Share-Based Payments

8 Months Ended

May 07, 2016

Disclosure of Compensation Related Costs, 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 $9.9 million for the twelve week period ended May 7, 2016, and was $9.5 million for the comparable prior year period. Share-based compensation expense was $28.5 million for the thirty-six week period ended May 7, 2016, and was $29.7 million for the comparable prior year period.

During the thirty-six week period ended May 7, 2016, 236,037 stock options were exercised at a weighted average exercise price of $218.02. In the comparable prior year period, 311,285 stock options were exercised at a weighted average exercise price of $186.40.

The Company made stock option grants of 376,915 shares during the thirty-six week period ended May 7, 2016, and granted options to purchase 329,700 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, 2016, and May 9, 2015, using the Black-Scholes-Merton multiple-option pricing valuation model, was $156.20 and $106.26 per share, respectively, using the following weighted average key assumptions:

	Thirty-Six Weeks Ended
	May 7, 2016			May 9, 2015
Expected price volatility		18	%		20	%
Risk-free interest rate		1.5	%		1.4	%
Weighted average expected lives (in years)		5.7			5.1
Forfeiture rate		10	%		9	%
Dividend yield		0	%		0	%

See AutoZone’s Annual Report on Form 10-K for the year ended August 29, 2015, 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, the 2011 Director Compensation Program and the 2014 Director Compensation Plan.

For the twelve week period ended May 7, 2016, 17,280 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 1,140 anti-dilutive shares were excluded from the dilutive earnings per share computation. There were 25,670 anti-dilutive shares excluded from the diluted earnings per share computation for the thirty-six week period ended May 7, 2016, and 2,240 anti-dilutive shares excluded for the comparable prior year period.

During the second quarter of fiscal 2016, the Company’s stockholders approved the Amended and Restated AutoZone, Inc. 2011 Equity Incentive Award Plan (the “Amended 2011 Equity Plan”). The Amended 2011 Equity Plan imposes a maximum limit on the compensation, measured as the sum of any cash compensation and the aggregate grant date fair value of awards granted under the Amended 2011 Equity Plan, which may be paid to non-employee directors for such service during any calendar year. The Amended 2011 Equity Plan also applies a ten-year term on the Amended 2011 Equity Plan through December 16, 2025 and extends the Company’s ability to grant incentive stock options through October 7, 2025.