwards | | $ | 25,781 | | | $ | 23,119 | |
| Foreign net operating loss and credit carryforwards | | | — | | | | 1,369 | |
| Insurance reserves | | | 20,400 | | | | 14,769 | |
| Accrued benefits | | | 50,991 | | | | 32,976 | |
| Pension | | | 34,965 | | | | 26,273 | |
| Other | | | 34,764 | | | | 35,836 | |
| | | | | | | |
| Total deferred tax assets | | | 166,901 | | | | 134,342 | |
| Less: Valuation allowances | | | (7,085 | ) | | | (7,116 | ) |
| | | | | | | |
| | | | 159,816 | | | | 127,226 | |
| | | | | | | | | |
| Deferred tax liabilities: | | | | | | | | |
| Property and equipment | | | (35,714 | ) | | | (36,472 | ) |
| Inventory | | | (205,000 | ) | | | (192,715 | ) |
| Other | | | (19,850 | ) | | | (14,840 | ) |
| | | | | | | |
| | | | (260,564 | ) | | | (244,027 | ) |
| | | | | | | |
| Net deferred tax liability | | $ | (100,748 | ) | | $ | (116,801 | ) |
| | | | | | | |
| | | | | | | | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | |
Deferred tax assets: | | | | | | | | |
Net operating loss and credit carryforwards | | $ | 36,605 | | | $ | 31,772 | |
Insurance reserves | | | 18,185 | | | | 17,542 | |
Accrued benefits | | | 63,320 | | | | 61,436 | |
Pension | | | 43,904 | | | | 30,967 | |
Other | | | 41,658 | | | | 39,878 | |
| | | | | | | | |
Total deferred tax assets | | | 203,672 | | | | 181,595 | |
Less: Valuation allowances | | | (9,532 | ) | | | (7,973 | ) |
| | | | | | | | |
Net deferred tax assets | | | 194,140 | | | | 173,622 | |
Deferred tax liabilities: | | | | | | | | |
Property and equipment | | | (67,480 | ) | | | (64,873 | ) |
Inventory | | | (244,414 | ) | | | (220,234 | ) |
Other | | | (31,437 | ) | | | (44,303 | ) |
| | | | | | | | |
Total deferred tax liabilities | | | (343,331 | ) | | | (329,410 | ) |
| | | | | | | | |
Net deferred tax liability | | $ | (149,191 | ) | | $ | (155,788 | ) |
| | | | | | | | |
Deferred taxes are not provided for temporary differences of approximately $91.1$195.8 million at August 28, 2010,25, 2012, and $47.1$140.2 million ofat August 29, 2009,27, 2011, representing earnings of non-U.S. subsidiaries that are intended to be permanently reinvested. Computation of the potential deferred tax liability associated with these undistributed earnings and other basis differences is not practicable.
47
At August 28, 2010,25, 2012 and August 29, 2009,27, 2011, the Company had deferred tax assets of $8.2$7.8 million and $8.4$8.0 million from federal tax operating losses (“NOLs”) of $23.4$22.2 million and $24.0$22.8 million, and deferred tax assets of $1.6$2.1 million and $1.3$1.1 million from state tax NOLs of $35.5$46.6 million and $24.6$22.5 million, respectively. At August 28, 2010, the Company had no deferred tax assets from Non-U.S. NOLs. At25, 2012 and August 29, 2009,27, 2011, the Company had deferred tax assets of $1.3$2.4 million and $1.5 million from Non-U.S. NOLs of $3.3 million.$7.7 million and $5.1 million, respectively. The federal and state NOLs expire between fiscal 20112013 and fiscal 2025.2031. At August 28, 201025, 2012 and August 29, 2009,27, 2011, the Company had a valuation allowance of $6.8$9.1 million and $6.8$8.0 million, respectively, for certain federal, state, and stateNon-U.S. NOLs resulting primarily from annual statutory usage limitations. At August 28, 201025, 2012 and August 29, 2009,27, 2011, the Company had deferred tax assets of $16.0$24.3 million and $13.5$21.2 million, respectively, for federal, state, and Non-U.S. income tax credit carryforwards. Certain tax credit carryforwards have no expiration date and others will expire in fiscal 20112013 through fiscal 2030.2026. At August 28, 2010 and August 29, 2009,25, 2012, the Company had a valuation allowance of $0.3 million and $0.3$0.4 million for credits subject to such expiration periods, respectively.
ASC Topic 740 (formerly FASB Statement No. 109,Accounting for Income Taxes, and FASB Interpretation No. 48,Accounting for Uncertain Tax Positions — an Interpretation of FASB Statement No. 109) prescribes a recognition threshold that aNon-U.S. tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. The adoption of portions of ASC Topic 740 resulted in a decrease to the beginning balance of retained earnings of $26.9 million during fiscal 2008. Including this cumulative effect amount, the liability recorded for total unrecognized tax benefits upon adoption at August 26, 2007, was $49.2 million.
credits.A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | | |
| | | August 28, | | | August 29, | |
| (in thousands) | | 2010 | | | 2009 | |
| | | | | | | | | |
| Beginning balance | | $ | 44,192 | | | $ | 40,759 | |
| Additions based on tax positions related to the current year | | | 16,802 | | | | 5,511 | |
| Additions for tax positions of prior years | | | 2,125 | | | | 9,567 | |
| Reductions for tax positions of prior years | | | (6,390 | ) | | | (5,679 | ) |
| Reductions due to settlements | | | (16,354 | ) | | | (2,519 | ) |
| Reductions due to statue of limitations | | | (1,821 | ) | | | (3,447 | ) |
| | | | | | | |
| Ending balance | | $ | 38,554 | | | $ | 44,192 | |
| | | | | | | |
| | | | | | | | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | |
Beginning balance | | $ | 29,906 | | | $ | 38,554 | |
Additions based on tax positions related to the current year | | | 6,869 | | | | 6,205 | |
Additions for tax positions of prior years | | | 44 | | | | 11,787 | |
Reductions for tax positions of prior years | | | (1,687 | ) | | | (20,998 | ) |
Reductions due to settlements | | | (4,586 | ) | | | (3,829 | ) |
Reductions due to statute of limitations | | | (2,831 | ) | | | (1,813 | ) |
| | | | | | | | |
Ending balance | | $ | 27,715 | | | $ | 29,906 | |
| | | | | | | | |
Included in the August 28, 2010,25, 2012, balance is $16.7$18.1 million of unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate.
The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. The Company had $7.9$4.1 million and $12.4$5.2 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at August 28, 201025, 2012 and August 29, 2009,27, 2011, respectively.
The major jurisdictions where the Company files income tax returns are the U.S.United States and Mexico. With few exceptions, tax returns filed for tax years 20062008 through 20092011 remain open and subject to examination by the relevant tax authorities. The Company is typically engaged in various tax examinations at any given time, both by U.S.U. S. federal and state taxing jurisdictions and Mexican tax authorities.jurisdictions. As of August 28, 2010,25, 2012, the Company estimates that the amount of unrecognized tax benefits could be reduced by approximately $23.1$6.0 million over the next twelve months as a result of tax audit closings, settlements, and the expiration of statutes to examine such returns in various jurisdictions. While the Company believes that it hasis adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be determined at this time and could result in final settlements that differ from current estimates.
48
Note E —– Fair Value Measurements
Effective August 31, 2008, theThe Company has adopted ASC Topic 820, (formerly FASB Statement No. 157,Fair Value Measurements)Measurement, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosure requirements about fair value measurements. This standard 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. ASC Topic 820 establishes a framework for measuring fair value by creating a hierarchy of valuation inputs used to measure fair value, and although it does not require additional fair value measurements, it applies to other accounting pronouncements that require or permit fair value measurements.
The hierarchy prioritizes the inputs into three broad levels:
Level 1 inputs— unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.
Level 2 inputs— inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates.
Level 3 inputs— unobservable inputs for the asset or liability.
Financial Assets & Liabilities Measured at Fair Value on a Recurring Basis
The Company’s assets and liabilities measured at fair value on a recurring basis were as follows:
| | | | | | | | | | | | | | | | | |
| | | August 28, 2010 | |
| (in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Fair Value | |
| | | | | | | | | | | | | | | | | |
| Other current assets | | $ | 11,307 | | | $ | 4,996 | | | $ | — | | | $ | 16,303 | |
| Other long-term assets | | | 47,725 | | | | 8,673 | | | | — | | | | 56,398 | |
| Accrued expenses and other | | | — | | | | 9,979 | | | | — | | | | 9,979 | |
| | | | | | | | | | | | | |
| | | $ | 59,032 | | | $ | 23,648 | | | $ | — | | | $ | 82,680 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | August 29, 2009 | |
| (in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Fair Value | |
| | | | | | | | | | | | | | | | | |
| Other current assets | | $ | 11,915 | | | $ | — | | | $ | — | | | $ | 11,915 | |
| Other long-term assets | | | 58,123 | | | | — | | | | — | | | | 58,123 | |
| | | | | | | | | | | | | |
| | | $ | 70,038 | | | $ | — | | | $ | — | | | $ | 70,038 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | August 25, 2012 | |
(in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Fair Value | |
Other current assets | | $ | 22,515 | | | $ | — | | | $ | — | | | $ | 22,515 | |
Other long-term assets | | | 40,424 | | | | 13,275 | | | | — | | | | 53,699 | |
| | | | | | | | | | | | | | | | |
| | $ | 62,939 | | | $ | 13,275 | | | $ | — | | | $ | 76,214 | |
| | | | | | | | | | | | | | | | |
Accrued expenses and other | | $ | — | | | $ | (4,915 | ) | | $ | — | | | $ | (4,915 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | August 27, 2011 | |
(in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Fair Value | |
Other current assets | | $ | 11,872 | | | $ | — | | | $ | — | | | $ | 11,872 | |
Other long-term assets | | | 55,390 | | | | 5,869 | | | | — | | | | 61,259 | |
| | | | | | | | | | | | | | | | |
| | $ | 67,262 | | | $ | 5,869 | | | $ | — | | | $ | 73,131 | |
| | | | | | | | | | | | | | | | |
At August 28, 2010,25, 2012, the fair value measurement amounts for assets and liabilities recorded in the accompanying Consolidated Balance Sheet consisted of short-term marketable securities of $16.3$22.5 million, which are included within otherOther current assets,assets; long-term marketable securities of $56.4$53.7 million, which are included in otherOther long-term assets,assets; and cash flow hedging instruments of $10.0$4.9 million, which are included within accruedAccrued expenses and other. The Company’s marketable 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. Reference “Note H — Derivative Financial Instruments” for further informationA discussion on how the Company’s cash flow hedges are valued.
The fair value of the Company’s debtvalued is disclosedincluded in “Note I — Financing” andH – Derivative Financial Instruments”, while the fair value of the Company’s pension plan assets are disclosed in “Note L —– Pension and Savings Plans”.
