Barnes and Noble 2006 Annual Report Download - page 33

awards under APB . The impact on basic and diluted
earnings per share for fi scal  was a reduction of
. per share.
Prior to the adoption of SFAS R, the Company
presented all tax benefi ts related to deductions resulting
from the exercise of stock options as operating activi-
ties in the consolidated statement of cash fl ows. Such
amounts were , and , in fi scal  and
, respectively. SFAS R requires that cash fl ows
resulting from tax benefi ts attributable to tax deduc-
tions in excess of the compensation expense recognized
for those options (excess tax benefi ts) be classifi ed as
fi nancing cash fl ows. As a result, the Company classifi ed
, of excess tax benefi ts as fi nancing cash fl ows
for fi scal . The total income tax benefi t recognized
in the consolidated statement of operations for share-
based awards during fi scal  (in accordance with
the provisions of SFAS R) and during fi scal  (in
accordance with the provisions of APB ) was ,
and ,, respectively.
The pro forma table below illustrates the eff ect on net
income and earnings per share as if the Company had
applied the fair value recognition provisions of SFAS
No. , as amended by SFAS No. , “Accounting for
Stock-Based Compensation-Transition and Disclosure,”
to all stock-based employee compensation for fi scal
 and :
FISCAL YEAR 2005 2004
Net income – as reported $ 146,681 143,376
Add: Stock-based compensation
expense included in reported net
income, net of taxes 2,113 27
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of taxes (8,877) (19,500)
Deduct: GME stock options, net of
minority interest — (4,319)
Deduct: BNBN stock options — (13)
Pro forma net income for SFAS No. 123 $ 139,917 119,571
BASIC EARNINGS PER SHARE
As reported $ 2.17 2.08
Pro forma for SFAS No. 123 $ 2.07 1.73
DILUTED EARNINGS PER SHARE
As reported $ 2.03 1.93
Pro forma for SFAS No. 123 $ 1.95 1.62
The Company has share-based awards outstanding
under its  Incentive Plan (the  Plan) and its
 Incentive Plan (the  Plan). Stock options
granted and outstanding under each of the plans
generally begin vesting in one year in -/ or 
increments per year, expire  years from issuance and
are conditioned upon continued employment during the
vesting period.
The  Plan and the  Plan allow the Company to
grant options to purchase up to ,, and ,,
shares of common stock, respectively. Restricted stock
awards are counted against this limit as two shares for
every one share granted.
Beginning in the fourth quarter of fi scal , certain
employees of the Company and each of its independent
directors have been granted restricted stock awards. A
restricted stock award is an award of common shares
that is subject to certain restrictions during a speci-
fi ed period. Restricted stock awards are independent
of option grants and are generally subject to forfeiture
if employment terminates prior to the release of the
restrictions. The grantee cannot transfer the shares
before the restricted shares vest. Shares of nonvested
restricted stock have the same voting rights as com-
mon stock, are entitled to receive dividends and other
distributions thereon and are considered to be cur-
rently issued and outstanding. Restricted stock awards
vest over a period of one to fi ve years. The Company
expenses the cost of the restricted stock awards, which
is determined to be the fair market value of the shares
at the date of grant, straight-line over the period during
which the restrictions lapse. For these purposes, the fair
market value of the restricted stock is determined based
on the closing price of the Company’s common stock on
the grant date.
The Company uses the Black-Scholes option-pricing
model to value the Company’s stock options for each
stock option award. Using this option-pricing model,
the fair value of each stock option award is estimated on
the date of grant. The fair value of the Company’s stock
option awards, which are subject to pro-rata vesting
generally over three or four years, is expensed on a
straight-line basis over the vesting period of the stock
options. The expected volatility assumption is based on
traded options volatility of the Company’s stock over a
term equal to the expected term of the option granted.
The expected term of stock option awards granted is
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