AutoZone 1999 Annual Report Download - page 31

AutoZone, Inc., and Chief are defendants in a purported class
action lawsuit entitled ÒPaul D. Rusch, on behalf of all others
similarly situated, v. Chief Auto Parts Inc. and AutoZone, Inc.Ó filed
in the Superior Court of California, County of Los Angeles, in May
1999. The plaintiffs claim that the defendants have failed to pay
their store managers overtime pay from March 1997 to the
present. The plaintiffs are seeking back overtime pay, interest, an
injunction against the defendants committing such practices in the
future, costs, and attorneysÕ fees. In September 1999, the Court
denied the CompanyÕs motion to strike the complaintÕs request for
class certification based on a prior case of Chief which relied on
similar facts in which the class certification was denied. The
Company has appealed the CourtÕs decision. The Company is
unable to predict the outcome of this lawsuit at this time, but
believes that the potential damages recoverable by any single
plaintiff are minimal. However, if the plaintiff class were to be
certified and prevail on all of its claims, the aggregate amount of
damages could be substantial. The Company is vigorously defending
against this action.
The Company currently, and from time to time, is involved in
various other legal proceedings incidental to the conduct of its
business. Although the amount of liability that may result from
these proceedings cannot be ascertained, the Company does not
currently believe that, in the aggregate, these other matters will
result in liabilities material to the CompanyÕs financial condition or
results of operations.
The Company is self-insured for workersÕ compensation,
automobile, general and product liability losses. The Company is
also self-insured for health care claims for eligible active
employees. The Company maintains certain levels of stop loss
coverage for each self-insured plan. Self-insurance costs are
accrued based upon the aggregate of the liability for reported
claims and an estimated liability for claims incurred but not
reported.
Note J Ð Business Combinations
In October 1998, the Company acquired real estate and real
estate leases for 100 Express auto parts stores from Pep Boys for
approximately $108 million.
In February 1998, the Company acquired ADAP, Inc. (ÒAuto
PalaceÓ). The acquisition added 112 automotive parts and
accessories stores in the Northeast. In May 1998, the Company
acquired the assets and liabilities of TruckPro, L.P., including the
service mark ÒTruckPro.Ó The 43 TruckPro stores in 14 states
specialized in the sale of heavy duty truck parts.
Additionally, in June 1998, the Company acquired Chief for
approximately $280 million, including the assumption of
approximately $205 million of indebtedness. Chief operated 560
auto parts stores primarily in California.
Results of operations for acquisitions are included with the
Company since each respective acquisition date. The purchase
method of accounting for acquisitions was utilized for all
transactions and, therefore, the acquired assets and liabilities were
recorded at their estimated fair values at the date of acquisition.
The goodwill associated with these transactions is being amortized
over 40 years.
The fair value of assets and liabilities recorded as a result of
the fiscal 1999 and 1998 transactions as well as fiscal 1999
purchase accounting adjustments are as follows (in thousands):
Year Ended
August 28, August 29,
1999 1998
Cash and cash equivalents $ $ 267
Receivables 22,786
Inventories (38,420 ) 209,829
Property and equipment 12,886 104,640
Goodwill 162,225 166,013
Deferred income taxes 83,955 56,388
Accounts payable (992 ) (106,947 )
Accrued liabilities (58,213 ) (52,826 )
Debt (271,273 )
Other (53,441 ) (28,846 )
Total cash purchase price $ 108,000 $ 100,031
The following unaudited pro forma results of operations
assume that the fiscal 1998 acquisitions and the related financing
transactions occurred at the beginning of the periods presented.
Year Ended
August 29, August 30,
1998 1997
(in thousands, except per share data)
Net sales $3,758,700 $3,397,300
Net income 221,200 189,200
Diluted earnings per share 1.44 1.24
The pro forma financial information is presented for
informational purposes only and is not necessarily indicative of
the operating results that would have occurred had the business
combinations and related transactions been consummated as of
the beginning of the periods presented, nor is it necessarily
indicative of future operating results.
During fiscal 1999, the Company recorded reserves for
closed stores of approximately $75 million and charged lease
and related costs of approximately $15 million against this
reserve.
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