AutoZone 2014 Annual Report Download

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EVERY
CUSTOMER
EVERYWHERE
2014 ANNUAL REPORT
Notice of Annual Meeting of Stockholders and Proxy Statement

Table of contents

  • Page 1
    EVERY CUSTOMER EVERYWHERE 2014 ANNUAL REPORT Notice of Annual Meeting of Stockholders and Proxy Statement

  • Page 2
    ...and accessories and performance parts through www.autoanything. com, and our commercial customers can make purchases through www.autozonepro.com. AutoZone does not derive revenue from automotive repair or installation. • 5,391 stores (4,984 in 49 states, the District of Columbia and Puerto Rico in...

  • Page 3
    ...and Asian cars, we believe the IMC business will benefit both our retail and commercial customers. Looking forward, 2015 will be a busy year for us as we work to expand IMC and leverage their offerings across our AutoZone stores. Fiscal 2014 was a solid sales and earnings year for AutoZone which we...

  • Page 4
    ... to customer service, our Pledge, and our Values. We are looking forward to 2015! U.S. Retail We are the country's largest retailer of automotive aftermarket products with more than 4,900 stores across 49 United States. Our retail initiatives for 2014 were: (1) Great People Providing Great Service...

  • Page 5
    ... sales grew 12.8% on a comparable 52 week basis. This customer base remains highly fragmented, and we see tremendous opportunities to increase market share. We opened 424 net new locations this past year, and have opened an amazing 1,186 net new programs over the last three years. Currently...

  • Page 6
    ... well in the past, we have to remain passionate about our Pledge, culture and values to earn our customers' business. I continue to believe our best days are ahead. Thank you for staying in the Zone with us for all these years. We look forward to updating you on our continued success well into the...

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

  • Page 8

  • Page 9
    ...: Where: Annual Meeting of Stockholders December 18, 2014, 8:00 a.m. Central Standard Time J. R. Hyde III Store Support Center 123 South Front Street Memphis, Tennessee Stockholders will vote regarding: • Election of eleven directors • Approval of the 2015 Executive Incentive Compensation Plan...

  • Page 10
    Proxy

  • Page 11
    ...Compensation Committee Report ...Compensation Committee Interlocks and Insider Participation ...Compensation Program Risk Assessment ...Summary Compensation Table ...Grants of Plan-Based Awards ...Outstanding Equity Awards at Fiscal Year-End ...Option Exercises and Stock Vested ...Pension Benefits...

  • Page 12
    Proxy

  • Page 13
    ... "the Company" mean AutoZone, Inc. • "Annual Meeting" or "Meeting" means the Annual Meeting of Stockholders to be held on December 18, 2014, at 8:00 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 14
    ... under the AutoZone Employee Stock Purchase Plan, you have the right to vote the shares in your account. To do this you must grant your proxy by telephone or over the Internet by following the instructions on the proxy card or you must sign and timely return the proxy card you received with this...

  • Page 15
    ... under Rule 404(a) or (b) of Regulation S-K of the Securities and Exchange Commission as currently in effect; • receives no compensation from AutoZone other than compensation as a director; • is not employed by a public company at which an executive officer of AutoZone serves as a director; 3

  • Page 16
    ... 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 17
    ... directors. Board Risk Oversight Oversight of risk management is a responsibility of the Board of Directors and is an integral part of the Board's oversight of AutoZone's business. AutoZone's management takes a variety of calculated risks in order to enhance Company performance and shareholder value...

  • Page 18
    ... considers risk in connection with the design of AutoZone's compensation programs. The Nominating and Corporate Governance Committee oversees risks related to the Company's governance policies and practices. Corporate Governance Documents Our Board of Directors has adopted Corporate Governance...

  • Page 19
    ... Audit Committee consists entirely of independent 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. Goodspeed, Ms...

  • Page 20
    ... Corporate Governance Principles, to: • review and approve AutoZone's compensation objectives; • review and approve the compensation programs, plans, policies and awards for executive officers, including recommending equity-based plans for stockholder approval; • lead the independent directors...

  • Page 21
    ..., Mr. Graves (Chair), Mr. McKenna, and Mr. Mrkonic, all of 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...

  • Page 22
    ...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 23
    ... 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 38. (2) Effective January 1, 2014, under the AutoZone, Inc. 2011 Equity Incentive Award Plan...

  • Page 24
    ... Units are granted on January 1 of the applicable calendar year. If a non-employee director is elected to the Board, or assumes a different position, after the beginning of a calendar quarter, he or she will receive the Annual Retainer and/or Additional Fees, prorated based on the number of days...

