SCHEDULE
14A
(Rule
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a)
of
the
Securities Exchange Act of 1934
(Amendment
No. )
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Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
o
Definitive Additional
Materials
o
Soliciting Material Under Rule
14a-12
Autozone,
Inc.
(Name
of
Registrant as Specified in Its Charter)
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of Filing Fee (Check the appropriate box):
x No
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Act Rules 14a-6(i)(1) and 0-11.
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pursuant to Exchange Act Rule 0-11 (Set forth the amount
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Check box if any part of the fee is
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AUTOZONE,
INC.
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER
14, 2005
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What:
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Annual
Meeting of Stockholders
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When:
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December
14, 2005, 8:30 a.m., Central Standard Time
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Where:
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J.R.
Hyde III Store Support Center
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123
South Front Street
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Memphis,
Tennessee
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Stockholders
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Election
of eight directors
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will
vote
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regarding:
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Ratification
of the appointment of Ernst & Young LLP as our
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independent
registered public accounting firm for the 2006
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fiscal
year
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The
transaction of other business that may be properly
brought
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before
the meeting
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Record
Date:
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Stockholders
of record as of October 17, 2005, may vote at the
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meeting.
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By
order
of the Board of Directors,
Harry
L.
Goldsmith
Secretary
Memphis,
Tennessee
October
26, 2005
We
encourage you to vote by telephone or Internet, both of which are convenient,
cost-effective
and reliable alternatives to returning your proxy card by
mail.
TABLE
OF CONTENTS
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Page
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The
Meeting
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3
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About
this Proxy Statement
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3
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Information
about Voting
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4
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The
Proposals
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6
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PROPOSAL
1 - Election of Directors
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6
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Nominees
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6
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Independence
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8
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Meetings
and Attendance
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9
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Committees
of the Board
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9
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Audit
Committee
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10
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Compensation
Committee
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11
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Nominating
and Corporate Governance Committee
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11
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Director
Nomination Process
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12
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Procedure
for Communication with the Board of Directors
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13
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Compensation
of Directors
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14
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PROPOSAL
2 - Ratification of Independent Registered Public Accounting
Firm
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14
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Audit
Committee Report
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15
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Other
Matters
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16
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Other
Information
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17
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Security
Ownership of Management
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17
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Security
Ownership of Certain Beneficial Owners
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19
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Executive
Compensation
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20
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Compensation
Committee Report on Executive Compensation
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24
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Stock
Performance Graph
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27
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Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements
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28
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Equity
Compensation Plans
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30
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Section
16(a) Beneficial Ownership Reporting Compliance
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31
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Stockholder
Proposals for 2006 Annual Meeting
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31
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Annual
Report
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32
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2
AutoZone,
Inc.
123
South
Front Street
Memphis,
Tennessee 38103
Proxy
Statement
for
Annual
Meeting of Stockholders
December
14, 2005
The
Meeting
The
Annual Meeting of Stockholders of AutoZone, Inc. will be held at AutoZone’s
executive offices, the J.R. Hyde III Store Support Center, 123 South Front
Street, Memphis, Tennessee, at 8:30 a.m. CST on December 14, 2005.
About
this Proxy Statement
Our
Board
of Directors has sent you this Proxy Statement to solicit your vote at
the
Annual Meeting. This Proxy Statement contains important information for
you to
consider when deciding how to vote on the matters brought before the meeting.
Please read it carefully.
In
this
Proxy Statement:
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“AutoZone,”
“we,” and “the Company” mean AutoZone, Inc.,
and
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“Annual
Meeting” means the Annual Meeting of Stockholders to be held on December
14, 2005, at 8:30 a.m. CST at the J.R. Hyde III Store Support
Center, 123
South Front Street, Memphis,
Tennessee.
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AutoZone
will pay all expenses incurred in this proxy solicitation. In addition
to
mailing this Proxy Statement to you, we have retained D.F. King & Co., Inc.
to be our proxy solicitation agent for a fee of $5,000 plus expenses. We
also
may make additional solicitations in person, by telephone, facsimile, e-mail,
or
other forms of communication. Brokers, banks, and others who hold our stock
for
beneficial owners will be reimbursed by us for their expenses related to
forwarding our proxy materials to the beneficial owners.
This
Proxy Statement is first being mailed on or about October 28, 2005.
3
Information
about Voting
What
matters will be voted on at the Annual Meeting?
At
the
Annual Meeting, stockholders will be asked to vote on the following
proposals:
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1.
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to
elect eight directors; and
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2.
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to
ratify the appointment of Ernst & Young LLP as our independent
registered public accounting firm for the 2006 fiscal
year.
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Stockholders
also will transact any other business that may be properly brought before
the
meeting.
Who
is entitled to vote at the Annual Meeting?
The
record date for the Annual Meeting is October 17, 2005. Only stockholders
of
record at the close of business on that date are entitled to attend and
vote at
the Annual Meeting. The only class of stock that can be voted at the meeting
is
our common stock. Each share of common stock is entitled to one vote on
all
matters that come before the meeting. At the close of business on the record
date, October 17, 2005, we had 76,614,649 shares of common stock outstanding.
How
do I vote my shares?
You
may
vote your shares in person or by proxy:
By
Proxy:
You can
vote by telephone, on the Internet or by mail. We
encourage you to vote by telephone or Internet, both of which are convenient,
cost-effective, and reliable alternatives to returning your proxy card
by
mail.
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1.
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By
Telephone:
You may submit your voting instructions by telephone by following
the
instructions printed on the proxy card. If you submit your voting
instructions by telephone, you do not have to mail in your proxy
card.
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2.
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On
the Internet:
You may vote on the Internet by following the instructions printed
on the
proxy card. If you vote on the Internet, you do not have to mail
in your
proxy card.
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3.
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By
Mail:
If you properly complete and sign the enclosed proxy card and
return it in
the enclosed envelope, it will be voted in accordance with your
instructions. The enclosed envelope requires no additional postage
if
mailed in the United States.
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In
Person:
You may
attend the Annual Meeting and vote in person. If you are a registered holder
of
your shares (if you hold your stock in your own name), you need only
attend the meeting. However, if your shares are held in an account by a
broker,
you will need to present a written consent from your broker permitting
you to
vote the shares in person at the Annual Meeting.
4
What
if I have shares in the AutoZone Employee Stock Purchase Plan account?
If
you
have shares in an account under the AutoZone Employee Stock Purchase Plan,
you
have the right to vote the shares in your account. To do this you must
sign and
timely return the proxy card you received with this Proxy Statement, or
grant
your proxy by telephone or over the Internet by following the instructions
on
the proxy card.
How
will my vote be counted?
Your
vote
for your shares will be cast as you indicate on your proxy card. If you
sign
your card without indicating how you wish to vote, your shares will be
voted FOR
our nominees for director, FOR Ernst & Young LLP as independent registered
public accounting firm and in the proxies’ discretion on any other matter that
may properly be brought before the meeting or any adjournment of the meeting.
The
votes
will be tabulated and certified by our transfer agent, Computershare. A
representative of Computershare will serve as the inspector of
election.
Can
I change my vote after I submit my proxy?
Yes,
you
may revoke your proxy at any time before it is voted at the meeting by:
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giving
written notice to our Secretary that you have revoked the proxy,
or
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providing
a later-dated proxy.
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Any
written notice should be sent to the Secretary at 123 South Front Street,
Memphis, Tennessee 38103.
How
many shares must be present to constitute a quorum for the meeting?
Holders
of a majority of the shares of the voting power of the Company’s stock must be
present in person or by proxy in order for a quorum to be present. If a
quorum
is not present at the scheduled time of the Annual Meeting, we may adjourn
the
meeting, without notice other than announcement at the meeting, until a
quorum
is present or represented. Any business which could have been transacted
at the
meeting as originally scheduled can be conducted at the adjourned meeting.
5
THE
PROPOSALS
PROPOSAL
1-Election of Directors
Eight
directors will be elected at the Annual Meeting to serve until the annual
meeting of stockholders in 2006. Under Nevada law, directors are elected
by a
plurality, so the eight persons nominated for director and receiving the
most
votes will be elected. Pursuant to AutoZone’s Corporate Governance Principles,
however, any nominee for director who receives a greater number of votes
"withheld" from his or her election than votes "for" such election is required
to tender his or her resignation for consideration by the Nominating and
Corporate Governance Committee of the Board. The Nominating and Corporate
Governance Committee will recommend to the Board the action to be taken
with
respect to such resignation.
Abstentions
and broker non-votes have no effect on the election of directors. (“Broker
non-votes” are shares held by banks or brokers on behalf of their customers that
are represented at the meeting but are not voted.)
The
Board of Directors recommends that the stockholders vote FOR each of these
nominees. These
nominees have consented to serve if elected. Should any nominee be unavailable
to serve, your proxy will be voted for the substitute nominee recommended
by the
Board of Directors, or the Board of Directors may reduce the number of
directors
on the Board.
With
the
exception of Mr. Rhodes and Ms. Gove, each of the nominees named below
was
elected a director at the 2004 annual meeting.
Nominees
The
nominees are:
Charles
M. Elson,
45, has
been a director since 2000. He has been the Edgar S. Woolard, Jr. Professor
of
Corporate Governance since 2000 and is the Director of the Center for Corporate
Governance at the University of Delaware. He is also of counsel to Holland
&
Knight LLP. Previously, he had been a Professor at the Stetson University
College of Law since 1990. Mr. Elson is also a director of Alderwoods Group,
Inc., HealthSouth Corporation, and the Investor Responsibility Research
Center.
Sue
E. Gove,
47, was
appointed as a director in July, 2005, to fill a vacancy on the Board.
She has
been Executive Vice President and Chief Operating Officer of Zale Corporation
since 2002 and a director of Zale Corporation since 2004. She was Executive
Vice
President, Chief Financial Officer of Zale Corporation from 1998 to 2002
and
remained in the position of Chief Financial Officer until 2003.
6
Earl
G. Graves, Jr.,
43, has
been a director since 2002. He has been the President and Chief Operating
Officer for Earl G. Graves Publishing Company, publisher of Black Enterprise
magazine, since 1998 and has been employed by the same company in various
capacities since 1988.
N.
Gerry House,
58, has
been a director since 1996. She has been the President and Chief Executive
Officer of the Institute for Student Achievement since 2000. Previously,
she was
the Superintendent of the Memphis, Tennessee City School System since 1992.
J.R.
Hyde, III,
62, has
been a director since 1986 and non-executive Chairman of the Board since
March,
2005. He has been the President of Pittco, Inc., an investment company,
since
1989 and has been the Chairman of GTx, Inc., a biotechnology, pharmaceutical
company since 2000. Mr. Hyde was AutoZone’s Chairman from 1986 to 1997 and its
Chief Executive Officer from 1986 to 1996. He was Chairman and Chief Executive
Officer of Malone & Hyde, AutoZone’s former parent company, until 1988. Mr.
Hyde is also a director of FedEx Corporation.
Edward
S. Lampert,
43, has
been a director since 1999. He is the Chairman and Chief Executive Officer
of
ESL Investments, Inc., a private investment firm which he founded in 1988,
and
is the Chairman of the Board and a director of Sears Holdings Corporation.
From
May, 2003, until the completion of the Sears-Kmart combination in March,
2005,
Mr. Lampert served as Chairman of the Board and a director of Kmart Corporation.
He is also a director of AutoNation, Inc.
W.
Andrew McKenna,
59, has
been a director since 2000. He is a private investor and is Chairman of
the
Board and a director of Danka Business Systems PLC. Until his retirement
in
1999, he had held various positions with The Home Depot, Inc., including
Senior
Vice President-Strategic Business Development from 1997 to 1999; President,
Midwest Division from 1994 to 1997; and Senior Vice President-Corporate
Information Systems from 1990 to 1994. He was also President of SciQuest.com,
Inc. in 2000.
William
C. Rhodes, III,
40, has
been President, Chief Executive Officer, and a director since March, 2005.
Prior
to his appointment as President and Chief Executive Officer, Mr. Rhodes
was
Executive Vice President-Store Operations and Commercial. Prior to fiscal
2005,
he had been Senior Vice President-Supply Chain and Information Technology
since
fiscal 2002, and prior thereto had been Senior Vice President-Supply Chain
since
2001. Prior to that time, he served in various capacities within the Company,
including Vice-President-Stores in 2000, Senior Vice President-Finance
and Vice
President-Finance in 1999 and Vice President-Operations Analysis and Support
from 1997 to 1999. Prior to 1994, Mr. Rhodes was a manager with Ernst &
Young, LLP.
7
Independence
How
many independent directors does AutoZone have?
Our
Board
of Directors has determined that six of our current eight directors are
independent: Charles M. Elson, Sue E. Gove, Earl G. Graves, Jr., N. Gerry
House,
Edward S. Lampert, and W. Andrew McKenna. All of these directors meet the
independence standards of our Corporate Governance Principles and the New
York
Stock Exchange listing standards.
How
does AutoZone determine whether a Director is
independent?
In
accordance with AutoZone’s Corporate Governance Principles, a director is
considered independent if the director:
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has
not been employed by AutoZone within the last five
years;
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has
not been employed by AutoZone's independent auditor in the last
five
years;
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is
not, and is not affiliated with a company that is, an adviser,
or
consultant to AutoZone or a member of AutoZone’s senior
management;
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is
not affiliated with a significant customer or supplier of
AutoZone;
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has
no personal services contract with AutoZone or with any member
of
AutoZone’s senior management;
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is
not affiliated with a not-for-profit entity that receives significant
contributions from AutoZone;
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within
the last three years, has not had any business relationship with
AutoZone
for which AutoZone has been or will be required to make disclosure
under
Rule 404(a) or (b) of Regulation S-K of the Securities and Exchange
Commission as currently in effect;
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receives
no compensation from AutoZone other than compensation as a
director;
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is
not employed by a public company at which an executive officer
of AutoZone
serves as a director;
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has
not had any of the relationships described above with any affiliate
of
AutoZone; and
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is
not a member of the immediate family of any person with any relationships
described above.
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8
In
determining whether any business or charity affiliated with one of our
directors
did a significant amount of business with AutoZone, our Board has established
that any payments from either party to the other exceeding 1% of either
party’s
revenues would disqualify a director from being independent.
Where
can I obtain a copy of AutoZone’s Corporate Governance
Principles?
A
copy of
our Corporate Governance Principles can be found on our corporate website
at
www.autozoneinc.com.
Meetings
and Attendance
How
many times did AutoZone’s Board of Directors meet during the last fiscal
year?
The
Board
of Directors held seven meetings in fiscal year 2005.
Did
any of AutoZone’s directors attend fewer than 75% of the meetings of the Board
and their assigned committees?
All
of
our directors attended at least 75% of the meetings of the Board of Directors
and their assigned committees during the fiscal year.
What
is AutoZone’s policy with respect to directors’ attendance at the Annual
Meeting?
As
a
general matter, all directors are expected to attend our Annual Meetings.
At our
2004 Annual Meeting, all directors were present.
Do
AutoZone’s non-management directors meet regularly in executive session?
The
non-management members of our Board of Directors regularly meet in executive
sessions in conjunction with each regularly scheduled Board meeting. The
Chairman of the Board, who is a non-management director, presides at these
sessions.
Committees
of the Board
What
are the standing committees of AutoZone’s Board of
Directors?
AutoZone
has three standing committees: Audit Committee, Compensation Committee,
and
Nominating and Corporate Governance Committee, each consisting only of
independent directors.
9
Audit
Committee
What
is the function of the Audit Committee?
The
Audit
Committee is responsible for:
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the
integrity of the Company’s financial
statements,
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the
Company’s compliance with legal and regulatory
requirements,
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the
independent auditor’s qualification and independence,
and
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the
performance of the Company’s internal audit function and independent
auditors.
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The
Committee performs its duties by:
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appointing,
determining the compensation of, and overseeing the work of the
independent auditor and the internal
auditor;
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reviewing
the financial reporting processes and the information that will
be
provided to the stockholders and
others;
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reviewing
the adequacy and effectiveness of AutoZone’s systems of internal
accounting and financial controls;
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reviewing
the internal audit function and the annual independent audit
of AutoZone’s
financial statements;
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reviewing
the overall corporate “tone” for quality financial reports, controls, and
ethical behavior; and
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issuing
a report annually as required by the SEC’s proxy solicitation
rules.
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The
Audit
Committee’s charter can be found at AutoZone’s corporate web site at
www.autozoneinc.com.
Who
are the members of the Audit Committee?
The
Audit
Committee consists of Ms. Gove, Mr. Graves, and Mr. McKenna
(Chairman).
Are
all of the members of the Audit Committee independent?
Yes,
the
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.
10
Does
the Audit Committee have an Audit Committee Financial
Expert?
The
Board
has determined that Ms. Gove is an independent director and that she meets
the
qualifications of an audit committee financial expert as defined by the
Securities and Exchange Commission.
How
many times did the Audit Committee meet during the last fiscal
year?
During
the 2005 fiscal year, the Audit Committee held eleven meetings.
Compensation
Committee
What
is the function of the Compensation Committee?
The
Compensation Committee:
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reviews
and approves AutoZone’s compensation
objectives;
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reviews
and approves the compensation programs, plans and awards for
executive
officers, including recommending equity-based plans for shareholder
approval;
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acts
as administrator as may be required by AutoZone’s short- and long-term
incentive plans and other stock or stock-based plans;
and
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issues
a report annually related to executive compensation, as required
by the
Securities and Exchange Commission’s proxy solicitation
rules.
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The
Compensation Committee’s charter can be found at AutoZone’s corporate web site
at www.autozoneinc.com.
Who
are the members of the Compensation Committee?
The
Compensation Committee consists of Mr. Lampert (Chairman), Dr. House and
Mr.
McKenna, all of whom are independent directors.
How
many times did the Compensation Committee meet during the last fiscal
year?
During
the 2005 fiscal year, the Compensation Committee held three meetings.
Nominating
and Corporate Governance Committee
What
is the function of the Nominating and Corporate Governance
Committee?
The
Nominating and Corporate Governance Committee ensures that:
11
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qualified
candidates are presented to the Board of Directors for election
as
directors;
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the
Board of Directors has adopted appropriate corporate governance
principles
that best serve the practices and objectives of the Board of
Directors;
and
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AutoZone’s
Articles of Incorporation and Bylaws are structured to best serve
the
objectives of the stockholders.
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The
Nominating and Corporate Governance Committee’s charter can be found at
AutoZone’s corporate web site at www.autozoneinc.com.
Who
are the members of the Nominating and Corporate Governance
Committee?
The
Nominating and Corporate Governance Committee consists of Mr. Elson (Chairman)
and Mr. Graves, both of whom are independent directors.
How
many times did the Nominating and Corporate Governance Committee meet during
the
last fiscal year?
During
the 2005 fiscal year, the Nominating and Corporate Governance Committee
held
four meetings.
Director
Nomination Process
What
is the Nominating and Corporate Governance Committee’s policy regarding
consideration of director candidates recommended by stockholders? How do
stockholders submit such recommendations?
The
Nominating and Corporate Governance Committee’s policy is to consider director
candidate recommendations from stockholders if they are submitted in writing
to
AutoZone’s Secretary, accompanied by the biographical and business experience
information regarding the nominee and the other information required by
Article
III, Section 1 of AutoZone’s Third Amended and Restated By-Laws. Copies of the
By-laws will be provided upon written request to AutoZone’s Secretary and are
also available on AutoZone’s corporate web site at www.autozoneinc.com.
What
qualifications must a nominee have in order to be recommended by the Nominating
and Corporate Governance Committee for a position on the Board?
The
Board
believes each individual director should possess certain personal
characteristics, and that the Board as a whole should possess certain core
competencies. Such personal characteristics are integrity and accountability,
informed judgment, financial literacy, mature confidence, high performance
standards, and passion. Core competencies of the Board as a whole are accounting
and finance, business judgment, management, crisis response, industry knowledge,
international markets, strategy and vision. These characteristics and
competencies are set forth in more detail in AutoZone’s Corporate Governance
Principles, which are available on AutoZone’s corporate web site at
www.autozoneinc.com.
12
How
does the Nominating and Corporate Governance Committee identify and evaluate
nominees for director?
Prior
to
each annual meeting of stockholders at which directors are to be elected,
the
Nominating and Corporate Governance Committee considers incumbent directors
and
other qualified individuals as potential director nominees. In evaluating
a
potential nominee, the Nominating and Corporate Governance Committee considers
the personal characteristics described above, and also reviews the composition
of the full Board to determine the areas of expertise and core competencies
needed to enhance the function of the Board. The Committee may also consider
other factors such as the size of the Board, whether a candidate is independent,
how many other public company directorships a candidate holds, and the
listing
standard requirements of the New York Stock Exchange. The results of an
annual
self-evaluation process are also considered in the evaluation of future
potential director nominees.
The
Nominating and Corporate Governance Committee uses a variety of methods
for
identifying potential nominees for director. Candidates may come to the
attention of the Committee through current Board members, stockholders
or other
persons. The Nominating and Corporate Governance Committee may retain a
search
firm or other consulting firm from time to time to identify potential nominees.
Nominees recommended by stockholders in accordance with the procedure described
above, i.e., submitted in writing to AutoZone’s Secretary, accompanied by the
biographical and business experience information regarding the nominee
and the
other information required by Article III, Section 1 of AutoZone’s Third Amended
and Restated By-Laws, will receive the same consideration as the Committee’s
nominees.
Procedure
for Communication with the Board of Directors
How
can stockholders communicate with the Board of Directors?
Stockholders
may communicate with the Board of Directors by writing to the Board, to
any
individual director or to the non-management directors as a group c/o Secretary,
AutoZone, Inc., 123 South Front Street, Memphis, Tennessee 38103. All such
communications will be forwarded unopened to the addressee. Communications
addressed to the Board of Directors or to the non-management directors
as a
group will be forwarded to Charles M. Elson, an independent director, and
communications addressed to a committee of the Board will be forwarded
to the
chairman of that committee.
13
Compensation
of Directors
What
compensation do directors receive?
All
non-employee directors are paid an annual retainer of $40,000 per year,
with the
Audit Committee chairman receiving an additional $10,000 and the chairmen
of the
Compensation and Nominating and Corporate Governance committees receiving
an
additional $5,000 per year. Mr. Lampert has waived his right to receive
the
additional retainer as Compensation Committee chairman. There are no meeting
fees.
Under
the
AutoZone, Inc. 2003 Director Compensation Plan, a non-employee director
may
receive no more than one-half of the annual retainer and other fees immediately
in cash, and the remainder of the fees must be taken in common stock or
may be
deferred in units with value equivalent to the value of shares of common
stock
as of the grant date.
Do
the directors receive stock options?
Under
the
AutoZone, Inc. 2003 Director Stock Option Plan, on January 1 of each year,
each
non-employee director receives an option to purchase 1,500 shares of common
stock, and each non-employee director who owns common stock worth at least
five
times the annual fee paid to each non-employee director will receive
an
additional option to purchase 1,500 shares of common stock. In addition,
each
new director receives an option to purchase 3,000 shares upon election
to the
Board of Directors, plus a portion of the annual directors’ option grant
prorated for the portion of the year served in office. These stock option
grants
are made at the fair market value of the common stock as of the grant date,
defined in the plan as the average of the highest and lowest prices quoted
for
the common stock on the New York Stock Exchange on the business day immediately
prior to the grant date.
PROPOSAL
2-Ratification of Independent Registered Public Accounting
Firm
Ernst
& Young LLP, our independent auditor for the past eighteen fiscal years,
has
been selected by the Audit Committee to be AutoZone’s independent registered
public accounting firm for fiscal year 2006. Representatives of Ernst &
Young LLP will be present at the Annual Meeting to make a statement if
they so
desire and to answer any appropriate questions.
The
Audit Committee recommends that you vote FOR ratification of Ernst & Young
LLP as AutoZone’s independent registered public accounting firm.
