AutoZone 2011 Annual Report Download

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2011 ANNUAL REPORT
notice of annual meeting of stockholders
and proxy statement

Table of contents

  • Page 1
    2011 ANNUAL REPORT notice of annual meeting of stockholders and proxy statement

  • Page 2
    ... 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, dealers, service stations, and public sector accounts. AutoZone also sells the ALLDATA brand of diagnostic and repair software...

  • Page 3
    ...these past few years was to improve our industryleading Retail customer market share, to profitably grow our Commercial business, and to prudently pace our new store openings in Mexico. We have also focused on improving our technology offerings for our ALLDATA suite of products and the autozone.com...

  • Page 4
    ... inventory in the local market while pulling slower-turning inventory from surrounding stores. By utilizing this network of "in market" distribution nodes, we were able to add millions of dollars in new parts. These parts additions noticeably added to our Retail and Commercial sales this past year...

  • Page 5
    .... This past year we continued to add sales staff, which reinforces our belief that more intense personal focus on existing account management will drive continued results. With annual Commercial industry sales estimated at north of $50 billion*, our relatively small market share, approximately...

  • Page 6
    ... ourselves to build on the successes we had in both 2009 and 2010. In fact, our results accelerated, and we achieved greater total sales, same store sales, and earning per share growth than in either of the two previous strong years. So it goes without saying, in an organization that prides...

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

  • Page 8

  • Page 9
    ... of October 17, 2011, may vote at the meeting. By order of the Board of Directors, Harry L. Goldsmith Secretary Memphis, Tennessee October 24, 2011 We encourage you to vote by telephone or Internet, both of which are convenient, cost-effective and reliable alternatives to returning your proxy card...

  • Page 10
    ... 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 ...Stockholder Proposals for 2012 Annual Meeting...

  • Page 11
    ... "the Company" mean AutoZone, Inc. • "Annual Meeting" or "Meeting" means the Annual Meeting of Stockholders to be held on December 14, 2011, 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
    ... broker permitting you to vote the shares 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...

  • Page 13
    ... the Board of two directors identified by ESL who were reasonably acceptable to a majority of the members of the Nominating and Corporate Governance Committee of the Board and were "independent" under the Company's Corporate Governance Principles and the rules of the New York Stock Exchange. William...

  • Page 14
    ... 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 by each director. As part of...

  • Page 15
    ... currently provides the best board leadership structure for AutoZone. This structure, together with our other corporate governance practices, provides strong independent oversight of management while ensuring clear strategic alignment throughout the Company. Our Lead Director is a non-employee...

  • Page 16
    ...& 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 available, free of charge...

  • Page 17
    ... directors under the standards of AutoZone's Corporate Governance Principles and the listing standards of the New York Stock Exchange. Does the Audit Committee have an Audit Committee Financial Expert? The Board has determined that Ms. Gove, Mr. McKenna, Mr. Mrkonic and Mr. Nieto each meet...

  • Page 18
    ...on our corporate website at www.autozoneinc.com and is also available, free of charge, in print to any stockholder who requests it. Audit Committee Report The Audit Committee of AutoZone, Inc. has reviewed and discussed AutoZone's audited financial statements for the year ended August 27, 2011, with...

  • Page 19
    ... whom are independent directors under the standards of AutoZone's Corporate Governance Principles 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 2011 fiscal year, the Compensation Committee held six...

  • Page 20
    ...size of the Board, whether a candidate is independent, how many other public company directorships a candidate holds, and the listing standards requirements of the New York Stock Exchange. The Nominating and Corporate Governance Committee recognizes the importance of selecting directors from various...

  • Page 21
    ... and Chief Executive Officer, serves on the Board but does not receive any compensation for his service as a director. His compensation as an employee of the Company is shown in the Summary Compensation Table on page 34. (2) Under the AutoZone, Inc. 2003 Director Compensation Plan (the "2003 Plan...

