Barnes and Noble 2006 Annual Report Download - page 44

15. SEGMENT REPORTING
The Company has determined that it has one operating
segment: bookselling. This evaluation was made in
accordance with SFAS , “Disclosures about Segments
of an Enterprise and Related Information,” and took into
account the company’s determination that it operates in
one business segment was based on application of the
criteria in paragraph  of SFAS , “Disclosures about
Segments of an Enterprise and Related Information.”
The Company’s evaluation includes the identifi cation of
operating segments by considering the way the busi-
ness is managed (focusing on the fi nancial informa-
tion distributed) and the manner in which the chief
operating decision maker interacts with other members
of management. The bookselling segment has as its
principal business the sale of trade books, mass market
paperbacks, children’s books, bargain books, magazines,
music, movies, calendars, games and gift items direct to
customers. Most of these products are sourced by third
parties while some are sourced through the Company’s
own publishing activities. These product sales collectively
account for substantially all of the Company’s sales.
Operating segments for the company have not been
aggregated.
16. LEGAL PROCEEDINGS
There have been no material developments with respect to
previously reported legal proceedings, except as follows:
In July and August , four putative stockholder
derivative actions were fi led in New York County
Supreme Court against certain members of the
Company’s Board of Directors and certain current and
former executive offi cers of the Company, alleging breach
of fi duciary duty and unjust enrichment in connection
with the grant of certain stock options to certain execu-
tive offi cers and directors of the Company. These actions
were subsequently consolidated under the caption In re
Barnes & Noble, Inc. Derivative Litigation. The Company is
named as a nominal defendant only. The consolidated
complaint seeks on behalf of the Company unspecifi ed
money damages, disgorgement of any proceeds from the
exercise of the options that are the subject of the action
(and any subsequent sale of the underlying stock),
rescission of any unexercised stock options, other
equitable relief, and costs and disbursements, includ-
ing attorneys’ fees. The Company has fi led a motion to
dismiss the consolidated complaint.
Subsequent to the initial lawsuit, the SEC informed the
Company that the SEC is conducting an informal inquiry
into the Company’s stock option practices. The Company
is fully cooperating with the SEC’s inquiry.
On August , , the Company received a subpoena
from the United States Attorney for the Southern
District of New York requesting documents regarding
the Company’s stock option practices. The Company is
cooperating fully in responding to that subpoena.
In July , 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 , , the Special
Committee presented its fi ndings and recommenda-
tions to the Company’s Board of Directors. See “Stock
Option Review” in Note  above.
In September , three putative stockholder deriva-
tive actions were fi led in the United States District
Court for the Southern District of New York naming
the directors of the Company and certain current and
former executive offi cers as defendants and alleging that
the defendants backdated certain stock option grants to
executive offi cers and caused the Company to fi le false or
misleading fi nancial disclosures and proxy statements.
These actions were subsequently consolidated under the
caption In re Barnes & Noble, Inc. Shareholders Derivative
Litigation. The consolidated complaint purports to
set forth claims under Section (a) of the Securities
Exchange Act of  and under Delaware law for breach
of fi duciary duty, insider trading, unjust enrichment,
rescission, accounting, gross mismanagement, abuse of
control, and waste of corporate assets. The Company is
named as a nominal defendant only. The consolidated
complaint seeks on behalf of the Company unspecifi ed
money damages, disgorgement of any proceeds from the
exercise of the options that are the subject of the action
(and any subsequent sale of the underlying stock),
rescission of any unexercised stock options, other
equitable relief, and costs and disbursements, including
attorneys’ fees. The Company is reviewing the complaint
and will respond appropriately.
42 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued