Share-Based Payments

8 Months Ended

May 09, 2020

Share-Based Payments [Abstract]

Share-Based Payments

Note B – Share-Based Payments

AutoZone maintains several equity incentive plans, which provide equity-based compensation to non-employee directors and eligible employees for their service to AutoZone, its subsidiaries or affiliates. The Company 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, stock appreciation rights, discounts on shares sold to employees under share purchase plans and other awards. 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.

Stock Options:

The Company made stock option grants of 188,324 shares during the thirty-six week period ended May 9, 2020 and granted options to purchase 172,750 shares during the comparable prior year period. The Company grants options to purchase common stock to certain of its employees under its plan at prices equal to the market value of the stock on the date of grant. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date.

The weighted average fair value of the stock option awards granted during the thirty-six week periods ended May 9, 2020 and May 4, 2019, using the Black-Scholes-Merton multiple-option pricing valuation model, was $252.39 and $208.37 per share, respectively, using the following weighted average key assumptions:

	Thirty-Six Weeks Ended
	May 9,		May 4,
	2020		2019
Expected price volatility	22	%	21	%
Risk-free interest rate	1.4	%	3.0	%
Weighted average expected lives (in years)	5.5		5.6
Forfeiture rate	10	%	10	%
Dividend yield	0	%	0	%

During the thirty-six week period ended May 9, 2020, 121,236 stock options were exercised at a weighted average exercise price of $480.39. In the comparable prior year period, 408,657 stock options were exercised at a weighted average exercise price of $412.75.

Restricted Stock Units:

Restricted stock unit awards are valued at the market price of a share of the Company’s stock on the date of grant. Grants of employee restricted stock units vest ratably on an annual basis over a four-year service period and are payable in shares of common stock on the vesting date. Compensation expense for grants of employee restricted stock units is recognized on a straight-line basis over the four-year service period, less estimated forfeitures, which are consistent with stock option forfeiture assumptions. Grants of non-employee director restricted stock units are made and expensed on January 1 of each year, as they vest immediately.

As of May 9, 2020, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $10.1 million, before income taxes, which we expect to recognize over an estimated weighted average period of 2.9 years.

Transactions related to restricted stock units for the thirty-six weeks ended May 9, 2020 were as follows:

		Weighted-
	Number	Average Grant
	of Shares	Date Fair Value
Nonvested at August 31, 2019	10,049	$	773.61
Granted	8,735		1,086.61
Vested	(4,183)		945.58
Canceled or forfeited	(313)		938.64
Nonvested at May 9, 2020	14,288	$	911.01

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $10.1 million for the twelve week period ended May 9, 2020, and $10.0 million for the comparable prior year period. Total share-based compensation expense was $32.3 million for the thirty-six week period ended May 9, 2020, and $31.5 million for the comparable prior year period.

For the twelve week period ended May 9, 2020, 187,965 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 4,177 anti-dilutive shares were excluded from the dilutive earnings per share computation. There were 161,321 anti-dilutive shares excluded from the diluted earnings per share computation for the thirty-six week period ended May 9, 2020, and 149,648 anti-dilutive shares excluded for the comparable prior year period.

See AutoZone’s Annual Report on Form 10-K for the year ended August 31, 2019, 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.