qualified candidates are presented to the Board of Directors for election as Directors;directors;
6
| • | | the Board of Directors has adopted appropriate corporate governance principles that best serve the practices and objectives of the Board of Directors; and |
|
| • | | AutoZone’s Articles of Incorporation and Bylaws are structured to best serve the objectives of the stockholders. |
Does the Board of Directors has adopted appropriate corporate governance principles that best serve the practices and objectives of the Board of Directors; and
AutoZone’s Articles of Incorporation and Bylaws are structured to best serve the objectives of the stockholders.
The Nominating Committee and Corporate Governance Committee have a charter?
The Nominating and Corporate Governance Committee CharterCommittee’s charter can be found at AutoZone’s corporate web site at http://www.autozone.com.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. Keegan,Graves, both of whom are independent directors.
How many meetingstimes did the Nominating and Corporate Governance Committee holdmeet during the last fiscal year?
TheDuring the 2004 fiscal year, the Nominating and Corporate Governance Committee held five meetings duringfour meetings.
Director Nomination Process
What is the 2003 fiscal year.
Nominating and Corporate Governance Committee’s policy regarding consideration of directorcandidates recommended by stockholders? How do stockholders nominate director candidates?submit such recommendations?
The Nominating and Corporate Governance Committee willCommittee’s policy is to consider board nomineedirector candidate recommendations byfrom stockholders thatif they are submitted in writing to AutoZone’s Secretary, together withaccompanied by the biographical and business experience information regarding the nominee and the other information that is 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. However, new rulesSecretary and are also available on AutoZone’s corporate web site at www.autozoneinc.com.
What qualifications must a nominee have been proposedin order to be recommended by the SEC butNominating 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 not final yet.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.
How does the Nominating and Corporate Governance Committee identify and evaluate nominees for director?
WhatPrior to each annual meeting of stockholders at which directors are to be elected, the Nominating and Corporate Governance Committee considers incumbent directors paid?
Until June 2003, all non-employee directors were paidand 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 retainerself-evaluation process are also considered in the evaluation of $25,000future 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 quarterly installments, plus $1,000accordance 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 eachCommunication with the Board meeting attended. Effective in June 2003, meeting fees were eliminatedof 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 Corporate 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 allcommunications addressed to a committee of the Board will be forwarded to the chairman of that committee.
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 meetingother 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 (also known as “stock appreciation rights” or “SARs”).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 that owns common stock worth at least five times the annual fee paid to each non-employee director on an annual basis 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-Approval of the AutoZone, Inc. 2005 Executive Incentive Compensation Plan
Our Board of Directors is recommending approval of the AutoZone, Inc. 2005 Executive Incentive Compensation Plan to replace our Amended and Restated 2000 Executive Incentive Compensation Plan, which expires on December 9, 2004. Approval of the plan requires that more votes be cast in favor of the plan than votes cast against. Abstentions and broker non-votes will not be counted as voting either for or against.
The Board of Directors recommends that the stockholders vote FOR the 2005 Executive Incentive Compensation Plan.
The following is a summary of the AutoZone, Inc. 2005 Executive Incentive Compensation Plan. For complete details, refer to the plan, which is reproduced in its entirety as Exhibit A to this Proxy Statement.
What is the 2005 Executive Incentive Compensation Plan?
The Internal Revenue Code (the “Code”) prohibits us from deducting compensation in excess of $1 million for the chief executive officer and our other four most highly paid officers unless the compensation in excess of $1 million is based on an objective measure of performance. The AutoZone, Inc. 2005 Executive Incentive Compensation Plan is intended to qualify as a performance-based compensation plan under the Code so that performance bonuses paid to our executive officers are tax deductible to AutoZone. The plan requires that the Compensation Committee establish objective performance goals and that the performance goals be met before a participant may receive a bonus.
Who is eligible to participate in the plan?
The Company’s executive officers, as determined by the Compensation Committee, are eligible to participate in the plan.
How are performance goals established?
Under the plan, at the beginning of each fiscal year, the Compensation Committee must establish a goal, which may be a range from a minimum to a maximum attainable bonus. The goal may be based on one or more of the following measures:
•Earnings | •Return on invested capital |
•Earnings per share | •Economic value added |
•Sales | •Return on inventory |
•Market share | •EBIT |
•Operating or net cash flows | •Gross profit margin |
•Pre-tax profits | •Sales per square foot |
•Earnings before interest and taxes | •Comparable store sales |
The goal may be different for different executives. No bonus may be paid under the plan unless at least the minimum goal is attained. However, the Compensation Committee may disregard for goal purposes one-time charges and extraordinary events such as asset write-downs, litigation judgments or settlements, the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results, accruals for reorganization or restructuring, and any other extraordinary non-recurring items, acquisitions or divestitures and any foreign exchange gains or losses.
How is the bonus paid under the plan?
After the end of each fiscal year, the Compensation Committee must certify the attainment of goals, if any, under the plan and direct the amount to be paid to each participant. The Committee, in its discretion, may reduce or eliminate any bonus to be paid to an executive, even if a goal was attained. The bonus may only be paid after the attainment of the goals has been certified. The bonus will be paid in cash.
What is the maximum compensation that a participant may receive under the plan?
No participant may receive more than $4 million as a bonus under the plan.
Does AutoZone currently have an executive incentive compensation plan?
Currently, the AutoZone, Inc. Amended and Restated 2000 Executive Incentive Compensation Plan is in effect, but it will expire on December 9, 2004. Therefore, we are proposing the new plan.
What are the differences between the new plan and the existing plan?
The maximum bonus under the existing plan was the lesser of 200% of the executive’s annual salary or $2 million as a code of ethicsbonus under the plan. The new plan will allow up to $4 million to be paid as a bonus. Also, the existing plan gave the Compensation Committee the discretion to pay bonuses in whole or in part in common stock, while the new plan provides that bonuses will be paid in cash.
Who participated in the existing plan last fiscal year?
Twelve AutoZone executives were granted bonuses under the existing plan for fiscal 2004. This table shows bonuses for the CEO and financial officers?
