AutoZone 2014 Annual Report Download - page 121

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51
The 2011 Program replaced the 2003 Comp Plan and the 2003 Option Plan. Under the 2003 Comp Plan, non-
employee directors could receive no more than one-half of their director fees immediately in cash, and the
remainder of the fees was required to be taken in common stock or stock appreciation rights. The director had the
option to elect to receive up to 100% of the fees in stock or defer all or part of the fees in units with value
equivalent to the value of shares of common stock as of the grant date. At August 30, 2014, the Company has
$9.7 million accrued related to 17,990 outstanding units issued under the 2003 Comp Plan and prior plans, and
there was $7.6 million accrued related to 17,990 outstanding units issued as of August 31, 2013. No additional
shares of stock or units will be issued in future years under the 2003 Comp Plan.
Under the 2003 Option Plan, each non-employee director received an option grant on January 1 of each year, and
each new non-employee director received an option to purchase 3,000 shares upon election to the Board, plus a
portion of the annual directors’ option grant prorated for the portion of the year actually served. These stock
option grants were made at the fair market value as of the grant date and generally vested three years from the
grant date. There were 46,000 and 51,000 outstanding options under the 2003 Option Plan as of August 30, 2014
and August 31, 2013, respectively. No additional shares of stock will be issued in future years under the 2003
Option Plan.
During the second quarter of fiscal 2014, the Company adopted the 2014 Director Compensation Program (the
“Program”), which states that non-employee directors will receive their compensation in awards of restricted
stock units under the 2011 Equity Incentive Award Plan, with an option for a certain portion of a director’s
compensation to be paid in cash at the non-employee director’s election. The Program replaces the 2011 Director
Compensation Program. Under the Program, restricted stock units are granted January 1 of each year (the “Grant
Date”). The number of restricted stock units is determined by dividing the amount of the annual retainer by the
fair market value of the shares of common stock as of the Grant Date. The restricted stock units are fully vested
on January 1 of each year and are paid in shares of the Company’s common stock on the earlier to occur of the
fifth anniversary of the Grant Date or the date the non-employee director ceases to be a member of the Board
(“Separation from Service”). Non-employee directors may elect to defer receipt of the restricted stock units until
their Separation from Service. The cash portion of the award, if elected, is paid ratably over the remaining
calendar quarters.
The Company has estimated the fair value of all stock option awards as of the date of the grant by applying the
Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves
assumptions that are judgmental and highly sensitive in the determination of compensation expense. The
following table presents the weighted average for key assumptions used in determining the fair value of options
granted and the related share-based compensation expense:
Year Ended
August 30,
2014
August 31,
2013
August 25,
2012
Expected price volatility ..................................................... 23% 29% 28%
Risk-free interest rates ........................................................ 1.0% 0.5% 0.7%
Weighted average expected lives (in years) ........................ 5.2
5.2
5.4
Forfeiture rate ...................................................................... 9% 10% 10%
Dividend yield ..................................................................... 0% 0% 0%
The following methodologies were applied in developing the assumptions used in determining the fair value of
options granted:
Expected price volatility – This is a measure of the amount by which a price has fluctuated or is expected to
fluctuate. The Company uses actual historical changes in the market value of its stock to calculate the
volatility assumption as it is management’s belief that this is the best indicator of future volatility. The
Company calculates daily market value changes from the date of grant over a past period representative of the
expected life of the options to determine volatility. An increase in the expected volatility will increase
compensation expense.
10-K