AutoZone 2010 Annual Report Download - page 137

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life of the options to determine volatility. An increase in the expected volatility will increase compensa-
tion expense.
Risk-free interest rate — This is the U.S. Treasury rate for the week of the grant having a term equal to the
expected life of the option. An increase in the risk-free interest rate will increase compensation expense.
Expected lives — This is the period of time over which the options granted are expected to remain
outstanding and is based on historical experience. Separate groups of employees that have similar
historical exercise behavior are considered separately for valuation purposes. Options granted have a
maximum term of ten years or ten years and one day. An increase in the expected life will increase
compensation expense.
Forfeiture rate — This is the estimated percentage of options granted that are expected to be forfeited or
canceled before becoming fully vested. This estimate is based on historical experience at the time of
valuation and reduces expense ratably over the vesting period. An increase in the forfeiture rate will
decrease compensation expense. This estimate is evaluated periodically based on the extent to which
actual forfeitures differ, or are expected to differ, from the previous estimate.
Dividend yield — The Company has not made any dividend payments nor does it have plans to pay dividends
in the foreseeable future. An increase in the dividend yield will decrease compensation expense.
The weighted average grant date fair value of options granted was $40.75 during fiscal 2010, $34.06 during
fiscal 2009, and $30.28 during fiscal 2008. The intrinsic value of options exercised was $65 million in fiscal
2010, $29 million in fiscal 2009, and $29 million in fiscal 2008. The total fair value of options vested was
$21 million in fiscal 2010, $16 million in fiscal 2009 and $18 million in fiscal 2008.
The Company generally issues new shares when options are exercised. The following table summarizes
information about stock option activity for the year ended August 28, 2010:
Number
of Shares
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding — August 29, 2009 ............................. 3,095,352 $ 98.73
Granted ................................................................ 496,580 143.49
Exercised.............................................................. (683,548) 79.08
Canceled .............................................................. (34,178) 116.49
Outstanding — August 28, 2010 ............................. 2,874,206 110.93 6.48 $298,115
Exercisable ............................................................... 1,509,720 94.12 5.08 181,970
Expected to vest ...................................................... 1,228,037 129.53 8.03 104,531
Available for future grants ...................................... 3,194,942
Under the AutoZone, Inc. 2003 Director Compensation Plan, a non-employee director may receive no more
than one-half of their director fees immediately in cash, and the remainder of the fees must be taken in
common stock. The director may elect to receive up to 100% of the fees in stock or defer all or part of the
fees in units (“Director Units”) with value equivalent to the value of shares of common stock as of the grant
date. At August 28, 2010, the Company has $4.1 million accrued related to 19,228 Director Units issued under
the current and prior plans with 76,415 shares of common stock reserved for future issuance under the current
plan. At August 29, 2009, the Company has $2.6 million accrued related to 17,506 Director Units issued under
the current and prior plans.
Under the AutoZone, Inc. 2003 Director Stock Option Plan (the “Director Stock Option Plan”), each non-
employee director receives an option grant on January 1 of each year, and each new non-employee director
receives an option to purchase 3,000 shares upon election to the Board of Directors, plus a portion of the annual
directors’ option grant prorated for the portion of the year actually served in office. Under the Director
Compensation Program, each non-employee director may choose between two pay options, and the number of
stock options a director receives under the Director Stock Option Plan depends on which pay option the director
47
10-K