49
Non-financial assets could be required to be measured at fair value on a non-recurring basis in certain circumstances, including the event of impairment. The assets could include assets acquired in an acquisition as well as property, plant and equipment that are determined to be impaired. During fiscal 2012 and fiscal 2011, the Company did not have any significant non-financial assets measured at fair value on a non-recurring basis in periods subsequent to initial recognition.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. The fair value of the Company’s debt is disclosed in “Note I – Financing”.Note F —– Marketable Securities
The Company’s basis for determining the cost of a security sold is the “Specific Identification Model”. Unrealized gains (losses) on marketable securities are recorded in accumulatedAccumulated other comprehensive loss. The Company’s available-for-sale marketable securities consisted of the following:
| | | | | | | | | | | | | | | | | |
| | | August 28, 2010 | |
| | | Amortized | | | Gross | | | Gross | | | | |
| | | Cost | | | Unrealized | | | Unrealized | | | | |
| (in thousands) | | Basis | | | Gains | | | Losses | | | Fair Value | |
| | | | | | | | | | | | | | | | | |
| Corporate securities | | $ | 28,707 | | | $ | 490 | | | $ | (1 | ) | | $ | 29,196 | |
| Government bonds | | | 24,560 | | | | 283 | | | | — | | | | 24,843 | |
| Mortgage-backed securities | | | 8,603 | | | | 192 | | | | — | | | | 8,795 | |
| Asset-backed securities and other | | | 9,831 | | | | 47 | | | | (11 | ) | | | 9,867 | |
| | | | | | | | | | | | | |
| | | $ | 71,701 | | | $ | 1,012 | | | $ | (12 | ) | | $ | 72,701 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | August 29, 2009 | |
| | | Amortized | | | Gross | | | Gross | | | | |
| | | Cost | | | Unrealized | | | Unrealized | | | | |
| (in thousands) | | Basis | | | Gains | | | Losses | | | Fair Value | |
| | | | | | | | | | | | | | | | | |
| Corporate securities | | $ | 28,302 | | | $ | 654 | | | $ | (5 | ) | | $ | 28,951 | |
| Government bonds | | | 18,199 | | | | 283 | | | | — | | | | 18,482 | |
| Mortgage-backed securities | | | 14,772 | | | | 366 | | | | (119 | ) | | | 15,019 | |
| Asset-backed securities and other | | | 7,589 | | | | 207 | | | | (210 | ) | | | 7,586 | |
| | | | | | | | | | | | | |
| | | $ | 68,862 | | | $ | 1,510 | | | $ | (334 | ) | | $ | 70,038 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | August 25, 2012 | |
(in thousands) | | Amortized
Cost
Basis | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Fair Value | |
Corporate securities | | $ | 26,215 | | | $ | 307 | | | $ | — | | | $ | 26,522 | |
Government bonds | | | 20,790 | | | | 117 | | | | (1 | ) | | | 20,906 | |
Mortgage-backed securities | | | 4,369 | | | | 17 | | | | (19 | ) | | | 4,367 | |
Asset-backed securities and other | | | 24,299 | | | | 120 | | | | — | | | | 24,419 | |
| | | | | | | | | | | | | | | | |
| | $ | 75,673 | | | $ | 561 | | | $ | (20 | ) | | $ | 76,214 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | August 27, 2011 | |
(in thousands) | | Amortized
Cost
Basis | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Fair Value | |
Corporate securities | | $ | 26,261 | | | $ | 229 | | | $ | (45 | ) | | $ | 26,445 | |
Government bonds | | | 29,464 | | | | 343 | | | | — | | | | 29,807 | |
Mortgage-backed securities | | | 4,291 | | | | 55 | | | | — | | | | 4,346 | |
Asset-backed securities and other | | | 12,377 | | | | 156 | | | | — | | | | 12,533 | |
| | | | | | | | | | | | | | | | |
| | $ | 72,393 | | | $ | 783 | | | $ | (45 | ) | | $ | 73,131 | |
| | | | | | | | | | | | | | | | |
The debt securities held at August 28, 2010,25, 2012, had effective maturities ranging from less than one year to approximately 3 years. The Company did not realize any material gains or losses on its sale of marketable securities during fiscal 2012, fiscal 2011, or fiscal 2010.
The Company holds twosix securities that are in an unrealized loss position of approximately $12$20 thousand at August 28, 2010.25, 2012. The Company has the intent and ability to hold these investments until recovery of fair value or maturity, and does not deem the investments to be impaired on an other than temporary basis. In evaluating whether the securities are deemed to be impaired on an other than temporary basis, the Company considers factors such as the duration and severity of the loss position, the credit worthiness of the investee, the term to maturity and our intent and ability to hold the investments until maturity or until recovery of fair value.
Note G —– Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss includes certain adjustments to pension liabilities, foreign currency translation adjustments, certain activity for interest rate swaps and treasury rate locks that qualify as cash flow hedges and unrealized gains (losses) on available-for-sale securities.
50
Changes in accumulatedAccumulated other comprehensive loss consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Unrealized | | | | | | | | | | |
| | | | | | | | | | | Loss (Gain) | | | Net Loss | | | Reclassification | | | | |
| | | Pension | | | Foreign | | | on | | | (Gain) on | | | of Net Gains on | | | Accumulated | |
| | | Liability | | | Currency | | | Marketable | | | Outstanding | | | Derivatives into | | | Other | |
| | | Adjustments, | | | Translation | | | Securities, | | | Derivatives, | | | Earnings, net of | | | Comprehensive | |
| (in thousands) | | net of taxes | | | Adjustments | | | net of taxes | | | net of taxes | | | taxes | | | Loss | |
| Balance at August 30, 2008 | | $ | 4,270 | | | $ | 1,798 | | | $ | (186 | ) | | $ | 2,744 | | | $ | (4,491 | ) | | $ | 4,135 | |
| Fiscal 2009 activity | | | 46,945 | | | | 43,655 | | | | (568 | ) | | | (2,744 | ) | | | 612 | | | | 87,900 | |
| | | | | | | | | | | | | | | | | | | |
| Balance at August 29, 2009 | | | 51,215 | | | | 45,453 | | | | (754 | ) | | | — | | | | (3,879 | ) | | | 92,035 | |
| Fiscal 2010 activity | | | 8,144 | | | | (705 | ) | | | 104 | | | | 6,278 | | | | 612 | | | | 14,433 | |
| | | | | | | | | | | | | | | | | | | |
| Balance at August 28, 2010 | | $ | 59,359 | | | $ | 44,748 | | | $ | (650 | ) | | $ | 6,278 | | | $ | (3,267 | ) | | $ | 106,468 | |
| | | | | | | | | | | | | | | | | | | |
The | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Pension
Liability | | | Foreign
Currency (1) | | | Net
Unrealized
Gain on
Securities | | | Derivatives | | | Total | |
Balance at August 28, 2010 | | $ | 59,359 | | | $ | 44,748 | | | $ | (650 | ) | | $ | 3,011 | | | $ | 106,468 | |
Fiscal 2011 activity | | | 17,346 | | | | (8,347 | ) | | | 171 | | | | 4,053 | | | | 13,223 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at August 27, 2011 | | | 76,705 | | | | 36,401 | | | | (479 | ) | | | 7,064 | | | | 119,691 | |
Fiscal 2012 activity | | | 17,262 | | | | 13,866 | | | | 128 | | | | 1,066 | | | | 32,322 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at August 25, 2012 | | $ | 93,967 | | | $ | 50,267 | | | $ | (351 | ) | | $ | 8,130 | | | $ | 152,013 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | Foreign currency is not shown net of deferred tax as earnings of non-U.S. subsidiaries are intended to be permanently reinvested. |
During fiscal 2009 pension adjustment of $46.9 million reflects actuarial losses not yet reflected in2012, the periodic pension cost caused primarily by the significant losses on pension assets in fiscal 2009. The foreign currency translation adjustment of $43.7 million during fiscal 2009Company was attributableparty to the weakeningfour treasury rate locks. Two of the Mexican Peso against the US Dollar, whichtreasury rate locks were settled during third quarter of fiscal 2012, resulting in a loss of $2.8 million. The remaining two treasury rate locks are outstanding as of August 29, 2009, had decreased25, 2012, and have a liability balance of $4.9 million at the balance sheet date. The net losses on the four treasury rate locks are partially offset by approximately 30% when compared to August 30, 2008.
net losses from prior derivatives being amortized into Interest expense of $1.9 million. The net derivative activity in fiscal 2011 reflects net losses on three forward starting swaps, resulting in a loss of $5.4 million, offset by net losses from prior derivatives being amortized into Interest expense of $1.4 million.Note H —– Derivative Financial Instruments
Cash Flow Hedges
The Company periodically uses derivatives to hedge exposures to interest rates. The Company does not hold or issue financial instruments for trading purposes. For transactions that meet the hedge accounting criteria, the Company formally designates and documents the instrument as a hedge at inception and quarterly thereafter assesses the hedges to ensure they are effective in offsetting changes in the cash flows of the underlying exposures. Derivatives are recorded in the Company’s Consolidated Balance Sheet at fair value, determined using available market information or other appropriate valuation methodologies. In accordance with ASC Topic 815, (formerly FASB Statement No. 133,Accounting for Derivative InstrumentsDerivatives and Hedging Activitiesand FASB Statement No. 161,Disclosures about Derivative Instruments and Hedging Activities), the effective portion of a financial instrument’s change in fair value is recorded in accumulatedAccumulated other comprehensive loss for derivatives that qualityqualify as cash flow hedges and any ineffective portion of an instrument’s change in fair value is recognized in earnings.
At August 28, 2010,During the fourth quarter of fiscal 2012, the Company heldentered into two forward starting swaps,treasury rate locks, each with a notional amount of $150$100 million. These agreements, which are set to expire inon November 2010,1, 2012, are cash flow hedges used to hedge the exposure to variability in future cash flows resulting from changes in variable interest rates relating to an anticipated debt transactions.transaction. The fixed rates of the hedges are 3.15%2.07% and 3.13%1.92% and are benchmarked based on the 10-year U.S. treasury notes. It is expected that upon settlement of these agreements, the realized gain or loss will be deferred in Accumulated other comprehensive loss and reclassified to Interest expense over the life of the underlying debt. As of August 25, 2012, no ineffectiveness was recognized in earnings.
During the third quarter of fiscal 2012, the Company entered into two treasury rate locks. These agreements were designated as cash flow hedges and were used to hedge the exposure to variability in future cash flows resulting from changes in variable interest rates related to the $500 million Senior Note debt issuance in April 2012. The treasury rate locks had notional amounts of $300 million and $100 million with associated fixed rates of 2.09% and 2.07% respectively. The locks were benchmarked based on the 10-year U.S. treasury notes. These locks expired on April 20, 2012 and resulted in a loss of $2.8 million, which has been deferred in Accumulated other comprehensive loss and will be reclassified to Interest expense over the life of the underlying debt. The hedges remained highly effective until they expired, and no ineffectiveness was recognized in earnings.
During the first quarter of fiscal 2011, the Company was party to three forward starting swaps, of which two were entered into during the fourth quarter of fiscal 2010 and one was entered into during the first quarter of fiscal 2011. These agreements were designated as cash flow hedges and were used to hedge the exposure to variability in future cash flows resulting from changes in variable interest rates related to the $500 million Senior Note debt issuance during the first quarter of fiscal 2011. The swaps had notional amounts of $150 million, $150 million and $100 million with associated fixed rates of 3.15%, 3.13%, and 2.57%, respectively. The swaps were benchmarked based on the 3-month London InterBank Offered Rate (“LIBOR”). It is expected that upon settlementThese swaps expired in November 2010 and resulted in a loss of the agreements, the realized gain or loss will be$11.7 million, which has been deferred in accumulatedAccumulated other comprehensive loss and will be reclassified to interestInterest expense over the life of the underlying debt.
The hedges remained highly effective until they expired, and no ineffectiveness was recognized in earnings.At August 28, 2010,25, 2012, the Company had $6.3 million, net of tax, recorded in accumulated other comprehensive loss related to net unrealized losses associated with these derivatives. For the fiscal year ended August 28, 2010, the Company’s forward starting swaps were determined to be highly effective, and no ineffective portion was recognized in earnings. The fair values of the interest rate hedge instruments at August 28, 2010 was a liability of $10.0 million recorded within the accrued expenses and other caption in the accompanying Consolidated Balance Sheet.
During 2009, the Company was party to an interest rate swap agreement related to its $300 million term floating rate loan, which bore interest based on the three month LIBOR and matured in December 2009. Under this agreement, which was accounted for as a cash flow hedge, the interest rate on the term loan was effectively fixed for its entire term at 4.4% and effectiveness was measured each reporting period. During August 2009, the Company elected to prepay, without penalty, the entire $300 million term loan. The outstanding liability associated with the interest rate swap totaled $3.6 million, and was immediately expensed in earnings upon termination. The Company recognized $5.9 million as increases to interest expense during 2009 related to payments associated with the interest rate swap agreement prior to its termination.
51
At August 28, 2010, the Company had $3.3$8.0 million recorded in accumulatedAccumulated other comprehensive loss related to net realized gainslosses associated with terminated interest rate swap and treasury rate lock derivatives which were designated as hedges.hedging instruments. Net gainslosses are amortized into earningsInterest expense over the remaining life of the associated debt. ForDuring the fiscal yearsyear ended August 28, 2010, and August 29, 2009,25, 2012, the Company reclassified $612 thousand$1.9 million of net gainslosses from accumulatedAccumulated other comprehensive loss to interest expense in each year.
Derivatives not designated as Hedging Instruments
Interest expense. In the fiscal year ended August 27, 2011, the Company reclassified $1.4 million of net losses from Accumulated other comprehensive loss to Interest expense. The Company is dependent upon diesel fuelexpects to operate its vehicles used inreclassify $904 thousand of net losses from Accumulated other comprehensive loss to Interest expense over the Company’s distribution network to deliver parts to its stores and unleaded fuel for delivery of parts from its stores to its commercial customers or other stores. Fuel is not a material component of the Company’s operating costs; however, the Company attempts to secure fuel at the lowest possible cost and to reduce volatility in its operating costs. Because unleaded and diesel fuel include transportation costs and taxes, there are limited opportunities to hedge this exposure directly.
