Barnes and Noble 2010 Annual Report Download - page 38

required by ASC 350-30. The first step of this test, used to
identify potential impairment, compares the fair value of
a reporting unit with its carrying amount. The second step
(if necessary) measures the amount of the impairment. The
Company has noted no subsequent indicators of impair-
ment. The Company tests unamortizable intangible assets
by comparing the fair value and the carrying value of such
assets. The Company also completed its annual impairment
tests for its other unamortizable intangible assets by com-
paring the estimated fair value to the carrying value of such
assets and determined that no impairment was necessary.
Changes in market conditions, among other factors, could
have a material impact on these estimates.
Deferred Charges
Costs incurred to obtain long-term financing are amortized
over the terms of the respective debt agreements using the
straight-line method, which approximates the interest
method. Unamortized costs included in other noncur-
rent assets as of May 1, 2010, May 2, 2009 and January
31, 2009 were $32,428, $1,071 and $1,208, respectively.
Amortization expense included in interest and amortiza-
tion of deferred financing fees was $5,925, $137, $547 and
$546 during fiscal 2010, the transition period, fiscal 2008
and 2007, respectively. The increase in deferred charges
related to long-term financing as well as related amortiza-
tion expense is a result of the new credit agreement entered
into on September 30, 2009 (see Note 3).
Revenue Recognition
Revenue from sales of the Company’s products is recog-
nized at the time of sale, other than those with multiple
elements. The Company accrues for estimated sales returns
in the period in which the related revenue is recognized
based on historical experience and industry standards.
Sales taxes collected from retail customers are excluded
from reported revenues. All of the Company’s sales are
recognized as revenue on a “net” basis, including sales
in connection with any periodic promotions offered to
customers. The Company does not treat any promotional
offers as expenses.
In accordance with ASC 605-25, Revenue Recognition,
Multiple Element Arrangements and Accounting Standards
Updates (ASU) 2009-13 and 2009-14, for multiple-
element arrangements that involve tangible products that
contain software that is essential to the tangible product’s
functionality, undelivered software elements that relate
to the tangible product’s essential software and other
separable elements, the Company allocates revenue to all
deliverables using the relative selling-price method. Under
this method, revenue is allocated at the time of sale to all
deliverables based on their relative selling price using a
specific hierarchy. The hierarchy is as follows: vendor-
specific objective evidence, third-party evidence of selling
price, or best estimate of selling price.
The Company includes post-service customer sup-
port (PCS) in the form of software updates and potential
increased functionality on a when-and-if-available basis,
as well as AT&T wireless access and wireless connectivity
with the purchase of NOOK™ from the Company. Using the
relative selling price described above, the Company allo-
cates revenue based on the best estimate of selling price for
the deliverables as no vendor-specific objective evidence
or third-party evidence exists for any of the elements.
Revenue allocated to NOOK™ and the software essential to
its functionality is recognized at the time of sale, provided
all other conditions for revenue recognition are met.
Revenue allocated to the PCS and the AT&T wireless access
is deferred and recognized on a straight-line basis over the
2-year estimated life of NOOK™.
The Company records revenue from sales of third-party
extended warranties, service contracts and other products,
for which the Company is not obligated to perform, and
for which the Company does not meet the criteria for gross
revenue recognition under ASC 605-45-45, Reporting
Revenue Gross as a Principal versus Net as an Agent, on a net
basis. All other revenue is recognized on a gross basis.
The Barnes & Noble Member Program entitles Members to
receive the following benefits: 40% discount off the current
hardcover Barnes & Noble store bestsellers, 20% discount
off all adult hardcover books, 10% discount off Barnes &
Noble sale price of other eligible items, unlimited free
express shipping on orders made on Barnes & Noble.com,
as well as periodic special promotions at Barnes & Noble
stores and online at Barnes & Noble.com. The annual fee of
$25.00 is non-refundable after the first 30 days. Revenue
is recognized over the twelve-month period based upon
historical spending patterns for Barnes & Noble Members.
Advertising Costs
The costs of advertising are expensed as incurred dur-
ing the year pursuant to ASC 720-35, Advertising Costs.
Advertising costs charged to selling and administrative
expenses were $33,304, $5,478, $28,772 and $27,158 dur-
ing fiscal 2010, the transition period, fiscal 2008 and 2007,
respectively.
The Company receives payments and credits from vendors
pursuant to co-operative advertising and other programs,
including payments for product placement in stores, cata-
logs and online. In accordance with ASC 605-50-25-10,
36 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued