Barnes and Noble 2008 Annual Report Download - page 10

Discontinued Operations
During the fourth quarter of fi scal 2008, the Company
committed to a plan to dispose of its approximate 74%
interest in Calendar Club. The Company subsequently
sold its interest in Calendar Club in February 2009 to
Calendar Club and its chief executive offi cer for $7.0
million, which was comprised of $1.0 million in cash
and $6.0 million in notes. Calendar Club qualifi ed
for held for sale accounting treatment in fi scal 2008
and was written down to its fair value. The Company
recorded an after tax charge of $9.7 million related to the
write down in fi scal 2008. The results of Calendar Club
have been classifi ed as discontinued operations in all
periods presented.
Tax Settlement
During the fi rst quarter of fi scal 2008, the Company
recorded a charge of $8.3 million in connection with
a settlement regarding the collection of sales and use
taxes on sales made by Barnes & Noble.com from
1999 to 2005. See Note 16, Legal Proceedings under
“Barnesandnoble.com LLC v. Yee, et al.” to the consolidated
fi nancial statements for additional information regarding
this settlement.
Stock Option Review
In July 2006, the Company created a Special Committee
of the Board of Directors, consisting of Patricia Higgins,
to review all of the stock option grants by the Company
and the Company’s wholly-owned subsidiary, Barnes
& Noble.com, during the period from 1996 through
2006 and engaged independent outside counsel and an
independent forensic auditor to assist in this matter. On
April 2, 2007, the Special Committee presented its fi nd-
ings and recommendations to the Company’s Board of
Directors, as reported in the Company’s Form 8-K fi led
April 4, 2007. The Special Committee indicated that the
Committee and its advisors received the Company’s full
cooperation throughout its investigation.
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 Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (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 indi-
vidual within the Company. The Company evaluated
these fi ndings and agreed with the Special Committee.
The Company concluded that the charges were not mate-
The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total
sales of the Company:
FISCAL YEAR 2008 2007 2006
Sales 100.0% 100.0% 100.0%
Cost of sales and occupancy 69.1 69.6 68.8
Gross margin 30.9 30.4 31.2
Selling and administrative expenses 24.4 23.2 22.9
Depreciation and amortization 3.4 3.2 3.2
Pre-opening expenses 0.2 0.2 0.3
Operating margin 2.8 3.8 4.8
Interest income, net and amortization of deferred fi nancing fees — 0.1 —
Earnings before income taxes and minority interest 2.8 4.0 4.9
Income taxes 1.1 1.4 2.0
Earnings before minority interest 1.7 2.6 2.9
Minority interest — — —
Earnings from continuing operations 1.7% 2.6% 2.9%
2008 Annual Report 9