Staples 2006 Annual Report Download - page 121

STAPLES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
C-17
NOTE H Employee Benefit Plans
Stock Option Review
During the third quarter of 2006, the Company and its Audit Committee, assisted by outside counsel, conducted a
review of its historical stock option granting practices during the period from 1997 to the present. Based on the results of
the review, the Company recorded a $10.8 million expense ($8.6 million net of taxes) to reflect the cumulative impact of
accounting errors due to the use of incorrect measurement dates, without restating any historical financial statements.
The Company has concluded that the use of incorrect measurement dates was not the result of intentional wrongdoing
and has taken steps to improve the controls over its option granting processes.
The amount of this correction in any single year would have been no more than 0.6% of operating income for that
year. The Company recorded the cumulative impact of these errors as a charge in 2006 without restating any historical
financial statements. This charge increased cost of goods sold and occupancy costs by $0.3 million, operating and selling
expenses by $3.9 million, general and administrative expenses by $6.6 million, and reduced income tax expense by
$2.2 million, resulting in an $8.6 million reduction in net income for 2006.
Employee Stock Purchase Plans
The Amended and Restated 1998 Employee Stock Purchase Plan authorizes a total of up to 15.8 million shares of
common stock to be sold to participating employees and the Amended and Restated International Employee Stock
Purchase Plan authorizes a total of up to 1.3 million shares of common stock to be sold to participating employees of
non-U.S. subsidiaries of the Company. Under both plans, participating employees may purchase shares of common stock
at 85% of its fair market value at the beginning or end of an offering period, whichever is lower, through payroll
deductions in an amount not to exceed 10% of an employee’s annual base compensation.
Stock Award Plans
The Amended and Restated 2004 Stock Incentive Plan (the “2004 Plan”) was implemented in July 2004 and
replaces the amended and restated 1992 Equity Incentive Plan (the “1992 Plan”) and the amended and restated 1990
Director Stock Option Plan (the “1990 Plan”). Unexercised options under both the 1992 Plan and the 1990 Plan remain
outstanding. Under the 2004 Plan, Staples may issue up to 62.3 million shares of common stock to management and
employees using various forms of awards, including nonqualified options and restricted stock, subject to certain
restrictions. As of February 27, 1997, Staples’ 1987 Stock Option Plan (the “1987 Plan”) expired; however, unexercised
options under this plan remain outstanding. Options outstanding under these plans have an exercise price equal to the
fair market value of the common stock on the date of grant. Some options outstanding are exercisable at various
percentages of the total shares subject to the option starting one year after the grant, while other options are exercisable
in their entirety three to five years after the grant date. All options expire ten years after the grant date, subject to earlier
termination in the event of employment termination.