AutoZone 1999 Annual Report Download - page 30

Note G Ð Pension and Savings Plan
Substantially all full-time employees are covered by a
defined benefit pension plan. The benefits are based on years of
service and the employeeÕs highest consecutive five-year
average compensation.
The Company makes annual contributions in amounts at
least equal to the minimum funding requirements of the
Employee Retirement Income Security Act of 1974. The
following table sets forth the planÕs funded status and amounts
recognized in the CompanyÕs financial statements (in
thousands):
August 28, August 29,
1999 1998
Change in benefit obligation
Benefit obligation
at beginning of year $ 53,971 $42,687
Service cost 8,022 7,001
Interest cost 3,727 3,047
Actuarial losses 327 1,922
Benefits paid (1,184) (686)
Benefit obligation
at end of year 64,863 53,971
Change in plan assets
Fair value of plan assets
at beginning of year 54,565 39,598
Actual return on plan assets 3,488 7,271
Company contributions (refunds) (1,741) 8,687
Benefits paid (1,184) (686)
Administrative expenses (365) (305)
Fair value of plan assets
at end of year 54,763 54,565
Reconciliation of funded status
Funded status of the plan
(underfunded) (10,100) 594
Unrecognized net actuarial
losses 11,037 9,282
Unamortized prior service cost (5,329) (5,934)
Prepaid (accrued) benefit cost $ (4,392) $ 3,942
August 28, August 29, August 30,
1999 1998 1997
Components of net periodic
benefit cost
Service cost $ 8,022 $ 7,001 $ 6,034
Interest cost 3,727 3,047 2,496
Expected return on plan assets (5,001) (4,090) (2,847)
Amortization of prior service cost (606) (292) 138
Amortization of
transition obligation Ð (118 ) (150)
Recognized net actuarial
losses 451 Ð 63
$ 6,593 $ 5,548 $ 5,734
The actuarial present value of the projected benefit
obligation was determined using weighted-average discount rates
of 7.00% and 6.93% at August 28, 1999 and August 29, 1998,
respectively. The assumed increases in future compensation
levels were generally 5-10% based on age in fiscal 1999 and
1998 and 6% in fiscal 1997. The expected long-term rate of
return on plan assets was 9.5% at August 28, 1999, August 29,
1998 and August 30, 1997. Prior service cost is amortized over
the estimated average remaining service lives of the plan
participants, and the unrecognized actuarial gain or loss
is amortized over five years.
During fiscal 1998, the Company established a defined
contribution plan (Ò401(k) planÓ) pursuant to Section 401(k) of
the Internal Revenue Code. The 401(k) plan covers substantially
all employees that meet the planÕs service requirements. The
Company makes matching contributions, on an annual basis, up
to a specified percentage of employeesÕ contributions as
approved by the Board of Directors.
Note H Ð Leases
A portion of the CompanyÕs retail stores, distribution
centers, and certain equipment are leased. Most of these leases
include renewal options and some include options to purchase
and provisions for percentage rent based on sales.
Rental expense was $96,150,000 for fiscal 1999, $56,410,000
for fiscal 1998, and $39,078,000 for fiscal 1997. Percentage rentals
were insignificant.
Minimum annual rental commitments under non-cancelable
operating leases are as follows (in thousands):
Year Amount
2000 $106,202
2001 97,183
2002 82,231
2003 69,667
2004 55,885
Thereafter 214,028
$625,196
Note I Ð Commitments and Contingencies
Construction commitments, primarily for new stores, totaled
approximately $57 million at August 28, 1999.
AutoZone, Inc., is a defendant in a purported class action
lawsuit entitled ÒMelvin Quinnie on behalf of all others similarly
situated v. AutoZone, Inc., and DOES 1 through 100, inclusiveÓ
filed in the Superior Court of California, County of Los Angeles,
in November 1998. The plaintiff claims that the defendants failed
to pay overtime to store managers as required by California law
and failed to pay terminated managers in a timely manner as
required by California law. The plaintiff is seeking injunctive
relief, restitution, statutory penalties, prejudgment interest, and
reasonable attorneysÕ fees, expenses and costs. The case is in the
early stages of pre-class certification discovery and therefore the
Company is unable to predict the outcome of this lawsuit at this
time. The Company is vigorously defending against this action.
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