Staples 2007 Annual Report Download - page 125

STAPLES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
NOTE G Income Taxes (Continued)
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $972.6 million as of
February 2, 2008. The Company has not provided any additional federal or state income taxes or foreign withholding
taxes on the undistributed earnings as such earnings have been indefinitely reinvested in the business. The determination
of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable because
of the complexities associated with its hypothetical calculation.
NOTE H Employee Benefit Plans
In connection with certain employee benefit plans, Staples included approximately $173.3 million, $168.7 million
and $129.8 million in compensation expense for fiscal years 2007, 2006 and 2005, respectively. As of February 2, 2008,
Staples had $250.2 million of stock options and restricted stock and restricted stock units to be expensed over the period
through January 2012.
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 2006. Based on the results of the
review, the Company recorded a $10.8 million expense ($8.6 million net of taxes) during the third quarter of 2006 to
reflect the cumulative impact of accounting errors due to the use of incorrect measurement dates, without restating any
historical financial statements. The amount of this correction in any single year would have been no more than 0.6% of
operating income for that year. 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. 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.
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
replaced 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. Except as disclosed above, options outstanding under these plans have an exercise price equal to the fair
market value of the common stock on the date of grant. Options outstanding are exercisable at various percentages of
the total shares subject to the option starting one year after the grant. All options expire ten years after the grant date,
subject to earlier termination in the event of employment termination.
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