The Company had no fuel hedges during fiscal 2010. During fiscal year 2009, the Company used a derivative financial instrument based on the Reformulated Gasoline Blendstock for Oxygen Blending index to economically hedge the commodity cost associated with its unleaded fuel. The fuel swap did not qualify for hedge accounting treatment and was executed to economically hedge a portion of unleaded fuel purchases. The notional amount of the contract was 2.5 million gallons and terminated August 31, 2009. The loss on the fuel contract for fiscal 2009 was $2.3 million.
next 12 months.Note I —– Financing
The Company’s long-term debt consisted of the following:
| | | | | | | | | |
| | | August 28, | | | August 29, | |
| (in thousands) | | 2010 | | | 2009 | |
| | | | | | | | | |
| 4.75% Senior Notes due November 2010, effective interest rate of 4.17% | | $ | 199,300 | | | $ | 199,300 | |
| 5.875% Senior Notes due October 2012, effective interest rate of 6.33% | | | 300,000 | | | | 300,000 | |
| 4.375% Senior Notes due June 2013, effective interest rate of 5.65% | | | 200,000 | | | | 200,000 | |
| 6.5% Senior Notes due January 2014, effective interest rate of 6.63% | | | 500,000 | | | | 500,000 | |
| 5.75% Senior Notes due January 2015, effective interest rate of 5.89% | | | 500,000 | | | | 500,000 | |
| 5.5% Senior Notes due November 2015, effective interest rate of 4.86% | | | 300,000 | | | | 300,000 | |
| 6.95% Senior Notes due June 2016, effective interest rate of 7.09% | | | 200,000 | | | | 200,000 | |
| 7.125% Senior Notes due August 2018, effective interest rate of 7.28% | | | 250,000 | | | | 250,000 | |
| Commercial paper, weighted average interest rate of 0.4% at August 28, 2010, and 0.5% at August 29, 2009 | | | 433,000 | | | | 277,600 | |
| | | | | | | |
| | | $ | 2,882,300 | | | $ | 2,726,900 | |
| | | | | | | |
| | | | | | | | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | |
5.875% Senior Notes due October 2012, effective interest rate of 6.33% | | $ | 300,000 | | | $ | 300,000 | |
4.375% Senior Notes due June 2013, effective interest rate of 5.65% | | | 200,000 | | | | 200,000 | |
6.500% Senior Notes due January 2014, effective interest rate of 6.63% | | | 500,000 | | | | 500,000 | |
5.750% Senior Notes due January 2015, effective interest rate of 5.89% | | | 500,000 | | | | 500,000 | |
5.500% Senior Notes due November 2015, effective interest rate of 4.86% | | | 300,000 | | | | 300,000 | |
6.950% Senior Notes due June 2016, effective interest rate of 7.09% | | | 200,000 | | | | 200,000 | |
7.125% Senior Notes due August 2018, effective interest rate of 7.28% | | | 250,000 | | | | 250,000 | |
4.000% Senior Notes due November 2020, effective interest rate of 4.43% | | | 500,000 | | | | 500,000 | |
3.700% Senior Notes due April 2022, effective interest rate of 3.85% | | | 500,000 | | | | — | |
Commercial paper, weighted average interest rate of 0.42% at August 25, 2012, and 0.35% at August 27, 2011 | | | 468,302 | | | | 567,600 | |
| | | | | | | | |
| | $ | 3,718,302 | | | $ | 3,317,600 | |
| | | | | | | | |
As of August 28, 2010,25, 2012, the commercial paper borrowings, and the 4.75%5.875% Senior Notes due November 2010October 2012, and the 4.375% Senior Notes due June 2013 mature in the next twelve months but are classified as long-term in the Company’s Consolidated Balance Sheets, as the Company has the ability and intent to refinance them on a long-term basis. Specifically, excluding the effect of commercial paper borrowings, the Company had $792.4$996.6 million of availability under its $800 million$1.0 billion revolving credit facility, expiring in July 2012September 2016 that would allow it to replace these short-term obligations with long-term financing.
In addition to the long-term debt discussed above, the Company had $26.2$49.9 million of short-term borrowings that are scheduled to mature in the next twelve months as of August 28, 2010.25, 2012. The short-term borrowings are $45.1 million of commercial paper borrowings that accrue interest at 0.42% and $4.8 million of unsecured, peso denominated borrowings andthat accrue interest at 5.69%4.57% as of August 28, 2010.
25, 2012.
52
In July 2009,September 2011, the Company terminatedamended and restated its $1.0 billion$800 million revolving credit facility, which was scheduled to expire in fiscal 2010, and replaced it with an $800 millionJuly 2012. The capacity under the revolving credit facility.facility was increased to $1.0 billion. This credit facility is available to primarily support commercial paper borrowings, letters of credit and other short-term, unsecured bank loans. ThisThe capacity of the credit facility expires in July 2012, may be increased to $1.0$1.250 billion prior to the maturity date at AutoZone’sthe Company’s election and subject to bank credit capacity and approval, may include up to $200 million in letters of credit, and may include up to $100$175 million in capital leases each fiscal year. After reducing the available balance by commercial paper borrowings and certain outstanding letters of credit, the Company had $331.1 million in available capacity under this facility at August 28, 2010. Under the revolving credit facility, the Company may borrow funds consisting of Eurodollar loans or base rate loans. Interest accrues on Eurodollar loans at a defined Eurodollar rate, (defineddefined as LIBOR)LIBOR plus the applicable percentage, which could range from 150 basis points to 450 basis points,as defined in the revolving credit facility, depending upon the Company’s senior, unsecured, (non-credit enhanced) long-term debt rating of the Company.rating. Interest accrues on base rate loans atas defined in the prime rate.credit facility. The Company also has the option to borrow funds under the terms of a swingline loan subfacility. The revolving credit facility expires in 2012.
September 2016.The revolving credit facility agreement requires that the Company’s consolidated interest coverage ratio as of the last day of each quarter shall be no less than 2.50:1. This ratio is defined as the ratio of (i) consolidated earnings before interest, taxes and rents to (ii) consolidated interest expense plus consolidated rents. The Company’s consolidated interest coverage ratio as of August 28, 201025, 2012 was 4.27:4.58:1.
In June 2010, the Company entered into a letter of credit facility that allows the Company to request the participating bank to issue letters of credit on the Company’s behalf up to an aggregate amount of $100 million. The letter of credit facility is in addition to the letters of credit that may be issued under the revolving credit facility. As of August 28, 2010,25, 2012, the Company has $100.0$98.7 million in letters of credit outstanding under the letter of credit facility, which expires in June 2013.
During August 2009, the Company elected to prepay, without penalty, a $300 million bank term loan entered in December 2004, and subsequently amended. The term loan facility provided for a term loan, which consisted of, at the Company’s election, base rate loans, Eurodollar loans or a combination thereof. The entire unpaid principal amount of the term loan would be due and payable in full on December 23, 2009, when the facility was scheduled to terminate. Interest accrued on base rate loans at a base rate per annum equal to the higher of the prime rate or the Federal Funds Rate plus 1/2 of 1%. The Company entered into an interest rate swap agreement on December 29, 2004, to effectively fix, based on current debt ratings, the interest rate of the term loan at 4.4%. The outstanding liability associated with the interest rate swap totaled $3.6 million, and was expensed in operating, selling, general and administrative expenses upon termination of the hedge in fiscal 2009.
On July 2, 2009,April 24, 2012, the Company issued $500 million in 5.75%3.700% Senior Notes due 2015April 2022 under the Company’s shelf registration statement filed with the Securities and Exchange Commission on July 29, 2008April 17, 2012 (the “Shelf Registration”). In addition, on August 4, 2008, the Company issued $500 million in 6.50% Senior Notes due 2014 and $250 million in 7.125% Senior Notes due 2018 under the Shelf Registration. The Shelf Registration allows the Company to sell an indeterminate amount in debt securities to fund general corporate purposes, including repaying, redeeming or repurchasing outstanding debt and for working capital, capital expenditures, new store openings, stock repurchases and acquisitions. In fiscal 2009, theThe Company used the proceeds from the issuance of debt to repay outstandinga portion of the commercial paper indebtedness, to prepay our $300 million term loan in August 2009borrowings and for general corporate purposes. Proceeds
On November 15, 2010, the Company issued $500 million in 4.000% Senior Notes due 2020 under a shelf registration statement filed with the Securities and Exchange Commission on July 29, 2008. The Company used the proceeds from the debt issuance in fiscal 2008 were usedof debt to repay outstandingthe principal due relating to the $199.3 million in 4.750% Senior Notes that matured on November 15, 2010, to repay a portion of the commercial paper indebtednessborrowings and for general corporate purposes.
The 5.75%5.750% Senior Notes issued in July 2009 and the 6.50%6.500% and 7.125% Senior Notes issued during August 2008, (collectively, the “Notes”), are subject to an interest rate adjustment if the debt ratings assigned to the Notes are downgraded. TheyThe Notes, along with the 3.700% Senior Notes issued in April 2012 and the 4.000% Senior Notes issued in during November 2010, also contain a provision that repayment of the Notesnotes may be accelerated if AutoZonethe Company experiences a change in control (as defined in the agreements). The Company’s borrowings under the Company’sits other senior notes arrangements contain minimal covenants, primarily restrictions on liens. Under the Company’s revolving credit facility, covenants include limitations on total indebtedness, restrictions on liens, a minimum coveragemaximum debt to earnings ratio, and a change of control provision that may require acceleration of the repayment obligations under certain circumstances. These covenants are in addition to the consolidated interest coverage ratio discussed above. All of the repayment obligations under the Company’s borrowing arrangements may be accelerated and come due prior to the scheduled payment date if covenants are breached or an event of default occurs.
53
As of August 28, 2010,25, 2012, the Company was in compliance with all covenants related to its borrowing arrangements. All of the Company’s debt is unsecured. Scheduled maturities of long-term debt are as follows:
| | | | | |
| | | Scheduled | |
| (in thousands) | | Maturities | |
| | | | | |
| 2011 | | $ | 632,300 | |
| 2012 | | | — | |
| 2013 | | | 500,000 | |
| 2014 | | | 500,000 | |
| 2015 | | | 500,000 | |
| Thereafter | | | 750,000 | |
| | | | |
| | | $ | 2,882,300 | |
| | | | |
| | | | |
(in thousands) | | Scheduled
Maturities | |
2013 | | $ | 968,302 | |
2014 | | | 500,000 | |
2015 | | | 500,000 | |
2016 | | | 500,000 | |
2017 | | | — | |
Thereafter | | | 1,250,000 | |
| | | | |
| | $ | 3,718,302 | |
| | | | |
The fair value of the Company’s debt was estimated at $3.182$4.055 billion as of August 28, 2010,25, 2012, and $2.853$3.633 billion as of August 29, 2009,27, 2011, based on the quoted market prices for the same or similar issues or on the current rates available to the Company for debt of the same remaining maturities.terms (Level 2). Such fair value is greater than the carrying value of debt by $273.5$286.6 million and $126.5$281.0 million at August 28, 201025, 2012 and August 29, 2009,27, 2011, respectively.
Note J —– Interest Expense
Net interest expense consisted of the following:
| | | | | | | | | | | | | |
| | | Year Ended | |
| | | August 28, | | | August 29, | | | August 30, | |
| (in thousands) | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Interest expense | | $ | 162,628 | | | $ | 147,504 | | | $ | 121,843 | |
| Interest income | | | (2,626 | ) | | | (3,887 | ) | | | (3,785 | ) |
| Capitalized interest | | | (1,093 | ) | | | (1,301 | ) | | | (1,313 | ) |
| | | | | | | | | | |
| | | $ | 158,909 | | | $ | 142,316 | | | $ | 116,745 | |
| | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | | | August 28,
2010 | |
Interest expense | | $ | 178,547 | | | $ | 173,674 | | | $ | 162,628 | |
Interest income | | | (1,397 | ) | | | (2,058 | ) | | | (2,626 | ) |
Capitalized interest | | | (1,245 | ) | | | (1,059 | ) | | | (1,093 | ) |
| | | | | | | | | | | | |
| | $ | 175,905 | | | $ | 170,557 | | | $ | 158,909 | |
| | | | | | | | | | | | |
Note K —– Stock Repurchase Program
During 1998, the Company announced a program permitting the Company to repurchase a portion of its outstanding shares not to exceed a dollar maximum established by the Company’s Board of Directors.Board. The program was last amended on June 15, 2010March 7, 2012 to increase the repurchase authorization to $8.9$11.90 billion from $8.4$11.15 billion. From January 1998 to August 28, 2010,25, 2012, the Company has repurchased a total of 121.7131.1 million shares at an aggregate cost of $8.7$11.5 billion.
The following table summarizes ourCompany’s share repurchase activity forconsisted of the followingfollowing:
| | | | | | | | | | | | |
| | | Year Ended | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | | | August 28,
2010 | |
Amount | | $ | 1,362,869 | | | $ | 1,466,802 | | | $ | 1,123,655 | |
Shares | | | 3,795 | | | | 5,598 | | | | 6,376 | |
During the fiscal years:
| | | | | | | | | | | | | |
| | | Year Ended | |
| | | August 28, | | | August 29, | | | August 30, | |
| (in thousands) | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Amount | | $ | 1,123,655 | | | $ | 1,300,002 | | | $ | 849,196 | |
| Shares | | | 6,376 | | | | 9,313 | | | | 6,802 | |
On September 28, 2010,year 2012, the
BoardCompany retired 4.9 million shares of
Directorstreasury stock which had previously been repurchased under the Company’s share repurchase program. The retirement increased Retained deficit by $1,319.6 million and decreased Additional paid-in capital by $72.5 million. During the comparable prior year period, the Company retired 6.6 million shares of treasury stock, which increased Retained deficit by $1,247.7 million and decreased Additional paid-in capital by $82.2 million.Subsequent to August 25, 2012, the Board voted to increase the authorization by $500$750 million to raise the cumulative share repurchase authorization from $8.9$11.90 billion to $9.4$12.65 billion. From August 29, 2010 to October 25, 2010, the CompanyWe have repurchased approximately 800 thousand629,168 shares for $185.9 million.
of common stock at an aggregate cost of $234.6 million during fiscal 2013.
54
Note L —– Pension and Savings Plans
Prior to January 1, 2003, substantially all full-time employees were covered by a defined benefit pension plan. The benefits under the plan were based on years of service and the employee’s highest consecutive five-year average compensation. On January 1, 2003, the plan was frozen. Accordingly, pension plan participants will earn no new benefits under the plan formula and no new participants will join the pension plan.
On January 1, 2003, the Company’s supplemental defined benefit pension plan for certain highly compensated employees was also frozen. Accordingly, plan participants will earn no new benefits under the plan formula and no new participants will join the pension plan.
ASC Topic 715 (formerly SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)) requires plan sponsors of defined benefit pension and other postretirement benefit plans to recognize the funded status of their postretirement benefit plans in the statement of financial position, measure the fair value of plan assets and benefit obligations as of the date of the fiscal year-end statement of financial position, and provide additional disclosures. The Company adopted the recognition and disclosure provisions of ASC Topic 715 on August 25, 2007 and adopted the measurement provisions of the standard on August 31, 2008.
The Company has recognized the unfunded status of the defined pension plans in its Consolidated Balance Sheets, which represents the difference between the fair value of pension plan assets and the projected benefit obligations of its defined benefit pension plans. The net unrecognized actuarial losses and unrecognized prior service costs are recorded in accumulatedAccumulated other comprehensive loss. These amounts will be subsequently recognized as net periodic pension expense pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension expense in the same periods will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic pension expense on the same basis as the amounts previously recognized in accumulatedAccumulated other comprehensive loss.
The Company’s investment strategy for pension plan assets is to utilize a diversified mix of domestic and international equity and fixed income portfolios to earn a long-term investment return that meets the Company’s pension plan obligations. The pension plan assets are invested primarily in listed securities, and the pension plans hold only a minimal investment in AutoZone common stock that is entirely at the discretion of third-party pension fund investment managers. The Company’s largest holding classes, U.S. equities and fixed income bonds, are each invested with multiple managers, each holdinga fund manager that holds diversified portfolios with complementary styles and holdings.portfolios. Accordingly, the Company does not have any significant concentrations of risk in particular securities, issuers, sectors, industries or geographic regions. Alternative investment strategies including private real estate, are in the process of being liquidated and constitute less than 10%2% of the pension plan assets. The Company’s investment managers are prohibited from using derivatives for speculative purposes and are not permitted to use derivatives to leverage a portfolio.
FollowingThe following is a description of the valuation methodologies used for the Company’s investments measured at fair value:
U.S., international, emerging, and high yield equities —–These investments are commingled funds and are valued using the net asset values, which are determined by valuing investments at the closing price or last trade reported on the major market on which the individual securities are traded. These investments are subject to annual audits.
Alternative investments —–This category represents a hedge fund of funds made up of 1716 different hedge fund managers diversified over 9 different hedge strategies. The fair value of the hedge fund of funds is determined using valuations provided by the third party administrator for each of the underlying funds.
Real estate —–The valuation of these investments requires significant judgment due to the absence of quoted market prices, the inherent lack of liquidity and the long-term nature of such assets. These investments are valued based upon recommendations of our investment manager incorporating factors such as contributions and distributions, market transactions, and market comparables.
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Fixed income securities —–The fair values of corporate, U.S. government securities and other fixed income securities are estimated by using bid evaluation pricing models or quoted prices of securities with similar characteristics.
Cash and cash equivalents —–These investments include cash equivalents valued using exchange rates provided by an industry pricing vendor and commingled funds valued using the net asset value. These investments also include cash.
The fair values of investments by level and asset category and the weighted-average asset allocations of the Company’s pension plans at the measurement date are presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| August 28, 2010 | |
| | | Fair | | | Asset Allocation | | | Fair Value Hierarchy | |
| (in thousands) | | Value | | | Actual | | | Target | | | Level 1 | | | Level 2 | | | Level 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. equities | | $ | 33,445 | | | | 28.5 | % | | | 35.0 | % | | $ | 33,445 | | | $ | — | | | $ | — | |
| International equities | | | 24,049 | | | | 20.5 | | | | 25.0 | | | | 24,049 | | | | — | | | | — | |
| Emerging equities | | | 10,431 | | | | 8.9 | | | | 10.0 | | | | 10,431 | | | | — | | | | — | |
| High yield equities | | | 10,604 | | | | 9.0 | | | | 10.0 | | | | 10,604 | | | | — | | | | — | |
| Alternative investments | | | 4,348 | | | | 3.7 | | | | — | | | | — | | | | — | | | | 4,348 | |
| Real estate | | | 7,348 | | | | 6.3 | | | | — | | | | — | | | | — | | | | 7,348 | |
| Fixed income securities | | | 22,131 | | | | 18.9 | | | | 20.0 | | | | 22,131 | | | | — | | | | — | |
| Cash and cash equivalents | | | 4,887 | | | | 4.2 | | | | — | | | | 4,887 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | $ | 117,243 | | | | 100.0 | % | | | 100.0 | % | | $ | 105,547 | | | $ | — | | | $ | 11,696 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| August 29, 2009 | |
| | | Fair | | | Asset Allocation | | | Fair Value Hierarchy | |
| (in thousands) | | Value | | | Actual | | | Target | | | Level 1 | | | Level 2 | | | Level 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. equities | | $ | 20,321 | | | | 17.6 | % | | | 22.5 | % | | $ | 20,321 | | | $ | — | | | $ | — | |
| International equities | | | 41,959 | | | | 36.4 | | | | 28.0 | | | | 28,678 | | | | 13,281 | | | | — | |
| Emerging equities | | | 6,765 | | | | 5.9 | | | | 6.0 | | | | 6,765 | | | | — | | | | — | |
| High yield equities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Alternative investments | | | 27,314 | | | | 23.7 | | | | 30.5 | | | | — | | | | — | | | | 27,314 | |
| Real estate | | | 9,457 | | | | 8.2 | | | | 11.0 | | | | — | | | | — | | | | 9,457 | |
| Fixed income securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Cash and cash equivalents | | | 9,497 | | | | 8.2 | | | | 2.0 | | | | 9,497 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | $ | 115,313 | | | | 100.0 | % | | | 100.0 | % | | $ | 65,261 | | | $ | 13,281 | | | $ | 36,771 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | August 25, 2012 | | | | | | | | | | |
| | | Fair
Value | | | Asset Allocation | | | Fair Value Hierarchy | |
(in thousands) | | | Actual | | | Target | | | Level 1 | | | Level 2 | | | Level 3 | |
U.S. equities | | $ | 51,101 | | | | 28.2 | % | | | 30.0 | % | | $ | — | | | $ | 51,101 | | | $ | — | |
International equities | | | 31,767 | | | | 17.5 | | | | 20.0 | | | | — | | | | 31,767 | | | | — | |
Emerging equities | | | 16,471 | | | | 9.1 | | | | 10.0 | | | | — | | | | 16,471 | | | | — | |
High yield equities | | | 17,378 | | | | 9.6 | | | | 10.0 | | | | — | | | | 17,378 | | | | — | |
Alternative investments | | | 2,404 | | | | 1.3 | | | | — | | | | — | | | | — | | | | 2,404 | |
Fixed income securities | | | 47,667 | | | | 26.3 | | | | 30.0 | | | | — | | | | 47,667 | | | | — | |
Cash and cash equivalents | | | 14,621 | | | | 8.0 | | | | — | | | | — | | | | 14,621 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 181,409 | | | | 100.0 | % | | | 100.0 | % | | $ | — | | | $ | 179,005 | | | $ | 2,404 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | August 27, 2011 | | | | | | | | | | |
| | | Fair
Value | | | Asset Allocation | | | Fair Value Hierarchy | |
(in thousands) | | | Actual | | | Target | | | Level 1 | | | Level 2 | | | Level 3 | |
U.S. equities | | $ | 40,092 | | | | 25.5 | % | | | 30.0 | % | | $ | — | | | $ | 40,092 | | | $ | — | |
International equities | | | 28,378 | | | | 18.1 | | | | 20.0 | | | | — | | | | 28,378 | | | | — | |
Emerging equities | | | 12,086 | | | | 7.7 | | | | 10.0 | | | | — | | | | 12,086 | | | | — | |
High yield equities | | | 12,547 | | | | 8.0 | | | | 10.0 | | | | — | | | | 12,547 | | | | — | |
Alternative investments | | | 2,807 | | | | 1.8 | | | | — | | | | — | | | | — | | | | 2,807 | |
Real estate | | | 2,474 | | | | 1.6 | | | | — | | | | — | | | | — | | | | 2,474 | |
Fixed income securities | | | 27,321 | | | | 17.4 | | | | 30.0 | | | | — | | | | 27,321 | | | | — | |
Cash and cash equivalents | | | 31,178 | | | | 19.9 | | | | — | | | | — | | | | 31,178 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 156,883 | | | | 100.0 | % | | | 100.0 | % | | $ | — | | | $ | 151,602 | | | $ | 5,281 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The August 25, 2012 actual asset allocation in the chart above includes an $8.7 million cash contribution made prior to August 25, 2012. Subsequent to August 25, 2012, this cash contribution was allocated to the pension plan investments in accordance with the targeted asset allocation.
In August 2011, the Company’s Investment Committee approved a revised asset allocation target for the investments held by the pension plan. Based on the revised asset allocation target, the expected long-term rate of return on plan assets changed from 8.0% in fiscal 2011 to 7.5% for the year ending August 25, 2012. The August 27, 2011 actual asset allocation in the chart above includes a $28.3 million cash contribution made prior to August 27, 2011. Subsequent to August 27, 2011, this cash contribution was allocated to the pension plan investments to achieve the revised asset allocation target.
The change in fair value of Level 3 assets that use significant unobservable inputs is presented in the following table:
| | | | | |
| | | Level 3 | |
| (in thousands) | | Assets | |
| | | | | |
| Beginning balance — August 29, 2009 | | $ | 36,771 | |
| Actual return on plan assets: | | | | |
| Assets held at August 28, 2010 | | | 367 | |
| Assets sold during the year | | | 1,446 | |
| Sales and settlements | | | (26,888 | ) |
| | | | |
| Ending balance — August 28, 2010 | | $ | 11,696 | |
| | | | |
| | | | |
(in thousands) | | Level 3
Assets | |
Beginning balance – August 27, 2011 | | $ | 5,281 | |
Actual return on plan assets: | | | | |
Assets held at August 25, 2012 | | | 55 | |
Assets sold during the year | | | 168 | |
Sales and settlements | | | (3,100 | ) |
| | | | |
Ending balance – August 25, 2012 | | $ | 2,404 | |
| | | | |
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The following table sets forth the plans’ funded status and amounts recognized in the Company’s Consolidated Balance Sheets:
| | | | | | | | | |
| | | August 28, | | | August 29, | |
| (in thousands) | | 2010 | | | 2009 | |
| | | | | | | | | |
Change in Projected Benefit Obligation: | | | | | | | | |
| Projected benefit obligation at beginning of year | | $ | 185,590 | | | $ | 156,674 | |
| Interest cost | | | 11,315 | | | | 10,647 | |
| Actuarial losses | | | 18,986 | | | | 23,637 | |
| Benefits paid | | | (4,355 | ) | | | (5,368 | ) |
| | | | | | | |
| Benefit obligations at end of year | | $ | 211,536 | | | $ | 185,590 | |
| | | | | | | |
| | | | | | | | | |
Change in Plan Assets: | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | 115,313 | | | $ | 160,898 | |
| Actual return on plan assets | | | 6,273 | | | | (40,235 | ) |
| Employer contributions | | | 12 | | | | 18 | |
| Benefits paid | | | (4,355 | ) | | | (5,368 | ) |
| | | | | | | |
| Fair value of plan assets at end of year | | $ | 117,243 | | | $ | 115,313 | |
| | | | | | | |
| | | | | | | | | |
Amount Recognized in the Statement of Financial Position: | | | | | | | | |
| Current liabilities | | $ | (12 | ) | | $ | (17 | ) |
| Long-term liabilities | | | (94,281 | ) | | | (70,260 | ) |
| | | | | | | |
| Net amount recognized | | $ | (94,293 | ) | | $ | (70,277 | ) |
| | | | | | | |
| | | | | | | | | |
Amount Recognized in Accumulated Other Comprehensive Loss and not yet reflected in Net Periodic Benefit Cost: | | | | | | | | |
| Net actuarial loss | | $ | (94,293 | ) | | $ | (70,277 | ) |
| | | | | | | |
| Accumulated other comprehensive loss | | $ | (94,293 | ) | | $ | (70,277 | ) |
| | | | | | | |
| | | | | | | | | |
Amount Recognized in Accumulated Other Comprehensive Loss and not yet reflected in Net Periodic Benefit Cost and expected to be amortized in next year’s Net Periodic Benefit Cost: | | | | | | | | |
| Net actuarial loss | | $ | (10,252 | ) | | $ | (8,354 | ) |
| | | | | | | |
| Amount recognized | | $ | (10,252 | ) | | $ | (8,354 | ) |
| | | | | | | |
| | | | | | | | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | |
Change in Projected Benefit Obligation: | | | | | | | | |
Projected benefit obligation at beginning of year | | $ | 241,645 | | | $ | 211,536 | |
Interest cost | | | 12,214 | | | | 11,135 | |
Actuarial losses | | | 56,749 | | | | 23,746 | |
Benefits paid | | | (5,402 | ) | | | (4,772 | ) |
| | | | | | | | |
Benefit obligations at end of year | | $ | 305,206 | | | $ | 241,645 | |
| | | | | | | | |
Change in Plan Assets: | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 156,883 | | | $ | 117,243 | |
Actual return on plan assets | | | 14,505 | | | | 10,336 | |
Employer contributions | | | 15,423 | | | | 34,076 | |
Benefits paid | | | (5,402 | ) | | | (4,772 | ) |
| | | | | | | | |
Fair value of plan assets at end of year | | $ | 181,409 | | | $ | 156,883 | |
| | | | | | | | |
Amount Recognized in the Statement of Financial Position: | | | | | | | | |
Current liabilities | | $ | (30 | ) | | $ | (27 | ) |
Long-term liabilities | | | (123,767 | ) | | | (84,736 | ) |
| | | | | | | | |
Net amount recognized | | $ | (123,797 | ) | | $ | (84,763 | ) |
| | | | | | | | |
Amount Recognized in Accumulated Other Comprehensive Loss and not yet reflected in Net Periodic Benefit Cost: | | | | | | | | |
Net actuarial loss | | $ | (154,678 | ) | | $ | (106,972 | ) |
| | | | | | | | |
Accumulated other comprehensive loss | | $ | (154,678 | ) | | $ | (106,972 | ) |
| | | | | | | | |
Amount Recognized in Accumulated Other Comprehensive Loss and not yet reflected in Net Periodic Benefit Cost and expected to be amortized in next year’s Net Periodic Benefit Cost: | | | | | | | | |
Net actuarial loss | | $ | (14,721 | ) | | $ | (9,795 | ) |
| | | | | | | | |
Amount recognized | | $ | (14,721 | ) | | $ | (9,795 | ) |
| | | | | | | | |
Net periodic benefit expense (income) consisted of the following:
| | | | | | | | | | | | | |
| | | Year Ended | |
| | | August 28, | | | August 29, | | | August 30, | |
| (in thousands) | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Interest cost | | $ | 11,315 | | | $ | 10,647 | | | $ | 9,962 | |
| Expected return on plan assets | | | (9,045 | ) | | | (12,683 | ) | | | (13,036 | ) |
| Amortization of prior service cost | | | — | | | | 60 | | | | 99 | |
| Recognized net actuarial losses | | | 8,135 | | | | 73 | | | | 97 | |
| | | | | | | | | | |
| Net periodic benefit expense (income) | | $ | 10,405 | | | $ | (1,903 | ) | | $ | (2,878 | ) |
| | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | | | August 28,
2010 | |
Interest cost | | $ | 12,214 | | | $ | 11,135 | | | $ | 11,315 | |
Expected return on plan assets | | | (11,718 | ) | | | (9,326 | ) | | | (9,045 | ) |
Amortization of prior service cost | | | — | | | | — | | | | — | |
Recognized net actuarial losses | | | 9,795 | | | | 9,405 | | | | 8,135 | |
| | | | | | | | | | | | |
Net periodic benefit expense | | $ | 10,291 | | | $ | 11,214 | | | $ | 10,405 | |
| | | | | | | | | | | | |
The actuarial assumptions used in determining the projected benefit obligation include the following:
| | | | | | | | | | | | | |
| | | Year Ended | |
| | | August 28, | | | August 29, | | | August 30, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Weighted average discount rate | | | 5.25 | % | | | 6.24 | % | | | 6.90 | % |
| | | | | | | | | | |
| Expected long-term rate of return on plan assets | | | 8.00 | % | | | 8.00 | % | | | 8.00 | % |
| | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended | |
| | | August 25,
2012 | | | August 27,
2011 | | | August 28,
2010 | |
Weighted average discount rate | | | 3.90 | % | | | 5.13 | % | | | 5.25 | % |
Expected long-term rate of return on plan assets | | | 7.50 | % | | | 8.00 | % | | | 8.00 | % |
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As the plan benefits are frozen, increases in future compensation levels no longer impact the calculation and there is no service cost. The discount rate is determined as of the measurement date and is based on the calculated yield of a portfolio of high-grade corporate bonds with cash flows that generally match the Company’s expected benefit payments in future years. The expected long-term rate of return on plan assets is based on the historical relationships between the investment classes and the capital markets, updated for current conditions.
The Company makes annual contributions in amounts at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974. The Company contributed approximately$15.4 million to the plans in fiscal 2012, $34.1 million to the plans in fiscal 2011 and $12 thousand to the plans in fiscal 2010, $18 thousand2010. The Company expects to the plans in fiscal 2009 and $1.3contribute approximately $9 million to the plans in fiscal 2008. The Company expects to contribute approximately $3 million to the plan in fiscal 2011;2013; however, a change to the expected cash funding may be impacted by a change in interest rates or a change in the actual or expected return on plan assets.
Based on current assumptions about future events, benefit payments are expected to be paid as follows for each of the following fiscal years. Actual benefit payments may vary significantly from the following estimates:
| | | | | |
| | | Benefit | |
| (in thousands) | | Payments | |
| | | | |
| 2011 | | $ | 5,907 | |
| 2012 | | | 6,581 | |
| 2013 | | | 7,281 | |
| 2014 | | | 7,910 | |
| 2015 | | | 8,544 | |
| 2016 – 2020 | | | 52,047 | |
| | | | |
(in thousands) | | Benefit
Payments | |
2013 | | $ | 7,438 | |
2014 | | | 8,182 | |
2015 | | | 8,867 | |
2016 | | | 9,583 | |
2017 | | | 10,164 | |
2018 – 2022 | | | 60,567 | |
The Company has a 401(k) plan that covers all domestic employees who meet the plan’s participation requirements. The plan features include Company matching contributions, immediate 100% vesting of Company contributions and a savings option up to 25% of qualified earnings. The Company makes matching contributions, per pay period, up to a specified percentage of employees’ contributions as approved by the Board of Directors.Board. The Company made matching contributions to employee accounts in connection with the 401(k) plan of $14.4 million in fiscal 2012, $13.3 million in fiscal 2011 and $11.7 million in fiscal 2010, $11.0 million in fiscal 2009 and $10.8 million in fiscal 2008.
The Company leases some of its retail stores, distribution centers, facilities, land and equipment, including vehicles. MostOther than vehicle leases, most of thesethe leases are operating leases, andwhich include renewal options made at the Company’s election, and some include options to purchase and provisions for percentage rent based on sales. Rental expense was $229.4 million in fiscal 2012, $213.8 million in fiscal 2011, and $195.6 million in fiscal 2010, $181.3 million in fiscal 2009, and $165.1 million in fiscal 2008.2010. Percentage rentals were insignificant.
The Company has a fleet of vehicles used for delivery to its commercial customers and stores and travel for members of field management. The majority of these vehicles are held under capital lease. At August 28, 2010,25, 2012, the Company had capital lease assets of $85.8$104.2 million, net of accumulated amortization of $20.4$36.4 million, and capital lease obligations of $88.3$102.3 million, of which $21.9$29.8 million is classified as accruedAccrued expenses and other as it represents the current portion of these obligations. At August 29, 2009,27, 2011, the Company had capital lease assets of $53.9$86.6 million, net of accumulated amortization of $25.4$30.2 million, and capital lease obligations of $54.8$86.7 million, of which $16.7$25.3 million was classified as accruedAccrued expenses and other.
The Company records rent for all operating leases on a straight-line basis over the lease term, including any reasonably assured renewal periods and the period of time prior to the lease term that the Company is in possession of the leased space for the purpose of installing leasehold improvements. Differences between recorded rent expense and cash payments are recorded as a liability in accruedAccrued expenses and other and otherOther long-term liabilities in the accompanying Consolidated Balance Sheets.Sheets, based on the terms of the lease. The deferred rent approximated $67.6$86.9 million on August 28, 2010,25, 2012, and $59.5$77.6 million on August 29, 2009.
27, 2011.
58
Future minimum annual rental commitments under non-cancelable operating leases and capital leases were as follows at the end of fiscal 2010:
| | | | | | | | | |
| | | Operating | | | Capital | |
| (in thousands) | | Leases | | | Leases | |
| | | | | | | | | |
| 2011 | | $ | 196,291 | | | $ | 21,947 | |
| 2012 | | | 187,085 | | | | 24,013 | |
| 2013 | | | 170,858 | | | | 20,819 | |
| 2014 | | | 151,287 | | | | 16,971 | |
| 2015 | | | 133,549 | | | | 8,995 | |
| Thereafter | | | 900,977 | | | | — | |
| | | | | | | |
| Total minimum payments required | | $ | 1,740,047 | | | | 92,745 | |
| | | | | | | |
| Less: Interest | | | | | | | (4,465 | ) |
| | | | | | | | |
| Present value of minimum capital lease payments | | | | | | $ | 88,280 | |
| | | | | | | | |
2012: | | | | | | | | |
(in thousands) | | Operating
Leases | | | Capital
Leases | |
2013 | | $ | 217,844 | | | $ | 29,842 | |
2014 | | | 209,300 | | | | 28,859 | |
2015 | | | 192,296 | | | | 24,520 | |
2016 | | | 174,844 | | | | 17,181 | |
2017 | | | 157,691 | | | | 5,002 | |
Thereafter | | | 958,435 | | | | — | |
| | | | | | | | |
Total minimum payments required | | $ | 1,910,410 | | | | 105,404 | |
| | | | | | | | |
Less: Interest | | | | | | | (3,148 | ) |
| | | | | | | | |
Present value of minimum capital lease payments | | | | | | $ | 102,256 | |
| | | | | | | | |
In connection with the Company’s December 2001 sale of the TruckPro business, the Company subleased some properties to the purchaser for an initial term of not less than 20 years. The Company’s remaining aggregate rental obligation at August 28, 201025, 2012 of $20.5$17.3 million is included in the above table, but the obligation is entirely offset by the sublease rental agreement.
Note N —– Commitments and Contingencies
Construction commitments, primarily for new stores, totaled approximately $15.8$25.6 million at August 28, 2010.
25, 2012.The Company had $107.6$102.3 million in outstanding standby letters of credit and $23.7$33.1 million in surety bonds as of August 28, 2010,25, 2012, which all have expiration periods of less than one year. A substantial portion of the outstanding standby letters of credit (which are primarily renewed on an annual basis) and surety bonds are used to cover reimbursement obligations to our workers’ compensation carriers. There are no additional contingent liabilities associated with these instruments as the underlying liabilities are already reflected in the consolidated balance sheet. The standby letters of credit and surety bonds arrangements have automatic renewal clauses.
