AutoZone 2014 Annual Report Download - page 122

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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 $96.97 during fiscal 2014, $98.58 during fiscal
2013, and $94.71 during fiscal 2012. The intrinsic value of options exercised was $70.6 million in fiscal 2014,
$194.6 million in fiscal 2013, and $176.5 million in fiscal 2012. The total fair value of options vested was $27.7
million in fiscal 2014, $26.6 million in fiscal 2013, and $23.8 million in fiscal 2012.
The Company generally issues new shares when options are exercised. The following table summarizes
information about stock option activity for the year ended August 30, 2014:
Number
of Shares
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in thousands)
Outstanding – August 31, 2013 ....... 1,795,988 $ 228.95
Granted ........................................ 348,615 426.05
Exercised ..................................... (241,090) 175.60
Cancelled ..................................... (64,625) 342.40
Outstanding – August 30, 2014 ....... 1,838,888 269.32
6.28 $ 495,611
Exercisable ...................................... 1,020,283
187.07
4.79 358,902
Expected to vest .............................. 818,605
371.84
8.14 124,403
Available for future grants .............. 1,781,027
The Company recognized $1.7 million in expense related to the discount on the selling of shares to employees and
executives under various share purchase plans in fiscal 2014, $1.5 million in fiscal 2013 and $1.5 million in fiscal
2012. The Sixth Amended and Restated AutoZone, Inc. Employee Stock Purchase Plan (the “Employee Plan”),
which is qualified under Section 423 of the Internal Revenue Code, permits all eligible employees to purchase
AutoZone’s common stock at 85% of the lower of the market price of the common stock on the first day or last
day of each calendar quarter through payroll deductions. Maximum permitted annual purchases are $15,000 per
employee or 10 percent of compensation, whichever is less. Under the Employee Plan, 15,355 shares were sold to
employees in fiscal 2014, 18,228 shares were sold to employees in fiscal 2013, and 19,403 shares were sold to
employees in fiscal 2012. The Company repurchased 16,013 shares at fair value in fiscal 2014, 22,915 shares at
fair value in fiscal 2013, and 24,113 shares at fair value in fiscal 2012 from employees electing to sell their stock.
Issuances of shares under the Employee Plan are netted against repurchases and such repurchases are not included
in share repurchases disclosed in “Note K – Stock Repurchase Program.” At August 30, 2014, 219,389 shares of
common stock were reserved for future issuance under the Employee Plan.
10-K