AutoZone 2014 Annual Report Download - page 140

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70
Note O – Leases
The Company leases some of its retail stores, distribution centers, facilities, land and equipment, including
vehicles. Other than vehicle leases, most of the leases are operating leases, which include renewal options made
at the Company’s election and provisions for percentage rent based on sales. Rental expense was $253.8 million
in fiscal 2014, $246.3 million in fiscal 2013, and $229.4 million in fiscal 2012. Percentage rentals were
insignificant.
The Company has a fleet of vehicles used for delivery to its commercial customers and stores and travel for
members of field management. The majority of these vehicles are held under capital lease. At August 30, 2014,
the Company had capital lease assets of $121.2 million, net of accumulated amortization of $53.6 million, and
capital lease obligations of $119.6 million, of which $36.5 million is classified as Accrued expenses and other as
it represents the current portion of these obligations. At August 31, 2013, the Company had capital lease assets of
$107.5 million, net of accumulated amortization of $44.8 million, and capital lease obligations of $106.2 million,
of which $32.2 million was classified as Accrued expenses and other.
The Company records rent for all operating leases on a straight-line basis over the lease term, including any
reasonably assured renewal periods and the period of time prior to the lease term that the Company is in
possession of the leased space for the purpose of installing leasehold improvements. Differences between
recorded rent expense and cash payments are recorded as a liability in Accrued expenses and other and Other
long-term liabilities in the accompanying Consolidated Balance Sheets, based on the terms of the lease. The
deferred rent approximated $104.6 million on August 30, 2014, and $96.5 million on August 31, 2013.
Future minimum annual rental commitments under non-cancelable operating leases and capital leases were as
follows at the end of fiscal 2014:
(in thousands)
Operating
Leases
Capital
Leases
2015 ................................................................................................................
.
$ 244,535 $ 36,505
2016 ................................................................................................................
.
236,869
36,093
2017 ................................................................................................................
.
221,171
27,896
2018 ................................................................................................................
.
204,744
16,318
2019 ................................................................................................................
.
185,442
6,013
Thereafter ........................................................................................................
.
942,498 –
Total minimum payments required .................................................................
.
$ 2,035,259 122,825
Less: Interest ..................................................................................................
.
(3,222)
Present value of minimum capital lease payments ..........................................
.
$ 119,603
In connection with the Company’s December 2001 sale of the TruckPro business, the Company subleased some
properties to the purchaser for an initial term of not less than 20 years. The Company’s remaining aggregate rental
obligation at August 30, 2014 of $13.9 million is included in the above table, but the obligation is entirely offset
by the sublease rental agreement.
Note P – Commitments and Contingencies
Construction commitments, primarily for new stores, totaled approximately $36.3 million at August 30, 2014.
The Company had $135.9 million in outstanding standby letters of credit and $28.1 million in surety bonds as of
August 30, 2014, which all have expiration periods of less than one year. A substantial portion of the outstanding
standby letters of credit (which are primarily renewed on an annual basis) and surety bonds are used to cover
reimbursement obligations to our workers’ compensation carriers. There are no additional contingent liabilities
associated with these instruments as the underlying liabilities are already reflected in the consolidated balance
sheet. The standby letters of credit and surety bonds arrangements have automatic renewal clauses.
10-K