Share-Based Payments

9 Months Ended

May 07, 2011

Share-Based 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 $6.4 million for the twelve week period ended May 7, 2011, and was $4.3 million for the comparable prior year period. Share-based compensation expense was $18.5 million for the thirty-six week period ended May 7, 2011, and was $13.2 million for the comparable prior year period.

During the thirty-six week period ended May 7, 2011, 436,394 shares of stock options were exercised at a weighted average exercise price of $99.87. In the comparable prior year period, 380,503 shares of stock options were exercised at a weighted average exercise price of $77.27. The Company made stock option grants of 424,780 shares during the thirty-six week period ended May 7, 2011, and granted options to purchase 496,580 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 7, 2011 and May 8, 2010, using the Black-Scholes-Merton multiple-option pricing valuation model, was $58.58 and $40.75 per share, respectively, using the following weighted average key assumptions:

	Thirty-Six Weeks Ended
	May 7,			May 8,
	2011			2010
Expected price volatility		31	%		31	%
Risk-free interest rate		1.0	%		1.8	%
Weighted average expected lives (in years)		4.3			4.3
Forfeiture rate		10.0	%		10.0	%
Dividend yield		0.0	%		0.0	%

See AutoZone’s Annual Report on Form 10-K for the year ended August 28, 2010 for a discussion of the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards.

For the twelve week periods ended May 7, 2011 and May 8, 2010, there were no anti-dilutive shares excluded from the diluted earnings per share computation. There were 1,260 anti-dilutive shares excluded from the diluted earnings per share computation for the thirty-six week period ended May 7, 2011, and 24,900 anti-dilutive shares excluded for the comparable prior year.

On December 15, 2010, the Company’s stockholders approved the 2011 Equity Incentive Award Plan (the “Plan”), allowing the Company to provide equity-based compensation to non-employee directors and employees for their service to AutoZone or its subsidiaries or affiliates. Under the Plan, participants may receive equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, deferred stock, stock payments, performance share awards and other incentive awards structured by the Company’s Board of Directors (the “Board”) and the Compensation Committee of the Board.

On December 15, 2010, the Company adopted the 2011 Director Compensation Program (the “Program”), which states that non-employee directors will receive their compensation in awards of restricted stock units under the Plan. The Program replaces the former 2003 Director Compensation Plan and the 2003 Director Stock Option Plan. Under the Program, restricted stock units are granted the first day of each calendar quarter. The number of restricted stock units granted each quarter is determined by dividing one-fourth of 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 the date they are issued and are paid in shares of the Company’s common stock subsequent to the non-employee director ceasing to be a member of the Board. The Company recognized $466 thousand in share-based compensation expense related to the Program for the twelve weeks ended May 7, 2011, and $932 thousand for the thirty-six weeks ended May 7, 2011.