We have adopted a code of ethics that applies to our CEO, CFO, Controllernamed executive officers and all otherexecutive officers as a group under the existing plan for the 2004 fiscal year:
2000 Executive Incentive Compensation Plan
Fiscal 2004 Awards
Name and Position | | Dollar
Value ($) |
| |
|
Steve Odland | | |
Chairman, President & Chief Executive Officer | | 1,282,000 |
Michael E. Longo | | |
Executive Vice President, Supply Chain, Information Technology, Mexico & Store Development | | 251,351 |
Michael Archbold | | |
Executive Vice President, Chief Financial Officer | | 241,233 |
Robert D. Olsen | | |
Senior Vice President, Mexico & Store Development | | 236,204 |
Harry L. Goldsmith | | |
Senior Vice President, General Counsel & Secretary | | 229,163 |
Executive Group1 | | 3,127,918 |
______________
1Twelve persons, performing similar functions. A copyincluding all of the persons named above.
It is not possible at this codetime to determine what awards may be granted under the proposed AutoZone, Inc. 2005 Executive Incentive Compensation Plan to the named executive officers and all executive officers as a group. If the AutoZone, Inc. 2005 Executive Incentive Compensation Plan had been in effect in fiscal 2004, such officers and group of ethics is available at our corporate website at http://www.autozone.com.officers would not have received awards that were different in type or amount than those that they actually received in fiscal 2004.
7
PROPOSAL 2-Ratification3-Ratification of Independent AuditorRegistered Public Accounting Firm
Ernst & Young LLP, our independent auditor for the past sixteenseventeen fiscal years, has been selected by the Audit Committee to be AutoZone’s independent auditorregistered public accounting firm for fiscal year 2004.2005. 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.
During the past two fiscal years, the aggregate fees for professional services rendered byThe Audit Committee recommends that you vote FOR ratification of Ernst & Young LLP were as follows:
| | | | | | | | | |
| | | 2003 | | 2002 |
| | |
| |
|
Audit Fees | | $ | 562,954 | | | $ | 469,758 | |
Audit-Related Fees | | | – | | | | – | |
Tax Fees1 | | | 617,357 | | | | 1,160,234 | |
All Other Fees2 | | | – | | | | 33,434 | |
1Tax Fees for 2003 and 2002 were for tax compliance assistance and assistance with audits and tax planning, which for 2003 consisted of $149,795 for tax compliance assistance and $467,562 for assistance with audits and tax planning.
2All Other Fees for 2002 were for energy advisory services.
The Audit Committee pre-approves all services performed by theAutoZone’s independent auditor under the terms contained in the Audit Committee Charter which is attached to this Proxy Statement as Appendix A. The Audit Committee pre-approved 100% of the services provided by Ernst & Young LLP during the 2003 fiscal year. The Sarbanes-Oxley Act, which became effective during the 2003 fiscal year, requires all services provided by the independent auditor to be pre-approved by the Audit Committee. During fiscal year 2002, these rules were not yet in effect; however, our policy had been to obtain Audit Committee pre-approval on audit fees, which represented 28% of the fees paid to Ernst & Young during fiscal year 2002. The Audit Committee considers the services listed above to be compatible with maintaining Ernst & Young LLP’s independence.
registered public accounting firm. For ratification, the auditorfirm 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 auditor.firm. However, the Audit Committee is not bound by a vote either for or against the auditor.firm. The Audit Committee will consider a vote against the auditorfirm by the stockholders in selecting auditorour independent registered public accounting firm in the future.
The Audit Committee recommends that you vote FOR ratification ofDuring the past two fiscal years, the aggregate fees for professional services rendered by Ernst & Young LLP were as independent auditor.follows:
| | 2004 | | 2003 | |
| |
| |
| |
Audit Fees | | $ | 621,100 | | $ | 562,954 | |
Audit Related Fees1 | | | 12,000 | | | — | |
Tax Fees2 | | | 464,845 | | | 617,357 | |
All Other Fees | | | — | | | — | |
1Audit Related Fees were for Sarbanes-Oxley Section 404 advisory services.
82Tax Fees for 2004 and 2003 were for tax compliance assistance and assistance with audits and tax planning, which for 2004 consisted of $83,442 for tax compliance assistance and $381,403 for assistance with audits and tax planning, and in 2003 consisted of $149,795 for tax compliance assistance and $467,562 for assistance with audits and tax planning.
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 2004 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 30, 2003,28, 2004, with AutoZone’s management. In addition, we have discussed with Ernst & Young LLP, AutoZone’s independent auditingregistered public accounting firm, the matters required to be discussed by Codification of Statement on Auditing Standards No. 61, the Sarbanes-Oxley Act of 2002, and other matters required by the charter of thisthe 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 30, 2003,28, 2004, on Form 10-K for filing with the Securities and Exchange Commission.
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.
James F. KeeganJ. Postl (Chairman)
Earl G. Graves, Jr.
W. Andrew McKenna
James Postl
We do not know of any matters to be presented at the Annual Meeting other than those discussed in this proxy statement.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.
3Includes 4121,290 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights.
4Includes 824 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights.
5Includes 2,7393,204 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights and 4,5007,500 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 14, 2003.21, 2004.
10
65Includes 350,410200,000 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, 4,9735,438 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights, and 5,5008,500 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 14, 2003.21, 2004. Does not include 2,000 shares owned by Mr. Hyde’s wife.
7Includes 5,500 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 14, 2003. Does not include 800 shares owned by Mr. Keegan’s spouse.
86Mr. Lampert is the Chief Executive Officer of ESL Investments, Inc. All shares indicated, other than 3,3213,785 shares owned directly by Mr. Lampert and 2,5005,500 shares that may be acquired by Mr. Lampert upon exercise of stock options either immediately or within 60 days of October 14, 2003,21, 2004, are owned by a group consisting of affiliates of ESL Investments, Inc. See also footnote 21 under Security Ownership of Certain Beneficial Owners, below.
97Includes 2,6453,110 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights and 3,9556,955 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 14, 2003.21, 2004.
108Includes 264857 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights.
119Includes 25,25058,000 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 14, 2003.21, 2004.
1210Includes 113,610124,360 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 14, 2003,21, 2004, and 1,400 shares held by trusts for which Mr. Goldsmith is a beneficiary.
1311Includes 50,66676,250 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 14, 2003.21, 2004.
1412Includes 49,833100,916 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 14, 2003.21, 2004.
1513Includes 12,85515,421 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights and 683,6771,029,339 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 14, 2003.21, 2004.
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 |
| | | as of October 14, 2003 |
| | |
|
| Name and Address | | | | | | Ownership |
| of Beneficial Owner | | Shares | | Percentage |
| |
| |
|
ESL Investments, Inc.1
200 Greenwich Avenue
Greenwich, CT 06830 | | | 25,534,521 | | | | 28.8 | % |
| |
Putnam Investment Management, Inc.2
One Post Office Square
Boston, MA 02109 | | | 10,047,331 | | | | 11.3 | % |
11
| | Beneficial Ownership | |
| |
| |
Name and Address
of Beneficial Owner | | Shares | | Ownership
Percentage | |
|
|
|
|
| |
ESL Partners, L.P.1 | | 21,355,385 | | 26.8 | % |
200 Greenwich Avenue
Greenwich, CT 06830 | | | | | |
| | | | | |
Davis Selected Advisers, LP2 | | 5,413,330 | | 6.0 | % |
2949 East Elvira Road, Suite 101
Tucson, AZ 85706 | | | | | |
| | | | | |
1The shares deemed beneficially owned by ESL Investments, Inc.,Partners, L.P. are owned by a group consisting of ESL Partners, L.P., a Delaware limited partnership, ESL Limited, a Bermuda corporation, ESL Institutional partners,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, Marion Partners, L.P.ESL Investment Management, L.L.C., a Delaware limited partnership, Blue Macaw Partners, L.P., a Delaware limited partnership, KP I Partners, L.P., a Delaware limited partnership, KP II Partners, L.P., a Delaware limited partnership, 200GA, L.P., a Delaware limited partnership,liability company, and Edward S. Lampert. RBS Partners, L.P., is the and ESL Investments, Inc. are general partnerpartners of ESL Partners, L.P. ESL Investments, Inc., is the general partner of Acres partners, L.P., Marion Partners, L.P., Blue Macaw Partners, L.P., and 200GA, L.P., RBS Partners, L.P. ESL Investment Management, LLC, is the investment manager of ESL Limited and the general partner of each of KP I Partners, L.P., and KP II 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 10,672,129 shares, ESL Limited is the record owner of 1,700,08411,520,943 shares, ESL Institutional Partners, L.P., is the record owner of 395,81571,771 shares, ESL Investors, L.L.C., is the record owner of 1,521,3653,858,519 shares, Acres Partners, L.P., is the record owner of 7,526,5995,875,557 shares, Marion Partners, L.P.,ESL Investment Management, Inc. is the record owner of 224,840 shares, Blue Macaw Partners, L.P., is the record owner of 488,350 shares, 200GA, L.P., is the record owner of 2,215,581 shares, KP I Partners, L.P., is the record owner of 441,638 shares, KP II Partners, L.P., is the record owner of 342,29919,310 shares, and Mr. Lampert is the record owner of 3,3213,785 shares owned directly by Mr. Lampert and 2,5005,500 shares that may be acquired by Mr. Lampert upon exercise of stock options either immediately or within 60 days of October 14, 2003.21, 2004. Each entity or person has the sole power to vote and dispose of the shares deemed beneficially owned by it. ESL Investments, Inc., in an agreement dated October 10, 2000, agreed not to vote any shares it or its affiliates acquired after October 20, 2000, until after April 1, 2004, unless AutoZone gives consent otherwise. As of the record date, this agreement applied to 8,923,500 shares beneficially owned by ESL Investments, Inc., and its affiliates.
2AllThe source of this information regarding Putnam Investment Management, Inc., is based upon thea Schedule 13F forfiled with the period endedSecurities and Exchange Commission by Davis Selected Advisers, LP dated August 27, 2004 reporting beneficial ownership as of June 30, 2003. Putnam Investment Management, Inc., has the sole power to vote 1,636,310 and no power to vote 8,411,021 shares.2004.
12
Executive Compensation
Summary Compensation Table
This table shows the compensation paid to the Chief Executive Officer and the other four most highly paid executive officers for the past three fiscal years.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Long Term | | | | |
| | | | | | | | | | | | | | | | | | | Compensation | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | | | | | Awards | | | | |
| | | | | | | Annual Compensation | |
| | | | |
| | | | | | |
| | Securities | | | | |
| | | | | | | | | | | | | | | Other Annual | | Underlying | | All Other |
| Name and Principal Position | | Year | | Salary1 | | Bonus2 | | Compensation3 | | Options/SARs4 | | Compensation5 |
| |
| |
| |
| |
| |
| |
|
Steve Odland6 | | | 2003 | | | | 946,154 | | | | 1,561,154 | | | | 138,604 | | | | 250,000 | | | | 15,569 | |
| Chairman, President, | | | 2002 | | | | 662,500 | | | | 2,090,400 | | | | 28,624 | | | | 125,000 | | | | 5,538 | |
| & Chief Executive Officer | | | 2001 | | | | 375,000 | | | | 520,411 | | | | 128,590 | | | | 275,000 | | | | 2,077 | |
| |
| Michael E. Longo | | | 2003 | | | | 318,308 | | | | 315,126 | | | | 13,141 | | | | 50,000 | | | | 15,373 | |
| Senior Vice President | | | 2002 | | | | 314,942 | | | | 596,246 | | | | — | | | | 25,000 | | | | 4,915 | |
| Operations, AZ Commercial & ALLDATA | | | 2001 | | | | 287,500 | | | | 174,639 | | | | — | | | | — | | | | 4,499 | |
| |
Michael Archbold7 | | | 2003 | | | | 305,077 | | | | 302,026 | | | | 11,307 | | | | 26,000 | | | | 10,973 | |
| Senior Vice President | | | 2002 | | | | 173,077 | | | | 377,669 | | | | 36,098 | | | | 75,000 | | | | 3,046 | |
| & Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Robert D. Olsen | | | 2003 | | | | 300,700 | | | | 297,693 | | | | — | | | | 26,000 | | | | 16,861 | |
| Senior Vice President | | | 2002 | | | | 299,195 | | | | 566,434 | | | | — | | | | 20,000 | | | | 4,589 | |
| Mexico & Store Development | | | 2001 | | | | 285,000 | | | | 173,120 | | | | 150,563 | | | | — | | | | 3,422 | |
| |
| Harry L. Goldsmith | | | 2003 | | | | 285,207 | | | | 282,357 | | | | — | | | | 26,000 | | | | 13,323 | |
| Senior Vice President, | | | 2002 | | | | 283,448 | | | | 536,622 | | | | — | | | | 20,000 | | | | 3,600 | |
| General Counsel & Secretary | | | 2001 | | | | 270,000 | | | | 165,551 | | | | — | | | | — | | | | 3,539 | |
| | | | | | | | | | Long-Term
Compensation | | | |
| | | | | | | | | |
| | | |
| | | | Annual Compensation | | Awards | | | |
| | | |
| |
| | | |
Name and Principal Position | | Year | | Salary1
($) | | Bonus2
($) | | Other Annual
Compensation3
($) | | Securities
Underlying
Options/SAR’s4 | | All Other
Compensation5
($) | |
| |
| |
| |
| |
| |
| |
| |
Steve Odland | | 2004 | | 1,000,000 | | 1,282,000 | | 110,160 | | 75,000 | | 110,078 | |
Chairman, President & | | 2003 | | 946,154 | | 1,561,154 | | 138,604 | | 250,000 | | 15,569 | |
Chief Executive Officer | | 2002 | | 662,500 | | 2,090,400 | | 28,624 | | 125,000 | | 5,538 | |
| | | | | | | | | | | | | |
Michael E. Longo | | 2004 | | 326,769 | | 251,351 | | — | | 30,000 | | 16,921 | |
Executive Vice President, | | 2003 | | 318,308 | | 315,126 | | 13,141 | | 50,000 | | 15,373 | |
Supply Chain, Information Technology, Mexico & Store Development | | 2002 | | 314,942 | | 596,246 | | — | | 25,000 | | 4,915 | |
| | | | | | | | | | | | | |
Michael Archbold6 | | 2004 | | 313,615 | | 241,233 | | 12,611 | | 30,000 | | 30,957 | |
Executive Vice President, | | 2003 | | 305,077 | | 302,026 | | 11,307 | | 26,000 | | 10,973 | |
Chief Financial Officer | | 2002 | | 173,077 | | 377,669 | | 36,098 | | 75,000 | | 3,046 | |
| | | | | | | | | | | | | |
Robert D. Olsen | | 2004 | | 307,077 | | 236,204 | | — | | 25,000 | | 36,397 | |
Senior Vice President, | | 2003 | | 300,700 | | 297,693 | | — | | 26,000 | | 16,861 | |
Mexico & Store Development | | 2002 | | 299,195 | | 566,434 | | — | | 20,000 | | 4,589 | |
| | | | | | | | | | | | | |
Harry L. Goldsmith | | 2004 | | 297,923 | | 229,163 | | — | | 35,000 | | 35,248 | |
Senior Vice President, | | 2003 | | 285,207 | | 282,357 | | — | | 26,000 | | 13,323 | |
General Counsel & Secretary | | 2002 | | 283,448 | | 536,622 | | — | | 20,000 | | 3,600 | |
1Fiscal year 2002 consisted of 53 weeks. Therefore, salary for 2002 for each person included an additional week. Bonuses for fiscal year 2002 were paid based on 52 week base salaries.
2Bonuses are shown for the fiscal year earned, but paid in the following fiscal year.
3Amounts shown for Mr. Odland for 2004, 2003 and 2002 representsand for Mr. Archbold for 2004 represent discounts on stock purchased under the Amended and Restated Executive Stock Purchase Plan and amount shown for 2001 includes $68,155 paid for relocation expenses and $45,435 paid in taxes on the relocation expenses.Plan. Amount shown for Mr. Longo for 2003 is for discounts on stock purchased under the Amended and Restated Executive Stock Purchase Plan. AmountAmounts shown for Mr. Archbold for 2003 includedinclude $8,090 in relocation expenses and $3,217 paid in taxes on relocation expenses and in 2002 includes $25,442 in relocation expenses and $10,656 paid in taxes on relocation expenses. Amount shown for Mr. Olsen for 2001 includes $88,781 for relocation expenses and $61,782 paid in taxes on the relocation expenses.
4All 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.
13
5Amounts shown for 20032004 consist of:
| | | | | | | | | | | | | |
| | | | | | | Company | | Interest in |
| | | | | | | contributions to | | excess of |
| | | | | | | defined | | market rates |
| | | Life | | contribution | | on deferred |
| | | Insurance | | plans | | compensation |
| | |
| |
| |
|
| Mr. Odland | | $ | 5,511 | | | $ | 10,058 | | | | – | |
| Mr. Longo | | | 4,770 | | | | 10,534 | | | $ | 69 | |
| Mr. Archbold | | | 4,824 | | | | 6,149 | | | | – | |
| Mr. Olsen | | | 6,405 | | | | 10,416 | | | | – | |
| Mr. Goldsmith | | | 5,940 | | | | 7,383 | | | | – | |
| | Life
Insurance | | Company
contributions to
defined
contribution
plans | |
| |
| |
| |
Mr. Odland | | $ | 4,440 | | $ | 105,638 | |
Mr. Longo | | | 4,341 | | | 12,580 | |
Mr. Archbold | | | 4,203 | | | 26,754 | |
Mr. Olsen | | | 4,157 | | | 32,240 | |
Mr. Goldsmith | | | 4,003 | | | 31,245 | |
6Mr. Odland was first employed in January 2001.
7Mr. Archbold was first employed in February 2002.
Option/SAR Grants 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 20032004 fiscal year.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Potential Realizable |
| | | | | | | | | | | | | | | | | | | Value at Assumed |
| | | Number of | | % of Total | | | | | | | | | | Annual Rates of Stock |
| | | Securities | | Options/SARs | | | | | | | | | | Price Appreciation for |
| | | Underlying | | Granted to | | Exercise or | | | | | | Option Term1 |
| | | Options/SARs | | Employees in | | Base Price | | Expiration | |
|
| | | Granted (#)2 | | Fiscal Year | | ($/Sh) | | Date | | 5%($) | | 10%($) |
| | |
| |
| |
| |
| |
| |
|
| Steve Odland | | | 248,000 | | | | 16.8 | | | | 71.12 | | | | 9/7/2012 | | | | 11,092,292 | | | | 28,110,047 | |
| | | | 2,000 | | | | 0.1 | | | | 71.12 | | | | 9/6/2012 | | | | 89,454 | | | | 226,694 | |
| |
| Michael E. Longo | | | 48,000 | | | | 3.3 | | | | 71.12 | | | | 9/7/2012 | | | | 2,146,895 | | | | 5,440,654 | |
| | | | 2,000 | | | | 0.1 | | | | 71.12 | | | | 9/6/2012 | | | | 89,454 | | | | 226,694 | |
| |
| Michael Archbold | | | 24,000 | | | | 1.6 | | | | 71.12 | | | | 9/7/2012 | | | | 1,073,448 | | | | 2,720,327 | |
| | | | 2,000 | | | | 0.1 | | | | 71.12 | | | | 9/6/2012 | | | | 89,454 | | | | 226,694 | |
| |
| Robert D. Olsen | | | 24,000 | | | | 1.6 | | | | 71.12 | | | | 9/7/2012 | | | | 1,073,448 | | | | 2,720,327 | |
| | | | 2,000 | | | | 0.1 | | | | 71.12 | | | | 9/6/2012 | | | | 89,454 | | | | 226,694 | |
| |
| Harry L. Goldsmith | | | 24,000 | | | | 1.6 | | | | 71.12 | | | | 9/7/2012 | | | | 1,073,448 | | | | 2,720,327 | |
| | | | 2,000 | | | | 0.1 | | | | 71.12 | | | | 9/6/2012 | | | | 89,454 | | | | 226,694 | |
| | Number of
Securities
Underlying
Options/SARs
Granted (#)2 | | % of Total
Options/SARs
Granted to
Employees in
Fiscal Year | | Exercise or
Base Price
($/Sh) | | Expiration
Date | | | | | |
Option Term1 |
|
5%($) | | 10%($) |
| |
| |
| |
| |
| |
| |
| |
Steve Odland | | 73,200 | | 6.41 | | $ | 89.18 | | 9/6/2013 | | 4,105,422 | | 10,403,916 | |
| | 1,800 | | 0.16 | | $ | 89.18 | | 9/5/2013 | | 100,953 | | 255,834 | |
| | | | | | | | | | | | | | |
Michael E. Longo | | 28,200 | | 2.47 | | $ | 89.18 | | 9/6/2013 | | 1,581,597 | | 4,008,066 | |
| | 1,800 | | 0.16 | | $ | 89.18 | | 9/5/2013 | | 100,953 | | 255,834 | |
| | | | | | | | | | | | | | |
Michael Archbold | | 28,000 | | 2.45 | | $ | 89.18 | | 9/6/2013 | | 1,570,380 | | 3,979,640 | |
| | 2,000 | | 0.18 | | $ | 89.18 | | 9/5/2013 | | 112,170 | | 284,260 | |
| | | | | | | | | | | | | | |
Robert D. Olsen | | 23,200 | | 2.03 | | $ | 89.18 | | 9/6/2013 | | 1,301,172 | | 3,297,416 | |
| | 1,800 | | 0.16 | | $ | 89.18 | | 9/5/2013 | | 100,953 | | 255,834 | |
| | | | | | | | | | | | | | |
Harry L. Goldsmith | | 33,200 | | 2.91 | | $ | 89.18 | | 9/6/2013 | | 1,862,022 | | 4,718,716 | |
| | 1,800 | | 0.16 | | $ | 89.18 | | 9/5/2013 | | 100,953 | | 255,834 | |
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 forecast actualrepresent 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.
14
Aggregated Option/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values
This table shows stock option exercises by certain executive officers during the most recent fiscal year, and their exercisable and unexercisable stock options as of August 30, 2003.28, 2004. The fiscal year-end value of “in-the-money” stock options is the aggregate difference between the exercise price of the option and $91.80$75.36 per share, the market value of the common stock on August 30, 2003.27, 2004. Executive officers do not have SARs.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Number of Securities | | Value of Unexercised |
| | | | | | | | | | | Underlying Unexercised | | In-the-Money Options/SARs |
| | | | | | | | | | | Options/SARs at FY-End (#) | | At FY-End ($) |
| | | Shares Acquired | | Value | |
| |
|
| | | on Exercise (#) | | Realized ($) | | Exercisable | | Unexercisable | | Exercisable | | Unexercisable |
| | |
| |
| |
| |
| |
| |
|
| Steve Odland | | | — | | | | — | | | | 168,750 | | | | 481,250 | | | | 10,525,125 | | | | 18,688,875 | |
| Michael E. Longo | | | — | | | | — | | | | 88,583 | | | | 75,417 | | | | 5,492,052 | | | | 2,395,398 | |
| Michael Archbold | | | — | | | | — | | | | 18,750 | | | | 82,250 | | | | 462,938 | | | | 1,926,493 | |
| Robert D. Olsen | | | — | | | | — | | | | 38,333 | | | | 107,667 | | | | 2,468,228 | | | | 5,713,702 | |
| Harry L. Goldsmith | | | 31,362 | | | | 1,746,242 | | | | 92,943 | | | | 52,667 | | | | 6,247,939 | | | | 2,021,368 | |
| | | | | | Number of Securities
Underlying Unexercised
Options/SARS at FY-End (#) | | Value of Unexercised
In-the-Money Options/SARs
At FY End ($) | |
| | | | | |
| |
| |
| | Shares Acquired
on Exercise (#) | | Value
Realized ($) | | Exercisable | | Unexercisable | | Exercisable | | Unexercisable | |
| |
| |
| |
| |
| |
| |
| |
Steve Odland | | — | | — | | 331,250 | | 393,750 | | 12,382,875 | | 6,145,125 | |
Michael E. Longo | | 60,000 | | 3,831,838 | | 50,666 | | 83,334 | | 1,631,518 | | 723,484 | |
Michael Archbold | | — | | — | | 44,000 | | 87,000 | | 336,935 | | 392,055 | |
Robert D. Olsen | | — | | — | | 83,166 | | 87,834 | | 3,703,626 | | 2,078,064 | |
Harry L. Goldsmith | | — | | — | | 113,610 | | 67,000 | | 5,349,798 | | 525,680 | |
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 CEO and our other four most highly compensated 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 |
| Name | | at Age 65 |
| |
|
| Steve Odland | | $ | 97,929 | |
| Michael E. Longo | | | 41,368 | |
| Michael Archbold | | | – | |
| Robert D. Olsen | | | 26,537 | |
| Harry L. Goldsmith | | | 39,571 | |
Name | | Annual Benefit
At Age 65 | |
| |
| |
Steve Odland | | $ | 97,929 | |
Michael E. Longo | | | 41,368 | |
Michael Archbold | | | — | |
Robert D. Olsen | | | 26,537 | |
Harry L. Goldsmith | | | 39,571 | |
Compensation Committee Report on Executive Compensation
TheAutoZone’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. The compensation of other AutoZone employees is based on a similar philosophy.