  • Page 22
    ... date that a non-employee director ceases to be a director of the Company (the "Payment Date"). Restricted Stock Units are paid in shares of AutoZone common stock as soon as practicable after the Payment Date, to be no later than the fifteenth day of the third month following the end of the tax year...

  • Page 23
    ... additional option to purchase 1,500 shares. Stock option grants were 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 on the business day immediately...

  • Page 24
    ... years of joining the Board, each director must personally invest at least $150,000 in AutoZone stock. Shares, Stock Units and Restricted Stock Units issued under the AutoZone, Inc. Second Amended and Restated Director Compensation Plan, the 2003 Director Compensation Plan and the 2011 Equity Plan...

  • Page 25
    ... acquired upon exercise of stock options either immediately or within 60 days of October 17, 2011. (3) Includes Restricted Stock Units that may be acquired within sixty (60) days of termination of service as a director. (4) Mr. Crowley is the President and Chief Operating Officer of ESL Investments...

  • Page 26
    ... is the manager of Tynan, LLC and the President and Chief Operating Officer of ESL Investments, Inc. Mr. Crowley is also a current Director of AutoZone. In their respective capacities, each of the foregoing may be deemed to be the beneficial owner of the shares of AutoZone common stock beneficially...

  • Page 27
    ... Chief Financial Officer until 2003. Experience, Skills and Qualifications: The Board believes Ms. Gove is qualified to serve as a director of the Company based on her experience in executive retail operations and finance roles, her knowledge of accounting, financial reporting, and financial systems...

  • Page 28
    ...FedEx Corporation from 1977 to September 2011. Experience, Skills and Qualifications: The Board believes Mr. Hyde, the founder and a former Chairman and Chief Executive Officer of AutoZone, is qualified to serve as a director of the Company based on his extensive knowledge of AutoZone's business and...

  • Page 29
    ...: The Board believes Mr. Rhodes, AutoZone's Chairman and Chief Executive Officer, is qualified to serve as a director of the Company based on his 16 years' experience with the Company, which have included responsibility for corporate strategy, executive management, operations and supply chain; his...

  • Page 30
    ... of an executive officer's total compensation package each year is the potential value of his or her stock options, which yield value to the executive only if the stock price appreciates. Our management stock ownership requirement effectively promotes meaningful and significant stock ownership by...

  • Page 31
    ... with the Board of Directors. However, the Board values the opinions of our stockholders and will take into account the outcome of the vote in considering the frequency of future advisory votes on executive compensation. In accordance with Securities and Exchange Commission rules, stockholders will...

  • Page 32
    .... The table below illustrates how AutoZone's compensation program weights the "at-risk" components of its Named Executive Officers' 2011 total compensation (using actual base earnings + fiscal 2011 annual cash incentive payment + the value of fiscal 2011 stock and option grants). While the values of...

  • Page 33
    ...Committee consists of the Chief Executive Officer and officers with the title of senior vice president or executive vice president (a total of 11 executives at the end of fiscal 2011). However, many elements of the compensation program also apply to other levels of AutoZone management. The intent is...

  • Page 34
    ...IRS and the company set for the Employee Stock Purchase Plan. An executive may make purchases using up to 25% of his prior fiscal year's eligible compensation. • AutoZone implemented a stock ownership requirement during fiscal 2008 for executive officers. • Covered executives must meet specified...

  • 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
    ... total rewards at or above the market median through performance-based variable compensation. In making decisions related to compensation of the Named Executive Officers, the Compensation Committee uses the survey data and salary ranges as context in reviewing compensation levels and approving pay...

  • Page 37
    ... the median market level. Similarly, Company performance below target will cause an executive's total annual cash compensation to drop below market median. As discussed below, AutoZone does not engage in strict benchmarking of compensation levels, i.e., we do not use specific data to support precise...

  • Page 38
    ... reports and other senior executives are recommended to the Compensation Committee by the Chief Executive Officer, based on individual performance and the size and scope of the position held. AutoZone's general policy is to limit the total option shares granted to its employees during the annual...

