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 $11.1 million for the twelve week period ended November 18, 2017, and $9.8 million for the comparable prior year period.

During the twelve week period ended November 18, 2017, 24,761 stock options were exercised at a weighted average exercise price of $284.04. In the comparable prior year period, 22,612 stock options were exercised at a weighted average exercise price of $301.09.

The Company made stock option grants of 282,820 shares during the twelve week period ended November 18, 2017, and granted options to purchase 288,305 shares during the comparable prior year period. The weighted average fair value of the stock option awards granted during the twelve week periods ended November 18, 2017, and November 19, 2016, using the Black-Scholes-Merton multiple-option pricing valuation model, was $128.93 and $139.66 per share, respectively, using the following weighted average key assumptions:


	Twelve Weeks Ended
	November 18, 2017		November 19, 2016
Expected price volatility		20%		18%
Risk-free interest rate		1.9%		1.2%
Weighted average expected lives (in years)		5.1		5.1
Forfeiture rate		10%		10%
Dividend yield		0%		0%

See AutoZone’s Annual Report on Form 10-K for the year ended August 26, 2017, 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 November 18, 2017, 802,195 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 564,119 anti-dilutive shares were excluded from the dilutive earnings per share computation.