  • Page 25
    ... for non-employee directors. Each director is required to own AutoZone common stock and/or restricted stock units having a cumulative fair market value in an amount equal to three times the value of the base annual retainer payable pursuant to the Director Compensation Program within five years of...

  • Page 26
    ... INFORMATION Security Ownership of Management and Board of Directors This table shows the beneficial ownership of common stock by each director, the Principal Executive Officer, the Principal Financial Officer and the other three most highly compensated executive officers, and all current directors...

  • Page 27
    ...calculated based on the number of shares of AutoZone common stock outstanding as of October 20, 2014. (2) The source of this information is the Form 13F filed by T. Rowe Price Associates, Inc. on August 14, 2014 for the quarter ending June 30, 2014. (3) The source of this information is the Form 13F...

  • Page 28
    ... and previous position as the chief information officer of a service company, her owner orientation, her board experience and her executive management skills, as well as her integrity, energy, and willingness to spend time on and interest in AutoZone. Sue E. Gove, 56, has been a director since 2005...

  • Page 29
    ... 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, her executive management skills, her owner orientation, and her board experience, as well as her integrity, energy, and...

  • Page 30
    ... to serve as a director of the Company based on his extensive experience in the banking and financial services industry, his experience serving as the chief executive officer and the chief financial officer of public companies, his strong knowledge of corporate finance and management, and his owner...

  • Page 31
    ... Chairman, President and Chief Executive Officer, is qualified to serve as a director of the Company based on his 19 years' experience with the Company, which have included responsibility for corporate strategy, executive management, operations, finance, supply chain and information technology; his...

  • Page 32
    ...after tax • operating or net cash flows • pre-tax profits • earnings before interest and taxes (EBIT) • return on invested capital (ROIC) • economic value added The goal may be different for different participants. The Compensation Committee will establish the goals within ninety (90) days...

  • Page 33
    ... Incentive Compensation Plan (the "2010 Plan") is in effect, but it will expire on December 18, 2014. What are the primary differences between the new plan and the existing plan? Three new performance goals have been added to the 2015 Plan: • economic profit • net operating profit after tax; and...

  • Page 34
    ...balance of compensation elements in our compensation program are designed to ensure that AutoZone can retain key executives and, when necessary, attract qualified new executives to the organization, the emphasis of AutoZone's compensation program is linking executive compensation to business results...

  • Page 35
    ... Police Pension Fund, and custodian of the New York City Board of Education Retirement System, the beneficial owner of 154,443 shares of AutoZone common stock, intends to present the following proposal for consideration at the annual meeting: "Resolved, that the shareholders of AutoZone ("Company...

  • Page 36
    ... with our values, our legal obligations, and our Code of Business Conduct and Ethics. For example, in the past we have been active in policy discussions and have lobbied on issues related to the collection and remittance of state sales taxes by on-line retailers and right-to-repair legislation. As...

  • Page 37
    .... What are the Company's overall executive compensation objectives? Drive high performance. AutoZone sets challenging financial and operating goals, and a significant amount of an executive's annual cash compensation is tied to these objectives and therefore "at risk" - payment is earned only if...

  • Page 38
    ... value (using the stock price as of the end of fiscal 2014). See the Summary Compensation Table on page 38 for additional details about fiscal 2014 compensation for all of the Named Executive Officers ("NEOs"). Executive Base Salary Annual Incentive Long-Term Incentive Total At-Risk Proxy William...

  • Page 39
    ... Employee Stock Purchase Plan allows AutoZoners to make quarterly purchases of AutoZone shares at 85% of the fair market value on the first or last day of the calendar quarter, whichever is lower. The annual contribution limit under the ESPP is $15,000. • The Company has implemented an Executive...

  • Page 40
    ... assigned to positions using a job evaluation system developed by Hay Group, a global management and human resources consulting firm, and AutoZone maintains salary ranges based on the job evaluations originally constructed with Hay Group's help. These salary ranges are usually updated annually based...

  • Page 41
    ... the position. Subscribers cannot determine which information comes from which company. Proxy The salary ranges which apply to the Named Executive Officers, including the Principal Executive Officer, are part of the structure applicable to thousands of AutoZone's employees. AutoZone positions are...

  • Page 42
    ...the market norm, because when they do, such success is the result of achievement of Company financial and operating objectives that leads 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...

  • Page 43
    ...'s direct 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 practice is to limit the total option shares granted to its employees during the annual...

  • Page 44
    ... enhancing the retention characteristics of the compensation package applicable to the Chief Executive Officer: Performance Retention • The target financial measures, diluted earnings per share and stock price, relate directly to stockholder success. • Achieving a payout under the award terms...