  • Page 39
    ...-tax base or incentive compensation (after making annual elections as required under Section 409A of the Internal Revenue Code) for use in making quarterly purchases of AutoZone common stock. Options are granted under the Executive Stock Purchase Plan each calendar quarter and consist of two parts...

  • Page 40
    .... The Chief Executive Officer's compensation is reviewed annually by the Compensation Committee in conjunction with a review of his individual performance by the non-management directors, taking into account all forms of compensation, including base salary, annual cash incentive, stock options and...

  • Page 41
    ... reports and other senior executives, including the executive officers. These recommendations 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...

  • Page 42
    ... the Chief Executive Officer, were fully deductible in 2011, because in no case did the sum of this compensation exceed $1 million. Section 409A of the Internal Revenue Code was created with the passage of the American Jobs Creation Act of 2004. These new tax regulations create strict rules related...

  • Page 43
    ... the 2011 fiscal year are listed above. The Compensation Committee is composed solely of independent, non-employee directors. Compensation Program Risk Assessment Proxy AutoZone's management conducts an annual assessment of the compensation plans and programs that apply throughout the Company...

  • Page 44
    ... to the Named Executive Officers. Change In Pension Value & Non-qualified Non-Equity Deferred Stock Option Incentive Plan Compensation All Other Salary Bonus Awards Awards Compensation Earnings Compensation Year ($) ($)(1) ($)(2)(3) ($)(3) ($)(4) ($)(5) ($)(6) 2011 2010 2009 2011 2010 2009 992,308...

  • Page 45
    ... 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 certain individuals due to their age and service as of the date the AutoZone, Inc. Associates Pension Plan was frozen...

  • Page 46
    ... forth information regarding plan-based awards granted to the Company's Named Executive Officers during the 2011 fiscal year. Proxy Name William C. Rhodes III ...William T. Giles ...Robert D. Olsen ...Harry L. Goldsmith ...Larry M. Roesel ... All other Stock All other Option Exercise Closing price...

  • Page 47
    ...per share Sales Market share Operating or net cash flows Pre-tax profits Earnings before interest and taxes (EBIT Return on invested capital Economic value added Return on inventory EBIT margin Sales per square foot Comparable store sales Proxy The EICP provides that the goal may be different for...

  • Page 48
    ...000 performance restricted stock units pursuant to the 2011 Equity Plan, all or a portion of which will be earned and vest if AutoZone's stock price or earnings per share reach certain levels by 2015 or 2016. See "Compensation Discussion and Analysis" at page 22 for more information about this award...

  • Page 49
    ...Stock Purchase Plan for the Company's Named Executive Officers as of August 27, 2011: Proxy Option Awards Number of securities underlying unexercised options(1) Name Grant Date Exercisable Unexercisable Option Exercise Price Stock Awards Market Number value of shares of shares of stock of stock...

  • Page 50
    ..., disability or retirement. (3) Based on the closing price of AutoZone common stock on August 26, 2011 ($301.30 per share). (4) Represents a grant of performance restricted stock units pursuant to the 2011 Equity Plan. (5) Represents a restricted stock award pursuant to the 2011 Equity Plan. 40

  • Page 51
    ...,950 The following table sets forth information regarding pension benefits for the Company's Named Executive Officers as of August 27, 2011: Number of Years of Credited Service Present Value of Accumulated Benefit ($)(1) Payments During Last Fiscal Year ($) Name Plan Name William C. Rhodes III...

  • Page 52
    ... covered full-time AutoZone employees who were at least 21 years old and had completed one year of service with the Company. The benefits under the Pension Plan were based on years of service and the employee's highest consecutive five-year average compensation. Compensation included total annual...

  • Page 53
    ... in the United States are eligible to participate in the EDCP after their first year of employment with the Company. As of August 27, 2011, there were 43 such officers of the Company. The EDCP is a nonqualified plan that allows officers to make a pretax deferral of base salary and bonus compensation...

  • Page 54
    ... is terminated by the Company without cause, he will receive severance benefits consisting of an amount equal to 2.99 times his then-current base salary, a lump sum prorated share of any unpaid annual bonus incentive for periods during which he was employed, and AutoZone will pay the cost of COBRA...