AutoZone, Inc. isIn 2004, the Company acquired a defendantstore site in Mount Ephraim, New Jersey that had previously been the site of a lawsuit entitled “Coalition forgasoline service station and contained evidence of groundwater contamination. Upon acquisition, the Company voluntarily reported the groundwater contamination issue to the New Jersey Department of Environmental Protection and entered into a Level Playing Field, L.L.C., et al., v. AutoZone, Inc. et al.,” filed in the U.S. District CourtVoluntary Remediation Agreement providing for the Southern District of New York in October 2004. The case was filed by more than 200 plaintiffs, which are principally automotive aftermarket warehouse distributors and jobbers, against a number of defendants, including automotive aftermarket retailers and aftermarket automotive parts manufacturers. In the amended complaint, the plaintiffs allege,inter alia, that some or allremediation of the automotive aftermarket retailer defendants have knowingly received, in violationcontamination associated with the property. The Company has conducted and paid for (at an immaterial cost to the Company) remediation of the Robinson-Patman Act (the “Act”), from various of the manufacturer defendants benefits such as volume discounts, rebates, early buy allowances and other allowances, fees, inventory without payment, sham advertising and promotional payments, a share in the manufacturers’ profits, benefits of pay on scan purchases, implementation of radio frequency identification technology, and excessive payments for services purportedly performed for the manufacturers. Additionally, a subset of plaintiffs alleges a claim of fraud against the automotive aftermarket retailer defendants based on discovery issues in a prior litigation involving similar claims under the Act. In the prior litigation, the discovery dispute, as well as the underlying claims, was decided in favor of AutoZone and the other automotive aftermarket retailer defendants who proceeded to trial, pursuant to a unanimous jury verdict which was affirmed by the Second Circuit Court of Appeals. In the current litigation, plaintiffs seek an unspecified amount of damages (including statutory trebling), attorneys’ fees, and a permanent injunction prohibiting the aftermarket retailer defendants from inducing and/or knowingly receiving discriminatory prices from any of the aftermarket manufacturer defendants and from opening up any further stores to compete with plaintiffs as long as defendants allegedly continue to violate the Act.
59
In an order dated September 7, 2010 and issued on September 16, 2010, the court granted motions to dismiss all claims against AutoZone and its co-defendant competitors and suppliers. Basedcontamination on the record in the prior litigation, the court dismissed with prejudice all overlapping claims – that is, those covering the same time periods covered by the prior litigation and brought by the judgment plaintiffs in the prior litigation. The court also dismissed with prejudice the plaintiffs’ attempt to revisit discovery disputes from the prior litigation. Further, with respect to the other claims under the Act, the Court found that the factual statements contained in the complaint fall short of what would be necessary to support a plausible inference of unlawful price discrimination. Finally, the court held that the AutoZone pay-on-scan program is a difference in non-price terms that are not governed by the Act. The court ordered the case closed, but also stated that “in an abundance of caution the Court [was] defer[ring] decision on whether to grant leave to amend to allow plaintiff an opportunity to propose curative amendments.” Without moving for leave to amend their complaint for a third time, four plaintiffs filed a Third Amended and Supplemental Complaint (the “Third Amended Complaint”) on October 18, 2010. The Third Amended Complaint repeats and expands certain allegations from previous complaints, asserting two claims under the Act, but states that all other plaintiffs have withdrawn their claims, and that,inter alia, Chief Auto Parts, Inc. has been dismissed as a defendant. The court set no specific procedure for further response or motion by the defendants. The Company anticipates that the defendants, including AutoZone, will request that the court reject the Third Amended Complaint and/or will seek to have it dismissed.
The Company believes this suit to be without merit and is vigorously defending against it.property. The Company is unablealso investigating, and will be addressing, potential vapor intrusion impacts in downgradient residences and businesses. The New Jersey Department of Environmental Protection has indicated that it will assert that the Company is liable for the downgradient impacts under a joint and severable liability theory, and the Company intends to estimate a loss or possible rangecontest any such assertions due to the existence of loss.
other sources of contamination in the area of the property. Pursuant to the Voluntary Remediation Agreement, upon completion of all remediation required by the agreement, the Company believes it should be eligible to be reimbursed up to 75 percent of qualified remediation costs by the State of New Jersey. The Company
has asked the state for clarification that the agreement applies to off-site work, and the state is considering the request. Although the aggregate amount of additional costs that the Company may incur pursuant to the remediation cannot currently
and from timebe ascertained, the Company does not currently believe that fulfillment of its obligations under the agreement or otherwise will result in costs that are material to
time,its financial condition, results of operations or cash flow.The Company is involved in various other legal proceedings incidental to the conduct of its business. Althoughbusiness, including several lawsuits containing class-action allegations in which the amount of liability that may result from these other proceedings cannot be ascertained, theplaintiffs are current and former hourly and salaried employees who allege various wage and hour violations and unlawful termination practices. The Company does not currently believe that, either individually or in the aggregate, these matters will result in liabilities material to the Company’s financial condition, results of operations or cash flows.
Note P —– Segment Reporting
The Company’s two operating segments (Domestic Auto Parts and Mexico) have been aggregated as one reportable segment: Auto Parts Stores. The criteria the Company used to identify the reportable segment are primarily the nature of the products the Company sells and the operating results that are regularly reviewed by the Company’s chief operating decision maker to make decisions about the resources to be allocated to the business units and to assess performance. The accounting policies of the Company’s reportable segment are the same as those described in Note A.
The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s 4,6275,006 stores in the United States, including Puerto Rico, and Mexico. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products.
The “Other” category reflects business activities that are not separately reportable, including ALLDATA which produces, sells and maintains diagnostic and repair information software used in the automotive repair industry, and e-Commerce, which includes direct sales to customers through www.autozone.com.
www.autozone.com.The Company evaluates its reportable segment primarily on the basis of net sales and segment profit, which is defined as gross profit. During fiscal 2009, the Company reassessed and revised its reportable segment to exclude ALLDATA and e-Commerce from the newly designated Auto Parts Stores reporting segment. Previously, these immaterial business activities had been combined with Auto Parts Stores.
60
The following table shows segment results for the following fiscal years:
| | | | | | | | | | | | | |
| | | Year Ended | |
| | | August 28, | | | August 29, | | | August 30, | |
| (in thousands) | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
Net Sales: | | | | | | | | | | | | |
| Auto Parts Stores | | $ | 7,213,753 | | | $ | 6,671,939 | | | $ | 6,383,697 | |
| Other | | | 148,865 | | | | 144,885 | | | | 139,009 | |
| | | | | | | | | | |
| Total | | $ | 7,362,618 | | | $ | 6,816,824 | | | $ | 6,522,706 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
Segment Profit: | | | | | | | | | | | | |
| Auto Parts Stores | | $ | 3,591,464 | | | $ | 3,296,777 | | | $ | 3,153,703 | |
| Other | | | 120,280 | | | | 119,672 | | | | 114,358 | |
| | | | | | | | | | |
| Gross profit | | | 3,711,744 | | | | 3,416,449 | | | | 3,268,061 | |
| Operating, selling, general and administrative expenses | | | (2,392,330 | ) | | | (2,240,387 | ) | | | (2,143,927 | ) |
| Interest expense, net | | | (158,909 | ) | | | (142,316 | ) | | | (116,745 | ) |
| | | | | | | | | | |
| Income before income taxes | | $ | 1,160,505 | | | $ | 1,033,746 | | | $ | 1,007,389 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
Segment Assets: | | | | | | | | | | | | |
| Auto Parts Stores | | $ | 5,531,955 | | | $ | 5,279,454 | | | $ | 5,239,782 | |
| Other | | | 39,639 | | | | 38,951 | | | | 17,330 | |
| | | | | | | | | | |
| Total | | $ | 5,571,594 | | | $ | 5,318,405 | | | $ | 5,257,112 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
Capital Expenditures: | | | | | | | | | | | | |
| Auto Parts Stores | | $ | 307,725 | | | $ | 260,448 | | | $ | 238,631 | |
| Other | | | 7,675 | | | | 11,799 | | | | 4,963 | |
| | | | | | | | | | |
| Total | | $ | 315,400 | | | $ | 272,247 | | | $ | 243,594 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
Sales by Product Grouping: | | | | | | | | | | | | |
| Failure | | $ | 3,145,528 | | | $ | 2,816,126 | | | $ | 2,707,296 | |
| Maintenance items | | | 2,792,610 | | | | 2,655,113 | | | | 2,462,923 | |
| Discretionary | | | 1,275,615 | | | | 1,200,700 | | | | 1,213,478 | |
| | | | | | | | | | |
| Auto Parts Stores net sales | | $ | 7,213,753 | | | $ | 6,671,939 | | | $ | 6,383,697 | |
| | | | | | | | | | |
61
| | | | | | | | | | | | |
| | | Year Ended | |
(in thousands) | | August 25,
2012 | | | August 27,
2011 | | | August 28,
2010 | |
Net Sales: | | | | | | | | | | | | |
Auto Parts Stores | | $ | 8,422,559 | | | $ | 7,906,692 | | | $ | 7,213,753 | |
Other | | | 181,304 | | | | 166,281 | | | | 148,865 | |
| | | | | | | | | | | | |
Total | | $ | 8,603,863 | | | $ | 8,072,973 | | | $ | 7,362,618 | |
| | | | | | | | | | | | |
Segment Profit: | | | | | | | | | | | | |
Auto Parts Stores | | $ | 4,292,474 | | | $ | 3,989,852 | | | $ | 3,591,464 | |
Other | | | 139,562 | | | | 129,611 | | | | 120,280 | |
| | | | | | | | | | | | |
Gross profit | | | 4,432,036 | | | | 4,119,463 | | | | 3,711,744 | |
Operating, selling, general and administrative expenses | | | (2,803,145 | ) | | | (2,624,660 | ) | | | (2,392,330 | ) |
Interest expense, net | | | (175,905 | ) | | | (170,557 | ) | | | (158,909 | ) |
| | | | | | | | | | | | |
Income before income taxes | | $ | 1,452,986 | | | $ | 1,324,246 | | | $ | 1,160,505 | |
| | | | | | | | | | | | |
Segment Assets: | | | | | | | | | | | | |
Auto Parts Stores | | $ | 6,214,688 | | | $ | 5,827,285 | | | $ | 5,531,955 | |
Other | | | 50,951 | | | | 42,317 | | | | 39,639 | |
| | | | | | | | | | | | |
Total | | $ | 6,265,639 | | | $ | 5,869,602 | | | $ | 5,571,594 | |
| | | | | | | | | | | | |
Capital Expenditures: | | | | | | | | | | | | |
Auto Parts Stores | | $ | 364,361 | | | $ | 316,074 | | | $ | 307,725 | |
Other | | | 13,693 | | | | 5,530 | | | | 7,675 | |
| | | | | | | | | | | | |
Total | | $ | 378,054 | | | $ | 321,604 | | | $ | 315,400 | |
| | | | | | | | | | | | |
Auto Parts Stores Sales by Product Grouping: | | | | | | | | | | | | |
Failure | | $ | 3,793,963 | | | $ | 3,530,497 | | | $ | 3,145,528 | |
Maintenance items | | | 3,196,807 | | | | 3,051,672 | | | | 2,792,610 | |
Discretionary | | | 1,431,789 | | | | 1,324,523 | | | | 1,275,615 | |
| | | | | | | | | | | | |
Auto Parts Stores net sales | | $ | 8,422,559 | | | $ | 7,906,692 | | | $ | 7,213,753 | |
| | | | | | | | | | | | |
Note Q – Quarterly Summary(1)(1)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Sixteen | |
| | | Twelve Weeks Ended | | | Weeks Ended | |
| | | November 21, | | | February 13, | | | May 8, | | | August 28, | |
| (in thousands, except per share data) | | 2009 | | | 2010 | | | 2010 | | | 2010(2) | |
| | | | | | | | | | | | | | | | | |
| Net sales | | $ | 1,589,244 | | | $ | 1,506,225 | | | $ | 1,821,990 | | | $ | 2,445,159 | |
| Gross profit | | | 799,924 | | | | 753,736 | | | | 923,121 | | | | 1,234,963 | |
| Operating profit | | | 260,428 | | | | 230,381 | | | | 355,865 | | | | 472,740 | |
| Income before income taxes | | | 224,088 | | | | 194,072 | | | | 319,032 | | | | 423,313 | |
| Net income | | | 143,300 | | | | 123,333 | | | | 202,745 | | | | 268,933 | |
| Basic earnings per share | | | 2.86 | | | | 2.49 | | | | 4.19 | | | | 5.77 | |
| Diluted earnings per share | | | 2.82 | | | | 2.46 | | | | 4.12 | | | | 5.66 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Sixteen | |
| | | Twelve Weeks Ended | | | Weeks Ended | |
| | | November 22, | | | February 14, | | | May 9, | | | August 29, | |
| (in thousands, except per share data) | | 2008 | | | 2009 | | | 2009 | | | 2009(2) | |
| | | | | | | | | | | | | | | | | |
| Net sales | | $ | 1,478,292 | | | $ | 1,447,877 | | | $ | 1,658,160 | | | $ | 2,232,494 | |
| Gross profit | | | 741,191 | | | | 719,298 | | | | 832,907 | | | | 1,123,053 | |
| Operating profit | | | 238,539 | | | | 214,696 | | | | 305,232 | | | | 417,596 | |
| Income before income taxes | | | 207,373 | | | | 182,789 | | | | 273,750 | | | | 369,834 | |
| Net income | | | 131,371 | | | | 115,864 | | | | 173,689 | | | | 236,126 | |
| Basic earnings per share | | | 2.25 | | | | 2.05 | | | | 3.18 | | | | 4.49 | |
| Diluted earnings per share | | | 2.23 | | | | 2.03 | | | | 3.13 | | | | 4.43 | |
| | | | | | | | | | | | | | | | |
| | | Twelve Weeks Ended | | | Sixteen
Weeks Ended | |
(in thousands, except per share data) | | November 19,
2011 | | | February 11,
2012 | | | May 5,
2012 | | | August 25,
2012(2) | |
Net sales | | $ | 1,924,341 | | | $ | 1,804,069 | | | $ | 2,111,866 | | | $ | 2,763,585 | |
Gross profit | | | 983,627 | | | | 926,215 | | | | 1,089,799 | | | | 1,432,394 | |
Operating profit | | | 340,934 | | | | 300,651 | | | | 427,250 | | | | 560,056 | |
Income before income taxes | | | 301,840 | | | | 261,728 | | | | 387,507 | | | | 501,911 | |
Net income | | | 191,125 | | | | 166,930 | | | | 248,586 | | | | 323,733 | |
Basic earnings per share | | | 4.79 | | | | 4.25 | | | | 6.43 | | | | 8.65 | |
Diluted earnings per share | | | 4.68 | | | | 4.15 | | | | 6.28 | | | | 8.46 | |
| | | | | | | | | | | | | | | | |
| | | Twelve Weeks Ended | | | Sixteen
Weeks Ended | |
(in thousands, except per share data) | | November 20,
2010 | | | February 12,
2011 | | | May 7,
2011 | | | August 27,
2011(2) | |
Net sales | | $ | 1,791,662 | | | $ | 1,660,946 | | | $ | 1,978,369 | | | $ | 2,641,996 | |
Gross profit | | | 907,748 | | | | 845,611 | | | | 1,013,530 | | | | 1,352,574 | |
Operating profit | | | 306,121 | | | | 271,748 | | | | 392,925 | | | | 524,010 | |
Income before income taxes | | | 268,868 | | | | 232,172 | | | | 353,009 | | | | 470,197 | |
Net income | | | 172,076 | | | | 148,056 | | | | 227,373 | | | | 301,469 | |
Basic earnings per share | | | 3.85 | | | | 3.41 | | | | 5.42 | | | | 7.35 | |
Diluted earnings per share | | | 3.77 | | | | 3.34 | | | | 5.29 | | | | 7.18 | |
| | |
| (1) | | The sum of quarterly amounts may not equal the annual amounts reported due to rounding and due torounding. In addition, the earnings per share amounts beingare computed independently for each quarter while the full year is based on the annual weighted average shares outstanding. |
|
| (2) | | The fourth quarter for fiscal 20102012 and fiscal 20092011 are based on a 16-week period. All other quarters presented are based on a 12-week period. |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
As of August 28, 2010,25, 2012, an evaluation was performed under the supervision and with the participation of AutoZone’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended. Based on that evaluation, our management, including the Chief Executive Officer and the Chief Financial Officer, concluded that our disclosure controls and procedures were effective. During our fiscal fourth quarter ended August 28, 2010,25, 2012, there were no changes in our internal controls that have materially affected or are reasonably likely to materially affect internal controls over financial reporting.
