Barnes and Noble 2006 Annual Report Download - page 35

The aggregate intrinsic value in the table above represents
the total pretax intrinsic value (the diff erence between
the Company’s closing stock price on the last trading
day of the related fi scal year and the exercise price,
multiplied by the related in-the-money options) that
would have been received by the option holders had they
exercised their options at the end of the fi scal year. This
amount changes based on the fair market value of the
Company’s common stock. The amount as of February 3,
2007 has been reduced by $2,643 due to the increase in
price of certain options resulting from the stock option
review discussed below. Total intrinsic value of options
exercised for fi scal 2006, 2005 and 2004 (based on the
diff erence between the Company’s stock price on the
exercise date and the respective exercise price, multi-
plied by the number of options exercised) was $30,029,
$97,278 and $27,731, respectively.
As of February 3, 2007, there was $8,670 of total unrec-
ognized compensation expense related to unvested
stock options granted under the Company’s share-based
compensation plans. That expense is expected to be
recognized over a weighted average period of 1.5 years.
The following table presents a summary of the Company’s
restricted stock activity:
NUMBER OF
SHARES
(in thousands)
WEIGHTED
AVERAGE
GRANT DATE
FAIR VALUE
Balance, January 31, 2004 — —
Granted 50 $ 30.80
Balance, January 29, 2005 50 30.80
Granted 444 33.87
Vested (13) 30.94
Forfeited (29) 34.19
Balance, January 28, 2006 452 33.60
Granted 479 45.85
Vested (124) 33.52
Forfeited (40) 38.94
Balance, February 3, 2007 767 $ 40.97
Total fair value of shares of restricted stock that vested
during fi scal 2006 was $5,666. As of February 3, 2007,
there was $23,806 of unrecognized stock-based com-
pensation expense related to nonvested restricted stock
awards. That cost is expected to be recognized over a
weighted average period of 2.7 years.
For fi scal 2006, 2005 and 2004, stock-based compen-
sation expense of $17,146 (or $0.15 per diluted share),
$3,567 (or $0.03 per diluted share) and $48 (or $0.00
per diluted share), respectively, is included in selling
and administrative expenses.
Stock Option Review
In July 2006, the Company created a Special Committee
of the Board of Directors, consisting of Patricia Higgins,
to review, with the assistance of independent outside
counsel and an independent forensic auditor, the
Company’s stock option granting practices. This review
was completed and on April 2, 2007, the Special
Committee presented its fi ndings and recommendations
to the Company’s Board of Directors.
Among other fi ndings, the Special Committee deter-
mined that there were numerous instances of stock
option grants for which there was an improper mea-
surement of compensation expense under APB 25.
Although the Special Committee determined that there
were instances of stock options having been dated using
favorable dates that were selected with the benefi t of
hindsight and that serious mistakes were made, the
Special Committee did not fi nd any intent to defraud
or fraudulent misconduct by any individual or group
of individuals. The Special Committee found that the
Company’s dating and pricing practice for stock options
was applied uniformly by Company personnel to stock
options granted and was not used selectively to benefi t
any one group or individual within the Company. The
Company has evaluated these fi ndings and agrees with
the Special Committee. The Company has concluded,
however, that the charges are not material to the
fi nancial statements in any of the periods to which such
charges relate and therefore will not restate its historic
fi nancial statements. The Company has recorded an
adjustment of $411 ($246 after tax) to increase non-cash
compensation expense in the fourth quarter of fi scal
2006 to correctly present compensation expense for
fi scal 2006. The Company has also recorded an adjust-
ment to decrease retained earnings by $22,807, increase
2006 Annual Report 33