Compensation Philosophy
Executive compensation consists of salary, bonus, and stock options.
Salary.The Compensation Committee desires that overall compensation reflect each executive’s performance over time. Base salaries are then set at levels determined by the Compensation Committee to adequately reward and retain capable executives.
At the beginning of each fiscal year, the Compensation Committee reviews and establishes the annual salary of executive officers. The Committee makes an independent determination of the appropriate level of these officers’ salaries taking into consideration the salary ranges recommended for a particular position by outside compensation consultants, and each executive officer’s performance for the past fiscal year.
15
Bonus.Each fiscal year executive officers are paid a bonus based on the attainment of goals set by the Compensation Committee. The goals for fiscal year 20032004 were based on AutoZone’s earnings before interest and taxes (EBIT) and return on invested capital (ROIC). The Compensation Committee establishes a bonus payout matrix at the beginning of the fiscal year granting higher rewards as a percentage of annual salary as milestones shown on the matrix are achieved. The better AutoZone’s performance, the higher the bonus payout. As a general matter, 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 goals increases.
Stock Options.To align the long-term interests of management and our stockholders, the Compensation Committee awards stock options to many levels of management, including some individual store managers.management. Stock options may be granted to executives upon initial hire and thereafter annually in accordance with guidelines established by the Committee. The guidelines allow for a range of potential option shares to be granted for each position, with the actual grant determined by the performance of the individual in the position.
CEO Compensation
The Compensation Committee approves 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.
AutoZone’s Chief Executive Officer, Steve Odland, received an annual base salary in fiscal year 20032004 of $946,154.$1 million. He was also paid a bonus of $1,561,154,$1,282,000, which was calculated in accordance with the bonus matrix discussed above. The bonus paid was a result of the increase in EBIT to $918$999 million from $771$918 million and an increase in ROIC to 23.4%25.1% from 19.8%23.4%.
Tax Deductions for Compensation
The federal tax code limits the amount of compensation that we may deduct in any year for the Chief Executive Officer and our other four most highly paid officers to $1 million. However, this deduction limitation does not apply to performance-based compensation as defined in the tax code. Our compensation plans are generally designed and implemented so that they qualify for 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
Marsha J. Evans
N. Gerry House
W. Andrew McKenna
16
Stock Performance Graph
This graph shows, from the end of fiscal year 19981999 to the end of fiscal year 2003,2004, changes in the value of $100 invested in each of AutoZone’s common stock, Standard & Poor ‘sPoor’s 500 Composite Index, and a peer group consisting of other automotive aftermarket retailers.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Aug. 98 | | Aug. 99 | | Aug. 00 | | Aug. 01 | | Aug. 02 | | Aug. 03 |
| | |
| |
| |
| |
| |
| |
|
AutoZone, Inc. | | $ | 100.00 | | | $ | 88.89 | | | $ | 81.48 | | | $ | 175.93 | | | $ | 267.96 | | | $ | 340.00 | |
S&P 500 Index | | | 100.00 | | | | 133.05 | | | | 150.44 | | | | 119.78 | | | | 93.97 | | | | 105.31 | |
Peer Group | | | 100.00 | | | | 97.10 | | | | 64.63 | | | | 109.86 | | | | 118.44 | | | | 136.59 | |
| | Aug. 99 | | Aug. 00 | | Aug. 01 | | Aug. 02 | | Aug. 03 | | Aug. 04 | |
AutoZone, Inc. | | $ | 100.00 | | $ | 91.67 | | $ | 197.92 | | $ | 301.46 | | $ | 382.50 | | $ | 314.00 | |
S&P 500 Index | | | 100.00 | | | 113.07 | | | 90.03 | | | 70.63 | | | 79.16 | | | 88.50 | |
Peer Group | | | 100.00 | | | 66.56 | | | 113.14 | | | 121.99 | | | 140.67 | | | 153.52 | |
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 1991)2001), CSK Auto Corporation, Genuine Parts Company, O’Reilly Automotive, Inc., and The Pep Boys-Manny, Moe & Jack.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
When Mr. Odland was hired in 2001 we entered into an employment agreement which expires on January 29, 2004. OnEffective October 23, 2003, theMr. Odland’s employment agreement, originally entered in 2001, was amended and restated to provide for a term expiring on December 31,at the end of 2007, unless terminated earlier as discussed below. After 2007, Mr. Odland’s employment shall be at will and may be terminated by AutoZone or Mr. Odland at any time.described in this section. The amended agreement provides that Mr. Odland will serve as Chairman of the Board and Chief Executive Officer through December 31, 2007, at a minimum annual base salary of $1 million and a minimum bonus eligibility of 100% of base salary in accordance withunder our Executive Incentive Compensation Plan. In addition,After 2007, his employment will be at will and may be terminated by AutoZone or Mr. Odland at any time, subject to the amendedobligations of AutoZone described below.
Mr. Odland’s employment agreement provides that the vesting of any future grants of stock options or other equity compensation accelerate upon a termination of Mr. Odland’s employmentthe agreement before January 1, 2008, by AutoZone without cause, or by himMr. Odland for good reason or upon a change of control (collective, a “covered termination”) and that he generally shall have 90 days to exercise such options or other equity compensation. Ifas defined in the agreement is terminated at any time before 2008 in(collectively, a covered termination,“Covered Termination”), Mr. Odland shallwill resign from the Board of Directors and cease to be Chief Executive Officer, but will remain an employee of AutoZone, shall performperforming services as requested by the Chief Executive Officer, and shall continue to be paid his base salary untilthrough December 31, 2007, but
17
not longer than three years (defined in the agreement as the “continuation period”(the “Continuation Period”), plus any earned and unpaid bonus for the prior fiscal year and a full bonus for the fiscal year in which the agreement is terminated. His stock options will continue to vest and may be exercised as set forth in the applicable stock option agreements until the end of the Continuation Period. At the end of the continuation periodContinuation Period, Mr. Odland’s employment shallwill terminate and he shallwill receive severance benefits consisting of an amount equal to 2.99 times his then currentthen-current base salary (less amounts paid to him as salary during the continuation period)Continuation Period) and continued health insurance coverage generally until the third anniversary of the termination of the agreement (collectively, the “severance benefits”“Severance Benefits”). Further stock option exercise and vesting after the end of the Continuation Period will be governed by the terms of the applicable stock option agreements.
If a Covered Termination occurs after December 31, 2007, Mr. Odland’s employment is terminated after 2007 in a covered termination, his employment shallwill cease immediately and he shallwill receive the severance benefits. Severance Benefits plus any earned and unpaid bonus for the prior fiscal year and a full bonus for the fiscal year in which the agreement is terminated. Additionally, any grants of stock options and other equity compensation made after the effective date of the agreement will vest in full and become immediately exercisable, and he generally will have 90 days to exercise such options or other equity compensation.
If the agreement is terminated by AutoZone for cause, as defined in the agreement, or by Mr. Odland without good reason, Mr. Odland’s employment will terminate and he will cease to receive any further salary, bonus or benefits (other than pursuant to the AutoZone Pension Plan or required by law). All stock options granted will be governed by the terms of the applicable stock option agreements.
In all cases,any event, after the termination of the agreement or Mr. Odland’s employment, Mr. Odland shallagrees not to compete with AutoZone or to hire or encourage others to hire any of our employees for a period of three years. Under the agreement, “good reason” means a failure by AutoZone to provide the benefits provided in the agreement, any material adverse change in the status, responsibilities, perquisites (other than changes that apply to all executive officers as a group), the occurrence of any event that would cause Mr. Odland to cease to be Chairman or CEO, requiring him to report to anyone other than the Board of Directors, assignment of duties inconsistent with his position as Chairman or CEO, relocation of AutoZone’s principal office more than 60 miles from its current location, failure by AutoZone to assign the agreement to any successor of AutoZone, failure of a successor of AutoZone to assume the agreement or any other material breach of the agreement by AutoZone. Under the agreement “cause” means the willful engagement by Mr. Odland in conduct which is demonstrably and materially injurious to AutoZone as determined by the Board of Directors in good faith. Under the agreement, a “change of control” will occur upon either the acquisition by any person, entity or group of enough of AutoZone’s outstanding securities to allow the person, entity or group to be entitled to control 51% or more of the combined voting power entitled to vote for AutoZone’s Board of Directors on a regular basis, or the sale of all or substantially all of AutoZone’s assets that does not result in pre-transaction beneficial owners of AutoZone’s capital stock receiving (i) a number of securities allowing them to control 51% or more of the combined voting power entitled to vote for the acquiring company’s board of directors (or the board of directors of the acquiring company’s parent company, if one exists) on a regular basis or (ii) a number of securities representing a majority of the total combined equity of the acquiring entity, if not a corporation.
Mr. Goldsmith has an employment agreement providing that he is employed by AutoZone as Senior Vice President, General Counsel, and Secretary at a minimum base salary of $216,000 and a minimum bonus eligibility of 60% of base salary at predetermined targets. Mr. Longo has an employment agreement providing that he is employed by AutoZone as a Senior Vice President at a minimum base salary of $225,000 and a minimum bonus eligibility of 50% of base salary at predetermined targets. Mr. Olsen has an employment agreement providing that he is employed by AutoZone as a Senior Vice President at a minimum base salary of $285,000 and a minimum bonus eligibility of 60% of base salary. All minimum salaries and bonuses are subject to increase by the Compensation Committee.
All agreements continue until terminated either by the executive or by us. If an agreement is terminated by us 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 anhis agreement is terminated by us without cause, Mr. Goldsmith and Mr. Longo each will remain employees for three years after the termination date, Mr. Olsen will remain an employee for two years after the termination date, and each 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 the Continuation Period, after which further stock option exercises and vesting will be governed by the terms of the respective stock option agreements. If anthe executive officer is terminated from his position by us or by the executive for reasons other than a change in control, then the executive will be prohibited from competing against AutoZone for the period of time after the termination date. “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.
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.
18
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 approvedsubmitted 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 2003 Director Compensation Plan and the 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.
Summary Table
The following table sets forth certain information as of August 30, 2003,28, 2004, with respect to compensation plans under which shares of AutoZone Common stock may be issued.
| | | | | | | | | | | | | |
| | | | | | | | | | | Number of securities |
| | | | | | | | | | | remaining available |
| | | | | | | | | | | for future issuance |
| | | | | | | | | | | under equity |
| | | Number of securities to | | Weighted-average | | compensation plans |
| | | be issued upon | | exercise price of | | (excluding |
| | | exercise of | | outstanding | | securities |
| | | outstanding options, | | options, warrants | | reflected in the |
| Plan Category | | warrants and rights | | and rights | | first column) |
| | |
| |
| |
|
| Equity compensation plans approved by security holders | | | 5,207,371 | | | $ | 42.11 | | | | 4,665,566 | |
| |
| Equity compensation plans not approved by securities holders | | | 86,600 | | | $ | 43.96 | | | | 0 | |
| |
| Total | | | 5,293,971 | | | $ | 42.14 | | | | 4,665,566 | |
19
Plan Category | | Number of securities to
be issued upon
exercise of
outstanding options,
warrants and rights | | Weighted-average
exercise price of
outstanding
options, warrants
and rights | | Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities
reflected in the
first column) | |
Equity compensation plans approved by security holders | | 4,953,118 | | $ | 54.58 | | 3,992,313 | |
Equity compensation plans not approved by securities holders | | 73,155 | | $ | 37.97 | | — | |
Total | | 5,026,273 | | $ | 54.42 | | 3,992,313 | |
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 timely.timely, with the exception of a Form 4 reporting a grant of stock options to Steve Handschuh, Senior Vice President, Commercial on March 17, 2004, which was filed on May 24, 2004. Copies of the insider trading reports can be found on the AutoZone corporate website at http://www.autozone.com.www.autozoneinc.com.
STOCKHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
Stockholder Proposals for 2004 Annual Meeting
Stockholder proposals for inclusion in the Proxy Statement for the Annual Meeting in 20042005 must be received by July 2, 2004.3, 2005. In accordance with our bylaws, Stockholder proposals received after August 13, 2004,18, 2005, but by September 12, 2004,17, 2005, may be presented at the meeting, but will not be included in the 20042005 Proxy Statement. Any stockholder proposal received after September 12, 2004,17, 2005, 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.
ANNUAL REPORTAnnual 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,
Harry L. Goldsmith
Secretary |
| | Harry L. Goldsmith | | |
Memphis, Tennessee
SecretaryOctober 27, 2004 | | | |
EXHIBIT A
Memphis, Tennessee
October 31, 2003
20
APPENDIX A
AUTOZONE, INC.
2005 EXECUTIVE INCENTIVE COMPENSATION PLAN
AUDIT COMMITTEE1.Purpose
CHARTERThe AutoZone, Inc. 2005 Executive Incentive Compensation Plan (“Plan”) is designed to provide incentives to eligible employees of AutoZone, Inc. (the “Company”) and its affiliates who have significant responsibility for the success and growth of the Company and assist the Company in attracting, motivating, and retaining key employees on a competitive basis. The Plan is designed to ensure that the annual bonus paid pursuant to this Plan to eligible employees of the Company is deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). This Plan shall be ratified by the Company’s stockholders pursuant to 26 C.F.R. § 1.162-27(e)(4)(vi) at the annual meeting to be held on December 16, 2004, and shall be effective for the entire 2005 fiscal year. If the stockholders do not ratify the Plan, the Plan shall not become effective.
2.AuthorityAdministration of the Plan
This AuditThe Plan shall be administered by the Compensation Committee Charter was adoptedof the Board of Directors of the Company (“Committee”). The Committee shall be appointed by the Board of Directors of AutoZone, Inc., on December 9, 1999,the Company and has been revised on June 6, 2000, August 26, 2002, December 12, 2002, and June 10, 2003.
Purpose
The audit committee assists AutoZone’s Board in fulfilling its oversight responsibilities by:
| • | | 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. |
In this context, “reviewing” means discussing with and making inquiryshall consist of management regarding such matters.
Membership
at least two outside directors of the Company that satisfy the requirements of Code Section 162(m). The Committee shall have the sole discretion and authority to administer and interpret the Plan in accordance with Code Section 162(m). The Committee’s interpretations of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding on all parties concerned, including the Company, its stockholders and any person receiving an award under the Plan.
3.Eligibility
The individuals entitled to participate in the Plan shall be the executive officers of the Company, as determined by the Committee.
4.Awards
Executive officers as determined by the Committee may be granted annual incentive awards under this Plan at least three directorssuch times of each year as members,will satisfy the requirements of Code Section 162(m), provided, however, that if an individual becomes an executive officer during a year, an incentive goal for that individual shall be made for that fiscal year at the time she or he becomes an executive officer. The Committee may, in its discretion, grant annual incentive awards to non-executive officers and managers of the Company outside of this Plan.
The annual incentive award to each executive officer shall be based on the Company, a subsidiary or division, attaining one or more of the following objective goals as established by the Committee for the fiscal year:
(a) earnings
(b) earnings per share
(c) sales
(d) market share
(e) operating or net cash flows
(f) pre-tax profits
(g) earnings before interest and taxes
(h) return on invested capital
(i) economic value added
(j) return on inventory
(k) EBIT
(l) gross profit margin
(m) sales per square foot
(n) comparable store sales
Different measures of goal attainment may be set for different plan participants. The performance goal may be a single goal or a range with a minimum goal up to a maximum goal, with corresponding increases in the incentive award up to the maximum award set by the Committee and as may be limited by this Plan. Such performance goals may disregard, at the Committee’s discretion, the effect of one-time charges and extraordinary events such as asset write-downs, litigation judgments or settlements, changes in tax laws, accounting principles or other laws or provisions affecting reported results, accruals for reorganization or restructuring, and any other extraordinary non-recurring items, acquisitions or divestitures and any foreign exchange gains or losses. These goals shall be established by the Committee either by written consent or as evidenced by the minutes of a meeting at such times as to qualify amounts paid under this Plan for tax deductible treatment under Code Section 162(m).
Payment of an earned award will be made in cash. Upon completion of each fiscal year, the Committee shall review performance versus the established goal, and shall certify (either by written consent or as evidenced by the minutes of a meeting) the specified performance goals achieved for the fiscal year (if any), and direct which award payments are payable under the Plan, if any. No payment will be made if the minimum pre-established goals are not met. The Committee may, in its discretion, reduce or eliminate an individual’s award that would have been otherwise paid. No individual may receive in any one fiscal year an award under the Plan of an amount greater than $4 million.
5.Miscellaneous Provisions
(a) The Company shall have the right to deduct all federal, state, or local taxes required by law or Company policy from any award paid.
(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 discretion of the Compensation Committee.
(c) Nothing contained in this Plan or any action taken by the Committee pursuant to this Plan shall be construed as giving an individual any right to be retained in the employ of the Company.
(d) The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any award under the Plan.
(e) The Plan may be amended, subject to the limits of Code Section 162(m), or terminated by the Committee at any time. However, no amendment to the Plan shall be effective without prior approval of the Company’s stockholders which would (i) increase the maximum amount that may be paid under the Plan to any person or (ii) modify the business criteria on which performance targets are to be based under the Plan.
(f) This Plan shall terminate on the fifth anniversary after the date of ratification by the Company’s stockholders.