  • Page 55
    ... by AutoZone without cause, and the executive experiences a "separation from service" (within the meaning of Section 409A and related regulations), Mr. Goldsmith will receive certain benefits for three years after the termination date and Mr. Olsen will receive certain benefits for one year after...

  • Page 56
    ... to receive an executive long-term disability plan benefit in the amount of 70% of the next $35,714 of insurable monthly earnings to a maximum benefit of $25,000 per month. AutoZone purchases insurance to cover this plan benefit. These two benefits combined provide a maximum benefit of $30,000...

  • Page 57
    ...employment had been terminated under specified circumstances on August 27, 2011. 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, all of which are described in the tables...

  • Page 58
    ... 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 and Exchange Commission, in accordance...

  • Page 59
    ...adopted a Code of Business Conduct (the "Code of Conduct") that applies to the Company's directors, officers and employees. The Code of Conduct prohibits directors and executive officers from engaging in activities that create conflicts of interest, taking corporate opportunities for personal use or...

  • Page 60
    ... require our executive officers, directors, and beneficial owners of more than ten percent of our common stock to file insider trading reports (Forms 3, 4, and 5) with the Securities and Exchange Commission and the New York Stock Exchange relating to the number of shares of common stock that they...

  • Page 61
    form 10-K

  • Page 62

  • Page 63
    ... to such filing requirements for the past 90 days. Yes 7 No Â... Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405...

  • Page 64
    ...quarter was $7,312,576,491. The number of shares of Common Stock outstanding as of October 17, 2011, was 39,888,099. Documents Incorporated By Reference Portions of the definitive Proxy Statement to be filed within 120 days of August 27, 2011, pursuant to Regulation 14A under the Securities Exchange...

  • Page 65
    ...CONTENTS PART I...5 Item 1. Business ...5 Introduction ...5 Marketing and Merchandising Strategy...6 Commercial ...7 Store Operations ...8 Store Development ...9 Purchasing and Supply Chain...9 Competition ...9 Trademarks and Patents ...10 Employees ...10 AutoZone Website ...10 Executive Officers of...

  • Page 66
    ... materially and adversely affect our business. Forward-looking statements speak only as of the date made. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Actual...

  • Page 67
    ... replacement parts and accessories. We began operations in 1979 and at August 27, 2011 operated 4,534 stores in the United States, including Puerto Rico, and 279 in Mexico. Each of our stores carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and...

  • Page 68
    ... customer or a repair shop would have little or no use other than for a single job. AutoZoners also provide other free services, including check engine light readings where allowed by law, battery charging, the collection of used oil for recycling, and the testing of starters, alternators, batteries...

  • Page 69
    .... In-store signage and special displays promote products on floor displays, end caps and shelves. Commercial Our commercial sales program operates in a highly fragmented market, and we are one of the leading distributors of automotive parts and other products to local, regional and national repair...

  • Page 70
    ... AutoZoners to efficiently look up the parts that our customers need and to provide complete job solutions, advice and information for customer vehicles. Z-net provides parts information based on the year, make, model and engine type of a vehicle and also tracks inventory availability at the store...

  • Page 71
    ...customer service, store location and price. AutoZone competes in both the retail DIY and commercial do-it-for-me ("DIFM") auto parts and products markets. Competitors include national, regional and local auto parts chains, independently owned parts stores, on-line parts stores, jobbers, repair shops...

  • Page 72
    ... was a manager with Ernst & Young LLP. Mr. Rhodes is currently a member of the Board of Directors for Dollar General Corporation. William T. Giles, 52-Chief Financial Officer and Executive Vice President - Finance, Information Technology and Store Development, Customer Satisfaction William T. Giles...

  • Page 73
    ...Senior Vice President - Commercial during fiscal 2007. Mr. Roesel came to AutoZone with more than thirty years of experience with OfficeMax, Inc. and its predecessor, where he served in operations, sales and general management. Robert D. Olsen, 58-Corporate Development Officer, Customer Satisfaction...

  • Page 74
    ... service, store location and price. Competitors are opening locations near our existing stores. AutoZone competes as a provider in both the DIY and DIFM auto parts and accessories markets. Competitors include national, regional and local auto parts chains, independently owned parts stores, on-line...

  • Page 75
    ... to open stores at historical rates or continue to achieve increases in same-store sales. If we cannot profitably increase our market share in the commercial auto parts business, our sales growth may be limited. Although we are one of the largest sellers of auto parts in the commercial market, to...

  • Page 76
    ... in part on new store openings, existing store remodels and expansions and effective utilization of our existing supply chain and hub network. Our continued growth and success will depend in part on our ability to open and operate new stores and expand and remodel existing stores to meet customers...

  • Page 77
    ... brand name and its continued effectiveness in driving our sales growth are dependent to a significant degree on our ability to maintain our reputation for safety, high product quality, friendliness, service, trustworthy advice, integrity and business ethics. Any negative publicity about these types...

  • Page 78
    ... centers servicing our stores, of which approximately 1.3 million square feet is leased and the remainder is owned. Our distribution centers are located in Arizona, California, Georgia, Illinois, Ohio, Pennsylvania, Tennessee, Texas and Mexico. Our primary store support center is located in Memphis...

  • Page 79
    .... In 2004, AutoZone acquired a store site in Mount Ephraim, New Jersey that had previously been the site of a gasoline service station and contained evidence of groundwater contamination. Upon acquisition, we voluntarily reported the groundwater contamination issue to the New Jersey Department of...

  • Page 80
    ...Total Number of Shares Purchased - 466,899 509,097 521,928 1,497,924 Average Price Paid per Share $ - 290.75 296.45 280.97 $ 289.28 The Company also repurchased, at fair value, an additional 30,864 shares in fiscal 2011, 30,617 shares in fiscal 2010, and 37,190 shares in fiscal 2009 from employees...

  • Page 81
    ... executives to purchase AutoZone's common stock up to 25 percent of his or her annual salary and bonus. Purchases by executives under the Executive Plan were 1,719 shares in fiscal 2011, 1,483 shares in fiscal 2010, and 1,705 shares in fiscal 2009. At August 27, 2011, 256,337 shares of common stock...

  • Page 82
    ... Data 2011 Fiscal Year Ended August 2010 2009 2008(1) 2007 (in thousands, except per share data, same store sales and selected operating data) Income Statement Data Net sales ...$ 8,072,973 Cost of sales, including warehouse and delivery expenses ...3,953,510 Gross profit ...4,119,463 Operating...

  • Page 83
    ... and accessories in the United States. We began operations in 1979 and at August 27, 2011, operated 4,534 stores in the United States, including Puerto Rico, and 279 in Mexico. Each of our stores carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new...

  • Page 84
    ... products and commodity price increases. At August 27, 2011, we operated 4,534 domestic stores and 279 stores in Mexico, compared with 4,389 domestic stores and 238 stores in Mexico at August 28, 2010. We reported a domestic retail sales increase of 6.8% and a domestic commercial sales increase...

  • Page 85
    ... costly products and commodity price increases. 10-K At August 28, 2010, we operated 4,389 domestic stores and 238 stores in Mexico, compared with 4,229 domestic stores and 188 stores in Mexico at August 29, 2009. We reported a domestic retail sales increase of 6.9% and a domestic commercial sales...

  • Page 86
    ... us to continue to grow accounts payable at a faster rate than inventory. 10-K Our primary capital requirement has been the funding of our continued new-store development program. From the beginning of fiscal 2009 to August 27, 2011, we have opened 581 new stores. Net cash flows used in investing...

  • Page 87
    ... and stock repurchases. The balance may be funded through new borrowings. We anticipate that we will be able to obtain such financing in view of our credit ratings and favorable experiences in the debt markets in the past. For the fiscal year ended August 27, 2011, our after-tax return on...

  • Page 88
    ... expenditures, new store openings, stock repurchases and acquisitions. During November 2010, we used the proceeds from the issuance of debt to repay the 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...

  • Page 89
    ... by a change in interest rates or a change in the actual or expected return on plan assets. As of August 27, 2011, our defined benefit obligation associated with our pension plans is $241.6 million and our pension assets are valued at $156.9 million, resulting in a net pension obligation of $84...

  • Page 90
    ...-GAAP financial measures, as we believe they provide additional information that is useful to investors as it indicates more clearly our comparative year-to-year operating results. Furthermore, our management and Compensation Committee of the Board use the above-mentioned non-GAAP financial measures...

  • Page 91
    ... sum of total debt, capital lease obligations and annual rents times six; divided by net income plus interest, taxes, depreciation, amortization, rent and share-based compensation expense. The adjusted debt to EBITDAR ratios are presented in "Selected Financial Data" and "Management's Discussion and...

  • Page 92
    ... of our Board. The following items in our consolidated financial statements represent our critical accounting policies that require significant estimation or judgment by management: Inventory Reserves and Cost of Sales LIFO We state our inventories at the lower of cost or market using the last...

  • Page 93
    ... than $20 million in each of the last three years) through cost of sales for the difference. These charges are based on management's judgment, including estimates and assumptions regarding marketability of products and the market value of inventory to be sold in future periods. Historically, we have...

  • Page 94
    ... by 50 basis points, net income would have been affected by approximately $2 million for fiscal 2011. Our liability for health benefits is classified as current, as the historical average duration of claims is approximately six weeks. Income Taxes Our income tax returns are audited by state, federal...

  • Page 95
    ...-time employees were covered by a qualified 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...

  • Page 96
    ... the fair value of our fixed rate debt by approximately $112 million at August 27, 2011. Fuel Price Risk From time to time, we utilize fuel swap contracts in order to lower fuel cost volatility in our operating results. Historically, the instruments were executed to economically hedge a portion of...

  • Page 97
    Item 8. Financial Statements and Supplementary Data Index Management's Report on Internal Control Over Financial Reporting...36 Certifications ...36 Reports of Independent Registered Public Accounting Firm ...37 Consolidated Statements of Income ...39 Consolidated Balance Sheets ...40 Consolidated ...

  • Page 98
    ... T. Giles Chief Financial Officer and Executive Vice President - Finance, Information Technology and Store Development Certifications Compliance with NYSE Corporate Governance Listing Standards On January 4, 2010, the Company submitted to the New York Stock Exchange the Annual CEO Certification...

  • Page 99
    ... financial reporting as of August 27, 2011, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of AutoZone, Inc. as of August 27, 2011 and August 28, 2010 and the related...

  • Page 100
    ...27, 2011. These financial statements are the responsibility of AutoZone, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United...

  • Page 101
    ...per share data) Net sales ...Cost of sales, including warehouse and delivery expenses ...Gross profit ...Operating, selling, general and administrative expenses...Operating profit ...Interest expense, net ...Income before income taxes...Income tax expense ...Net income ...Weighted average shares for...

  • Page 102
    Consolidated Balance Sheets August 27, 2011 August 28, 2010 (in thousands) Assets Current assets: Cash and cash equivalents ...Accounts receivable ...Merchandise inventories ...Other current assets ...Total current assets ...Property and equipment: Land ...Buildings and improvements ...Equipment ...

  • Page 103
    ... of debt ...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 (decrease) increase...

  • Page 104
    ... stock purchase plans ...Share-based compensation expense ...Income tax benefit from exercise of stock options ...Balance at August 29, 2009 ...Net income ...Pension liability adjustments, net of taxes of ($5,504) ...Foreign currency translation adjustment ...Unrealized loss adjustment on marketable...

  • Page 105
    ... automotive parts and accessories. At the end of fiscal 2011, the Company operated 4,534 domestic stores in the United States ("U.S."), including Puerto Rico, and 279 stores in Mexico. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new...

  • Page 106
    ...: 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 derivative instruments to reduce such risks. To date, based upon the Company's current level of foreign operations, no...

  • Page 107
    ...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...

  • Page 108
    ... and benefit costs for store and store support employees; x Occupancy costs of store and store support facilities; x Depreciation and amortization related to retail and store support assets; x Transportation costs associated with commercial and hub deliveries; x Advertising; x Self insurance costs...

  • Page 109
    ... - Share-Based Payments" for further discussion. Risk and Uncertainties: In fiscal 2011, 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...

  • Page 110
    ...Stock Option Plan (the "2003 Option Plan"). The Company grants options to purchase common stock to certain of its employees under its plans 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. Employee options...

  • Page 111
    ... fair value of options granted and the related share-based compensation expense: Year Ended August 28, 2010 31% 1.8% 4.3 10% 0% August 27, 2011 Expected price volatility ...Risk-free interest rates ...Weighted average expected lives in years ...Forfeiture rate ...Dividend yield ...31% 1.0% 4.3 10...

  • Page 112
    ... 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 the Executive Plan were 1,719 shares in fiscal 2011, 1,483 shares in fiscal 2010, and 1,705 shares in fiscal 2009...

  • Page 113
    ...million for workers' compensation and property, $0.5 million for employee health, and $1.0 million for general, products liability, and vehicle. Note D - Income Taxes The provision for income tax expense consisted of the following: Year Ended August 28, 2010 (in thousands) Current: Federal ...State...

  • Page 114
    ... associated with unrecognized tax benefits at August 27, 2011 and August 28, 2010, respectively. The major jurisdictions where the Company files income tax returns are the U.S. and Mexico. With few exceptions, tax returns filed for tax years 2007 through 2010 remain open and subject to examination...

  • Page 115
    ... 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. A discussion on how the Company's cash flow hedges are valued...

  • Page 116
    .... The Company's available-for-sale marketable securities consisted of the following: Amortized Cost Basis $ 26,261 29,464 4,291 12,377 72,393 August 27, 2011 Gross Gross Unrealized Unrealized Losses Gains $ 229 343 55 156 783 $ (45) - - - (45) (in thousands) Corporate securities ...Government bonds...

  • Page 117
    ... termination. Derivatives not designated as Hedging Instruments The Company is dependent upon diesel fuel to operate its vehicles used in 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 55 10-K

  • Page 118
    ... volatility in its operating results. 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 2011 and 2010. During fiscal year 2009, the Company used a derivative financial...

  • Page 119
    ... thousands) 2012 ...2013 ...2014 ...2015 ...2016 ...Thereafter ... The fair value of the Company's debt was estimated at $3.633 billion as of August 27, 2011, and $3.182 billion as of August 28, 2010, based on the quoted market prices for the same or similar issues or on the current rates available...

  • Page 120
    ...-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...

  • Page 121
    ..., industries or geographic regions. Alternative investment strategies, including private real estate, are in the process of being liquidated and constitute less than 5% of the pension plan assets. The Company's investment managers are prohibited from using derivatives for speculative purposes and...

  • Page 122
    ... 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 will change from 8.0% to 7.5% for the year ending August 25, 2012...

  • 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
    ...by the Board. The Company made matching contributions to employee accounts in connection with the 401(k) plan of $13.3 million in fiscal 2011, $11.7 million in fiscal 2010 and $11.0 million in fiscal 2009. Note M - Leases The Company leases some of its retail stores, distribution centers, facilities...

  • Page 125
    ... 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...

  • Page 126
    ...A. The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company's 4,813 stores in the United States, Puerto Rico, and Mexico. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and...

  • Page 127
    ... business activities had been combined with Auto Parts Stores. The following table shows segment results for the following fiscal years: Year Ended August 28, 2010 (in thousands) Net Sales: Auto Parts Stores ...Other ...Total...Segment Profit: Auto Parts Stores ...Other ...Gross profit ...Operating...

  • Page 128
    ...Q - Quarterly Summary (1) (Unaudited) Twelve Weeks Ended November 20, February 12, 2010 2011 Sixteen Weeks Ended August 27, 2011(2) (in thousands, except per share data) May 7, 2011 Net sales...Gross profit ...Operating profit ...Income before income taxes ...Net income...Basic earnings per share...

