AutoZone 2010 Annual Report Download - page 147

Note L – Pension and Savings Plans
Prior to January 1, 2003, substantially all full-time employees were covered by a defined benefit pension plan.
The benefits under the plan were based on years of service and the employee’s highest consecutive five-year
average compensation. On January 1, 2003, the plan was frozen. Accordingly, pension plan participants will earn
no new benefits under the plan formula and no new participants will join the pension plan.
On January 1, 2003, the Company’s supplemental defined benefit pension plan for certain highly compensated
employees was also frozen. Accordingly, plan participants will earn no new benefits under the plan formula and
no new participants will join the pension plan.
ASC Topic 715 (formerly SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)) requires plan sponsors of
defined benefit pension and other postretirement benefit plans to recognize the funded status of their
postretirement benefit plans in the statement of financial position, measure the fair value of plan assets and benefit
obligations as of the date of the fiscal year-end statement of financial position, and provide additional disclosures.
The Company adopted the recognition and disclosure provisions of ASC Topic 715 on August 25, 2007 and
adopted the measurement provisions of the standard on August 31, 2008.
The Company has recognized the unfunded status of the defined pension plans in its Consolidated Balance Sheets,
which represents the difference between the fair value of pension plan assets and the projected benefit obligations
of its defined benefit pension plans. The net unrecognized actuarial losses and unrecognized prior service costs are
recorded in accumulated other comprehensive loss. These amounts will be subsequently recognized as net
periodic pension expense pursuant to the Company’s historical accounting policy for amortizing such amounts.
Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension
expense in the same periods will be recognized as a component of other comprehensive income. Those amounts
will be subsequently recognized as a component of net periodic pension expense on the same basis as the amounts
previously recognized in accumulated other comprehensive loss.
The Company’s investment strategy for pension plan assets is to utilize a diversified mix of domestic and
international equity and fixed income portfolios to earn a long-term investment return that meets the Company’s
pension plan obligations. The pension plan assets are invested primarily in listed securities, and the pension plans
hold only a minimal investment in AutoZone common stock that is entirely at the discretion of third-party pension
fund investment managers. The Company’s largest holding classes, U.S. equities and fixed income bonds, are
each invested with multiple managers, each holding diversified portfolios with complementary styles and
holdings. Accordingly, the Company does not have any significant concentrations of risk in particular securities,
issuers, sectors, industries or geographic regions. Alternative investment strategies, including private real estate,
are in the process of being liquidated and constitute less than 10% of the pension plan assets. The Company’s
investment managers are prohibited from using derivatives for speculative purposes and are not permitted to use
derivatives to leverage a portfolio.
Following is a description of the valuation methodologies used for investments measured at fair value:
U.S., international, emerging, and high yield equities – These investments are commingled funds and are valued
using the net asset values, which are determined by valuing investments at the closing price or last trade reported
on the major market on which the individual securities are traded. These investments are subject to annual audits.
Alternative investments – This category represents a hedge fund of funds made up of 17 different hedge fund
managers diversified over 9 different hedge strategies. The fair value of the hedge fund of funds is determined
using valuations provided by the third party administrator for each of the underlying funds.
Real estate – The valuation of these investments requires significant judgment due to the absence of quoted
market prices, the inherent lack of liquidity and the long-term nature of such assets. These investments are valued
based upon recommendations of our investment manager incorporating factors such as contributions and
distributions, market transactions, and market comparables.
57
10-K