  • Page 45
    ... price at beginning or end of the quarter None (one-year holding period only) After tax, limited to 25% of eligible compensation 15% discount based on quarterend price Shares granted to represent 15% discount restricted for one year; one-year holding period for shares purchased at fair market value...

  • Page 46
    ... their positions. The Chief Executive Officer makes specific recommendations to the Compensation Committee concerning the compensation of his direct reports and other senior executives, including the executive officers. These recommendations usually relate to base salary increases, changes to annual...

  • Page 47
    ... information are just two elements that we find useful in maintaining a reasonable and competitive compensation program. Other elements that we consider are individual performance, Company performance, individual tenure, position tenure, and succession planning. What is AutoZone's policy concerning...

  • Page 48
    ... non-employee directors. The members of the Compensation Committee of the Board of Directors during the 2014 fiscal year are listed above. Compensation Program Risk Assessment AutoZone's management conducts an annual assessment of the compensation plans and programs that apply throughout the Company...

  • Page 49
    ...is to determine whether the risks related to the design and operation of these plans and programs, if present, are reasonably likely to have a material adverse effect on the company. We believe that our compensation policies and practices do not encourage excessive risk-taking and are not reasonably...

  • Page 50
    ...and Analysis - Stock Compensation" on page 30 for more information about this grant. See Note B, Share-Based Payments, to our consolidated financial statements in our 2014 Annual Report for a description of the 2011 Equity Plan and the Executive Stock Purchase Plan and the accounting and assumptions...

  • Page 51
    ... Company Contributions to Defined Contribution Plans(C) Name Perquisites and Personal Benefits(A) Tax Grossups Life Insurance Premiums Proxy William C. Rhodes III ... William T. Giles ... William W. Graves ...Mark A. Finestone ...Larry M. Roesel ... 2014 2013 2012 2014 2013 2012 2014 2013 2014...

  • Page 52
    ... shares of securities price of Plans(1) Stock or underlying option Threshold Target Maximum Units options awards 2) (#)(3) ($) Proxy Name Equity Plans Grant Date Grant date fair value of stock and option awards ($) William C. Rhodes III ...9/30/2013 10/1/2013 12/31/2013 3/31/2014 6/30/2014...

  • Page 53
    ... taxes (EBIT Return on invested capital Economic value added Return on inventory EBIT margin Sales per square foot Proxy The EICP provides that the goal may be different for different executives. The goals can change annually to support our business objectives. After the end of each fiscal year...

  • Page 54
    ...Value Award, then the number of shares available under the 2011 Equity Plan will be increased by two shares for each share subject to the award that is forfeited, expired or cash-settled. However, shares tendered or withheld in payment of the exercise price of an option or in satisfaction of any tax...

  • Page 55
    ... Option Plan ("1996 Stock Option Plan"), other outstanding equity awards under the 2011 Equity Plan, and unvested shares under the Executive Stock Purchase Plan for the Company's Named Executive Officers as of August 30, 2014: Option Awards Stock Awards Market Number value of shares of shares of...

  • Page 56
    ...'s termination of employment without cause or the participant's death, disability or retirement. (3) Based on the closing price of AutoZone common stock on August 29, 2014 ($538.84 per share). (4) Represents a grant of performance-restricted stock units pursuant to the 2011 Equity Plan. 44

  • Page 57
    ...about this plan. (3) Based on the closing price of AutoZone common stock on the vesting date. PENSION BENEFITS The following table sets forth information regarding pension benefits for the Company's Named Executive Officers as of August 30, 2014: Number of Years of Credited Service Present Value of...

  • Page 58
    ... 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 earnings shown on Form W-2 plus any amounts directed on a tax-deferred basis...

  • Page 59
    ... included in the Summary Compensation Table because they were not preferential or above market. Officers of the Company with the title of vice president or higher based in the United States are eligible to participate in the EDCP after their first year of employment with the Company. As of August...

  • Page 60
    ... (the "Agreement") providing that if Mr. Rhodes' employment 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...

  • Page 61
    .... Rhodes is employed by AutoZone through October 1, 2015. Proxy Life Insurance AutoZone provides all salaried employees in active full-time employment in the United States a companypaid life insurance benefit in the amount of two times annual earnings. "Annual earnings" exclude stock compensation...

  • Page 62
    ...Normal Retirement ($) William C. Rhodes, III(1) Severance Pay ...Annual Incentive ...Benefits Continuation ...Unvested Stock Options ...Unvested Stock Awards ...Disability Benefits ...Life Insurance Benefits ...Total ...William T. Giles(2) Severance Pay ...Annual Incentive ...Benefits Continuation...

  • Page 63
    ... are share options under the Executive Stock Purchase Plan, which vest upon involuntary termination not for cause, disability, death or normal retirement. Disability Benefits are benefits under Company-paid individual long-term disability insurance policy. Life Insurance Benefits are benefits under...

  • Page 64
    ... these policies. Equity Compensation Plans Equity Compensation Plans Approved by Stockholders Our stockholders have approved the 2011 Equity Plan, 2006 Stock Option Plan, 1996 Stock Option Plan, the Employee Stock Purchase Plan, the Executive Stock Purchase Plan, the 2003 Director Compensation Plan...

  • Page 65
    ..., all persons related to AutoZone that are required to file these insider trading reports have filed them in a timely manner. Copies of the insider trading reports can be found on the AutoZone corporate website at www.autozoneinc.com. Proxy STOCKHOLDER PROPOSALS FOR 2015 ANNUAL MEETING Stockholder...

  • Page 66
    ... those key employees of the Company or its affiliates as designated in writing by the Committee, in its sole discretion, who is or may become a "covered employee" within the meaning of Code Section 162(m) and whose compensation for the fiscal year in which such employee is so designated or a future...

  • Page 67
    ...(c) sales; (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) economic profit; (n) net operating profit...

  • Page 68
    ... the right to deduct all federal, state, or local taxes required by law or Company policy to be withheld from any incentive award paid under the Plan. (b) Nothing contained in this Plan grants to any person any claim or right to any payments under the Plan. Such payments shall be made at the sole...

  • Page 69
    Form 10-K

  • Page 70

  • Page 71
    ... was required to file such reports), and (2) has been subject 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...

  • Page 72
    ...common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter was $18,167,987,884. The number of shares of Common Stock outstanding as of October 20, 2014, was 32,040,703. Documents...

  • Page 73
    ...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 Websites ...10 Executive Officers...

  • Page 74
    ... the "Risk Factors" could 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...

  • Page 75
    ...automotive products through www.autozone.com, and accessories and performance parts through www.autoanything.com, and our commercial customers can make purchases through www.autozonepro.com. We do not derive revenue from automotive repair or installation services. At August 30, 2014, our stores were...

  • Page 76
    ...accessories and non-automotive parts through www.autozone.com for pick-up in store or to be shipped directly to a customer's home or business. Additionally, we offer smartphone apps that provide customers with store locations, driving directions, operating hours, and product availability. Our stores...

  • Page 77
    ... of the types of products that we sell by major category of items: Failure A/C Compressors Batteries & Accessories Belts & Hoses Carburetors Chassis Clutches CV Axles Engines Fuel Pumps Fuses Ignition Lighting Mufflers Radiators Thermostats Starters & Alternators Water Pumps Maintenance Antifreeze...

  • Page 78
    public sector accounts in the United States, Puerto Rico and Mexico. As a part of the domestic store program, we offer credit and delivery to our customers, as well as online ordering through www.autozonepro.com. Through our hub stores, we offer a greater range of parts and products desired by ...

  • Page 79
    ...hours. Hub stores are generally replenished from distribution centers multiple times per week. Competition The sale of automotive parts, accessories and maintenance items is highly competitive in many areas, including name recognition, product availability, customer service, store location and price...

  • Page 80
    ... 1994, Mr. Rhodes was a manager with Ernst & Young LLP. Mr. Rhodes is a member of the Board of Directors for Dollar General Corporation. William T. Giles, 55-Chief Financial Officer and Executive Vice President - Finance, Information Technology and ALLDATA, Customer Satisfaction William T. Giles was...

  • Page 81
    ... AutoZone in 2002, Mr. Finestone worked for May Department Stores for 19 years where he held a variety of leadership roles which included Divisional Vice President, Merchandising. William W. Graves, 54-Senior Vice President - Supply Chain and International, Customer Satisfaction William W. Graves...

  • Page 82
    ... and sales volumes are dependent on many factors, including name recognition, product availability, customer 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. Our...

  • Page 83
    ... past five fiscal years from $6.817 billion in fiscal 2009 to $9.475 billion in fiscal 2014, an average increase per year of 8%. Annual revenue growth is driven by the opening of new stores and commercial programs and increases in same store sales. We open new stores only after evaluating customer...

