Staples 2003 Annual Report Download - page 73

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STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A Summary of Significant Accounting Policies (Continued)
Pre-opening Costs: Pre-opening costs, which consist primarily of salaries, supplies, marketing and distribution costs,
are charged to expense as incurred.
Stock Option Plans: Staples accounts for its stock-based plans under Accounting Principles Board Opinion No. 25,
‘‘Accounting for Stock Issued to Employees’’ (‘‘APB’’ No. 25’’) and provides pro forma disclosures of the compensation
expense determined under the fair value provisions of Statement of Financial Accounting Standards No. 123,
‘‘Accounting for Stock-Based Compensation’’ (‘‘SFAS No. 123’’). The Company does not record compensation expense
using the fair value provisions, because the alternative fair value accounting provided for under SFAS No. 123 requires
the use of option valuation models that were not developed for use in valuing employee stock options. Under APB
No. 25, since the exercise price of Staples’ employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also
requires that the information be determined as if Staples had accounted for its employee stock options granted
subsequent to January 28, 1995 under the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average
assumptions:
2002 2001 2000
Risk free interest rate ............................................. 4.0% 4.5% 4.8%
Expected dividend yield ........................................... 0% 0% 0%
Expected stock volatility ........................................... 45% 37% 43%
Expected life of options ........................................... 5.0 years 4.0 years 4.0 years
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the
options’ vesting period. For purposes of SFAS No. 123’s disclosure requirements, the amended Employee Stock Purchase
Plan is considered a compensatory plan. The expense was calculated based on the fair value of the employees’ purchase
rights. Staples’ pro forma information follows (in thousands, except for per share information):
Staples, Inc. Stock:
Fiscal Year Ended 26 Weeks Ended
February 1, 2003 February 2, 2002
Net income as reported ............................................ $446,100 $185,110
Stock based compensation excluded from reported net income ................ 33,316 19,500
Pro forma net income ............................................. $412,784 $165,610
Pro forma basic earnings per common share ............................. $ 0.88 $ 0.36
Pro forma diluted earnings per common share ............................ $ 0.87 $ 0.36
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