AutoZone 2009 Annual Report Download

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2009 ANNUAL REPORT
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
AND PROXY STATEMENT
AutoZoners always put customers first!
We know our parts and products.
Going the Extra Mile
Our stores look great !
WOW! Custo mer Service
We’ve got the bes t
mer chan dise at the right pri ce.
Trus twor thy Advi ce

Table of contents

  • Page 1
    A 9 0 20 L A U NN T R O P RE TING E E AL M U N F AN RS O E C E NOTI CKHOLD ENT M E O T T t! s TA r i S f OF S Y mers ROX o P t s D AN t cu u p s ts. y c a u d w o d pr rs al n e a n s o Z art Auto our p t! now We k Our s look tores grea e. best ight pric e h t r t e go t the We'v andise a h merc...

  • Page 2
    ... accessories, and non-automotive products. Many stores also have a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages. AutoZone also sells the ALLDATA brand diagnostic and repair software. On the web...

  • Page 3
    ... were pleased to report that we grew profits and gained market share in each of our four businesses: Retail, Commercial, Mexico and ALLDATA. These results were directly attributable to our dedicated AutoZoners who throughout the year stayed committed to helping their customers. Additionally, we had...

  • Page 4
    ...our actions led to our strong sales results. We also played "offense" in 2009 as our sales accelerated. We aggressively invested in improving our merchandise assortment, enhancing our Hub store network, and training our AutoZoners. As we begin the new year, our plan remains generally consistent with...

  • Page 5
    ..., infrastructure enhancements and new store development. We continue to believe that repurchasing shares is an attractive method for leveraging our strong cash ï¬,ow. We will remain focused on providing great customer service. As we announced in our recent National Sales Meeting, we'll be focused...

  • Page 6

  • Page 7
    notice of annual meeting of stockholders and proxy statement

  • Page 8

  • Page 9
    ... 16, 2009 What: When: Where: Annual Meeting of Stockholders December 16, 2009, 8:30 a.m. Central Standard Time J. R. Hyde III Store Support Center 123 South Front Street Memphis, Tennessee • Election of ten directors • Approval of the AutoZone, Inc. 2010 Executive Incentive Compensation Plan...

  • Page 10
    ... Awards at Fiscal Year-End ...Option Exercises and Stock Vested ...Pension Benefits ...Nonqualified Deferred Compensation ...Potential Payments upon Termination or Change in Control ...Related Party Transactions ...Equity Compensation Plans ...Section 16(a) Beneficial Ownership Reporting Compliance...

  • Page 11
    ... Company" mean AutoZone, Inc., and • "Annual Meeting" or "Meeting" means the Annual Meeting of Stockholders to be held on December 16, 2009, at 8:30 a.m. CST at the J. R. Hyde III Store Support Center, 123 South Front Street, Memphis, Tennessee. • "Board" means the Board of Directors of AutoZone...

  • Page 12
    ... in person at the Annual Meeting. What if I have shares in the AutoZone Employee Stock Purchase Plan? If you have shares in an account under the AutoZone Employee Stock Purchase Plan, you have the right to vote the shares in your account. To do this you must sign and timely return the proxy card you...

  • Page 13
    ... the Company's Corporate Governance Principles and the rules of the New York Stock Exchange. William C. Crowley and Robert R. Grusky were identified by ESL and were appointed to the Board in accordance with the ESL Agreement and approved by AutoZone's shareholders at AutoZone's 2008 Annual Meeting...

  • Page 14
    ... of the Board of Sears Canada, Inc. since December 2006. Since January 1999, Mr. Crowley has also been President and Chief Operating Officer of ESL Investments, Inc., a private investment firm. From May 2003 until March 2005, Mr. Crowley served as director and Senior Vice President, Finance of Kmart...

  • Page 15
    ..., Chief Executive Officer, and a director since 2005. Prior to his appointment as President and Chief Executive Officer, Mr. Rhodes was Executive Vice President - Store Operations and Commercial. Prior to fiscal 2005, he had been Senior Vice President - Supply Chain and Information Technology since...

  • Page 16
    ... family members that are relevant under applicable laws and regulations, the listing standards of the New York Stock Exchange, and the standards contained in our Corporate Governance Principles (listed above). The Board relies on information from Company records and questionnaires completed annually...

  • Page 17
    ..., and Nominating & Corporate Governance Committees; a Code of Business Conduct & Ethics for directors, officers and employees of AutoZone; and a Code of Ethical Conduct for Financial Executives. Each of these documents is available on our corporate website at www.autozoneinc.com and is also...