For
ratification, the firm must receive more votes in favor of ratification
than
votes cast against. Abstentions and broker non-votes will not be counted
as
voting either for or against the firm. However, the Audit Committee is
not bound
by a vote either for or against the firm. The Audit Committee will consider
a
vote against the firm by the stockholders in selecting our independent
registered public accounting firm in the future.
14
During
the past two fiscal years, the aggregate fees for professional services
rendered
by Ernst & Young LLP were as follows:
|
2005
|
2004
|
||||||
|
Audit
Fees
|
$
|
1,516,996
|
$
|
621,100
|
|||
|
Audit-Related
Fees1
|
38,491
|
12,000
|
|||||
|
Tax
Fees2
|
—
|
464,845
|
|||||
|
All
Other Fees3
|
2,500
|
—
|
|||||
|
1
|
Audit
Related Fees in 2005 were for a SAS70 pre-assessment on our Pay
on Scan
Process, and in 2004 were for Sarbanes-Oxley Section 404 advisory
services.
|
|
2
|
Tax
Fees for 2004 were for tax compliance assistance and assistance
with
audits and tax planning, which consisted of $83,442 for tax compliance
assistance and $381,403 for assistance with audits and tax
planning.
|
| 3 | All Other Fees for 2005 were subscription fees to Ernst & Young LLP’s online accounting research service. |
The
Audit
Committee pre-approves all services performed by the independent registered
public accounting firm under the terms contained in the Audit Committee
charter,
a copy of which can be obtained at our web site at www.autozoneinc.com.
The
Audit Committee pre-approved 100% of the services provided by Ernst & Young
LLP during the 2005 fiscal year. The Audit Committee considers the services
listed above to be compatible with maintaining Ernst & Young LLP’s
independence.
Audit
Committee Report
The
Audit
Committee of AutoZone, Inc., has reviewed and discussed AutoZone’s audited
financial statements for the year ended August 27, 2005, with AutoZone’s
management. In addition, we have discussed with Ernst & Young LLP,
AutoZone’s independent registered public accounting firm, the matters required
to be discussed by Statement on Auditing Standards No. 61, the Sarbanes-Oxley
Act of 2002, and the charter of the Committee.
The
Committee also has received the written disclosures and the letter from
Ernst
& Young LLP required by Independence Standards Board Standard No. 1, and
we
have discussed with Ernst & Young LLP their independence from the Company
and its management. The Committee has discussed with AutoZone’s management and
the auditing firm such other matters and received such assurances from
them as
we deemed appropriate.
As
a
result of our review and discussions, we have recommended to the Board
of
Directors the inclusion of AutoZone’s audited financial statements in the annual
report for the fiscal year ended August 27, 2005, on Form 10-K for filing
with
the Securities and Exchange Commission.
15
While
the
Audit Committee has the responsibilities and powers set forth in its charter,
the Audit Committee does not have the duty to plan or conduct audits or
to
determine that AutoZone’s financial statements are complete, accurate, or in
accordance with generally accepted accounting principles; AutoZone’s management
and the independent auditor have this responsibility. Nor does the Audit
Committee have the duty to assure compliance with laws and regulations
and the
policies of the Board of Directors.
W.
Andrew
McKenna (Chairman)
Sue
E.
Gove
Earl
G.
Graves, Jr.
The
above Audit Committee Report does not constitute soliciting material and
should
not be deemed filed or incorporated by reference into any other Company
filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except
to the extent the Company specifically incorporates this Report by reference
therein.
Other
Matters
We
do not
know of any matters to be presented at the Annual Meeting other than those
discussed in this Proxy Statement. If, however, other matters are properly
brought before the Annual Meeting, your proxies will be able to vote those
matters in their discretion.
16
OTHER
INFORMATION
Security
Ownership of Management
This
table shows the beneficial ownership of common stock by each director,
the Chief
Executive Officer, the former Chief Executive Officer, and the other four
most
highly compensated executive officers, and all current directors and executive
officers as a group. Unless stated otherwise in the notes to the table,
each
person named below has sole authority to vote and invest the shares shown.
|
Beneficial
Ownership
As
of October 17, 2005
|
|||||||
|
Name
of Beneficial Owner
|
|
|
Shares
|
|
|
Ownership Percentage |
|
|
William
C. Rhodes, III1
|
124,603
|
*
|
|||||
|
Charles
M. Elson2
|
17,647
|
*
|
|||||
|
Sue
E. Gove3
|
166
|
*
|
|||||
|
Earl
G. Graves, Jr.4
|
6,010
|
*
|
|||||
|
N.
Gerry House5
|
15,255
|
*
|
|||||
|
J.R.
Hyde, III6
|
650,386
|
*
|
|||||
|
Edward
S. Lampert7
|
21,358,821
|
27.9%
|
|||||
|
W.
Andrew McKenna8
|
29,545
|
*
|
|||||
|
Harry
L. Goldsmith9
|
121,498
|
*
|
|||||
|
Michael
E. Longo10
|
69,188
|
*
|
|||||
|
Steve
Odland11
|
593,110
|
*
|
|||||
|
Robert
D. Olsen12
|
196,632
|
*
|
|||||
|
James
A. Shea13
|
11,350
|
*
|
|||||
|
All
current directors and
executive officers
as
a group (15 persons)14
|
22,744,683
|
29.7%
|
|||||
*Less
than 1%.
1Mr.
Rhodes was appointed President and Chief Executive Officer on March 13,
2005.
Includes 118,000 shares that may be acquired upon exercise of stock options
either immediately or within 60 days of October 17, 2005.
2Includes
2,015 shares that may be acquired immediately upon termination as a director
by
conversion of stock appreciation rights and 9,608 shares that may be acquired
upon exercise of stock options either immediately or within 60 days of
October
17, 2005.
3Includes
166 shares that may be acquired immediately upon termination as a director
by
conversion of stock appreciation rights.
4Includes
1,728 shares that may be acquired immediately upon termination as a director
by
conversion of stock appreciation rights and 4,282 shares that may be acquired
upon exercise of stock options either immediately or within 60 days of
October
17, 2005.
17
5Incudes
3,642 shares that may be acquired immediately upon termination as a director
by
conversion of stock appreciation rights and 10,500 shares that may be acquired
upon exercise of stock options either immediately or within 60 days of
October
17, 2005.
6Includes
255,000 shares held by a charitable foundation for which Mr. Hyde is an
officer
and a director and for which he shares investment and voting power, 5,876
shares
that may be acquired immediately upon termination as a director by conversion
of
stock appreciation rights, and 11,500 shares that may be acquired upon
exercise
of stock options either immediately or within 60 days of October 17, 2005.
Does
not include 2,000 shares owned by Mr. Hyde’s wife.
7Mr.
Lampert is the Chief Executive Officer of ESL Investments, Inc. All shares
indicated, other than 4,221 shares owned directly by Mr. Lampert and 8,500
shares that may be acquired by Mr. Lampert upon exercise of stock options
either
immediately or within 60 days of October 17, 2005, are owned by a group
consisting of affiliates of ESL Investments, Inc. See also footnote 1 under
Security Ownership of Certain Beneficial Owners, below.
8Includes
3,590 shares that may be acquired immediately upon termination as a director
by
conversion of stock appreciation rights and 9,955 shares that may be acquired
upon exercise of stock options either immediately or within 60 days of
October
17, 2005.
9Includes
112,000 shares that may be acquired upon exercise of stock options either
immediately or within 60 days of October 17, 2005, and 1,400 shares held
by
trusts for which Mr. Goldsmith is a beneficiary.
10Includes
65,250 shares that may be acquired upon exercise of stock options either
immediately or within 60 days of October 17, 2005.
11Mr.
Odland resigned as Chief Executive Officer on March 11, 2005. His beneficial
ownership is shown as of that date, including 512,500 shares that could
be
acquired upon exercise of stock options on that date or within 60 days
of that
date and 2,320 shares owned by his spouse. Mr. Odland subsequently exercised
493,750 stock options in accordance with the applicable stock option agreements.
See table entitled “Aggregated Option/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values.”
12
Includes
157,000 shares that may be acquired upon exercise of stock options either
immediately or within 60 days of October 17, 2005.
13Includes
11,250 shares that may be acquired upon exercise of stock options either
immediately or within 60 days of October 17, 2005.
