Share-Based Payments

9 Months Ended

May 10, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Share-Based Payments

Note B – Share-Based Payments

AutoZone recognizes compensation expense for share-based payments based on the fair value of the awards at the grant date. Share-based payments include stock option grants, restricted stock grants, restricted stock unit grants and the discount on shares sold to employees under share purchase plans. Additionally, directors’ fees are paid in restricted stock units with value equivalent to the value of shares of common stock as of the grant date. The change in fair value of liability-based stock awards is also recognized in share-based compensation expense.

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $8.3 million for the twelve week period ended May 10, 2014, and was $9.0 million for the comparable prior year period. Share-based compensation expense was $29.0 million for the thirty-six week period ended May 10, 2014, and was $25.6 million for the comparable prior year period.

During the thirty-six week period ended May 10, 2014, 194,130 shares of stock options were exercised at a weighted average exercise price of $177.95. In the comparable prior year period, 638,553 shares of stock options were exercised at a weighted average exercise price of $129.50.

The Company made stock option grants of 347,615 shares during the thirty-six week period ended May 10, 2014, and granted options to purchase 364,160 shares during the comparable prior year period. The weighted average fair value of the stock option awards granted during the thirty-six week periods ended May 10, 2014, and May 4, 2013, using the Black-Scholes-Merton multiple-option pricing valuation model, was $96.92 and $98.58 per share, respectively, using the following weighted average key assumptions:

	Thirty-Six Weeks Ended
	May 10, 2014			May 4, 2013
Expected price volatility		23	%		29	%
Risk-free interest rate		1.0	%		0.5	%
Weighted average expected lives (in years)		5.2			5.2
Forfeiture rate		9	%		10	%
Dividend yield		0	%		0	%

See AutoZone’s Annual Report on Form 10-K for the year ended August 31, 2013, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s 2011 Equity Incentive Award Plan and the 2011 Director Compensation Program.

For the twelve week period ended May 10, 2014, no stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 8,600 anti-dilutive shares were excluded from the dilutive earnings per share computation. No stock options were excluded from the diluted earnings per share computation for the thirty-six week period ended May 10, 2014, and 29,600 anti-dilutive shares were excluded for the comparable prior year period.

During the second quarter of fiscal 2014, the Company adopted the 2014 Director Compensation Program (the “Program”), which states that non-employee directors will receive their compensation in awards of restricted stock units under the 2011 Equity Incentive Award Plan, with an option for a certain portion of a director’s compensation to be paid in cash at the non-employee director’s election. The Program replaces the former 2011 Director Compensation Program. Under the Program, restricted stock units are granted January 1 of each year (the “Grant Date”). The number of restricted stock units is determined by dividing the amount of the annual retainer by the fair market value of the shares of common stock as of the Grant Date. The restricted stock units are fully vested on January 1 of each year and are paid in shares of the Company’s common stock on the earlier to occur of the fifth anniversary of the Grant Date or the date the non-employee director ceases to be a member of the Board (“Separation from Service”). Non-employee directors may elect to defer receipt of the restricted stock units until their Separation from Service. The cash portion of the award, if elected, is paid ratably over the remaining calendar quarters.