  • Page 18
    ... Corporate Governance Principles, to: • review and approve AutoZone's compensation objectives; • review and approve the compensation programs, plans and awards for executive officers, including recommending equity-based plans for stockholder approval; • act as administrator as may be required...

  • Page 19
    ... under the standards of AutoZone's Corporate Governance Principals and the listing standards of the New York Stock Exchange. How many times did the Compensation Committee meet during the last fiscal year? During the 2009 fiscal year, the Compensation Committee held three meetings. Where can I find...

  • Page 20
    ... expertise, crisis response, industry knowledge, international markets, strategy and vision. These characteristics and competencies are set forth in more detail in AutoZone's Corporate Governance Principles, which are available on AutoZone's corporate website at www.autozoneinc.com. How does...

  • Page 21
    ...options awarded under the AutoZone, Inc. 2003 Director Stock Option Plan and its predecessor, the 1998 Director Stock Option Plan. It includes amounts from awards granted in and prior to fiscal 2009. See Note B, Share-Based Payments, to our consolidated financial statements in our 2009 Annual Report...

  • Page 22
    and the assumptions used. As of August 29, 2009, each non-employee director had the following aggregate number of outstanding Stock Units and stock options: Director Stock Units (#) Stock Options* (#) William C. Crowley ...Charles M. Elson**...Sue E. Gove ...Earl G. Graves, Jr...Robert R. Grusky ...

  • Page 23
    ...-Based Payments, to our consolidated financial statements in our 2009 Annual Report for a discussion of our accounting for share-based awards and the assumptions used. Grant Date Fair Value of Stock Awards ($) Grant Date Fair Value of Option Awards ($) Proxy Name Grant Date William C. Crowley...

  • Page 24
    ...of the grant date. Upon the director's termination of service, he or she will receive the number of shares of common stock with which his or her unit account is credited, either in a lump sum or installments, as elected by the director under the Director Compensation Plan. Director Stock Option Plan...

  • Page 25
    ...compensation election, prorated for the portion of the year served in office. Stock option grants are made at the fair market value of the common stock as of the grant date, defined in the plan as the average of the highest and lowest prices quoted for the common stock on the New York Stock Exchange...

  • Page 26
    ... Earnings Earnings per share Sales Market share Operating or net cash flows Pre-tax profits Earnings before interest and taxes (EBIT Return on invested capital (ROIC) Economic value added Return on inventory EBIT margin Gross profit margin Sales per square foot Comparable store sales Proxy The...

  • Page 27
    ....) The Company's executive officers are eligible to participate in the plan. (Thirteen employees participated during the 2009 fiscal year.) Performance periods are annual. Who participated in the existing plan during the last fiscal year? Thirteen AutoZone executives were granted bonuses under...

  • Page 28
    .... (3) Tax Fees for 2008 were for advice relating to the Company's debt offering and assistance with issues relating to international and domestic federal, state and local transfer pricing. The Audit Committee pre-approves all services performed by the independent registered public accounting firm...

  • Page 29
    ... under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein. Other Matters We do not know of any matters to be presented at the Annual Meeting other than those discussed in this Proxy Statement...

  • Page 30
    ... either immediately or within 60 days of October 19, 2009. (3) Mr. Crowley is the President and Chief Operating Officer of ESL Investments, Inc. which together with various of its affiliates owns AutoZone common stock as shown in the "Security Ownership of Certain Beneficial Owners" on page 21. Mr...

  • Page 31
    ... is a limited partner in RBS Partners, L.P. ("RBS Partners"), which together with various of its affiliates owns AutoZone common stock as shown in the "Security Ownership of Certain Beneficial Owners" on page 21. Mr. Ullyot was Executive Vice President and General Counsel of ESL Investments, Inc...

  • Page 32
    ... 2009 cash incentive payment + Black-Scholes value of fiscal 2009 stock option grant): Position Base Salary Annual Incentive Stock Options Proxy Chairman, President & CEO All Other Named Executive Officers ("NEOs") 19% 21% 26% 17% 54% 61% Who participates in AutoZone's executive compensation...

  • Page 33
    ... on the grant date (discounted options are prohibited). • AutoZone's stock option plan prohibits repricing and does not include a "reload" program. • AutoZone maintains a broadbased employee stock purchase plan which is qualified under Section 423 of the Internal Revenue Code. The Employee Stock...