14Includes
17,017 shares that may be acquired immediately upon termination as a director
by
conversion of stock appreciation rights and 656,970 shares that may be
acquired
upon exercise of stock options either immediately or within 60 days of
October
17, 2005.
18
Security
Ownership of Certain Beneficial Owners
The
following entities are known by us to own more than five percent of our
outstanding common stock:
|
Beneficial
Ownership
|
|||||||
|
Name
and Address
of
Beneficial Owner
|
|
Shares
|
Ownership Percentage |
||||
|
ESL
Partners, L.P.1
|
21,358,821
|
27.9%
|
|||||
|
200
Greenwich Avenue
|
|||||||
|
Greenwich,
CT 06830
|
|||||||
|
Davis
Selected Advisers, LP2
|
5,551,062
|
7.2%
|
|||||
|
2949
East Elvira Road, Suite 101
|
|||||||
|
Tucson,
AZ 85706
|
|||||||
1The
shares deemed beneficially owned by ESL Partners, L.P. are owned by a group
consisting of ESL Partners, L.P., a Delaware limited partnership, ESL
Institutional Partners, L.P., a Delaware limited partnership, ESL Investors,
L.L.C., a Delaware limited liability company, Acres Partners, L.P., a Delaware
limited partnership, ESL Investment Management, L.L.C., a Delaware limited
liability company, and Edward S. Lampert. RBS Partners, L.P. and ESL
Investments, Inc. are general partners of ESL Partners, L.P. ESL Investments,
Inc. is the general partner of Acres Partners, L.P. RBS Investment Management,
L.L.C., is the general partner of ESL Institutional Partners, L.P. RBS
Partners,
L.P., is the manager of ESL Investors, L.L.C. Mr. Lampert is the Chairman,
Chief
Executive Officer and a director of ESL Investments, Inc., and managing
member
of ESL Investment Management, LLC, and RBS Investment Management, LLC.
In their
respective capacities, each of the foregoing may be deemed to be the beneficial
owner of the shares of AutoZone common stock beneficially owned by other
members
of the group. ESL Partners, L.P., is the record owner of 11,520,943 shares,
ESL
Institutional Partners, L.P., is the record owner of 71,771 shares, ESL
Investors, L.L.C., is the record owner of 3,858,519 shares, Acres Partners,
L.P., is the record owner of 5,875,557 shares, ESL Investment Management,
Inc.
is the record owner of 19,310 shares, and Mr. Lampert is the record owner
of
4,221 shares owned directly by Mr. Lampert and 8,500 shares that may be
acquired
by Mr. Lampert upon exercise of stock options either immediately or within
60
days of October 17, 2005. Each entity or person has the sole power to vote
and
dispose of the shares deemed beneficially owned by it.
2The
source of this information is a Schedule 13F-HR/A filed with the Securities
and
Exchange Commission by Davis Selected Advisers, LP on August 11, 2005 reporting
beneficial ownership as of June 30, 2005.
19
Executive
Compensation
Summary
Compensation Table
This
table shows the compensation paid to the Chief Executive Officer, the former
Chief Executive Officer, and the other four most highly paid executive
officers.
|
|
Annual
Compensation
|
Long-Term
Compensation
|
|||||||||||||||||
|
Name
and Principal Position
|
Year
|
Salary ($) |
Bonus1 ($) |
Other
Annual Compensation2 |
Securities Underlying |
All
Other Compensation4 |
|||||||||||||
|
William
C. Rhodes, III5
|
2005
|
426,616
|
251,216
|
7,031
|
80,000
|
22,265
|
|||||||||||||
|
President
& Chief
|
|
||||||||||||||||||
|
Executive
Officer
|
|
||||||||||||||||||
|
Harry
L. Goldsmith
|
2005
|
314,385
|
129,213
|
—
|
40,000
|
26,893
|
|||||||||||||
|
Executive
Vice President,
|
2004
|
297,923
|
229,163
|
—
|
35,000
|
35,248
|
|||||||||||||
|
General
Counsel &
|
2003
|
285,207
|
282,357
|
—
|
26,000
|
13,323
|
|||||||||||||
|
Secretary
|
|
||||||||||||||||||
|
Michael
E. Longo6
|
2005
|
335,615
|
137,938
|
—
|
40,000
|
9,319
|
|||||||||||||
|
Executive
Vice President,
|
2004
|
326,769
|
251,351
|
—
|
30,000
|
16,921
|
|||||||||||||
|
Supply
Chain, Information
|
2003
|
318,308
|
315,126
|
13,141
|
50,000
|
15,373
|
|||||||||||||
|
Technology,
Mexico &
|
|
||||||||||||||||||
|
Store
Development
|
|
||||||||||||||||||
|
Steve
Odland7
|
2005
|
609,423
|
—
|
54,740
|
75,000
|
98,106
|
|||||||||||||
| Former Chairman, President & |
2004
|
1,000,000 |
1,282,000
|
110,160
|
75,000
|
110,078
|
|||||||||||||
|
Chief
Executive Officer
|
2003
|
946,154
|
1,561,154
|
138,604
|
250,000
|
15,569
|
|||||||||||||
|
Robert
D. Olsen
|
2005
|
313,923
|
129,023
|
—
|
25,000
|
26,888
|
|||||||||||||
|
Executive
Vice President,
|
2004
|
307,077
|
236,204
|
—
|
25,000
|
36,397
|
|||||||||||||
|
Supply
Chain, Information
|
2003
|
300,700
|
297,693
|
—
|
26,000
|
16,861
|
|||||||||||||
|
Technology,
Mexico &
|
|
||||||||||||||||||
|
Store
Development
|
|||||||||||||||||||
|
James
A. Shea8
|
2005
|
375,385
|
154,284
|
73,302
|
55,000
|
4,888
|
|||||||||||||
|
Executive
Vice President,
|
|||||||||||||||||||
|
Merchandising
and
|
|||||||||||||||||||
|
Marketing
|
|||||||||||||||||||
1Bonuses
are shown for the fiscal year earned, but paid in the following fiscal
year.
20
2
Amounts
shown consist of:
|
Year
|
Rhodes
|
Longo
|
Odland
|
Shea
|
||||||||||||
|
Discounts
on stock purchased under the
|
2005
|
$
|
7,031
|
—
|
$
|
54,470
|
—
|
|||||||||
|
AutoZone,
Inc. Second Amended and Restated
|
2004
|
—
|
— |
$
|
110,160
|
—
|
||||||||||
|
Executive
Stock Purchase Plan
|
2003
|
—
|
$
|
13,141
|
$
|
138,604
|
—
|
|||||||||
|
Sign-on
bonus
|
2005
|
—
|
—
|
—
|
$
|
40,000
|
||||||||||
|
Relocation
expenses
|
2005
|
—
|
—
|
—
|
$
|
33,302
|
||||||||||
3All
amounts shown are stock options granted in accordance with the Second Amended
and Restated 1996 Stock Option Plan. AutoZone did not grant SARs to executive
officers in the fiscal years shown.
4
Amounts
shown for 2005 consist of:
|
|
|
|
Company
|
||||
|
contributions
to
|
|||||||
|
defined
|
|||||||
|
Life
|
contribution
|
||||||
|
Insurance
|
plans
|
||||||
|
($)
|
($)
|
||||||
|
Mr.
Rhodes
|
2,788
|
19,477
|
|||||
|
Mr.
Goldsmith
|
5,177
|
21,716
|
|||||
|
Mr.
Longo
|
3,797
|
5,522
|
|||||
|
Mr.
Odland
|
6,549
|
91,557
|
|||||
|
Mr.
Olsen
|
5,378
|
21,510
|
|||||
|
Mr.
Shea
|
4,888
|
—
|
|||||
5Mr.
Rhodes was appointed President and Chief Executive Officer on March
13,
2005.
6Mr.
Longo
resigned as Executive Vice President, Supply Chain, Information Technology,
Mexico and Store Development effective October 28, 2005.
7Mr.
Odland resigned as Chairman, President and Chief Executive Officer on March
11,
2005.
8Mr.
Shea
was appointed Executive Vice President, Merchandising and Marketing in
September, 2004.
