Barnes and Noble 2005 Annual Report Download - page 39

[NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS continued ]
38 2005 Annual ReportBarnes & Noble, Inc.
2004 Incentive Plan (the 2004 Plan). Additionally,
options and restricted stock may continue to be granted
in the future under the 1996 Plan and the 2004 Plan.
The options to purchase common shares are issued with
an exercise price equal to the fair market value of the
common stock on the date of the grant, and generally
begin vesting after one year in 33-1/3% or 25%
increments per year, expire 10 years from issuance and
are conditioned upon continued employment during the
vesting period.
The 2004 Plan, the 1996 Plan and the 1991 Plan allow
the Company to grant options to purchase up to
8,376,562, 17,667,737 and 4,754,464 shares of
common stock, respectively, (7,300,000, 14,500,000
and 4,732,704, respectively, before adjustments to
reflect the impact of the GameStop spin-off on shares
available for grant, as noted below). Restricted stock
awards are counted against this limit as two shares for
every one share granted.
Leonard Riggio, the Company’s chairman, exercised
1,318,750 stock options in September 2003, by
tendering in payment of the exercise price of the stock
options 606,277 shares that he held in the Company’s
stock. Mr. Riggio elected to defer receipt of the balance
of the shares (712,473) due from the exercise pursuant
to the Company’s Executive Deferred Compensation
Plan. In accordance therewith, the Company
established a rabbi trust for the benefit of Mr. Riggio
which holds 712,473 shares of the Company’s common
stock. The shares held by the rabbi trust are treated as
treasury stock. Due to the deferred compensation
arrangement these shares are included in the
denominator of the EPS calculation in accordance with
SFAS No. 128, “Earnings per share” when the impact is
not antidilutive.
The weighted-average fair value of the options granted
during fiscal 2005, 2004 and 2003 were estimated at
$12.69, $11.68 and $8.02, respectively, using the Black-
Scholes option-pricing model with the following
assumptions:
Fiscal Year 2005 2004 2003
Volatility 30% 31% 40%
Risk-free interest rate 4.19% 3.73% 2.71%
Expected life 6 years 6 years 6 years
A summary of the status of the Company’s BKS stock
options is presented below:
Shares Weighted-Average
(000s) Exercise Price
Balance, February 1, 2003 12,568 $ 18.22
Granted 1,967 18.78
Exercised (5,063 ) 13.04
Forfeited (573 ) 20.98
Balance, January 31, 2004 8,899 21.12
Granted 3,049 30.97
Exercised (1,256 ) 19.42
Forfeited (41 4 ) 23.48
Balance, November 12, 2004 10,278 24.16
Adjustment for
GameStop spin-off
(a) 4,266 (7.11)
Adjusted balance,
November 12, 2004
14,544 17.05
Exercised (619 ) 14.75
Forfeited (65 ) 16.51
Balance, January 29, 2005 13,860 17.16
Granted 400 33.37
Exercised (4,068 ) 15.27
Forfeited (423 ) 16.94
Balance, January 28, 2006 9,769 $ 18.61
(a) In conjunction with the spin-off of GameStop, and the
consequent reduction in the market price of the Company’s
shares, the Company reduced the exercise price of its
outstanding options and increased the number of such
options, so that option holders would have the same
intrinsic value before and after the spin-off.