  • Page 34
    Pay Element Description Objectives Management stock ownership requirement • The Company has implemented an Executive Stock Purchase Plan so that executives may continue to purchase AutoZone shares beyond the limit the IRS and the company set for the Employee Stock Purchase Plan. An AutoZoner ...

  • Page 35
    ....) related to: • base salaries • variable compensation • total annual cash compensation • long-term incentive compensation • total direct compensation The salary surveys cover both the retail industry and compensation data on a broader, more general public company universe. Multiple salary...

  • Page 36
    ... limit. The specific targets are tied to achievement of the Company's operating plan for the fiscal year. In 2009, the target objectives were EBIT of $1,137.3 million and ROIC of 23.5%. The 2009 incentive awards for each named executive officer were based on the following performance: EBIT (Amounts...

  • Page 37
    ... to growth in the per-share value of AutoZone common stock. In order to support and facilitate stock ownership by our executive officers, a portion of their annual stock option grant typically consists of Incentive Stock Options ("ISOs"). If an executive holds the stock acquired upon exercise of an...

  • Page 38
    ... from this policy as it deems appropriate. Newly promoted or hired officers may receive a grant shortly after their hire or promotion. As a general rule, new hire or promotional stock options are approved and effective on the date of a regularly scheduled meeting of the Compensation Committee. On...

  • Page 39
    ...required ownership level. In order to calculate whether each executive meets the ownership requirement, we total the value of each executive's holdings of whole shares of stock and the intrinsic (or "in-the-money") value of vested stock options, based on the fiscal year-end closing price of AutoZone...

  • Page 40
    ... usually relate to base salary increases and stock option grants. The Chief Executive Officer also recommends pay packages for newly hired executives. Management provides the Compensation Committee with data, analyses and perspectives on market trends and annually prepares information to assist the...

  • Page 41
    ...prior work for the Company and how it has impacted executive compensation. Although historically we have hired consultants to provide services from time to time, it is not our usual practice, and as discussed previously, AutoZone does not regularly engage consultants as part of our annual review and...

  • Page 42
    ...Internal Revenue Code was created with the passage of the American Jobs Creation Act of 2004. These new tax regulations create strict rules related to non-qualified deferred compensation earned and vested on or after January 1, 2005. AutoZone has conducted a thorough assessment of all affected plans...

  • Page 43
    ... Executive Stock Purchase Plan. See "Compensation Discussion and Analysis" on page 21 for more information about this plan. See Note B, Share-Based Payments, to our consolidated financial statements in our 2009 Annual Report for a description of the Executive Stock Purchase Plan and the accounting...

  • Page 44
    ... the Company purchased the home and the expected sales price at the end of fiscal 2007. (C) Represents employer contributions to the AutoZone, Inc. 401(k) Plan and the AutoZone, Inc. Executive Deferred Compensation Plan. (D) Represents transition payments to Mr. Goldsmith which the Company pays to...

  • Page 45
    ... The following table sets forth information regarding plan-based awards granted to the Company's Named Executive Officers during the 2009 fiscal year. All other Closing Price Option Awards: All other Estimated Future Payments Stock Awards: Grant Date on Date Number of Under Nonequity Incentive Fair...

  • Page 46
    ...share Operating or net cash flows Pre-tax profits Earnings before interest and taxes Return on invested capital Economic value added Return on inventory Gross profit margin Sales per square foot Comparable store sales Proxy The EICP provides that the goal may be different for different executives...

  • Page 47
    ...Executive Stock Purchase Plan for the Company's Named Executive Officers as of August 29, 2009: Proxy Option Awards Number of Securities Underlying Unexercised Options(1) Grant Date Exercisable Unexercisable Name Option Exercise Price Option Expiration Date Stock Awards Number Market of Shares...

  • Page 48
    ... of Securities Underlying Unexercised Options(1) Grant Date Exercisable Unexercisable Name Option Exercise Price Option Expiration Date Stock Awards Market Number Value of Shares of Shares of Stock of Stock that that have have not Vested(2) not Vested(3) Proxy Robert D. Olsen ...04/24/00 09...

  • Page 49
    ... information regarding pension benefits for the Company's Named Executive Officers as of August 29, 2009: Number of Years of Credited Service Present Value of Accumulated Benefit ($)(1) Payments During Last Fiscal Year ($) Name Plan Name William C. Rhodes III ...AutoZone, Inc. Associates Pension...