Item 9B. Other Information
62
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information set forth in Part I of this document in the section entitled “Executive Officers of the Registrant,” is incorporated herein by reference in response to this item. Additionally, the information contained in AutoZone, Inc.’s Proxy Statement dated October 25, 2010,22, 2012, in the sections entitled “Proposal 1 —– Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” is incorporated herein by reference in response to this item.
The Company has adopted a Code of Ethical Conduct for Financial Executives that applies to its chief executive officer, chief financial officer, chief accounting officer and persons performing similar functions. The Company has filed a copy of this Code of Ethical Conduct as Exhibit 14.1 to this Form 10-K. The Company has also made the Code of Ethical Conduct available on its investor relations website at http://www.autozoneinc.com.
Item 11. Executive Compensation
The information contained in AutoZone, Inc.’s Proxy Statement dated October 25, 2010,22, 2012, in the section entitled “Executive Compensation,” is incorporated herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information contained in AutoZone, Inc.’s Proxy Statement dated October 25, 2010,22, 2012, in the sections entitled “Security Ownership of Management”Management and Board of Directors” and “Security Ownership of Certain Beneficial Owners,” is incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
The information contained in AutoZone, Inc.’s Proxy Statement dated October 25, 2010,22, 2012, in the section entitled “Proposal 3 —2 – Ratification of Independent Registered Public Accounting Firm,” is incorporated herein by reference in response to this item.
63
PART IV
Item 15. Exhibits, Financial Statement Schedules
The following information required under this item is filed as part of this report
report.(a) Financial Statements
The following financial statements, related notes and reports of independent registered public accounting firm are filed with this Annual Report on Form 10-K in Part II, Item 8:
| | | | |
|
Reports of Independent Registered Public Accounting Firm | | | | |
Consolidated Statements of Income for the fiscal years ended August 28, 2010,
25, 2012, August 29, 2009,27, 2011, and August 30, 2008 | | | | 28, 2010 |
Consolidated Statements of Comprehensive Income for the fiscal years ended August 25, 2012, August 27, 2011, and August 28, 2010 |
Consolidated Balance Sheets as of August 28, 2010,25, 2012, and August 29, 2009 | | | | 27, 2011 |
Consolidated Statements of Cash Flows for the fiscal years ended August 28,
2010,25, 2012, August 29, 2009,27, 2011, and August 30, 2008 | | | | 28, 2010 |
Consolidated Statements of Stockholders’ (Deficit) EquityDeficit for the fiscal years ended August 28, 2010,25, 2012, August 29, 2009,27, 2011, and August 30, 2008 | | | | 28, 2010 |
Notes to Consolidated Financial Statements | | | | |
The Exhibit Index following this document’s signature pages is incorporated herein by reference in response to this item.
(c) Financial Statement Schedules
Schedules are omitted because the information is not required or because the information required is included in the financial statements or notes thereto.
64
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| AUTOZONE, INC. |
| |
| By: | | | | /s/ WILLIAM C. RHODES, III |
| AUTOZONE, INC.
| |
| By: | /s/ William C. Rhodes, III | |
| | William C. Rhodes, III | |
| | Chairman, President and
|
| | Chief Executive Officer
|
| | (Principal Executive Officer) | |
Dated: October 25, 2010
22, 2012Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
| | | | |
SIGNATURE | | TITLE | | DATE |
SIGNATURE | | TITLE | | DATE |
| | | | |
/s/ WilliamWILLIAM C. Rhodes,RHODES, III William C. Rhodes, III | | Chairman, President and Chief Executive Officer
| | October 22, 2012 |
William C. Rhodes, III | | (Principal Executive Officer) | | October 25, 2010 |
| | | | |
/s/ WilliamWILLIAM T. Giles William T. Giles | | Chief Financial Officer and Executive Vice
| | October 22, 2012 |
William T. Giles | | President —– Finance, Information Technology and
Store Development
ALLDATA (Principal Financial Officer) | | October 25, 2010 |
| | | | |
/s/ Charlie Pleas,CHARLIE PLEAS, III Charlie Pleas, III | | Senior Vice President and Controller
| | October 22, 2012 |
Charlie Pleas, III | | (Principal Accounting Officer) | | |
| | |
/s/ WILLIAM C. CROWLEY | | Director | | October 25, 201022, 2012 |
William C. Crowley | | | | |
| | |
/s/ SUE E. GOVE | | Director | | October 22, 2012 |
Sue E. Gove | | | | |
| | |
/s/ EARL G. GRAVES, JR. | | Director | | October 22, 2012 |
Earl G. Graves, Jr. | | | | |
| | |
/s/ ROBERT R. GRUSKY | | Director | | October 22, 2012 |
Robert R. Grusky | | | | |
| | |
| | | | | |
/s/ William C. CrowleyWilliam C. Crowley | | Director | | October 25, 201022, 2012 |
Enderson Guimaraes | | | | |
| | |
/s/ Sue E. Gove Sue E. GoveJ.R. HYDE, III | | Director | | October 25, 201022, 2012 |
J.R. Hyde, III | | | | |
| | |
/s/ Earl G. Graves, Jr. Earl G. Graves, Jr.W. ANDREW MCKENNA | | Director | | October 25, 201022, 2012 |
W. Andrew McKenna | | | | |
| | |
/s/ RobertGEORGE R. Grusky Robert R. GruskyMRKONIC, JR. | | Director | | October 25, 201022, 2012 |
George R. Mrkonic, Jr. | | | | |
| | |
/s/ J.R. Hyde, III J.R. Hyde, IIILUIS P. NIETO | | Director | | October 25, 201022, 2012 |
Luis P. Nieto | | | | |
/s/ W. Andrew McKennaW. Andrew McKenna | | Director | | October 25, 2010 |
| | | | |
/s/ George R. Mrkonic, Jr.George R. Mrkonic, Jr. | | Director | | October 25, 2010 |
| | | | |
/s/ Luis P. NietoLuis P. Nieto | | Director | | October 25, 2010 |
| | | | |
/s/ Theodore W. UllyotTheodore W. Ullyot | | Director | | October 25, 2010 |
65
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on Form 10-K:
| | | | |
| |
| 3.1 | | | Restated Articles of Incorporation of AutoZone, Inc. Incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended February 13, 1999. |
| | | | |
| 3.2 | | | FourthFifth Amended and Restated By-laws of AutoZone, Inc. Incorporated by reference to Exhibit 99.23.1 to the Current Report on Form 8-K dated September 28, 2007.
