Barnes and Noble 2010 Annual Report Download - page 47

7. STOCK-BASED COMPENSATION
The Company maintains three share-based incentive
plans: the 1996 Incentive Plan, the 2004 Incentive Plan
and the 2009 Incentive Plan. Prior to June 2, 2009, the
Company issued restricted stock and stock options under
the 1996 and 2004 Incentive Plans. On June 2, 2009, the
Company’s shareholders approved the 2009 Incentive Plan.
The maximum number of shares issuable under the 2009
Incentive Plan is 950,000, plus shares that remain avail-
able under the Company’s shareholder-approved 2004
Incentive Plan. At May 1, 2010, there were approximately
1,430,961 shares of common stock available for future
grants under the 2009 Incentive Plan.
A restricted stock award is an award of common stock that
is subject to certain restrictions during a specified period.
Restricted stock awards are independent of option grants
and are generally subject to forfeiture if employment ter-
minates prior to the release of the restrictions. The grantee
cannot transfer the shares before the restricted shares vest.
Shares of unvested restricted stock have the same voting
rights as common stock, are entitled to receive dividends
and other distributions thereon and are considered to be
currently issued and outstanding. The Company’s restricted
stock awards vest over a period of one to five years. The
Company expenses the cost of the restricted stock awards,
which is determined to be the fair market value of the
shares at the date of grant, straight-line over the period
during which the restrictions lapse. For these purposes,
the fair market value of the restricted stock is determined
based on the closing price of the Company’s common stock
on the grant date.
The Company uses the Black-Scholes option-pricing model
to value the Company’s stock options for each stock option
award. Using this option-pricing model, the fair value of
each stock option award is estimated on the date of grant.
The fair value of the Company’s stock option awards, which
are generally subject to pro-rata vesting annually over four
years, is expensed on a straight-line basis over the vesting
period of the stock options. The expected volatility assump-
tion is based on traded options volatility of the Company’s
stock over a term equal to the expected term of the option
granted. The expected term of stock option awards granted
is derived from historical exercise experience under the
Company’s stock option plans and represents the period
of time that stock option awards granted are expected to be
outstanding. The expected term assumption incorporates
the contractual term of an option grant, which is ten years,
as well as the vesting period of an award, which is gener-
ally pro-rata vesting annually over four years. The risk-
free interest rate is based on the implied yield on a U.S.
Treasury constant maturity with a remaining term equal to
the expected term of the option granted.
The Company recognizes stock-based compensation costs,
net of estimated 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
rates for fiscal 2010, the transition period, fiscal 2008 and
2007 based on its historical experience.
The weighted average assumptions relating to the valuation
of the Company’s stock options for fiscal years 2010, 2008
and 2007 are shown below. No options were granted during
the transition period. During fiscal 2008, the Company
modified certain stock options related to the death and
retirement of two members of the Board of Directors and
severance of a former executive officer. These modifica-
tions resulted in a lower than normal expected life of the
stock option grants made in fiscal 2008.
Fiscal Year 2010 2008 2007
Weighted average fair
value of grants $5.72 $7.52 $11.61
Volatility 41.30% 65.36% 28.00%
Risk-free interest rate 2.59% 1.43% 4.59%
Expected life 5 years .94 years 5 years
Expected dividend yield 4.53% 3.54 % 1.47%
2010 Annual Report 45