Office Depot 2001 Annual Report Download - page 48

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Office Depot, Inc.
Notes to Consolidated Financial Statements (continued)
Guarantee of Private Label Credit Card Receivables: Office Depot has
private label credit card programs that are managed by two financial services
companies. The Company acts as the guarantor of all loans between our
customers and the financial services companies. Maximum exposure to off-
balance sheet credit risk is represented by the outstanding balance of private
label credit card receivables, less reserves held by the financial services com-
panies which are funded by us. At December 29, 2001, maximum exposure
totaled approximately $252.0 million.
Other: Office Depot entered into an investment agreement with an Internet-
based company that may require Office Depot to fund an additional $2.5 mil-
lion investment.
We are involved in litigation arising in the normal course of business. In
our opinion, these matters will not materially affect our financial position
or results of operations.
Note H—Employee Benefit Plans
Long-Term Equity Incentive Plan
The Long-Term Equity Incentive Plan, which was approved effective October
1, 1997, provides for the grants of stock options and other incentive awards,
including restricted stock, to directors, officers and key employees. After the
merger with Viking was completed, their employee and director stock option
plans were terminated. When outstanding options issued under Viking’s prior
plans are exercised, Office Depot common stock is issued.
As of December 29, 2001, there were 49,457,044 shares of common stock
reserved for issuance to directors, officers and key employees under the Long-
Term Equity Incentive Plan. Under this plan, stock options must be granted
at an option price that is greater than or equal to the market price of the stock
on the date of the grant. If an employee owns at least 10% of our outstanding
common stock, the option price must be at least 110% of the market price
on the date of the grant.
Options granted under this plan and options granted in July 1998 under
Viking’s prior plans become exercisable from one to five years after the date
of grant, provided that the individual is continuously employed with the
Company. The vesting periods for all other options granted under Viking’s
prior plans were accelerated, and the options became exercisable, as of the
date of our merger with Viking in August 1998. All options granted expire
no more than ten years from the date of grant.
Under this plan, 316,193 shares of restricted stock were issued at no cost
to the employees, 63,565 of which have been canceled. The fair market value
of these awards approximated $3.9 million at the date of the grants. Common
stock issued under this plan is restricted, with vesting periods of up to four
years from the date of grant. Compensation expense is recognized over the
vesting period.
Tax benefits are recorded based on an estimated stock options activity.
Each year, the prior year’s estimated tax benefit is adjusted based on the actual
stock sold during the year. In 2000, this adjustment resulted in a reduction
of estimated 1999 tax benefit and completely offset our 2000 estimated tax
benefit (See Note K).
Long-Term Incentive Stock Plan
Viking had a Long-Term Incentive Stock Plan that, prior to the merger, allowed
Viking’s management to award up to 2,400,000 restricted shares of common
stock to key Viking employees. Under this plan, 1,845,000 shares were issued
at no cost to employees, 1,200,000 of which have been canceled. Pursuant to
the merger agreement, shares issued under this plan were converted to Office
Depot common stock, and no additional shares may be issued under the plan.
The fair market value of these restricted stock awards approximated $10.0
million at the date of the grants. Prior to the merger, the vesting period was
15 years. Because of the plan’s change in control provision, however, the
employees now vest in their stock ratably over the 15-year period. Compensa-
tion expense is recognized over the vesting period.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan, which was approved effective July 1999,
replaces the prior plan and Viking’s plan and permits eligible employees to
purchase our common stock at 85% of its fair market value. The maximum
aggregate number of shares eligible for purchase under this plan is 3,125,000.
Other Stock-Based Compensation Plans
There are two stock-based compensation plans that are effective in Australia
and the United Kingdom. These plans allow eligible employees to purchase
up to 537,813 shares of common stock at 85% of its fair market value.
Retirement Savings Plans
Office Depot has a 401(k) retirement savings plan that allows eligible employ-
ees to contribute up to 18% of their salaries, commissions and bonuses, up
to $10,500 annually, to the plan on a pretax basis in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. Matching contri-
butions of common stock that are made into the plan are equivalent to 50% of
the first 3% of an employee’s contributions. However, discretionary matching
common stock contributions in addition to the normal match may be made.
The Company also has a deferred compensation plan, which permits eligible
employees, who are restricted from making contributions to the 401(K) plan,
to make tax-deferred contributions of up to 18% of their salaries, commissions
and bonuses to the plan. Matching contributions to the deferred compensa-
tion plan are similar to those under our 401(k) retirement savings plan
described above. During 2001, $3.4 million was recognized as compensation
expenses under the programs.