21
Long-Term
Incentive Plans – Awards
in Last
Fiscal Year
This
table shows the number of stock options granted to certain executive officers
during the most recent fiscal year pursuant to the Second Amended and Restated
1996 Stock Option Plan. Executive officers were not granted SARs during
the 2005
fiscal year.
|
Number
of Securities |
|
%
of Total Options/SARs |
|
Exercise
or Base
Price |
|
Expiration
|
|
Potential
Realizable Value
at
Assumed |
|
|||||||||||||
|
Name
|
|
Granted
(#) (2)
|
|
Fiscal
Year
|
|
($/Sh)
|
|
Date
|
|
5%($)
|
|
10%($)
|
||||||||||
|
William
C. Rhodes, III
|
30,000
|
2.8
|
$
|
75.64
|
9/29/14
|
1,427,100
|
3,616,530
|
||||||||||||
|
50,000
|
4.6
|
$
|
98.30
|
3/14/15
|
3,091,000
|
7,833,250
|
|||||||||||||
|
Harry
L. Goldsmith
|
30,000
|
2.8
|
$
|
75.64
|
9/29/14
|
1,427,100
|
3,616,530
|
||||||||||||
|
10,000
|
0.9
|
$
|
86.55
|
4/08/15
|
544,310
|
1,379,380
|
|||||||||||||
|
Michael
E. Longo
|
30,000
|
2.8
|
$
|
75.64
|
9/29/14
|
1,427,100
|
3,616,530
|
||||||||||||
|
10,000
|
0.9
|
$
|
86.55
|
4/08/15
|
544,310
|
1,379,380
|
|||||||||||||
|
Steve
Odland
|
75,000
|
7.0
|
$
|
75.64
|
9/29/14
|
3 |
3,567,750
|
9,041,325
|
|||||||||||
|
Robert
D. Olsen
|
20,000
|
1.9
|
$
|
75.64
|
9/29/14
|
951,400
|
2,411,020
|
||||||||||||
|
5,000
|
0.5
|
$
|
86.55
|
4/08/15
|
272,155
|
689,690
|
|||||||||||||
|
James
A. Shea
|
45,000
|
4.2
|
$
|
75.64
|
9/29/14
|
2,140,650
|
5,424,795
|
||||||||||||
|
10,000
|
0.9
|
$
|
86.55
|
4/08/15
|
544,310
|
1,379,380
|
1The
columns represent the hypothetical gains of the options granted based on
assumed
annual compound stock price appreciation rates of 5% and 10% over the term
of
the options. These appreciation rates have been arbitrarily set by the
Securities and Exchange Commission and do not represent estimated or projected
stock price appreciation.
2Options
shown vest in one-quarter increments on each of the first through fourth
anniversaries after the grant date.
3These
unvested options expired 90 days after the date of Mr. Odland’s resignation,
which was March 11, 2005.
22
Aggregated
Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
This
table shows stock option exercises by the named executive officers during
the
most recent fiscal year, and their exercisable and unexercisable stock
options
as of August 27, 2005. The fiscal year-end value of “in-the-money” stock options
is the aggregate difference between the exercise price of the option and
$95.45
per share, the market value of the common stock on August 27, 2005. Executive
officers do not have SARs.
|
Number
of Securities
|
|
Value
of Unexercised
|
|
||||||||||||||||
|
|
|
|
|
|
|
Underlying
Unexercised
|
|
In-the-Money
Options/SARs
|
|
||||||||||
|
|
|
Shares
Acquired
|
|
Value
|
|
Options/SARS at FY-End (#)
|
|
At
FY End ($)
|
|
||||||||||
|
|
|
on
Exercise (#)
|
|
Realized
($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|||||||
|
William
C. Rhodes, III
|
—
|
—
|
88,750
|
125,250
|
4,602,510
|
1,465,618
|
|||||||||||||
|
Harry
L. Goldsmith
|
52,110
|
3,460,036
|
84,250
|
84,250
|
4,538,278
|
1,421,928
|
|||||||||||||
|
Michael
E. Longo
|
48,750
|
2,993,080
|
31,500
|
93,750
|
630,945
|
1,754,813
|
|||||||||||||
|
Steve
Odland
|
493,750
|
22,030,360
|
—
|
—
|
—
|
—
|
|||||||||||||
|
Robert
D. Olsen
|
—
|
—
|
134,250
|
61,750
|
8,179,978
|
1,132,303
|
|||||||||||||
|
James
A. Shea
|
—
|
—
|
—
|
55,000
|
—
|
980,450
|
|||||||||||||
Pension
Plan Table
In
December, 2002, our defined benefit pension plans were frozen. Accordingly,
all
benefits to all participants in the pension plan are fixed and will not
increase
and no new participants may join the plans. This table shows the annual
benefits
payable upon retirement at age 65 under the frozen pension plans to the
named
executive officers. Sixty monthly payments are guaranteed after retirement.
The
benefits stated in the table will not be reduced by Social Security or
other
amounts received by a participant.
|
Annual
Benefit
|
|
|||
|
|
|
At
Age 65
|
|
|
|
Name
|
|
($)
|
||
|
William
C. Rhodes, III
|
21,311
|
|||
|
Harry
L. Goldsmith
|
39,571
|
|||
|
Michael
E. Longo
|
41,368
|
|||
|
Steve
Odland
|
97,929
|
|
||
|
Robert
D. Olsen
|
26,537
|
|||
|
James
A. Shea
|
—
|
|||
23
Compensation
Committee Report on Executive Compensation
The
Compensation Committee (the “Committee”) is composed exclusively of
non-employee, independent directors. The Committee approves the compensation
program for AutoZone’s senior management, including the Chief Executive Officer
and the executive officers listed in the Summary Compensation Table on
page 20
(the “Named Executive Officers”), and reviews the compensation program for other
employees of the Company. The Committee also oversees the administration
of
employee benefits and benefits plans for AutoZone and its subsidiaries.
Compensation
Philosophy
AutoZone’s
executive compensation program is designed to attract and retain executives
who
are key to our long-term success. In this process, we want to align an
executive’s compensation with AutoZone’s attainment of business goals and the
increase in stockholder value. The Compensation Committee reviews executive
compensation annually and makes appropriate adjustments based on company
performance, achievement of predetermined goals, and changes in an executive’s
duties and responsibilities. Compensation of other AutoZone employees is
based
on a similar philosophy.
The
principal components of AutoZone’s executive compensation program are salary,
bonus, and stock options. The Committee believes that each executive’s overall
compensation should reflect his or her performance over time, and a mix
of cash
and equity-based compensation is used to achieve that goal.
Salary.
The
Committee sets base salaries for AutoZone’s executive officers at levels which
the Committee independently determines to be adequate to reward and retain
capable executives for the Company. Such determination is based on the
Committee’s judgment and on information from a variety of sources about salaries
for comparable positions. At the beginning of each fiscal year, the Committee
reviews and establishes annual base salaries for the Chief Executive Officer
and
the other executive officers based on each executive officer’s performance
during the past fiscal year and, in the case of executive officers other
than
the CEO, on the recommendations of the Chief Executive Officer.
Bonus.
AutoZone
officers and certain other employees are eligible to receive bonuses each
fiscal
year based on the Company’s attainment of objectives set by the Committee at the
beginning of the fiscal year. Bonuses for the executive officers are awarded
pursuant to the AutoZone, Inc. 2005 Executive Incentive Compensation Plan
(the
“Executive Incentive Plan”), which was approved by our shareholders in December,
2004. The Committee approves the bonuses of the executive officers and
all
bonus-eligible employees of the Company.
At
the
beginning of each fiscal year, the Committee establishes the bonus objectives
for the fiscal year. The objectives can pertain to earnings, earnings per
share,
sales, market share, operating or net cash flows, pre-tax profits, earnings
before interest and taxes, return on invested capital, economic value added,
return on inventory, gross profit margin, sales per square foot, comparable
store sales, or a combination of objectives. The objectives may change
annually
to support our business mission. For the 2005 fiscal year, the objectives
were
based on AutoZone’s earnings before interest and taxes and return on invested
capital, as are the objectives for the 2006 fiscal year. As a general rule,
as
an executive’s level of management responsibility increases, the portion of his
or her total compensation dependent on Company performance as measured
by
business objectives increases.