  • Page 129
    ... 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...

  • Page 130
    ... Statement Schedules The following information required under this item is filed as part of this 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...

  • Page 131
    ... Executive Officer) Chief Financial Officer and Executive Vice President - Finance, Information Technology and Store Development (Principal Financial Officer) Senior Vice President and Controller (Principal Accounting Officer) Director Director Director Director Director Director Director Director...

  • Page 132
    ... 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 Indenture dated as of August 8, 2003, between AutoZone, Inc. and Bank One Trust Company...

  • Page 133
    ... Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended November 23, 2002. *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 Meeting of Stockholders held December 12...

  • Page 134
    ... 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. *10.14 AutoZone, Inc. Director Compensation Program. Incorporated by reference to Exhibit 99.1 to the Current Report...

  • Page 135
    ... 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. *10.37 Form of Stock Option Agreement under the 2011 Equity Incentive Award Plan for officers effective September 27, 2011. *10.38 Form of Stock Option...

  • Page 136
    ...10.40 Sixth Amended and Restated AutoZone, Inc. Employee Stock Purchase Plan. 12.1 Computation of Ratio of Earnings to Fixed Charges. 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. 21.1 Subsidiaries...

  • Page 137
    Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges (Unaudited) Fiscal Year Ended August 2010 2009 2008 (52 weeks) (52 weeks) (53 weeks) (in thousands, except ratios) 2011 (52 weeks) 2007 (52 weeks) Earnings: Income before income taxes...$ 1,324,246 $ 1,160,505 $ 1,033,746 $ 1,007,389...

  • Page 138
    ..., Inc. fka Chief Auto Parts Inc. AutoZone.com, Inc. AutoZone Parts, Inc. AutoZone Puerto Rico, Inc. STATE OR COUNTRY OF ORGANIZATION OR INCORPORATION Nevada Mexico Nevada New Jersey Nevada Delaware Delaware Virginia Nevada Puerto Rico In addition, 21subsidiaries operating in the United States and...

  • Page 139
    ... Annual Report (Form 10-K) for the year ended August 27, 2011: Registration Statement (Form S-8 No. 333-19561) pertaining to the AutoZone, Inc. 1996 Stock Option Plan Registration Statement (Form S-8 No. 333-42797) pertaining to the AutoZone, Inc. Amended and Restated Employee Stock Purchase Plan...

  • Page 140
    ..., that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 3. 4. 10-K October 24, 2011 /s/ WILLIAM C. RHODES, III William C. Rhodes, III Chairman, President and Chief Executive Officer (Principal Executive Officer) 78

  • Page 141
    ... management or other employees who have a significant role in the registrant's internal control over financial reporting. 3. 4. 10-K October 24, 2011 /s/ WILLIAM T. GILES William T. Giles Chief Financial Officer and Executive Vice President - Finance, Information Technology and Store Development...

  • Page 142
    ... Exchange Act of 1934; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. (ii) October 24, 2011 /s/ WILLIAM C. RHODES, III William C. Rhodes, III Chairman, President and Chief Executive Officer...

  • Page 143
    ... Report fairly presents, in all material respects, the financial condition and results of operations of the Company. (ii) October 24, 2011 /s/ WILLIAM T. GILES William T. Giles Chief Financial Officer and Executive Vice President - Finance, Information Technology and Store Development (Principal...

  • Page 144

  • Page 145
    corporate information

  • Page 146
    ...Shanaman Marketing Richard C. Smith Store Operations Jamey Traywick E-Commerce Solomon A. Woldeslassie Supply Chain Thomas B. Newbern Store Operations Charlie Pleas, III†Controller Larry M. Roesel†Commercial †Corporate Development Officer Customer Satisfaction Robert D. Olsen†ALLDATA...

  • 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
    123 South Front Street Memphis, Tennessee 38103-3607 (901) 495-6500 www.autozone.com