  • Page 84
    ... lies in the quality of the more than 76,000 AutoZoners employed in our stores, distribution centers, store support centers, ALLDATA and AutoAnything. We cannot be assured that we can continue to hire and retain qualified employees at current wage rates. If we are unable to hire, properly train and...

  • Page 85
    ...to achieve our store expansion goals, manage our growth effectively, successfully integrate the planned new stores into our operations or operate our new, remodeled and expanded stores profitably. In addition, we extensively utilize hub stores, our supply chain and logistics management techniques to...

  • Page 86
    ... at similar costs, our sales and profit margins may be negatively affected. In the event that commercial transportation is curtailed or substantially delayed, our business may be adversely impacted, as we may have difficulty shipping merchandise to our distribution centers and stores resulting in...

  • Page 87
    ... in downgradient residences and businesses. The New Jersey Department of Environmental Protection has asserted, in a Directive and Notice to Insurers dated February 19, 2013 and again in an Amended Directive and Notice to Insurers dated January 13, 2014 (collectively the "Directives"), that we are...

  • Page 88
    ... stock repurchased by the Company during the quarter ended August 30, 2014, were as follows: Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 28,200 93,665 200,140 33,633 355,638 Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs $ 291,992,220...

  • Page 89
    ... the Executive Plan. Stock Performance Graph The graph below presents changes in the value of AutoZone's stock as compared to Standard & Poor's 500 Composite Index ("S&P 500") and to Standard & Poor's Retail Index ("S&P Retail Index") for the five-year period beginning August 29, 2009 and ending...

  • Page 90
    ... store net sales(2) ...Balance Sheet Data Current assets ...$ Working (deficit) ...Total assets...Current liabilities ...Debt ...Long-term capital leases ...Stockholders' (deficit)...Selected Operating Data Number of stores at beginning of year ...New stores ...Closed stores ...Net new stores...

  • Page 91
    ... non-automotive products through www.autozone.com, and accessories and performance parts through www.autoanything.com, and our commercial customers can make purchases through www.autozonepro.com. We do not derive revenue from automotive repair or installation services. Executive Summary We achieved...

  • Page 92
    ... billion, or 51.8% of net sales for fiscal 2013. The improvement in gross margin was attributable to lower acquisition costs and lower shrink expense, partially offset by higher supply chain costs associated with current year inventory initiatives (17 basis points). Operating, selling, general and...

  • Page 93
    ... assets and liabilities of AutoAnything, an online retailer of specialized automotive products for $116 million. With the acquisition, we expect to bolster our online presence in the automotive accessory and performance markets. The results of operations from AutoAnything have been included in...

  • Page 94
    ... term, the effects of weather balance out, as we have stores throughout the United States, Puerto Rico, Mexico and Brazil. Each of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consisted of 16 weeks in 2014, 17 weeks in 2013, and 16 weeks in 2012. Because...

  • Page 95
    ..., and the acquisition of IMC. The amount of our investments in our new-store program is impacted by different factors, including such factors as whether the building and land are purchased (requiring higher investment) or leased (generally lower investment), located in the United States, Mexico or...

  • Page 96
    ... debt and for working capital, capital expenditures, new store openings, stock repurchases and acquisitions. Proceeds from the debt issuance on January 14, 2014, were used to repay a portion of the $500 million in 6.500% Senior Notes due January 2014. We used commercial paper borrowings to...

  • Page 97
    ... to 2.5:1 as of the comparable prior year end. We calculate adjusted debt as the sum of total debt, capital lease obligations and rent times six; and we calculate EBITDAR by adding interest, taxes, depreciation, amortization, rent and sharebased compensation expense to net income. We target our debt...

  • Page 98
    ... by a change in interest rates or a change in the actual or expected return on plan assets. As of August 30, 2014, our defined benefit obligation associated with our pension plans is $301.0 million and our pension assets are valued at $243.4 million, resulting in a net pension obligation of $57...

  • Page 99
    ... have presented the non-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...

  • Page 100
    ...fiscal year ended August 31, 2013 consisted of 53 weeks. (2) The effective tax rate during fiscal 2014, 2013, 2012, 2011 and 2010 was 35.7%, 36.0%, 36.0%, 35.9% and 36.4%, respectively. (3) Average debt is equal to the average of our debt measured as of the previous five quarters. (4) Average equity...

  • Page 101
    ... 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 Analysis of Financial Condition and Results of Operations": Fiscal Year Ended...

  • Page 102
    ... of our stores and distribution centers to verify these estimates. We make assumptions regarding upcoming physical inventory counts that may differ from actual results. Over the last three years, there has been less than a 50 basis point fluctuation in our shrinkage rate. Each quarter, we evaluate...

  • Page 103
    ... risk-free interest rate as of the balance sheet date. If the discount rate used to calculate the present value of these reserves changed by 50 basis points, net income would have been affected by approximately $2.0 million for fiscal 2014. Our liability for health benefits is classified as current...

  • Page 104
    ... 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. We have no assets in our nonqualified plan. A 50 basis point change in our expected long term rate of return would impact annual pension...

  • Page 105
    ... effective until they expired, and no ineffectiveness was recognized in earnings. The fair value of our debt was estimated at $4.480 billion as of August 30, 2014, and $4.259 billion as of August 31, 2013, based on the quoted market prices for the same or similar debt issues or on the current rates...

  • Page 106
    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 our diesel and unleaded fuel exposure. However, we have not designated the fuel swap ...

  • Page 107
    ... Supplementary Data Index Management's Report on Internal Control Over Financial Reporting...38 Certifications ...38 Reports of Independent Registered Public Accounting Firm ...39 Consolidated Statements of Income ...41 Consolidated Statements of Comprehensive Income...41 Consolidated Balance Sheets...

  • Page 108
    ...GILES William T. Giles Chief Financial Officer and Executive Vice President - Finance, Information Technology and ALLDATA (Principal Financial Officer) Compliance with NYSE Corporate Governance Listing Standards On January 3, 2014, the Company submitted to the New York Stock Exchange the Annual CEO...

  • Page 109
    ...financial reporting as of August 30, 2014, 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 30, 2014 and August 31, 2013, and the related...

  • Page 110
    .... 10-K We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AutoZone, Inc.'s internal control over financial reporting as of August 30, 2014, based on criteria established in Internal Control-Integrated Framework issued by the...

  • Page 111
    ...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 112
    Consolidated Balance Sheets (in thousands) Assets Current assets: Cash and cash equivalents ...Accounts receivable ...Merchandise inventories...Other current assets ...Deferred income taxes ...Total current assets ...Property and equipment: Land...Buildings and improvements ...Equipment ...Leasehold...

  • Page 113
    ... ...Merchandise inventories ...Accounts payable and accrued expenses ...Income taxes payable ...Other, net ...Net cash provided by operating activities ...Cash flows from investing activities: Capital expenditures ...Acquisition of business ...Purchase of intangibles ...Purchase of marketable...

  • Page 114
    ...(in thousands) Balance at August 27, 2011 ...Net income ...Total other comprehensive loss ...Purchase of 3,795 shares of treasury stock ...Retirement of treasury shares ...Sale of common stock under stock options and stock purchase plans ...Share-based compensation expense ...Income tax benefit from...

  • Page 115
    ...principally a retailer and distributor of automotive parts and accessories. At the end of fiscal 2014, the Company operated 4,984 stores in the United States ("U.S."), including Puerto Rico; 402 stores in Mexico; and five stores in Brazil. Each store carries an extensive product line for cars, sport...

  • Page 116
    ... guidelines that are authorized by AutoZone's Board of Directors (the "Board"). Further, the Company does not buy or sell derivative instruments for trading purposes. AutoZone's financial market risk results primarily from changes in interest rates. At times, AutoZone reduces its exposure to changes...

  • Page 117
    ... $57.8 million at August 30, 2014, and $62.5 million at August 31, 2013. 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...

  • Page 118
    ... 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's transactions include the sale of auto parts that...

  • Page 119
    ...value of the awards. See "Note B - Share-Based Payments" for further discussion. Risk and Uncertainties: In fiscal 2014, one class of similar products accounted for approximately 10 percent of the Company's total revenues, and one vendor supplied more than 10 percent of the Company's total purchases...

  • Page 120
    ... Plan and to nonemployee 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 under its plan at prices equal to the market value...

  • Page 121
    ...average for key assumptions used in determining the fair value of options granted and the related share-based compensation expense: Year Ended August 31, 2013 29% 0.5% 5.2 10% 0% 10-K August 30, 2014 Expected price volatility ...Risk-free interest rates ...Weighted average expected lives (in years...

  • Page 122
    ... Intrinsic Value (in thousands) 6.28 4.79 8.14 $ 495,611 358,902 124,403 The Company recognized $1.7 million in expense related to the discount on the selling of shares to employees and executives under various share purchase plans in fiscal 2014, $1.5 million in fiscal 2013 and $1.5 million...

  • Page 123
    ...) Medical and casualty insurance claims (current portion) ...Accrued compensation, related payroll taxes and benefits ...Property, sales, and other taxes ...Accrued interest ...Accrued gift cards ...Accrued sales and warranty returns ...Capital lease obligations ...Other ...August 30, 2014 $ 74,010...