24
The
Committee also approves a bonus matrix at the beginning of each fiscal
year,
based on the grade levels of participating employees, that specifies payment
of
a specified percentage of the participant's annual salary as a bonus if
the
target objective is achieved. The actual bonus amount paid depends on
performance relative to the target objectives. A minimum pre-established
goal
must be met in order for any bonus award to be paid, and the bonus award
as a
percentage of annual salary will increase as the performance milestones
shown on
the matrix are achieved. The Executive Incentive Compensation Plan limits
the
amount of the bonus award that an executive officer may receive in any
one
fiscal year to a maximum amount of $4 million.
Under
the
Executive Incentive Plan, the Committee has discretion to reduce or eliminate
an
award that would have been otherwise paid to an executive officer, but
not to
increase the amount of an award.
Stock
Options. To
align
the long-term interests of AutoZone’s management and our stockholders, the
Compensation Committee awards stock options to many levels of management,
including executive officers. Stock options are granted to executive officers
pursuant to the AutoZone, Inc. 1996 Stock Option Plan (the “Stock Option Plan”)
upon initial hire, and thereafter are typically granted annually in accordance
with guidelines established by the Committee. These guidelines establish
a range
for the number of stock options that could potentially be granted to each
eligible employee, including executive officers, based on the grade level
of his
or her position. The actual grant is determined by the Committee based
on the
guidelines and the performance of the individual in the position.
Stock
options granted in accordance with the Stock Option Plan have a ten-year
term
and vest in one-fourth increments over a four-year period. All options
are
granted with an exercise price equal to the fair market value of AutoZone
common
stock on the date of grant. Option repricing is expressly prohibited by
the
terms of the Stock Option Plan.
Under
the
Stock Option Plan, the Committee can grant incentive stock options and
non-qualified stock options or a combination of both. The maximum number
of
option shares which may be granted to any individual in any calendar year
is
500,000. During 2003, 2004 and 2005, the Committee granted primarily
non-qualified stock options and a smaller number of incentive stock options
to
executive officers. See the table entitled “Option/SAR Grants in Last Fiscal
Year” for details about stock option grants to the Named Executive Officers.
25
CEO
Compensation
The
Committee establishes the compensation level for the Chief Executive Officer,
including salary and incentive compensation, and reviews and approves any
long-term incentive awards for the CEO. The Chief Executive Officer’s
compensation is reviewed annually by the Committee in conjunction with
his
performance review, taking into account all forms of compensation, including
base salary, cash bonus, long-term incentive awards, and the value of
perquisites received.
The
Committee and the Board evaluate the performance of the Chief Executive
Officer,
and the results of this evaluation are used by the Committee to determine
the
CEO’s compensation. The Committee does not rely solely on predetermined formulas
or a finite set of criteria when it evaluates the CEO’s performance; rather, the
evaluation is a subjective determination by the Committee, taking into
account
such factors as AutoZone’s financial performance and results, the CEO’s
leadership in advancing AutoZone’s strategic and operating priorities, and the
achievement of short and long-term goals.
In
March,
2005, when Mr. Rhodes became Chief Executive Officer, the Committee increased
his annual salary to $600,000 and his bonus target to 100% of base salary,
and
awarded him 50,000 stock options, based on his increased responsibilities.
Mr.
Rhodes received a bonus of $251,216 for the 2005 fiscal year pursuant to
the
Executive Incentive Plan, which was calculated in accordance with the bonus
matrix discussed above. The bonus paid was based on EBIT of $976 million
and
ROIC of 23.9%. Mr. Rhodes also received grants of 80,000 stock options
during
fiscal 2005, including the grant made upon his appointment as Chief Executive
Officer, as shown in the table entitled “Option/SAR Grants in Last Fiscal
Year.”
Tax
Deductions for Compensation
The
Internal Revenue Code (“Code”) limits to $1 million the amount of compensation
that we may deduct in any year for the Chief Executive Officer and our
other
four most highly paid officers. However, this deduction limitation does
not
apply to performance-based compensation as defined in the Code. Our compensation
plans, including the Executive Incentive Compensation Plan, are generally
designed and implemented so that they qualify for full deductibility. However,
we may from time to time pay compensation to our executive officers that
may not
be deductible.
This
report was unanimously adopted by the Compensation Committee.
Edward
S.
Lampert, Chairman
N.
Gerry
House
W.
Andrew
McKenna
26
The
above Compensation Committee Report on Executive Compensation does not
constitute soliciting material and should not be deemed filed or incorporated
by
reference into any other Company filing under the Securities Act of 1933
or the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this Report by reference therein.
Stock
Performance Graph
This
graph shows, from the end of fiscal year 2000 to the end of fiscal year
2005,
changes in the value of $100 invested in each of AutoZone’s common stock,
Standard & Poor’s 500 Composite Index, and a peer group consisting of other
automotive aftermarket retailers.
|
Aug.
00
|
Aug.
01
|
Aug.
02
|
Aug.
03
|
Aug.
04
|
Aug.
05
|
||||||||||||||
|
AutoZone,
Inc.
|
$
|
100.00
|
$
|
215.91
|
$
|
328.86
|
$
|
417.27
|
$
|
342.55
|
$
|
433.86
|
|||||||
|
S&P
500 Index
|
100.00
|
79.62
|
62.47
|
70.01
|
78.27
|
86.73
|
|||||||||||||
|
Peer
Group
|
100.00
|
169.99
|
183.27
|
211.35
|
230.65
|
301.87
|
|||||||||||||
The
peer
group consists of Advance Auto Parts, Inc. (from after its acquisition
of
Discount Auto Parts, Inc.), Discount Auto Parts, Inc. (which was acquired
by
Advance Auto Parts, Inc., in 2001), CSK Auto Corporation, Genuine Parts
Company,
O’Reilly Automotive, Inc., and The Pep Boys-Manny, Moe & Jack.
27
Employment
Contracts and Termination of Employment and
Change-in-Control Arrangements
On
March
13, 2005, Mr. Rhodes became the Company's President and Chief Executive
Officer.
In connection with his appointment as President and Chief Executive Officer,
Mr.
Rhodes’ annual base salary was increased to $600,000 and his bonus target was
increased to 100% of base salary. He received a grant of 50,000 stock
options
having an exercise price of $98.30, which will vest in one-fourth increments
on
March 13, 2006, 2007, 2008 and 2009. Additionally, the Company agreed
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.
Mr.
Rhodes’ salary is subject to annual merit reviews by the Compensation Committee,
and he is entitled to participate in the benefit programs afforded to
our
executive officers. These include eligibility to receive bonus compensation
pursuant to the Executive Incentive plan and long-term incentive compensation
pursuant to the Stock Option Plan, as approved by the Compensation Committee,
as
well as other benefit programs.
Mr.
Goldsmith has an employment agreement providing that he is employed by
AutoZone
at a minimum base salary of $216,000 and a minimum bonus eligibility
of 60% of
base salary at predetermined targets. Mr. Olsen has an employment agreement
providing that he is employed by AutoZone at a minimum base salary of
$285,000
and a minimum bonus eligibility of 60% of base salary. The minimum salaries
and
bonuses are subject to increase by the Compensation Committee.
Both
of
these agreements continue until terminated either by the executive or
by
AutoZone. If the agreement is terminated by AutoZone for cause, or by
the
executive for any reason, the executive will cease to be an employee,
and will
cease to receive salary, bonus, and other benefits. If the agreement
is
terminated by AutoZone without cause, Mr. Goldsmith will remain an employee
for
three years after the termination date, and Mr. Olsen will remain an
employee
for two years after the termination date (each, a “Continuation Period”). Each
executive will continue to receive his then-current salary and other
benefits of
an employee, and will receive a prorated bonus for the fiscal year in
which he
was terminated, but no bonuses thereafter. Each executive’s stock options will
continue to vest and may be exercised in accordance with the respective
stock
option agreements until the end of his Continuation Period, after which
further
stock option exercises and vesting will be governed by the terms of the
respective stock option agreements. If the executive is terminated from
his
position by AutoZone or by the executive for reasons other than a change
in
control, then the executive will be prohibited from competing against
AutoZone
for his Continuation Period. “Cause” is defined in each agreement as the willful
engagement by the executive in conduct which is demonstrably or materially
injurious to AutoZone, monetarily or otherwise. “Change in control” in each
agreement means either the acquisition of a majority of our voting securities
by
or the sale of substantially all of our assets to a non-affiliate of
the
company.
