Barnes and Noble 2007 Annual Report Download - page 12

an adjustment of $0.4 million ($0.2 million after tax) to
increase non-cash compensation expense in the fourth
quarter of fi scal 2006 to correctly present compensa-
tion expense for fi scal 2006. In accordance with Staff
Accounting Bulletin (SAB) No. 108, “Considering the
Eff ects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements,”
the Company also recorded an adjustment to decrease
retained earnings by $22.8 million, increase deferred
taxes by $5.9 million and increase additional paid-in
capital by $28.7 million, to correct the consolidated
balance sheet for the cumulative impact of the misstated
compensation cost in periods prior to fi scal 2006.
In December 2006, the Board members and all cur-
rent Section 16 offi cers holding options unvested as of
December 31, 2004 voluntarily agreed to reprice such
options, upon a fi nding by the Special Committee that
such options were improperly priced, to an exercise
price determined to be the appropriate fair market
value by the Special Committee. The Special Committee
recommended that all incorrectly dated and unexercised
stock options issued to current Section 16 offi cers and
directors of the Company, other than hiring grants, be
re-priced to refl ect the greater of the original grant
price or the price appropriate to the measurement date
as determined by the Special Committee. The Board
members and Section 16 offi cers did not receive any
cash payments to compensate them for their voluntary
agreements to reprice such options. The total diff erence
in exercise price as a result of the re-pricing of these
unexercised options was approximately $2.6 million.
Consistent with the Special Committee’s recommenda-
tion that all incorrectly dated and unexercised options
issued to current Section 16 offi cers be re-priced, the
current Section 16 offi cers voluntarily agreed to repay to
the Company for options granted and exercised while
they were Section 16 offi cers an amount equal to the
diff erence in the price at which the stock options were
exercised and the price at which the Special Committee
believes the stock options should have been priced, net
of any allocable portion of income taxes paid in con-
nection with such exercise. The total amount voluntarily
repaid to the Company by current Section 16 offi cers was
approximately $2.0 million, prior to any allocable portion
of income taxes paid in connection with such exercise,
which was recorded as an increase to additional paid-in
capital in fi scal 2007.
Tax-Related Payments
Incorrectly dated options that vested after December
31, 2004 and were exercised in 2006 were subject to
penalty taxes under Section 409A of the Internal Revenue
Code. The Company reimbursed Section 16 offi cers
who voluntarily repaid the Company and were subject
to these penalty taxes. The Board approved payment to
such executives who were subject to Section 409A taxes
in connection with exercised options in an amount equal
to the cost of the Section 409A penalty tax, any interest or
penalties, plus an amount to off set the associated income
tax consequences of the reimbursement payments. In
reaching this decision, the Board took into consideration,
among other factors, the fact that the applicable taxes
under Section 409A far exceeded the amount of any pos-
sible enrichment to such offi cers as a result of improper
grant dating and the agreement by such offi cers to repay
the amount of any enrichment as a result of the improper
dating. The aggregate payments to such offi cers, includ-
ing the gross-up amounts, were $1.2 million.
Additionally, the Company made payments on behalf of
option holders who were not Section 16 offi cers, for any
Section 409A tax liability due to the exercise of incor-
rectly dated options in 2006. These payments, including
gross-up payments, were $1.2 million.
The Company implemented a program for employees
who were not Section 16 offi cers to amend incorrectly
dated options that vested after December 31, 2004 so
as to increase the exercise price to the trading price
on the correct measurement date determined by the
Special Committee. In addition, the Company paid such
employees whose options were repriced cash bonuses in
the amount of the diff erence. The aggregate amount paid
by the Company as cash bonuses under this program was
$1.4 million, which was paid in January 2008 to comply
with applicable tax laws.
52 WEEKS ENDED FEBRUARY 2, 2008 COMPARED
WITH 53 WEEKS ENDED FEBRUARY 3, 2007
Sales
The Company’s sales increased $149.6 million, or 2.8%,
during fi scal 2007 to $5.411 billion from $5.261 billion
during fi scal 2006. This increase was primarily attribut-
able to a $114.5 million increase in sales at Barnes &
Noble stores and a $43.4 million increase in Barnes &
Noble.com sales, off set by a $17.5 million decrease in
sales at B. Dalton stores.
10 Barnes & Noble, Inc. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued