Staples 2006 Annual Report Download - page 123

STAPLES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
C-19
NOTE H Employee Benefit Plans (Continued)
The number of exercisable shares was 35.2 million at February 3, 2007, 36.8 million at January 28, 2006 and 40.3
million at January 29, 2005.
For options granted prior to May 1, 2005, the fair value for these options was estimated at the date of grant using a
Black-Scholes option-pricing model. For stock options granted on or after May 1, 2005, the fair value of each award is
estimated on the date of grant using a binomial valuation model. The binomial model considers characteristics of fair
value option pricing that are not available under the Black-Scholes model. Similar to the Black-Scholes model, the
binomial model takes into account variables such as volatility, dividend yield rate, and risk free interest rate. However, in
addition, the binomial model considers the contractual term of the option, the probability that the option will be
exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in
computing the value of the option. For these reasons, the Company believes that the binomial model provides a fair
value that is more representative of actual experience and future expected experience than that value calculated using
the Black-Scholes model.
The fair value of options granted in each year was estimated at the date of grant using the following weighted
average assumptions:
2006 2005 2004
Risk free interest rate...................................... 5.0% 3.8% 3.8%
Expected dividend yield .................................... 0.8% 0.8% 0.7%
Expected stock volatility.................................... 31% 33% 41%
Expected life of options .................................... 5.1 years 5.0 years 5.0 years
The expected stock volatility factor was calculated using an average of historical and implied volatility measures to
reflect the different periods in the Company’s history that would impact the value of the stock options granted to
employees.
The fair value of stock options is expensed over the applicable vesting period using the straight line method. In
connection with the purchase of shares under the employee stock purchase plan and the issuance of stock options,
Staples recognized $95.8 million in compensation expense for fiscal 2006, $79.2 million for fiscal 2005 and $69.0 million
for fiscal 2004, respectively. At February 3, 2007, the Company had $123.4 million of stock options to be expensed over
the period through January 2011.
Restricted Stock
In 2003 the Company began granting restricted shares in lieu of special grants of stock options. All shares underlying
awards of restricted stock are restricted in that they are not transferable (i.e., they may not be sold) until they vest.
Subject to limited exceptions, if the employees who received the restricted stock leave Staples prior to the vesting date
for any reason, the shares of restricted stock will be forfeited and returned to Staples. The following table summarizes
the Company’s grants of restricted stock in fiscal 2006:
Number of
Shares
Weighted Average
Grant Date
Fair Value
Per Share
Outstanding at January 29, 2006.................................. 2,018,614 $ 18.45
Granted..................................................... 5,321,410 24.63
Released.................................................... (1,576,537 ) 18.48
Canceled.................................................... (427,822 ) 22.02
Outstanding at February 3, 2007.................................. 5,335,665 $ 24.32