Barnes and Noble 2007 Annual Report Download - page 31

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
$22,807, increase deferred taxes by $5,911 and increase
additional paid-in capital by $28,719, 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 $2,643.
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 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 connection
with such exercise. The total amount voluntarily repaid
to the Company by Section 16 offi cers was approxi-
mately $1,981, 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
upon receipt.
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 pay-
ments. 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 possible 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, including the gross-up amounts, were
$1,194.
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 $1,216.
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
$1,389, which was paid in January 2008 to comply with
applicable tax laws.
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