Staples 2007 Annual Report Download - page 127

STAPLES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
NOTE H Employee Benefit Plans (Continued)
The fair value of options granted in each year was estimated at the date of grant using the following weighted
average assumptions:
2007 2006 2005
Risk free interest rate ............................... 4.7% 5.0% 3.8%
Expected dividend yield .............................. 0.9% 0.8% 0.8%
Expected stock volatility .............................. 29% 31% 33%
Expected life of options .............................. 5.3 years 5.1 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.
Restricted Stock and Restricted Stock Units (‘‘Restricted Shares’’)
In 2003, the Company began granting Restricted Shares in lieu of special grants of stock options. All shares
underlying awards of Restricted Shares 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 Shares leave Staples prior to the
vesting date for any reason, the Restricted Shares will be forfeited and returned to Staples. The following table
summarizes the Company’s grants of Restricted Shares in fiscal 2007:
Weighted Average
Number of Grant Date Fair
Shares Value Per Share
Outstanding at February 4, 2007 ........................... 5,335,665 $24.32
Granted ........................................... 6,261,768 24.64
Released ........................................... (501,874) 22.49
Canceled ........................................... (1,238,290) 24.39
Outstanding at February 2, 2008 ........................... 9,857,269 $24.61
Prior to fiscal year 2006, Staples issued performance accelerated restricted stock (‘‘PARS’’) to employees of Staples.
The shares were restricted in that they were not transferable (i.e., they may not be sold) by the employee until they
vested, generally after the end of five years. Such vesting date was subject to acceleration if Staples achieved certain
compound annual earnings per share growth over a certain number of interim years. No PARS were outstanding as of
February 2, 2008. PARS issued in fiscal year 2005 had a weighted-average fair market value of $21.72 and vested in
March 2007 as a result of Staples achieving its earnings per share growth target for the fiscal year ended February 3,
2007.
Performance Shares
In fiscal 2006, the Company began issuing performance shares. Performance shares are restricted stock awards that
vest only if the Company meets minimum performance targets. For the 2006 and 2007 performance share awards, the
performance targets have been established based on cumulative returns on net assets over a three year period. If, at the
end of each three year period, the Company’s performance falls between minimum and maximum targets, then a
percentage of the performance shares, from 90% up to 200% will vest. If the Company does not achieve the minimum
performance target, none of the performance share awards will vest.
The fair value of performance shares is based upon the market price of the underlying common stock as of the date
of grant. As of February 2, 2008, Staples had 818,659 performance shares that were issued during fiscal years 2007 and
2006. The shares have a weighted-average fair market value of $24.63.
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