  • Page 50
    ... least ten (10) years of service for vesting (i.e. years in which the participant worked at least 1,000 hours after becoming a Pension Plan participant). The early retirement date will be the first of any month after the participant meets these requirements and chooses to retire. Benefits may begin...

  • Page 51
    ...after their first year of employment with the Company. As of August 29, 2009, there were 43 such officers of the Company. The EDCP is a nonqualified plan that allows officers who participate in AutoZone's 401(k) plan to make a pretax deferral of base salary and bonus compensation. Officers may defer...

  • Page 52
    ... and vision insurance benefits generally continue through the severance period up to a maximum of 18 months, with the Company paying the cost of COBRA premiums to the extent such premiums exceed the amount the executive had been paying for such coverage. An appropriate level of outplacement services...

  • Page 53
    ... 32 hours a week to AutoZone's business. The Continuation Period under his Employment Agreement will change from two years to one year, as described above. Equity Plans All outstanding, unvested options granted pursuant to the Stock Option Plans, including those held by the Named Executive Officers...

  • Page 54
    ...the Named Executive Officers would have received if their employment had been involuntarily terminated on August 29, 2009. This table does not include amounts related to the Named Executive Officers' vested benefits under our deferred compensation and pension plans or pursuant to stock option awards...

  • Page 55
    ... termination by AutoZone without cause, stock options that would have vested during their "continuation period" (three years for Mr. Goldsmith and two years for Mr. Olsen) vest immediately upon their termination date. Unvested stock awards are share options under the Executive Stock Purchase Plan...

  • Page 56
    ... comply with the policies and procedures specified in our Code of Ethics and Business Conduct and Corporate Governance Principles, as described below. The Policy also requires disclosure of all Related Person Transactions that are required to be disclosed in AutoZone's filings with the Securities...

  • Page 57
    ... and Exchange Commission and the New York Stock Exchange relating to the number of shares of common stock that they own, and any changes in their ownership. To our knowledge, all persons related to AutoZone that are required to file these insider trading reports have filed them in a timely manner...

  • Page 58
    ANNUAL REPORT A copy of our Annual Report is being mailed with this Proxy Statement to all stockholders of record. By order of the Board of Directors, Proxy Harry L. Goldsmith Secretary Memphis, Tennessee October 26, 2009 48

  • Page 59
    ... The AutoZone, Inc. 2010 Executive Incentive Compensation Plan ("Plan") is designed to provide incentives to eligible employees of AutoZone, Inc. (the "Company") and its affiliates who have significant responsibility for the success and growth of the Company and assist the Company in attracting...

  • Page 60
    ...(d) market share; (e) operating or net cash flows; (f) pre-tax profits; (g) earnings before interest and taxes (EBIT); (h) return on invested capital; (i) economic value added; (j) return on inventory; (k) EBIT margin; (l) gross profit margin; (m) sales per square foot; or (n) comparable store sales...

  • Page 61
    ...the limits of Code Section 162(m), or terminated by the Committee at any time. However, no amendment to the Plan shall be effective without prior approval of the Company's stockholders which would (i) increase the maximum amount that may be paid under the Plan to any person, (ii) modify the business...

  • Page 62
    Proxy (This page intentionally left blank)

  • Page 63
    form 10-K

  • Page 64

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    ... of amounts accrued within deferred rent and closed store obligations reflected in our consolidated balance sheets. (4) Capital lease obligations include related interest. (5) The Company retains a significant portion of the risks associated with workers compensation, employee health, general and...

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    ... automatic renewal clauses. In conjunction with our commercial sales program, we offer credit to some of our commercial customers. Historically, certain of the receivables related to this credit program were sold to a third party at a discount for cash with limited recourse. At August 30, 2008, we...

  • Page 91
    ... end of the prior fiscal year and each of the 13 fiscal periods of the current fiscal year. (3) Rent is multiplied by a factor of six to capitalize operating leases in the determination of pre-tax invested capital. This calculation excludes the impact from the cumulative lease accounting adjustments...

  • Page 92
    ... as the sum of total debt, capital lease obligations and annual rents times six; divided by net income plus interest, taxes, depreciation, rent and stock option expenses. The adjusted debt to EBITDAR ratios are presented in the "Selected Financial Data". (in thousands, except for Adjusted Debt to...

