Barnes and Noble 2006 Annual Report Download - page 31

The Company receives payments and credits from
vendors pursuant to co-operative advertising and other
programs, including payments for product place-
ment in stores, catalogs and online. In accordance
with Emerging Issues Task Force (EITF) Issue -,
“Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor,” the
Company classifi es certain co-op advertising received
as a reduction in costs of sales and occupancy. The gross
advertising expenses noted above were completely off set
by allowances received from vendors and the excess
allowances received were recorded as a reduction of cost
of goods sold or inventory, as appropriate.
Closed Store Expenses
When the Company closes or relocates a store, the
Company charges unrecoverable costs to expense. Such
costs include the net book value of abandoned fi xtures
and leasehold improvements and, when a store is closed
prior to the expiration of the lease, a provision for future
lease obligations, net of expected sublease recoveries.
Costs associated with store closings of ,, ,
and , during fi scal ,  and , respec-
tively, are included in selling and administrative
expenses in the accompanying consolidated statements
of operations.
Net Earnings Per Common Share
Basic earnings per share is computed by dividing income
available to common shareholders by the weighted-
average number of common shares outstanding. Diluted
earnings per share refl ect, in periods in which they have
a dilutive eff ect, the impact of common shares issuable
upon exercise of the Company’s outstanding stock
options and with respect to the Company’s deferred
compensation plan. The Company has not excluded any
shares from the computation of diluted earnings per
share.
Income Taxes
The provision for income taxes includes federal, state
and local income taxes currently payable and those
deferred because of temporary diff erences between the
fi nancial statement and tax bases of assets and liabili-
ties. The deferred tax assets and liabilities are measured
using the enacted tax rates and laws that are expected to
be in eff ect when the diff erences reverse.
Stock-Based Compensation
Eff ective January , , the Company adopted the
provisions of SFAS No. R, “Share-Based Payment”
(SFAS R), using the modifi ed prospective transition
method. Under this transition method, stock-based
compensation expense recognized for share-based
awards during fi scal  includes (a) compensation
expense for all stock-based compensation awards
granted prior to, but not yet vested as of, January ,
, based on the grant date fair value estimated in
accordance with the original provisions of SFAS , and
(b) compensation expense for all stock-based compen-
sation awards granted subsequent to January , ,
based on the grant date fair value estimated in accor-
dance with the provisions of SFAS R. In accordance
with the modifi ed prospective transition method, results
for the prior period have not been restated. Prior to the
adoption of SFAS R, the Company recognized stock-
based compensation expense in accordance with APB 
and related Interpretations, as permitted by SFAS .
The calculation of share-based employee compensation
expense involves estimates that require management’s
judgment. These estimates include the fair value of
each of the stock option awards granted, which is
estimated on the date of grant using a Black-Scholes
option pricing model. There are two signifi cant inputs
into the Black-Scholes option pricing model: expected
volatility and expected term. The Company estimates
expected volatility based on traded option 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 assumptions
used in calculating the fair value of share-based payment
awards represent management’s best estimates, but these
estimates involve inherent uncertainties and the applica-
tion of management’s judgment. As a result, if factors
change and the Company uses diff erent assumptions,
stock-based compensation expense could be materi-
ally diff erent in the future. In addition, the Company is
required to estimate the expected forfeiture rate, and
only recognize expense for those shares expected to vest.
If the Company’s actual forfeiture rate is materially dif-
ferent from its estimate, the stock-based compensation
expense could be signifi cantly diff erent from what the
2006 Annual Report 29