Barnes and Noble 2002 Annual Report Download - page 30

and amortized over the shorter of their estimated useful
lives or the terms of the respective leases. Capitalized
lease acquisition costs are being amortized over the
lease terms of the underlying leases. Costs incurred
in purchasing management information systems are
capitalized and included in property and equipment.
These costs are amortized over their estimated useful
lives from the date the systems become operational.
Goodwill
The costs in excess of net assets of businesses acquired
are carried as goodwill in the accompanying consolidated
balance sheets.
In June 2001, the Financial Accounting Standards Board
(FASB) finalized Statement of Financial Accounting
Standards (SFAS) No. 141, “Business Combinations”,
and SFAS No. 142, “Goodwill and Other Intangible
Assets”. SFAS No. 141 requires business combinations
initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the
criteria for recording intangible assets apart from
goodwill. SFAS No. 142 requires that purchased
goodwill and certain indefinite-lived intangibles no
longer be amortized, but instead be tested for
impairment at least annually. As a result of adopting
SFAS No. 142, the Company ceased amortization of
goodwill beginning February 3, 2002. Prior to the
adoption of SFAS No. 142, the Company amortized
goodwill on a straight-line basis over 30 to 40 years.
SFAS No. 142 prescribes a two-step process for
impairment testing of goodwill. The first step of this
test, used to identify potential impairment, compares
the fair value of a reporting unit with its carrying
amount, including goodwill. The second step (if
necessary) measures the amount of the impairment.
Using the guidance in SFAS No. 142, the Company has
determined that it has two reporting units, bookstores
and video-game and entertainment-software stores.
The Company completed its initial impairment test
on the goodwill in the second quarter of fiscal 2002
and its annual impairment test in November 2002.
Both tests indicated that the fair value of the reporting
units exceeded that reporting unit’s carrying amount;
accordingly, the second testing phase was not necessary.
The Company has noted no subsequent indicators that
would require testing goodwill for impairment.
The effect of adoption of SFAS No. 142 on the reported
net income (loss) is as follows:
Fiscal Year 2002 2001 2000
Reported net income (loss) $ 99,948 63,967 ( 51,966 )
Add back: Amortization of
goodwill, net of tax -- 7,419 7,367
Net income (loss), as adjusted $ 99,948 71,386 ( 44,599 )
Basic earnings per share:
Reported net income (loss) $ 1.51 0.96 ( 0.81 )
Add back: Amortization of
goodwill, net of tax -- 0.11 0.11
Net income (loss), as adjusted $ 1.51 1.07 ( 0.70 )
Diluted earnings per share:
Reported net income (loss) $ 1.39 0.94 ( 0.81 )
Add back: Amortization of
goodwill, net of tax -- 0.10 0.11
Net income (loss), as adjusted $ 1.39 1.04 ( 0.70 )
Impairment of Long-Lived Assets
The Company’s long-lived assets include property and
equipment and goodwill. At February 1, 2003, the
Company had $622,303 of property and equipment, net
of accumulated depreciation, and $438,572 of goodwill,
net of amortization, accounting for approximately 35.4%
of the Company’s total assets.
The Company periodically reviews its property and
equipment under SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,”
whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable or
their depreciation periods should be accelerated.
Factors that the Company considers important which
could trigger a review include the following:
•Significant changes in the manner of use of the assets
•Significant changes in the strategy of the overall
business
•Significant underperformance relative to expected
historical or projected future operating results
[NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS continued ]
29 2002 Annual Report Barnes & Noble, Inc.