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    ... Statements of Income Year Ended August 29, 2009 (52 Weeks) August 30, 2008 (53 Weeks) August 25, 2007 (52 Weeks) (in thousands, except per share data) Net sales ...Cost of sales, including warehouse and delivery expenses ...Gross profit ...Operating, selling, general and administrative expenses...

  • Page 104
    ... Sheets (in thousands, except per share data) August 29, 2009 August 30, 2008 Assets Current assets: Cash and cash equivalents ...$ 92,706 Accounts receivable...126,514 Merchandise inventories ...2,207,497 Other current assets ...135,013 Total current assets ...2,561,730 Property and equipment...

  • Page 105
    ......Net proceeds from sale of common stock ...Purchase of treasury stock...Income tax benefit from exercise of stock options ...Payments of capital lease obligations ...Other...Net cash used in financing activities ...Effect of exchange rate changes on cash ...Net increase (decrease) in cash and cash...

  • Page 106
    ...date, net of taxes of $198 ...Purchase of 9,313 shares of treasury stock ...Issuance of 3 shares of common stock ...Retirement of treasury shares...Sale of common stock under stock option and stock purchase plans...Share-based compensation expense ...Income tax benefit from exercise of stock options...

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  • Page 111
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  • Page 113
    .... The Company generally issues new shares when options are exercised. The following table summarizes information about stock option activity for the year ended August 29, 2009: Number of Shares Weighted Average Exercise Price Weighted-Average Remaining Contractual Term (years) Aggregate Intrinsic...

  • Page 114
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  • Page 115
    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 automotive. Note D - Income Taxes The provision ...

  • Page 116
    ... for the payment of interest and penalties associated with unrecognized tax benefits at August 29, 2009 and August 30, 2008 respectively. The major jurisdictions where the Company files income tax returns are the United States and Mexico. With few exceptions, tax returns filed for tax years 2004...

  • Page 117
    ...other current assets. Short-term investments are typically valued at the closing price in the principal active market as of the last business day of the quarter. Note F - Accumulated Other Comprehensive Income Accumulated other comprehensive income includes certain adjustments to pension liabilities...

  • Page 118
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  • Page 119
    ... adjusted debt as the sum of total debt, capital lease obligations and rent times six; and the Company calculates EBITDAR by adding interest, taxes, depreciation, amortization, rent and stock option expenses to net income. At August 29, 2009, the adjusted debt/EBITDAR ratio was 2.5:1. On August...

  • Page 120
    ... pay down the Company's commercial paper borrowings, to prepay in full the $300 million term loan in August 2009, and the remainder for general corporate purposes, including for working capital requirements, capital expenditures, new store openings and stock repurchases. The 6.50% and 7.125% Senior...

  • Page 121
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  • Page 122
    ...risk, while realizing investment returns in excess of market indices. The weighted average asset allocation for our pension plan assets was as follows: August 29, 2009 Current Domestic equities ...International equities ...Alternative investments ...Real estate...Cash and cash equivalents...17.0% 40...

  • Page 123
    ...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...

  • Page 124
    ... are placed in service. Minimum annual rental commitments under non-cancelable operating leases and capital leases were as follows at the end of fiscal 2009: Fiscal Year (in thousands) Operating Leases Capital Leases $16,932 16,402 13,729 7,420 1,220 - 55,703 (939) $54,764 2010...$ 177,781 2011...

  • Page 125
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  • Page 126
    ... for the fiscal years ended: (in thousands) Net Sales Auto Parts Stores ...Other ...Total ...Segment Profit Auto Parts Stores ...Other ...Gross profit ...Operating, selling, general, and administrative...Interest expense, net...Income before income taxes ...Segment Assets Auto Parts Stores ...Other...

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    10-K

  • Page 143
    corporate information

  • Page 144

  • Page 145
    ...General Counsel and Secretary Robert D. Olsen†Store Operations, Commercial and Mexico James A. Shea†Merchandising, Marketing and Supply Chain Senior Vice Presidents Customer Satisfaction Jon A. Bascom†Information Technology and Chief Information Officer Timothy W. Briggs†Human Resources...

  • Page 146

  • Page 147
    ...III Store Support Center, 123 South Front Street, Memphis, Tennessee AutoZone Web Sites Investor Relations: www.autozoneinc.com Company Web site: www.autozone.com Stock Exchange Listing New York Stock Exchange Ticker Symbol: AZO Auditors Ernst & Young, LLP Memphis, Tennessee Code of Ethical Conduct...

  • Page 148
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