Office Depot 2000 Annual Report Download - page 45

43
Office Depot, Inc. and Subsidiaries
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. Compensation expense is recognized over the
vesting period.
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan, which was approved effec-
tive July 1999, replaces our 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
We have 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 80-85% of its fair market value.
Retirement Savings Plans
We have a 401(k) retirement savings plan which allows eligible
employees to contribute up to 18% of their salaries, commis-
sions 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. We make matching contributions
of common stock into the plan that is equivalent to 50% of the
first 3% of an employee’s contributions. We may, at our option,
make discretionary matching common stock contributions in
addition to the normal match. We also have a deferred com-
pensation plan, which permits eligible employees to make
tax-deferred contributions of up to 18% of their salaries, com-
missions and bonuses to the plan. We make matching con-
tributions to the deferred compensation plan similar to those
under our 401(k) retirement savings plan described above.
Until April 2000, Viking had a separate profit sharing plan that
included a 401(k) plan that allowed eligible employees to make
pretax contributions. Under the profit sharing plan, we made
matching cash contributions of 25% of the first 6% of an
employee’s contributions. In April 2000, Viking’s profit sharing
plan was dissolved, and all plan funds were transferred into
Office Depot’s 401(k) retirement savings plan. Participants of
the old Viking plan, as well as all eligible Viking employees,
may now contribute to the Office Depot current 401(k) plan,
which is discussed in the above paragraph.
Accounting for Stock-Based Compensation
We apply Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related
Interpretations in accounting for our stock-based compensation
plans. The compensation cost that we have charged against
income for our Long-Term Equity Incentive Plan, Long-Term
Incentive Stock Plan, Employee Stock Purchase Plans and
retirement savings plans approximated $11.2 million, $12.5
million and $19.9 million in 2000, 1999 and 1998, respectively.
No other compensation costs have been recognized under our
stock-based compensation plans. Had compensation cost for
awards under our stock-based compensation plans been deter-
mined using the fair value method prescribed by SFAS No. 123,
“Accounting for Stock-Based Compensation,” our net earnings
and earnings per share would have been reduced to the pro
forma amounts presented below:
2000 1999 1998
Net earnings
As reported $49,332 $257,638 $233,196
Pro forma 11,253 226,424 184,916
Basic earnings per share
As reported $ 0.16 $ 0.71 $ 0.64
Pro forma 0.04 0.63 0.50
Diluted earnings per share
As reported $ 0.16 $ 0.69 $ 0.61
Pro forma 0.04 0.61 0.49
The fair value of each stock option granted is established on the
date of the grant using the Black-Scholes option pricing model
with the following weighted average assumptions for grants in
2000, 1999 and 1998:
• expected volatility rates of 40% for 2000, 35% for 1999, and
25% for 1998
• risk-free interest rates of 6.37% for 2000, 5.84% for 1999,
and 4.88% for 1998
• expected lives of 5.6, 5.6, and 5.0 years for 2000, 1999, and
1998, respectively
• a dividend yield of zero for all three years