28
It
has
been AutoZone’s practice to provide severance benefits to executive officers who
do not have written employment agreements. As a general rule, executive
officers
whose employment is involuntarily terminated without cause and who sign
an
agreement with the Company waiving certain legal rights and agreeing
to
non-compete and non-solicitation clauses, receive salary continuation
for a
period of time ranging from 12 months to 24 months, depending on their
length of
service. Health insurance benefits continue through the severance period,
and
the executive is eligible to receive a pro-rated share of his or her
annual
bonus for the fiscal year in which the severance period begins.
Each
grant of stock options to executive officers and other employees pursuant
to the
Stock Option Plan is governed by the terms of a Stock Option Agreement
entered
into between the Company and the employee at the time of the grant. The
terms of
the Stock Option Agreements are determined by the Compensation Committee.
They
usually provide that stock options may be exercised within 30 days from
the
option holder’s termination of employment due to permanent disability, voluntary
termination, involuntary termination without Cause (as defined) or retirement
at
normal retirement age, or within one year from the date of the option
holder’s
death, whichever occurs later. The Stock Option Agreements also provide
that
stock options may expire in the event of certain change in control transactions
unless the Compensation Committee waives the provision in connection
with the
transaction.
Executive
officers are eligible to participate in the AutoZone, Inc. Executive
Deferred
Compensation Plan, a nonqualified plan that allows executives who participate
in
AutoZone’s 401(k) plan to make a pretax deferral of base salary and bonus
compensation. Officers may defer up to 25% of base salary and bonus,
minus
deferrals under the 401(k) plan. The Company matches 100% of the first
3% of
deferred compensation and 50% of the next 2% deferred. Participants may
elect to
receive distribution of their deferral accounts at retirement or starting
in a
specific future year of choice before or after anticipated retirement
(but not
later than the year in which the participant reaches age 75). If a participant’s
employment with AutoZone terminates other than by retirement or death,
the
account balance will be paid in a lump sum payment six months after termination
of employment.
On
March
11, 2005, Steve Odland resigned as Chairman, President and Chief Executive
Officer of the Company. Pursuant to Mr. Odland’s employment agreement,
originally entered in 2001, (a) Mr. Odland’s employment terminated upon his
resignation, and he ceased to receive any further salary, bonus or benefits,
other than benefits under the AutoZone Plan as discussed below; (b) his
stock
options were governed by the terms of the applicable Stock Option Agreements,
which provided that the options could be exercised during the 90-day
period
following his resignation, and (c) upon attaining the age of 65, Mr.
Odland will
receive a pension benefit pursuant to the AutoZone, Inc. Executive Deferred
Compensation Plan. The monthly amount of the pension benefit is $8,160.75;
sixty
monthly payments are guaranteed. Mr. Odland’s employment agreement also provides
that Mr. Odland will not compete with AutoZone or hire or encourage others
to
hire any of our employees for a period of three years following his resignation.
29
Mr.
Longo
resigned as Executive Vice President, Supply Chain, Information Technology,
Mexico & Store Development effective October 28, 2005. The Company and Mr.
Longo entered into an agreement dated October 19, 2005, pursuant to which
Mr.
Longo’s employment will terminate on October 28, 2005, he will continue to
receive his current salary for two years after such date, and will receive
a
prorated bonus for the 2006 fiscal year at the time such bonuses are
paid. If
Mr. Longo elects COBRA coverage, he also will receive an additional amount
sufficient to cover the difference between his current premium payments
for
group health insurance and the premium payments pursuant to COBRA. The
agreement
also provides that Mr. Longo will not compete with AutoZone or hire any
AutoZone
employee during the two-year period. The Employment and Non-Compete Agreement
dated August 31, 1999, between Mr. Longo and the Company was terminated
effective October 19, 2005.
Equity
Compensation Plans
Equity
Compensation Plans Approved by Stockholders
Our
stockholders have approved the AutoZone, Inc. 1996 Stock Option Plan,
the
AutoZone, Inc. Second Amended and Restated Employee Stock Purchase Plan,
the
AutoZone, Inc. Executive Stock Purchase Plan, the AutoZone, Inc. 2003
Director
Compensation Plan, and the AutoZone, Inc. 2003 Director Stock Option
Plan.
Equity
Compensation Plans Not Approved by Stockholders
The
AutoZone, Inc. Second Amended and Restated Director Compensation Plan
and the
AutoZone, Inc. Fourth Amended and Restated 1998 Director Stock Option
Plan were
approved by the Board, but were not submitted for approval by the stockholders
as then permitted under the rules of the New York Stock Exchange. Both
of these
plans were terminated in December 2002 and were replaced by the AutoZone,
Inc.
2003 Director Compensation Plan and the AutoZone, Inc. 2003 Director
Stock
Option Plan, respectively, after the stockholders approved them. No further
grants can be made under the terminated plans. However, any grants made
under
these plans will continue under the terms of the grant made. Only treasury
shares are issued under the terminated plans.
Under
the
Second Amended and Restated Director Compensation Plan, a non-employee
director
could receive no more than one-half of the annual and meeting fees immediately
in cash, and the remainder of the fees were taken in common stock or
deferred in
stock appreciation rights.
Under
the
Fourth Amended and Restated 1998 Director Stock Option Plan, on January
1 of
each year, each non-employee director received an option to purchase
1,500
shares of common stock, and each non-employee director that owned common
stock
worth at least five times the annual fee paid to each non-employee director
on
an annual basis received an additional option to purchase 1,500 shares
of common
stock. In addition, each new director received an option to purchase
3,000
shares upon election to the Board of Directors, plus a portion of the
annual
directors’ option grant prorated for the portion of the year actually served in
office. These stock option grants were made at the fair market value
as of the
grant date.
30
Summary
Table
The
following table sets forth certain information as of August 27, 2005,
with
respect to compensation plans under which shares of AutoZone common stock
may be
issued.
|
Plan
Category
|
Number
of securities to be
issued
upon |
|
|
Weighted-average exercise
price
of |
|
|
Number
of securities remaining
available |
|
||
|
Equity
compensation plans approved by security holders
|
3,787,440
|
$
|
66.22
|
3,364,875
|
||||||
|
Equity
compensation plans not approved by securities holders
|
67,583
|
$
|
44.46
|
—
|
||||||
|
Total
|
3,855,023
|
$
|
61.84
|
3,364,875
|
Section
16(a) Beneficial Ownership Reporting Compliance
Securities
laws 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 own,
and any
changes in their ownership. To our knowledge, all persons related to
AutoZone
that are required to file these insider trading reports have filed them
in a
timely manner. Copies of the insider trading reports can be found on
the
AutoZone corporate website at www.autozoneinc.com.
STOCKHOLDER
PROPOSALS FOR 2006 ANNUAL MEETING
Stockholder
proposals for inclusion in the Proxy Statement for the Annual Meeting
in 2006
must be received by June 28, 2006. In accordance with our bylaws, Stockholder
proposals received after August 16, 2006, but by September 15, 2006,
may be
presented at the meeting, but will not be included in the 2005 Proxy
Statement.
Any stockholder proposal received after September 15, 2006, will not
be eligible
to be presented for a vote to the stockholders in accordance with our
bylaws.
Any proposals must be mailed to AutoZone, Inc., Attention: Secretary,
Post
Office Box 2198, Dept. 8074, Memphis, Tennessee 38101-2198.
31
ANNUAL
REPORT
A
copy of
our Annual Report is being mailed with this Proxy Statement to all stockholders
of record.
| |
|
By order of the Board of Directors, |
| /s/ Harry L. Goldsmith | ||
| Secretary | ||
|
Memphis,
Tennessee
October
26, 2005
|
||
32