  • Page 124
    ... the federal statutory tax rate of 35% to income before income taxes is as follows: Year Ended August 31, 2013 35.0% 2.0% (1.0%) 36.0% (in thousands) Federal tax at statutory U.S. income tax rate ...State income taxes, net ...Other ...Effective tax rate ... August 30, 2014 35.0% 1.8% (1.1%) 35...

  • Page 125
    ... and ending amount of unrecognized tax benefits is as follows: August 30, 2014 $ 30,643 7,857 2,114 (1,355) (2,074) (4,057) 33,128 August 31, 2013 $ 27,715 7,015 2,758 (470) (3,019) (3,356) 30,643 10-K (in thousands) Beginning balance ...Additions based on tax positions related to the current year...

  • Page 126
    ... with unrecognized tax benefits at August 30, 2014 and August 31, 2013, respectively. The Company files U.S. federal, U.S. state and local, and international income tax returns. The U.S. Internal Revenue Service has completed exams on U.S. federal income tax returns for years 2009 and prior...

  • Page 127
    ...L - Pension and Savings Plans." Effective December 19, 2012, the Company acquired certain assets and liabilities of AutoAnything, an online retailer of specialized automotive products for up to $150 million, including an initial cash payment of $115 million, a $5 million holdback payment for working...

  • Page 128
    ... property, plant and equipment that are determined to be impaired. During the fourth quarter of fiscal 2013, the Company recorded a goodwill impairment charge of $18.3 million related to the acquisition of AutoAnything and an impairment charge of $4.1 million of AutoAnything's trade name in order to...

  • Page 129
    ... or until recovery of fair value. During the second quarter of fiscal 2014, the Company's insurance captive transferred $28.2 million of its marketable securities to a trust account to secure its obligations to an insurance company related to future workers compensation and casualty losses. These...

  • Page 130
    ...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...

  • Page 131
    ...% ...2.875% Senior Notes due January 2023, effective interest rate of 3.21% ...3.125% Senior Notes due July 2023, effective interest rate of 3.26%...Commercial paper, weighted average interest rate of 0.27% and 0.29% at August 30, 2014 and August 31, 2013, respectively ...Total debt Less: Short-term...

  • Page 132
    ...2018 ...2019 ...Thereafter ... The fair value of the Company's debt was estimated at $4.480 billion as of August 30, 2014, and $4.259 billion as of August 31, 2013, 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...

  • Page 133
    ...-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 134
    ... 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. 10-K Alternative investments...

  • Page 135
    ... 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 7.5% for the year ended August 30, 2014, to 7.0% for the year ending August 29, 2015. The change in fair value of Level 3 assets that use...

  • Page 136
    ... in Plan Assets: Fair value of plan assets at beginning of year ...Actual return on plan assets ...Employer contributions ...Benefits paid ...Fair value of plan assets at end of year ...Amount Recognized in the Statement of Financial Position: Current liabilities ...Long-term liabilities ...Net...

  • Page 137
    ... 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...

  • Page 138
    ... the third quarter of fiscal 2013, the Company paid the holdback payment for working capital true-ups of $1.1 million. With this acquisition, the Company expects to bolster its online presence in the automotive accessory and performance markets. The results of operations from AutoAnything have been...

  • Page 139
    ...During fiscal year 2014, the Company purchased $30.2 million of intangible assets relating to the rights to certain customer relationships and technology assets relating to its ALLDATA operations. As part of its annual impairment test, the Company evaluates the AutoAnything trade name for impairment...

  • Page 140
    ... ...Less: Interest ...Present value of minimum capital lease payments ... $ 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...

  • Page 141
    ...The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company's 5,391 stores in the United States, Puerto Rico, Mexico and Brazil. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new...

  • Page 142
    ...net sales and segment profit, which is defined as gross profit. The following table shows segment results for the following fiscal years: Year Ended August 31, 2013 (in thousands) Net Sales: Auto Parts Stores...Other ...Total ...Segment Profit: Auto Parts Stores...Other ...Gross profit ...Operating...

  • Page 143
    ... Quarterly Summary (1) (Unaudited) Sixteen Weeks Ended August 30, 2014(2) (in thousands, except per share data) Twelve Weeks Ended November 23, February 15, 2013 2014 May 10, 2014 Net sales ...Gross profit ...Operating profit ...Income before income taxes...Net income ...Basic earnings per share...

