Barnes and Noble 2007 Annual Report Download - page 28

below. The total compensation expense related to stock-
based awards granted under these plans during fi scal
2007 and 2006, including the impact of the implemen-
tation of the modifi ed prospective transition method in
accordance with SFAS 123R, was $17,168 and $17,146,
respectively. The total compensation expense related to
stock-based awards granted under these plans during
fi scal 2005 refl ecting compensation expense recog-
nized in accordance with APB 25, was $3,566. Eff ective
January 29, 2006 and subsequent thereto, the Company
recognizes stock-based compensation costs, net of esti-
mated forfeitures, for only those shares expected to vest
on a straight-line basis over the requisite service period
of the award. The Company estimated the forfeiture rate
for the year ended February 2, 2008 based on its histori-
cal experience during the preceding four fi scal years.
As a result of adopting SFAS 123R, the impact to the
consolidated statements of operations for fi scal 2007
and 2006 on income before income taxes and minor-
ity interest was a reduction of $5,350 and $9,189,
respectively, and a reduction in net income of $3,210
and $5,491, respectively, from what would have been
presented if the Company had continued to account
for stock option awards under APB 25. The impact on
basic and diluted earnings per share for fi scal 2007 and
2006 was a reduction of $0.05 and $0.08 per share,
respectively.
Prior to the adoption of SFAS 123R, 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
benefi ts amounted to $39,640 in fi scal 2005. SFAS 123R
requires that cash fl ows resulting from tax benefi ts
attributable to tax deductions in excess of the compen-
sation 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 $15,792 and $12,551 of
excess tax benefi ts as fi nancing cash fl ows for fi scal 2007
and 2006, respectively. The total income tax benefi t
recognized in the consolidated statement of operations
for share-based awards during fi scal 2007 and 2006
(in accordance with the provisions of SFAS 123R) and
during fi scal 2005 (in accordance with the provisions of
APB 25) was $6,867, $6,901 and $1,453, 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. 123, as amended by SFAS No. 148, “Accounting
for Stock-Based Compensation- Transition and
Disclosure,” to all stock-based employee compensation
for fi scal 2005:
FISCAL YEAR 2005
Net income – as reported $ 146,681
Add: Stock-based compensation
expense included in reported net
income, net of taxes 2,113
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of taxes (8,877)
Pro forma net income for SFAS No. 123 $ 139,917
BASIC EARNINGS PER SHARE
As reported $ 2.17
Pro forma for SFAS No. 123 $ 2.07
DILUTED EARNINGS PER SHARE
As reported $ 2.03
Pro forma for SFAS No. 123 $ 1.95
The Company has share-based awards outstanding
under its 1996 Incentive Plan (the 1996 Plan) and its
2004 Incentive Plan (the 2004 Plan). Stock options
granted and outstanding under each of the plans
generally begin vesting in 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 allows the Company to grant options
to purchase up to 8,376,562 shares of common stock.
Restricted stock awards are counted against this limit as
two shares for every one share granted.
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
26 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued