Equity Based Employee Benefit Plans
Staples offers its associates share ownership through certain equity-based employee compensation and benefit plans. In connection with these plans, Staples recognized approximately $80.6 million, $117.8 million and $151.8 million of compensation expense for 2013, 2012 and 2011, respectively. The total income tax benefit related to stock-based compensation was $22.7 million, $36.0 million, $46.3 million for 2013, 2012 and 2011, respectively. As of February 1, 2014, Staples had $88.3 million of unamortized stock compensation expense associated with its equity-based plans, which will be expensed over a weighted-average period of 1.5 years.
Employee Stock Purchase Plan
Staples offers its associates the opportunity for share ownership pursuant to the 2012 Employee Stock Purchase Plan. U.S. and International associates may purchase shares of Staples common stock at 85% of the lower of the market price of the common stock at the beginning or end of an offering period through payroll deductions in an amount not to exceed 10% of an employee’s annual base compensation. During 2013, 2012 and 2011 the Company issued 3.8 million, 4.5 million, and 3.8 million shares, respectively, pursuant to the 2012 Employee Stock Purchase Plan.
Stock Award Plan
Under the Amended and Restated 2004 Stock Incentive Plan, the Company grants restricted stock and restricted stock units (collectively, “Restricted Shares”) and nonqualified stock options to associates. Shares issued pursuant to restricted stock awards are restricted in that they are not transferable until they vest. Shares underlying awards of restricted stock units are not issued until the units vest. Nonqualified stock options cannot be exercised until they vest. For stock awards with service conditions only, vesting occurs over different periods, depending on the terms of the individual award, but expenses relating to these awards are recognized on a straight line basis over the applicable vesting period. For awards that include performance conditions, the Company recognizes compensation expense during the performance period to the extent achievement of the performance condition is deemed probable relative to targeted performance. A change in the Company's estimate of the probable outcome of a performance condition is accounted for in the period of the change by recording a cumulative catch-up adjustment.
Performance Shares
The Company changed its executive compensation program for fiscal year 2013 by replacing annual grants of time-based stock options and restricted stock awards with stock-based awards now consisting exclusively of performance shares. The Company has entered into long-term performance share agreements with certain executives relating to fiscal years 2013, 2014 and 2015. Vesting will be based on performance in each fiscal year, not cumulative performance, with metrics established at the beginning of each year. Payout may range from 25% to 200% of target, depending on actual performance. Any award earned based on performance will be increased or decreased by 25% if the Company's cumulative total shareholder return ("TSR") over the three year performance period is in the top or bottom one-third of the S&P 500 TSR, respectively. Shares earned, if any, will be issued on a fully-vested basis at the conclusion of the three-year performance period only if the grantee is still actively employed by or serving as a consultant to the Company at that time, with certain exceptions for retirement, death, disability, and termination without cause. The tranche relating to 2013 comprises 0.5 million shares at target with a grant-date fair value of $6.9 million. Vesting for the 2013 tranche is 50% based on satisfaction of certain sales growth metrics and 50% based on achievement of certain return on net assets percentage targets in 2013. For fiscal year 2013, 56% of the target shares were earned based on the extent to which the objectives were achieved.
Stock Options
Information with respect to stock options granted under the above plans is as follows:
|
| | | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average
Exercise Price
Per Share | | Weighted-Average Remaining Contractual Term in Years | | Aggregate Intrinsic Value (1) (in thousands) |
Outstanding at February 2, 2013 | | 41,747,699 |
| | $ | 19.83 |
| | | | |
Granted | | — |
| | — |
| | | | |
Exercised | | (2,645,940 | ) | | 13.21 |
| | | | |
Canceled | | (1,214,730 | ) | | 15.63 |
| | | | |
Expired | | (1,634,507 | ) | | 22.01 |
| | | | |
Outstanding at February 1, 2014 | | 36,252,522 |
| | $ | 20.35 |
| | 4.19 | | $ | 1,001 |
|
Exercisable at February 1, 2014 | | 31,935,266 |
| | $ | 21.04 |
| | 3.73 | | $ | 248 |
|
Vested or expected to vest at February 1, 2014 | | 35,809,380 |
| | $ | 20.41 |
| | 4.16 | | $ | 964 |
|
| |
(1) | The intrinsic value of the nonqualified stock options is the amount by which the market value of the underlying stock exceeds the exercise price of an option. |
The total intrinsic value of options exercised during 2013, 2012 and 2011 were $5.5 million, $5.2 million and $14.6 million, respectively.
The weighted-average fair values of options granted (for 2012 and 2011) and employee stock purchase plan shares purchased during 2013, 2012 and 2011 were $3.16, $2.97 and $3.58, respectively.
The fair value of each award is estimated on the date of grant using a binomial valuation model. The binomial model takes into account variables such as volatility, dividend yield rate, risk free interest rate, 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.
The fair values of options granted in 2012 and 2011 were estimated at the date of grant using the following weighted-average assumptions (no options were granted in 2013):
|
| | | | | | |
| | 2012 | | 2011 |
Risk free interest rate | | 1.0 | % | | 2.1 | % |
Expected dividend yield | | 1.7 | % | | 1.4 | % |
Expected stock volatility | | 30 | % | | 28 | % |
Expected life of options | | 5.6 years |
| | 5.5 years |
|
The risk free interest rate was based on the implied yield curve for zero coupon U.S. Treasury securities over the expected term of the options. The expected dividend yield was calculated as the average of the dividend yields for each period the Company paid a dividend. 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 expected life of options was calculated using the simplified assumption that all outstanding options will be exercised at the midpoint of the vesting date (if unvested) or the valuation date (if vested) and the full contractual term, which the Company believes to yield a reasonable approximation of the expected term of the options. The fair value of stock options is expensed over the applicable vesting period using the straight line method.
Restricted Shares
The following table summarizes the Company's grants of Restricted Shares in 2013 (amounts exclude unvested performance shares):
|
| | | | | | | |
| | Number of Shares | | Weighted-Average
Grant Date Fair
Value Per Share |
Nonvested at February 2, 2013 | | 14,549,213 |
| | $ | 15.54 |
|
Granted | | 3,961,377 |
| | 15.60 |
|
Vested | | (6,102,874 | ) | | 17.28 |
|
Canceled | | (2,233,284 | ) | | 14.89 |
|
Nonvested at February 1, 2014 | | 10,174,432 |
| | $ | 14.66 |
|
The total market value of Restricted Shares vested during 2013, 2012 and 2011 was $96.2 million, $71.4 million and $73.3 million, respectively.
Shares Available for Issuance
At February 1, 2014, 52.9 million shares of common stock were reserved for issuance under Staples' 2004 Plan, 401(k) Plan and employee stock purchase plans.