  • Page 144
    ... have been and will continue to be conducted by management to ensure that the internal controls surrounding the system implementation processes, key applications and the financial close process are properly designed and are operating effectively. Item 9B. Other Information Not applicable. 10-K 74

  • Page 145
    ... 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 27, 2014, in the section entitled "Executive Compensation," is...

  • Page 146
    ... 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 30, 2014...

  • Page 147
    ..., 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 William C. Rhodes, III Chairman, President and Chief Executive Officer (Principal Executive Officer) Dated: October 27, 2014 10-K 77

  • Page 148
    ... Chief Executive Officer (Principal Executive Officer) Chief Financial Officer and Executive Vice President - Finance, Information Technology and ALLDATA (Principal Financial Officer) Senior Vice President and Controller (Principal Accounting Officer) Director DATE October 27, 2014 October 27, 2014...

  • Page 149
    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 Fifth Amended and Restated By...

  • Page 150
    ... year ended August 25, 2007. *10.10 AutoZone, Inc. Fifth Amended and Restated Executive Stock Purchase Plan. Incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K dated October 22, 2012. *10.11 Amended and Restated AutoZone, Inc. 2003 Director Compensation Plan. Incorporated...

  • Page 151
    ...*10.24 AutoZone, Inc. 2011 Director Compensation Program. Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q dated December 16, 2010. *10.25 Performance-Based Restricted Stock Units Award Agreement dated December 15, 2010, between AutoZone, Inc. and William C. Rhodes, III...

  • Page 152
    ... 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. *10.31 Amended and Restated Credit Agreement dated as of September, 13, 2011 among AutoZone, Inc...

  • Page 153
    ... and Restated AutoZone, Inc. AutoZone, Inc. Executive Deferred Compensation Plan dated December 17, 2013. Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q dated March 25, 2014 *10.42 AutoZone, Inc. Director Compensation Program effective January 1, 2014. Incorporated by...

  • Page 154
    ... Computation of Ratio of Earnings to Fixed Charges (Unaudited) Fiscal Year Ended August 2013 2012 2011 (53 weeks) (52 weeks) (52 weeks) (in thousands, except ratios) 2014 (52 weeks) 2010 (52 weeks) Earnings: Income before income taxes...$ 1,662,714 $ 1,587,683 $ 1,452,986 $ 1,324,246 $ 1,160,505...

  • Page 155
    ... AutoZone Stores LLC AutoZone Texas LLC AutoZone West LLC AutoZone.com, Inc. AutoZone Parts, Inc. AutoZone Puerto Rico, Inc. AutoAnything, Inc. Riverside Captive Insurance Company In addition, 29 subsidiaries operating in the United States and 16 subsidiaries operating outside of the United States...

  • Page 156
    ... financial statements and the effectiveness of internal control over financial reporting of AutoZone, Inc., included in this Annual Report (Form 10-K) for the year ended August 30, 2014: Registration Statement (Form S-8 No. 333-19561) pertaining to the AutoZone, Inc. 1996 Stock Option Plan...

  • Page 157
    ... information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. October 27, 2014 /s/ WILLIAM C. RHODES, III William C. Rhodes, III Chairman, President and Chief Executive...

  • Page 158
    ..., 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 27, 2014 /s/ WILLIAM T. GILES William T. Giles Chief Financial Officer and Executive Vice President - Finance, Information Technology and...

  • Page 159
    ... the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. (ii) October 27, 2014 /s/ WILLIAM C. RHODES, III William C. Rhodes, III Chairman, President and Chief Executive Officer (Principal Executive Officer...

  • Page 160
    ... Report fairly presents, in all material respects, the financial condition and results of operations of the Company. (ii) October 27, 2014 /s/ WILLIAM T. GILES William T. Giles Chief Financial Officer and Executive Vice President - Finance, Information Technology and ALLDATA (Principal Financial...

  • Page 161
    Corporate information

  • Page 162
    ... Chief Financial Officer, Information Technology and ALLDATA Senior Vice Presidents Customer Satisfaction Mark A. Finestone†Merchandising and Store Development William W. Graves Supply Chain and International Ronald B. Griffin Chief Information Officer, IT Thomas B. Newbern†Store Operations...

  • Page 163
    ... Company Websites www.autozone.com www.autozonepro.com www.alldata.com www.autoanything.com www.imcparts.net Annual Meeting The Annual Meeting of Stockholders of AutoZone will be held at 8:00 a.m. CST, on December 18, 2014, at the J.R. Hyde III Store Support Center, 123 South Front Street, Memphis...

  • Page 164
    123 S. Front Street Memphis, TN 38103-3607 (901) 495-6500 www.autozone.com