Barnes and Noble 2010 Annual Report Download - page 37

Cash and Cash Equivalents
The Company considers all short-term, highly liquid
instruments purchased with an original maturity of three
months or less to be cash equivalents.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or
market. Cost is determined primarily by the retail inven-
tory method under both the first-in, first-out (FIFO) basis
and the last-in, first-out (LIFO) basis. The Company uses
the retail inventory method for 98% of the Company’s
merchandise inventories. As of May 1, 2010, May 2, 2009
and January 31, 2009, 87%, 100% and 100%, respectively,
of the Company’s inventory on the retail inventory method
was valued under the FIFO basis. B&N College’s textbook
and trade book inventories are valued using the LIFO
method, where the related reserve was not material to the
recorded amount of the Company’s inventories or results of
operations.
Market is determined based on the estimated net realiz-
able value, which is generally the selling price. Reserves
for non-returnable inventory are based on the Company’s
history of liquidating non-returnable inventory.
The Company also estimates and accrues shortage for the
period between the last physical count of inventory and
the balance sheet date. Shortage rates are estimated and
accrued based on historical rates and can be affected by
changes in merchandise mix and changes in actual shortage
trends.
Property and Equipment
Property and equipment are carried at cost, less accu-
mulated depreciation and amortization. For financial
reporting purposes, depreciation is computed using the
straight-line method over estimated useful lives. For tax
purposes, different methods are used. Maintenance and
repairs are expensed as incurred, while major maintenance
and remodeling costs are capitalized. Leasehold improve-
ments are capitalized and amortized over the shorter of
their estimated useful lives or the terms of the respective
leases. Capitalized lease acquisition costs are being amor-
tized 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.
Other Long-Lived Assets
The Company’s other long-lived assets include property
and equipment and amortizable intangibles. At May 1,
2010, the Company had $812.0 million of property and
equipment, net of accumulated depreciation, and $266.1
million of amortizable intangible assets, net of amortiza-
tion, accounting for approximately 29.1% of the Company’s
total assets. The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable in accordance with Accounting Standards
Codification (ASC) 360-10, Accounting for the Impairment or
Disposal of Long-Lived Assets (ASC 360-10). The Company
evaluates long-lived assets for impairment at the individual
Barnes & Noble store level, except for B&N College long-
lived assets, which are evaluated for impairment at the
school contract combined store level, which is the lowest
level at which individual cash flows can be identified. When
evaluating long-lived assets for potential impairment, the
Company will first compare the carrying amount of the
assets to the individual store’s estimated future undis-
counted cash flows. If the estimated future cash flows are
less than the carrying amount of the assets, an impairment
loss calculation is prepared. The impairment loss calcula-
tion compares the carrying amount of the assets to the
individual store’s fair value based on its estimated dis-
counted future cash flows. If required, an impairment loss
is recorded for that portion of the asset’s carrying value in
excess of fair value. Impairment losses included in selling
and administrative expenses totaled $12,102, $0, $11,715
and $5,876 during fiscal 2010, the transition period, fiscal
2008 and 2007, respectively, and are related to individual
store locations.
Goodwill and Unamortizable Intangible Assets
The costs in excess of net assets of businesses acquired
are carried as goodwill in the accompanying consolidated
balance sheets.
At May 1, 2010, the Company had $528.5 million of
goodwill and $314.9 million of unamortizable intangible
assets (those with an indefinite useful life), accounting
for approximately 22.8% of the Company’s total assets.
ASC 350-30, Goodwill and Other Intangible Assets, requires
that goodwill and other unamortizable intangible assets
no longer be amortized, but instead be tested for impair-
ment at least annually or earlier if there are impairment
indicators. The Company completed its annual goodwill
impairment test in November 2009 and determined that no
impairment charge was necessary. The Company performs
a two-step process for impairment testing of goodwill as
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