AutoZone 2004 Annual Report Download - page 33
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NotestoConsolidatedFinancialStatements
(continued)
ShippingandHandlingCosts:TheCompanydoesnotgenerallychargecustomersseparatelyforshippingandhandling.ThecosttheCompany
incurstoshipproductstothestoresfordeliverytothecustomerisincludedincostofsales.
Pre-openingExpenses:Pre-openingexpenses,whichconsistprimarilyofpayrollandoccupancycosts,areexpensedasincurred.
EarningsPerShare:Basicearningspershareisbasedontheweightedaverageoutstandingcommonshares.Dilutedearningspershareis
basedontheweightedaverageoutstandingsharesadjustedfortheeffectofcommonstockequivalents.Atthistime,stockoptionsarethe
Company’sonlycommonstockequivalents.Stockoptionsthatwerenotincludedinthedilutedcomputationbecausetheywouldhavebeen
anti-dilutivewere1.1millionsharesatAugust28,2004.
StockOptions:AtAugust28,2004,theCompanyhasstockoptionplansthatprovideforthepurchaseoftheCompany’scommonstockby
someofitsemployeesanddirectors,whicharedescribedmorefullyinNoteH.TheCompanyaccountsforthoseplansusingtheintrinsic-
value-based recognition method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees,”andrelatedinterpretations.Accordingly,nostock-basedemployeecompensationcostisreflectedinnetincome,asoptionsare
grantedunderthoseplansatanexercisepriceequaltothemarketvalueoftheunderlyingcommonstockonthedateofgrant.Statement
of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) and Statement of Financial
Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”), established
accountinganddisclosurerequirementsusingafair-value-basedmethodofaccountingforstock-basedemployeecompensationplans.As
allowedunderSFAS123,theCompanyhaselectedtocontinuetoapplytheintrinsic-value-basedmethodofaccountingandhasadopted
onlythedisclosurerequirementsofSFAS123.Thefollowingtableillustratestheeffectonnetincomeandearningspersharehadthe
Companyappliedthefair-valuerecognitionprovisionsofSFAS123tostock-basedemployeecompensation:
YearEnded
(inthousands,exceptpersharedata)
August28,
2004
August30,
2003
August31,
2002
Reportednetincome $566,202 $517,604 $428,148
Deducttotalincrementalstock-basedcompensationexpensedeterminedunder
fair-value-basedmethodforallawards,netofrelatedtaxeffects 16,518 14,506 8,969
Proformanetincome $549,684 $503,098 $419,179
Basicearningspershare:
Asreported $ 6.66 $ 5.45 $ 4.10
Proforma $ 6.46 $ 5.30 $ 4.01
Dilutedearningspershare:
Asreported $ 6.56 $ 5.34 $ 4.00
Proforma $ 6.36 $ 5.20 $ 3.91
TheeffectsofapplyingSFAS123andtheresultsobtainedthroughtheuseoftheBlack-Scholesoption-pricingmodelinthisproforma
disclosurearenotnecessarilyindicativeoffutureamounts.Theweightedaveragefairvalueofthestockoptionsgrantedwas$28.07pershare
duringfiscal2004,$24.59pershareduringfiscal2003and$16.10pershareduringfiscal2002.Thefairvalueofeachoptiongrantedis
estimatedonthedateofthegrantusingtheBlack-Scholesoptionpricingmodelwiththefollowingweightedaverageassumptionsforgrants
in2004,2003and2002:
YearEnded
August28,
2004
August30,
2003
August31,
2002
Expectedpricevolatility 37% 38% 39%
Risk-freeinterestrates 2.4% 3.0% 2.4%
Expectedlivesinyears 3.8 4.2 4.3
Dividendyield 0% 0% 0%
RecentAccountingPronouncements:InJanuary2003,theFinancialAccountingStandardsBoardissuedInterpretationNo.46,“Consolidation
ofVariableInterestEntities”(“FIN46”).FIN46,asrevisedinDecember2003,clarifiestheapplicationofAccountingResearchBulletin
No.51,“ConsolidatedFinancialStatements,”tocertainentitiesinwhichequityinvestorsdonothavethecharacteristicsofacontrolling
financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial
supportfromotherparties.FIN46requirestheconsolidationofcertaintypesofentitiesinwhichacompanyabsorbsamajorityofanother
entity’sexpectedlossesorresidualreturns,orboth,asaresultofownership,contractualorotherfinancialinterestsintheotherentity.
Theseentitiesarecalledvariableinterestentities.FIN46appliesimmediatelytovariableinterestentitiescreatedoracquiredafterJanuary
31,2003.ForvariableinterestentitiescreatedoracquiredpriortoFebruary1,2003,theprovisionsofFIN46mustbeappliedattheend
ofperiodsendingafterMarch15,2004.TheCompany’sadoptionofFIN46didnothaveasignificantimpactonitsconsolidatedfinancial
position,operatingresultsorcashflows.