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 bonus under the plan. The new plan will allow up to $4 million to be paid as a bonus. Also, the existing plan gave the Compensation Committee the discretion to pay bonuses in whole or in part in common stock, while the new plan provides that bonuses will be paid in cash.
Who participated in the existing plan last fiscal year?
Twelve AutoZone executives were granted bonuses under the existing plan for fiscal 2004. This table shows bonuses for the named executive officers and all executive officers as a group under the existing plan for the 2004 fiscal year:
2000 Executive Incentive Compensation Plan
Fiscal 2004 Awards
Name and Position
| | Dollar
Value ($)
|
| |
|
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, including all of the persons named above.
It is not possible at this time 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 officers would not have received awards that were different in type or amount than those that they actually received in fiscal 2004.
PROPOSAL 3-Ratification2-Ratification of Independent Registered Public Accounting Firm
Ernst & Young LLP, our independent auditor for the past
seventeeneighteen fiscal years, has been selected by the Audit Committee to be AutoZone’s independent registered public accounting firm for fiscal year
2005.2006. 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.
During the past two fiscal years, the aggregate fees for professional services rendered by Ernst & Young LLP were as 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.
2Tax 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.
| | | 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,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
20042005 fiscal year. The Audit Committee considers the services listed above to be compatible with maintaining Ernst & Young LLP’s independence.
The Audit Committee of AutoZone, Inc., has reviewed and discussed AutoZone’s audited financial statements for the year ended August
28, 2004,27, 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
28, 2004,27, 2005, 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,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 committeeAudit Committee have the duty to assure compliance with laws and regulations and the policies of the Board of Directors.
James J. Postl
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.
W. Andrew McKenna
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.
Security Ownership of Management
This table shows the beneficial ownership of common stock
as of October 21, 2004, 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 21, 2004 | |
| |
| |
Name of Beneficial Owner | | Shares | | Ownership
Percentage | |
| |
| |
| |
Steve Odland1 | | 520,953 | | * | |
Charles M. Elson2 | | 14,154 | | * | |
Earl G. Graves, Jr.3 | | 1,290 | | * | |
N. Gerry House4 | | 11,817 | | * | |
J.R. Hyde, III5 | | 646,948 | | * | |
Edward S. Lampert6 | | 21,355,385 | | 26.8 | % |
W. Andrew McKenna7 | | 26,065 | | * | |
James J. Postl8 | | 857 | | * | |
Michael Archbold9 | | 60,422 | | * | |
Harry L. Goldsmith10 | | 138,629 | | * | |
Michael E. Longo11 | | 80,036 | | * | |
Robert D. Olsen12 | | 140,548 | | * | |
All current directors and executive officers as a group (18 persons)13 | | 23,197,424 | | 29.1 | % |
| | | | Beneficial Ownership As of October 17, 2005 | |
| Name of Beneficial Owner | | | Shares | | | | |
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% | |
1Mr. Rhodes was appointed President and Chief Executive Officer on March 13, 2005. Includes 443,750118,000 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 21, 2004. Does not include 2,320 shares owned by Mr. Odland’s spouse.17, 2005.
2Includes 1,5222,015 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights and 6,6089,608 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 21, 2004.17, 2005.
3Includes 1,290166 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights.
4Includes 3,2041,728 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights and 7,5004,282 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 21, 2004.17, 2005.
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 200,000255,000 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, 5,4385,876 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights, and 8,50011,500 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 21, 2004.17, 2005. Does not include 2,000 shares owned by Mr. Hyde’s wife.
67Mr. Lampert is the Chief Executive Officer of ESL Investments, Inc. All shares indicated, other than 3,7854,221 shares owned directly by Mr. Lampert and 5,5008,500 shares that may be acquired by Mr. Lampert upon exercise of stock options either immediately or within 60 days of October 21, 2004,17, 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.
78Includes 3,1103,590 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights and 6,9559,955 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 21, 2004.17, 2005.8Includes 857 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights.
9Includes 58,000112,000 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 21, 2004.17, 2005, and 1,400 shares held by trusts for which Mr. Goldsmith is a beneficiary.
10Includes 124,36065,250 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 21, 2004, and 1,400 shares held by trusts for which Mr. Goldsmith is a beneficiary.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 76,250157,000 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 21, 2004.17, 2005.
1213Includes 100,91611,250 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 21, 2004.17, 2005.
1314Includes 15,42117,017 shares that may be acquired immediately upon termination as a director by conversion of stock appreciation rights and 1,029,339656,970 shares that may be acquired upon exercise of stock options either immediately or within 60 days of October 21, 2004.17, 2005.
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 | | 21,355,385 | | 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 | | | | | |
| | | | | |
| | | Beneficial Ownership | |
Name and Address of Beneficial Owner | | Shares | | | |
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 3,7854,221 shares owned directly by Mr. Lampert and 5,5008,500 shares that may be acquired by Mr. Lampert upon exercise of stock options either immediately or within 60 days of October 21, 2004.17, 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 13F13F-HR/A filed with the Securities and Exchange Commission by Davis Selected Advisers, LP datedon August 27, 200411, 2005 reporting beneficial ownership as of June 30, 2004.2005.
Executive Compensation
Executive CompensationSummary 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 for the past three fiscal years. | | | | | | | | | | 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 | |
| | | | | Annual Compensation | | | | | |
| Name and Principal Position | | | Year | | | | | | | | | Other Annual Compensation2 | | | | | | | |
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 | | | | | | | | | | | | | | | | | | | |
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.
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 | |
3Amounts shown for Mr. Odland for 2004, 2003 and 2002 and for Mr. Archbold for 2004 represent discounts on stock purchased under the Amended and Restated Executive Stock Purchase Plan. Amount shown for Mr. Longo for 2003 is for discounts on stock purchased under the Amended and Restated Executive Stock Purchase Plan. Amounts shown for Mr. Archbold for 2003 include $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.
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.
54 Amounts shown for 20042005 consist of: | | 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 | |
| | | | | 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. ArchboldLongo 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 first employedappointed Executive Vice President, Merchandising and Marketing in February 2002.September, 2004.
Option/SAR GrantsLong-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
20042005 fiscal year.
| | 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 | |
| | | | | | | | 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.
Aggregated Option/SAR Exercises in Last Fiscal Year andFY-End Option/SAR Values
This table shows stock option exercises by
certainthe named executive officers during the most recent fiscal year, and their exercisable and unexercisable stock options as of August
28, 2004.27, 2005. The fiscal year-end value of “in-the-money” stock options is the aggregate difference between the exercise price of the option and
$75.36$95.45 per share, the market value of the common stock on August 27,
2004.2005. Executive officers do not have SARs.
| | | | | | Number of Securities
Underlying Unexercised
Options/SARS at FY-End (#) | | Value of Unexercised
In-the-Money Options/SARs
At FY End ($) | |
| | | | | |
| |
| |
| | Shares Acquired
on Exercise (#) | | Value
Realized ($) | | Exercisable | | Unexercisable | | Exercisable | | Unexercisable | |
| |
| |
| |
| |
| |
| |
| |
Steve Odland | | — | | — | | 331,250 | | 393,750 | | 12,382,875 | | 6,145,125 | |
Michael E. Longo | | 60,000 | | 3,831,838 | | 50,666 | | 83,334 | | 1,631,518 | | 723,484 | |
Michael Archbold | | — | | — | | 44,000 | | 87,000 | | 336,935 | | 392,055 | |
Robert D. Olsen | | — | | — | | 83,166 | | 87,834 | | 3,703,626 | | 2,078,064 | |
Harry L. Goldsmith | | — | | — | | 113,610 | | 67,000 | | 5,349,798 | | 525,680 | |
| | | | | | | Number of Securities | | Value of Unexercised | |
| | | | | | | Underlying Unexercised | | In-the-Money Options/SARs | |
| | | Shares Acquired | | Value | | Options/SARS at FY-End (#) | | At FY End ($) | |
| | | 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 | |
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 compensatednamed 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.
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 | |
| | 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 | | | — | |
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.
The compensationCompensation of other AutoZone employees is based on a similar philosophy.
Compensation Philosophy
Executive
The principal components of AutoZone’s executive compensation
consists ofprogram are salary, bonus, and stock options.
Salary. The Compensation Committee desiresbelieves that each executive’s overall compensation should reflect each executive’shis or her performance over time. Basetime, and a mix of cash and equity-based compensation is used to achieve that goal.
Salary. The Committee sets base salaries are setfor AutoZone’s executive officers at levels determined bywhich the Compensation Committee independently determines to adequatelybe adequate to reward and retain capable executives.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 Compensation Committee reviews and establishes annual base salaries for the annual salary ofChief Executive Officer and the other 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, andofficers based on each executive officer’s performance forduring the past fiscal year.
year and, in the case of executive officers other than the CEO, on the recommendations of the Chief Executive Officer.
Bonus. EachAutoZone 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 paid a bonus based onawarded pursuant to the attainmentAutoZone, 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 goals set by the Compensation Committee. The goals forexecutive officers and all bonus-eligible employees of the Company.
At the beginning of each fiscal year,
2004the 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
(EBIT) and return on invested capital,
(ROIC). The Compensation Committee establishes a bonus payout matrix atas are the
beginning ofobjectives for the
2006 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.year. As a general
matter,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
goalsobjectives increases.
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.management, including executive officers. Stock options may beare granted to executivesexecutive 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. TheThese guidelines allow forestablish a range for the number of potential option shares tostock options that could potentially be granted forto each position, witheligible 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.
The
Compensation Committee
approvesestablishes 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 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, Steve Odland, received anand 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,
in fiscal year 2004 of $1 million. He was also paidand awarded him 50,000 stock options, based on his increased responsibilities. Mr. Rhodes received a bonus of
$1,282,000,$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
a resultbased on EBIT of
the increase in EBIT to $999 million from $918$976 million and
an increaseROIC 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
ROIC to 25.1% from 23.4%.the table entitled “Option/SAR Grants in Last Fiscal Year.”
Tax Deductions for Compensation
The
federal tax codeInternal 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 to $1 million.officers. However, this deduction limitation does not apply to performance-based compensation as defined in the
tax code.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
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.
This graph shows, from the end of fiscal year
19992000 to the end of fiscal year
2004,2005, 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. 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 | |
| | | 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.
Employment Contracts and Termination of Employment and Change-in-ControlArrangementsEffective October 23, 2003,
On March 13, 2005, Mr.
Odland’s employment agreement, originally entered in 2001, was amendedRhodes became the Company's President and
restated to provide for a term expiring at the end of 2007, unless terminated earlierChief Executive Officer. In connection with his appointment as
described in this section. The agreement provides that Mr. Odland will serve as Chairman of the BoardPresident and Chief Executive Officer,
through December 31, 2007, at a minimumMr. Rhodes’ annual base salary
of $1 millionwas increased to $600,000 and
a minimumhis bonus
eligibility oftarget was increased to 100% of base
salary under our Executive Incentive Compensation Plan. Aftersalary. 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,
his2008 and 2009. Additionally, the Company agreed that if Mr. Rhodes’ employment
will be at will and may beis terminated by
AutoZone or Mr. Odland at any time, subject to the
obligations of AutoZone described below.
Mr. Odland’s employment agreement provides that upon a termination of the agreement before January 1, 2008, by AutoZoneCompany without cause, or by Mr. Odland for good reason or upon a change of control as defined in the agreement (collectively, a “Covered Termination”), Mr. Odland will resign from the Board of Directors and cease to be Chief Executive Officer, but will remain an employee of AutoZone, performing services as requested by the Chief Executive Officer, and be paid his base salary through December 31, 2007, but not longer than three years (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 Period, Mr. Odland’s employment will terminate and he will receive severance benefits consisting of an amount equal to 2.99 times his then-current base salary.
Mr. Rhodes’ salary
(less amounts paidis subject to
him as salary during the Continuation Period) and continued health insurance coverage generally until the third anniversary of the termination of the agreement (collectively, the “Severance Benefits”). Further stock option exercise and vesting after the end of the Continuation Period will be governedannual merit reviews by the
terms of the applicable stock option agreements.If a Covered Termination occurs after December 31, 2007, Mr. Odland’s employment will cease immediatelyCompensation Committee, and he will receive the 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 daysentitled to exercise such options or other equity compensation.
If the agreement is terminated by AutoZone for cause, as definedparticipate in the agreement, or by Mr. Odland without good reason, Mr. Odland’s employment will terminate and he will ceasebenefit programs afforded to our executive officers. These include eligibility to receive any further salary, bonus or benefits (other thancompensation pursuant to the AutoZone PensionExecutive Incentive plan and long-term incentive compensation pursuant to the Stock Option Plan, or required by law). All stock options granted will be governedas approved by the terms of the applicable stock option agreements.
In any event, after the termination of the agreement or Mr. Odland’s employment, Mr. Odland agrees not to compete with AutoZone or to hire or encourage others to hire any of our employees for a period of three years.
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. Longo has an employment agreement providing that he is employed by AutoZone 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 at a minimum base salary of $285,000 and a minimum bonus eligibility of 60% of base salary. AllThe minimum salaries and bonuses are subject to increase by the Compensation Committee.
All
Both of these agreements continue until terminated either by the executive or by
us.AutoZone. If
anthe agreement is terminated by
usAutoZone 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
histhe agreement is terminated by
usAutoZone without cause, Mr. Goldsmith
and Mr. Longo each will remain
employeesan employee for three years after the termination date,
and Mr. Olsen will remain an employee for two years after the termination date
and each(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
thehis 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
usAutoZone 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.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.
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.
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.
The following table sets forth certain information as of August
28, 2004,27, 2005, with respect to compensation plans under which shares of AutoZone
Commoncommon stock may be issued.
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 | |
| 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 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.manner. Copies of the insider trading reports can be found on the AutoZone corporate website at www.autozoneinc.com.
www.autozoneinc.com.
STOCKHOLDER PROPOSALS FOR 20052006 ANNUAL MEETING
Stockholder proposals for inclusion in the Proxy Statement for the Annual Meeting in
20052006 must be received by
July 3, 2005.June 28, 2006. In accordance with our bylaws, Stockholder proposals received after August
18, 2005,16, 2006, but by September
17, 2005,15, 2006, may be presented at the meeting, but will not be included in the 2005 Proxy Statement. Any stockholder proposal received after September
17, 2005,15, 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.
A copy of our Annual Report is being mailed with this Proxy Statement to all stockholders of record.
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By order of the Board of Directors,
Harry L. Goldsmith
Secretary
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| | | /s/ Harry L. Goldsmith |
| Secretary |
Memphis, Tennessee October 26, 2005 | |
Memphis, Tennessee
October 27, 2004
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EXHIBIT A
AUTOZONE, INC.
2005 EXECUTIVE INCENTIVE COMPENSATION PLAN
1.Purpose
The 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.Administration of the Plan
The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (“Committee”). The Committee shall be appointed by the Board of Directors of the Company and shall consist of 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 such times of each year as 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.
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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.
C/O EQUISERVE TRUST COMPANY N.A.
P.O. BOX 43068
PROVIDENCE, RI 02940
Your vote is important. Please vote immediately.
Vote-by-Internet
Log on to the Internet and go to
http://www.eproxyvote.com/azo
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| | | | Vote-by-Telephone
Call toll-free
1-877-PRX-VOTE (1-877-779-8683)
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| OR
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If you vote over the Internet or by telephone, please do not mail your card.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
| ZAUZ61
|
| | Please mark
votes as in
this example.
| | #AUZ
|
x
| |
| |
This proxy when properly executed will be voted in the manner directed below. If no direction is made, this proxy will be voted FOR the election of the directors nominated by the Board of Directors and FOR proposals 2 and 3.
1.
| Election of Directors.
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| Nominees:
| (01) Charles M. Elson, (02) Earl G. Graves, Jr.,
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| | (03) N. Gerry House, (04) J.R. Hyde, III,
(05) Edward S. Lampert, (06) W. Andrew McKenna;
| | FOR
| | AGAINST
| | ABSTAIN
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| | (07) Steve Odland and (08) James J. Postl.
| 2.
| Approval of 2005 Executive Incentive Compensation Plan.
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FOR
ALL
NOMINEES
| | | | WITHHELD
FROM ALL
NOMINEES
| 3.
| Ratification of independent registered public accountants.
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| | | | | | 4.
| In the discretion of the proxies named herein, upon such other matters as may properly come before the meeting.
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| For all nominees except as noted above
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| MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
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| | | MARK HERE IF YOU PLAN TO ATTEND THE MEETING
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| | Please sign this proxy exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian, please give full title as such.
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Signature: Date: Signature: Date:
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DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
| ZAUZ62
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PROXY
AUTOZONE, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL MEETING OF STOCKHOLDERS
I hereby appoint Harry L. Goldsmith and Rebecca W. Ballou, and each of them, as proxies, with full power of substitution to vote all shares of common stock of AutoZone, Inc., which I would be entitled to vote at the Annual Meeting of AutoZone, Inc., to be held at the J.R. Hyde III Store Support Center, 123 South Front Street, Memphis, Tennessee, on Thursday, December 16, 2004, at 8:30 a.m., CST, and at any adjournments, on items 1, 2 and 3, as I have specified and in their discretion on other matters as may come before the meeting.
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SEE REVERSE
SIDE
| | CONTINUED AND TO BE SIGNED ON REVERSE SIDE
| | SEE REVERSE
SIDE
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