AutoZone 2013 Annual Report Download - page 109

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Dividends: The Company currently does not pay a dividend on its common stock. The ability to pay dividends is
subject to limitations imposed by Nevada law. Under Nevada law, any future payment of dividends would be
dependent upon the Company’s financial condition, capital requirements, earnings and cash flow.
Revenue Recognition: The Company recognizes sales at the time the sale is made and the product is delivered to
the customer. Revenue from sales are presented net of allowances for estimated sales returns, which are based on
historical return rates.
A portion of the Company's transactions include the sale of auto parts that contain a core component. The core
component represents the recyclable portion of the auto part. Customers are not charged for the core component of
the new part if a used core is returned at the point of sale of the new part; otherwise the Company charges
customers a specified amount for the core component. The Company refunds that same amount upon the customer
returning a used core to the store at a later date. The Company does not recognize sales or cost of sales for the
core component of these transactions when a used part is returned or expected to be returned from the customer.
Vendor Allowances and Advertising Costs: The Company receives various payments and allowances from its
vendors through a variety of programs and arrangements. Monies received from vendors include rebates,
allowances and promotional funds. The amounts to be received are subject to the terms of the vendor agreements,
which generally do not state an expiration date, but are subject to ongoing negotiations that may be impacted in
the future based on changes in market conditions, vendor marketing strategies and changes in the profitability or
sell-through of the related merchandise.
Rebates and other miscellaneous incentives are earned based on purchases or product sales and are accrued ratably
over the purchase or sale of the related product. These monies are generally recorded as a reduction of
merchandise inventories and are recognized as a reduction to cost of sales as the related inventories are sold.
For arrangements that provide for reimbursement of specific, incremental, identifiable costs incurred by the
Company in selling the vendors’ products, the vendor funds are recorded as a reduction to Operating, selling,
general and administrative expenses in the period in which the specific costs were incurred.
The Company expenses advertising costs as incurred. Advertising expense, net of vendor promotional funds, was
$83.7 million in fiscal 2013, $74.7 million in fiscal 2012, and $71.5 million in fiscal 2011. Vendor promotional
funds, which reduced advertising expense, amounted to $24.4 million in fiscal 2013, $19.7 million in fiscal 2012,
and $23.2 million in fiscal 2011.
Cost of Sales and Operating, Selling, General and Administrative Expenses: The following illustrates the
primary costs classified in each major expense category:
Cost of Sales
• Total cost of merchandise sold, including:
o Freight expenses associated with moving merchandise inventories from the Company’s vendors
to the distribution centers;
o Vendor allowances that are not reimbursements for specific, incremental and identifiable costs
• Costs associated with operating the Company’s supply chain, including payroll and benefit costs,
warehouse occupancy costs, transportation costs and depreciation; and
• Inventory shrinkage
Operating, Selling, General and Administrative Expenses
• Payroll and benefit costs for store and store support employees;
• Occupancy costs of store and store support facilities;
• Depreciation and amortization related to retail and store support assets;
• Transportation costs associated with commercial and hub deliveries;
• Advertising;
• Self insurance costs; and
• Other administrative costs, such as credit card transaction fees, supplies, and travel and lodging
10-K