AutoZone 1999 Annual Report Download - page 26

Notes To Consolidated Financial Statements
Note A Ð Significant Accounting Policies
Business: The Company is principally a specialty retailer of
automotive parts and accessories. At the end of fiscal 1999, the
Company operated 2,711 domestic auto parts stores in 39 states
and 6 auto parts stores in Mexico. In addition, the Company sells
heavy duty truck parts and accessories through its 46 TruckPro
stores in 14 states, automotive diagnostic and repair software
through ALLDATA and diagnostic and repair information through
alldatadiy.com.
Fiscal Year: The CompanyÕs fiscal year consists of 52 or 53
weeks ending on the last Saturday in August.
Basis of Presentation: The consolidated financial statements
include the accounts of AutoZone, Inc. and its wholly owned
subsidiaries (the Company). All significant intercompany transactions
and balances have been eliminated in consolidation.
Merchandise Inventories: Inventories are stated at the lower
of cost or market using the last-in, first-out (LIFO) method.
Property and Equipment: Property and equipment is stated
at cost. Depreciation is computed principally by the straight-line
method over the estimated useful lives of the assets. Leasehold
interests and improvements are amortized over the terms of the
leases.
Amortization: The cost in excess of net assets acquired is
amortized by the straight-line method over 40 years.
Preopening Expenses: Preopening expenses, which consist
primarily of payroll and occupancy costs, are expensed as incurred.
Advertising Costs: The Company expenses advertising costs
as incurred. Advertising expense, net of vendor rebates, was
approximately $21,857,000 in fiscal 1999, $30,109,000 in fiscal 1998
and $27,271,000 in fiscal 1997.
Warranty Costs: The Company provides the consumer with
a warranty on certain products. Estimated warranty obligations are
provided at the time of sale of the product.
Financial Instruments: The Company has certain financial
instruments which include cash, accounts receivable and accounts
payable. The carrying amounts of these financial instruments
approximate fair value because of their short maturities. The
Company uses derivative financial instruments for purposes other
than trading to minimize the risk associated with financing activities.
Settlements of interest rate swaps are accounted for by recording
the net interest received or paid as an adjustment to interest
expense. Gains or losses resulting from market movements are not
recognized. Gains or losses resulting from equity instrument
contracts are recognized through stockholdersÕ equity. Contracts
that effectively meet risk reduction and correlation criteria are
recorded using hedge accounting. Hedges of anticipated transactions
are deferred and recognized when the hedged transaction occurs.
Income Taxes: The Company accounts for income taxes
under the liability method. Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse.
Cash Equivalents: Cash equivalents consist of investments
with maturities of 90 days or less at the date of purchase.
Use of Estimates: Management of the Company has made a
number of estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
Earnings Per Share: Basic earnings per share is based on
the weighted average outstanding common shares. Diluted
earnings per share is based on the weighted average outstanding
shares adjusted for the effect of stock options.
Impairment of Long-Lived Assets: The Company complies
with Statement of Financial Accounting Standards (SFAS) No. 121,
ÒAccounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of.Ó This statement requires that long-
lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Also, in general, long-lived assets and
certain identifiable intangibles to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell.
Comprehensive Income: In fiscal 1999, the Company
adopted SFAS No. 130, ÒReporting Comprehensive Income.Ó This
statement establishes standards for reporting and display of
comprehensive income and its components. The Company has
reflected comprehensive income and its components in the
consolidated statements of stockholdersÕ equity.
Disclosures about Segments of an Enterprise and
Related Information:
In fiscal 1999, the Company adopted SFAS
No. 131, ÒDisclosures about Segments of an Enterprise and
Related InformationÓ The adoption of this statement had no effect
on the financial statements as the Company operates in a single
reportable segment.
Pensions and Other Postretirement Benefits: In fiscal
1999, the Company adopted
SFAS No. 132, ÒEmployersÕ
Disclosures about Pensions and Other Postretirement Benefits.Ó SFAS
No
. 132 establishes new standards for the reporting of
information about pension and other postretirement benefits. All
periods reported have been presented in accordance with SFAS
No. 132.
Internal Use Software Costs: In fiscal 1999, the Company
adopted Statement of Position (SOP) 98-1, ÒAccounting for the
Costs of Developing or Obtaining Internal Use Software.Ó This
SOP requires the capitalization of certain costs incurred in
connection with developing or obtaining software for internal use.
The adoption of SOP 98-1 did not have a material impact on the
CompanyÕs results of operations or financial position.
Derivative Instruments and Hedging Activities: During
1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, ÒAccounting for Derivative Instruments and Hedging
Activities.Ó This statement requires companies to record derivative
instruments on the balance sheet as assets or liabilities, measured
at fair value. Gains or losses resulting from changes in the values of
a derivative would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. In
September 1999, the FASB issued SFAS No. 137, which delayed
the effective date of SFAS No. 133 to the CompanyÕs fiscal year
2001. Because of the CompanyÕs minimal historical use of
derivatives, management anticipates that the adoption of SFAS No.
133 will not have a significant effect on earnings or the financial
position of the Company.
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