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 $8.6 million for the twelve week period ended May 6, 2017, and was $9.9 million for the comparable prior year period. Share-based compensation expense was $29.3 million for the thirty-six week period ended May 6, 2017, and was $28.5 million for the comparable prior year period.

During the thirty-six week period ended May 6, 2017, 164,457 stock options were exercised at a weighted average exercise price of $263.95. In the comparable prior year period, 236,037 stock options were exercised at a weighted average exercise price of $218.02.

The Company made stock option grants of 290,805 shares during the thirty-six week period ended May 6, 2017, and granted options to purchase 376,915 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 6, 2017, and May 7, 2016, using the Black-Scholes-Merton multiple-option pricing valuation model, was $139.80 and $156.20 per share, respectively, using the following weighted average key assumptions:


	Thirty-Six Weeks Ended
	May 6, 2017			May 7, 2016
Expected price volatility		18	%		18	%
Risk-free interest rate		1.2	%		1.5	%
Weighted average expected lives (in years)		5.1			5.7
Forfeiture rate		10	%		10	%
Dividend yield		0	%		0	%

See AutoZone’s Annual Report on Form 10-K for the year ended August 27, 2016, 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 Amended and Restated 2011 Equity Incentive Award Plan, the 2011 Director Compensation Program and the 2014 Director Compensation Plan.

For the twelve week period ended May 6, 2017, 634,101 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 17,280 anti-dilutive shares were excluded from the dilutive earnings per share computation. There were 27,170 anti-dilutive shares excluded from the diluted earnings per share computation for the thirty-six week period ended May 6, 2017, and 25,670 anti-dilutive shares excluded for the comparable prior year period.