2011. |
| | | | |
| 4.1 | | | Senior Indenture, dated as of July 22, 1998, between AutoZone, Inc. and the First National Bank of Chicago. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated July 17, 1998. |
| | | | |
| 4.2 | | | Fourth Amended and Restated AutoZone, Inc. Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.1 to the Form 8-K dated September 28, 2007. |
| | | | |
| 4.3 | | | Indenture dated as of August 8, 2003, between AutoZone, Inc. and Bank One Trust Company, N.A. Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (No. 333-107828) filed August 11, 2003. |
| | | | |
| 4.4 | 4.3 | | Terms Agreement dated October 16, 2002, by and among AutoZone, Inc., J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several underwriters named therein. Incorporated by reference to Exhibit 1.2 to the Current Report on Form 8-K dated October 18, 2002. |
| | | | |
| 4.5 | 4.4 | | Form of 5.875% Note due 2012. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated October 18, 2002. |
| | | | |
| 4.6 | 4.5 | | Terms Agreement dated May 29, 2003, by and among AutoZone, Inc., Citigroup Global Markets Inc. and SunTrust Capital Markets, Inc., as representatives of the several underwriters named therein. Incorporated by reference to Exhibit 1.2 to the Current Report on Form 8-K dated May 29, 2003. |
| | | | |
| 4.7 | 4.6 | | Form of 4.375% Note due 2013. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated May 29, 2003. |
| | | | |
| 4.8 | | | Terms Agreement dated November 3, 2003, by and among AutoZone, Inc., Banc of America Securities LLC and Wachovia Capital Markets, LLC, as representatives of the several underwriters named therein. Incorporated by reference to Exhibit 1.2 to the Form 8-K dated November 3, 2003. |
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| 4.9 | | | Form of 4.75% Note due 2010. Incorporated by reference to Exhibit 4.1 to the Form 8-K dated November 3, 2003. |
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| 4.10 | 4.7 | | Form of 5.5% Note due 2015. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K dated November 3, 2003. |
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| 4.11 | 4.8 | | Terms Agreement dated June 8, 2006, by and among AutoZone, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc., as representatives of the several underwriters named therein. Incorporated by reference to Exhibit 1.2 to the Current Report on Form 8-K dated June 13, 2006. |
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| 4.12 | 4.9 | | Form of 6.95% Senior Note due 2016. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated June 13, 2006. |
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| 4.13 | 4.10 | | Officers’ Certificate dated August 4, 2008, pursuant to Section 3.2 of the Indenture dated August 11, 2003, setting forth the terms of the 6.5% Senior Notes due 2014. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated August 4, 2008. |
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| 4.14 | 4.11 | | Form of 6.5% Senior Note due 2014. Incorporated by reference from the Current Report on Form 8-K dated August 4, 20082008. |
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| 4.15 | 4.12 | | Officers’ Certificate dated August 4, 2008, pursuant to Section 3.2 of the Indenture dated August 11, 2003, setting forth the terms of the 7.125% Senior Notes due 2018. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K dated August 4, 2008. |
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| 4.16 | 4.13 | | Form of 7.125% Senior Note due 2018. Incorporated by reference from the Form 8-K dated August 4, 20082008. |
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| 4.174.14 | | | Officers’ Certificate dated July 2, 2009, pursuant to Section 3.2 of the Indenture dated August 11, 2003, setting forth the terms of the 5.75% Notes due 2015. Incorporated by reference to 4.1 to the Current Report on Form 8-K dated July 2, 2009. |
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| | 4.18 4.15 | | | Form of 5.75% Senior Note due 2015. Incorporated by reference from the Form 8-K dated July 2, 20092009. |
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| | 4.16 | | | Officers’ Certificate dated November 15, 2010, pursuant to Section 3.2 of the Indenture dated August 8, 2003, setting forth the terms of the 4.000% Notes due 2020. Incorporated by reference to 4.1 to the Current Report on Form 8-K dated November 15, 2010. |
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| 4.17 | | | Form of 4.000% Senior Note due 2020. Incorporated by reference from the Form 8-K dated November 15, 2010. |
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| 4.18 | | | Officers’ Certificate dated April 24, 2012, pursuant to section 3.2 of the indenture dated August 8, 2003, setting forth the terms of the 3.700% Senior Notes due 2022. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K dated April 24, 2012. |
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| 4.19 | | | Form of 3.700% Senior Notes due 2022. Incorporated by reference from the Form 8-K dated April 24, 2012. |
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| | *10.1 | | | Fourth Amended and Restated Director Stock Option Plan. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended May 4, 2002. |
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| | *10.2 | | | Second Amended and Restated 1998 Director Compensation Plan. Incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K for the fiscal year ended August 26, 2000. |
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| | *10.3 | | | Third Amended and Restated 1996 Stock Option Plan. Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K for the fiscal year ended August 30, 2003. |
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| | *10.4 | | | Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended November 23, 2002. |
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| | *10.5 | | | Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended November 23, 2002. |
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| | *10.6 | | | AutoZone, Inc. 2003 Director Stock Option Plan. Incorporated by reference to Appendix C to the definitive proxy statement dated November 1, 2002, for the annual meetingAnnual Meeting of stockholdersStockholders held December 12, 2002. |
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| | *10.7 | | | AutoZone, Inc. 2003 Director Compensation Plan. Incorporated by reference to Appendix D to the definitive proxy statement dated November 1, 2002, for the annual meetingAnnual Meeting of stockholdersStockholders held December 12, 2002. |
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| | *10.8 | | | Amended and Restated AutoZone, Inc. Executive Deferred Compensation Plan. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended February 15, 2003. |
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| | *10.9 | | | AutoZone, Inc. 2005 Executive Incentive Compensation Plan. Incorporated by reference to Exhibit A to the Company’s Proxy Statement dated October 27, 2004, for the Annual Meeting of Stockholders held December 16, 2004. |
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| 10.10 | | | Credit Agreement dated as of July 9, 2009, among AutoZone, Inc., as Borrower, The Several Lenders From Time To Time Party Hereto, and Bank of America, N.A., as Administrative Agent and Swingline Lender, and JPMorgan Chase Bank, N.A., as Syndication Agent, and Banc of America Securities, LLC and J.P. Morgan Securities, as Joint Lead Arrangers, and Banc of America Securities, LLC, J.P. Morgan Securities, Inc., Suntrust Robinson Humphrey, Inc., and Wachovia Capital Markets, LLC, as Joint Book Runners, and Suntrust Bank, Wells Fargo Bank, N.A., Regions Bank, and US Bank National Association, as Documentation Agents. Incorporated by reference to Exhibit 10.10 to the Form 10-K/A for the fiscal year ended August 29, 2009. |
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| *10.11 | | | AutoZone, Inc. 2006 Stock Option Plan. Incorporated by reference to Appendix A to the definitive proxy statement dated October 25, 2006, for the annual meetingAnnual Meeting of stockholdersStockholders held December 13, 2006. |
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| | *10.1210.10 | | | Form of Stock Option Agreement. Incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K for the fiscal year ended August 25, 2007. |
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| | *10.1310.11 | | | AutoZone, Inc. FourthFifth Amended and Restated Executive Stock Purchase Plan. Incorporated by reference to Appendix B to the definitive proxy statement dated October 25, 2006, for the annual meeting of stockholders held December 13, 2006. |
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| | *10.14 | | | AutoZone, Inc. Director Compensation Program. Incorporated by reference to Exhibit 99.1 to the Form 8-K dated February 15, 2008. |
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| *10.1510.12 | | | Amended and Restated AutoZone, Inc. 2003 Director Compensation Plan. Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K dated January 4, 2008. |
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*10.16 | 10.13 | | Amended and Restated AutoZone, Inc. 2003 Director Stock Option Plan. Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K dated January 4, 2008. |
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| *10.17 | 10.14 | | AutoZone, Inc. Enhanced Severance Pay Plan. Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K dated February 15, 2008. |
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| *10.18 | 10.15 | | Form of non-compete and non-solicitation agreement signed by each of the following executive officers: Jon A. Bascom, Timothy W. Briggs, Mark A. Finestone, William T. Giles, William W. Graves, Ronald B. Griffin, Lisa R. Kranc, Thomas B. Newbern, Charlie Pleas, III, Larry M. Roesel, and JamesMike A. Shea;Womack; and by AutoZone, Inc., with an effective date of February 14, 2008, for each. Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K dated February 15, 2008. |
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| *10.19 | 10.16 | | Form of non-compete and non-solicitation agreement approved by AutoZone’s Compensation Committee for execution by non-executive officers. Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K dated February 15, 2008. |
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| *10.20 | 10.17 | | Agreement dated February 14, 2008, between AutoZone, Inc. and William C. Rhodes, III. Incorporated by reference to Exhibit 99.399.4 to the Current Report on Form 8-K dated February 15, 2008. |
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| *10.21 | 10.18 | | Form of non-compete and non-solicitation agreement signed by each of the following officers: Rebecca W. Ballou, Dan Barzel, Craig Blackwell, Brian L. Campbell, Philip B. Daniele, III, Robert A. Durkin, Bill Edwards, Joseph Espinosa, Preston B. Frazer, Stephany L. Goodnight, David Goudge, James C. Griffith, William R. Hackney, Rodney Halsell, Diana H. Hull, Jeffery Lagges, Grantland E. McGee, Jr., Mitchell Major, Ann A. Morgan, J. Scott Murphy, Jeffrey H. Nix, Raymond A. Pohlman, Elizabeth Rabun, Juan A. Santiago, Joe L. Sellers, Jr., Brett Shanaman, Jamey Traywick, Solomon Woldeslassie, and Solomon Woldeslassie.Kristen C. Wright; and by AutoZone, Inc. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended May 3, 2008. |
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| 10.22 | | | Agreement, dated as of June 25, 2008 between AutoZone, Inc. and ESL Investments, Inc. Incorporated by reference to Exhibit 10.1 to the Form 8-K dated June 26, 2008. |
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| *10.23 | 10.19 | | Second Amended and Restated Employment and Non-Compete Agreement between AutoZone, Inc. and Harry L. Goldsmith dated December 29, 2008. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated December 30, 2008. |
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| *10.24 | 10.20 | | Amended and Restated Employment and Non-Compete Agreement between AutoZone, Inc. and Robert D. Olsen dated December 29, 2008. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K dated December 30, 2008. |
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| *10.25 | 10.21 | | First Amendment to Amended and Restated Employment Agreement between AutoZone, Inc. and Robert D. Olsen dated September 29, 2009. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated September 30, 2009. |
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| *10.26 | 10.22 | | AutoZone, Inc. 2010 Executive Incentive Compensation Plan, incorporated by reference to Exhibit A to the definitive proxy statement dated October 26, 2009, for the Annual Meeting of Stockholders held December 16, 2009. |
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| *10.23 | | AutoZone, Inc. 2011 Equity Incentive Award Plan, incorporated by reference to Exhibit A to the definitive proxy statement dated October 25, 2010, for the Annual Meeting of Stockholders held December 15, 2010. |
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| *10.24 | | Form of Stock Option Agreement under the 2006 Stock Option Plan, effective September 2010. Incorporated by reference to Exhibit 10.2 to the Quarterly Report of Form 10-Q dated December 16, 2010. |
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| *10.25 | | Form of Stock Option Agreement under the 2006 Stock Option Plan for certain executive officers, effective September 2010. Incorporated by reference to Exhibit 10.3 to the Quarterly Report of Form 10-Q dated December 16, 2010. |
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| *10.26 | | Form of Letter Agreement dated as of December 14, 2010, amending certain Stock Option Agreements of executive officers. Incorporated by reference to Exhibit 10.4 to the Quarterly Report of Form 10-Q dated December 16, 2010. |
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| *10.27 | | AutoZone, Inc. 2011 Director Compensation Program. Incorporated by reference to Exhibit 10.5 to the Quarterly Report of Form 10-Q dated December 16, 2010. |
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| *10.28 | | Performance-Based Restricted Stock Units Award Agreement dated December 15, 2010, between AutoZone, Inc. and William C. Rhodes, III, incorporated by reference to Exhibit 10.2 to the Form 8-K dated December 15, 2010. |
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| *10.29 | | Restricted Stock Award Grant Notice and Restricted Stock Award Agreement between AutoZone, Inc. and Robert D. Olsen dated January 25, 2011. Incorporated by reference to Exhibit 10.1 to the Quarterly Report of Form 10-Q dated March 17, 2011. |
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| *10.30 | | Form of Stock Option Agreement under the 2011 Equity Incentive Award Plan. Incorporated by reference to Exhibit 10.2 to the Quarterly Report of Form 10-Q dated March 17, 2011. |
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| *10.31 | | Form of Stock Option Agreement under the 2011 Equity Incentive Award Plan for certain executive officers. Incorporated by reference to Exhibit 10.3 to the Quarterly Report of Form 10-Q dated March 17, 2011. |
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| *10.32 | | First Amended and Restated AutoZone, Inc. Enhanced Severance Pay Plan. Incorporated by reference to Exhibit 10.4 to the Quarterly Report of Form 10-Q dated March 17, 2011. |
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| *10.33 | | Form of Stock Option Agreement under the 2011 Equity Incentive Award Plan for officers effective September 27, 2011. Incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K for the fiscal year ended August 27, 2011. |
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| *10.34 | | Form of Stock Option Agreement under the 2011 Equity Incentive Award Plan for certain executive officers effective September 27, 2011. Incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K for the fiscal year ended August 27, 2011. |
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| | 12.110.35 | | Amended and Restated Credit Agreement dated as of September, 13, 2011 among AutoZone, Inc. as Borrower, the several Lenders from time to time party thereto, and Bank of America, N.A. as Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A. as Syndication Agent, arranged by Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC as Joint Lead Arrangers and Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC, SunTrust Robinson Humphrey, Inc., U.S. Bank National Association, Wells Fargo Securities, LLC and Barclays Capital as Joint Book Runners. Incorporated by reference to Exhibit 10.39 to the Annual Report on Form 10-K for the fiscal year ended August 27, 2011. |
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| *10.36 | | Sixth Amended and Restated AutoZone, Inc. Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K for the fiscal year ended August 27, 2011. |
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| *10.37 | | Second Amended AutoZone, Inc. Executive Deferred Compensation Plan. Incorporated by reference to Exhibit 10.1 on Form 8-K filed December 14, 2011. |
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| *10.38 | | Offer letter dated May 23, 2012, to Mike A. Womack. |
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| *10.39 | | Offer letter dated April 26, 2012, to Ronald B. Griffin. |
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| *10.40 | | Amended Non-Compete Agreement between AutoZone, Inc. and Jon A. Bascom dated May 25, 2012. |
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| 12.1 | | Computation of Ratio of Earnings to Fixed Charges. |
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| 14.1 | | | Code of Ethical Conduct. Incorporated by reference to Exhibit 14.1 of the Annual Report on Form 10-K for the fiscal year ended August 30, 2003. |
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| 21.1 | | | Subsidiaries of the Registrant. |
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| 23.1 | | | Consent of Ernst & Young LLP. |
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| 31.1 | | | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 31.2 | | | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 32.1 | | | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 32.2 | | | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| **101.INS | | XBRL Instance Document |
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| **101.SCH | | XBRL Taxonomy Extension Schema Document |
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| **101.CAL | | XBRL Taxonomy Extension Calculation Document |
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| **101.LAB | | XBRL Taxonomy Extension Labels Document |
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| **101.PRE | | XBRL Taxonomy Extension Presentation Document |
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| **101.DEF | | XBRL Taxonomy Extension Definition Document |
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| * | | Management contract or compensatory plan or arrangement. |
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| ** | | In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Annual Report on Form 10-K shall be deemed “furnished” and not “filed.” |
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