Barnes and Noble 2015 Annual Report Download - page 43

repairs are expensed as incurred, while major mainte-
nance and remodeling costs are capitalized if they extend
the useful life of the asset. Leasehold improvements are
capitalized and amortized over the shorter of their esti-
mated useful lives or the terms of the respective leases.
Fixtures and equipment are capitalized and amortized
over the shorter of their estimated useful lives or  years.
Capitalized lease acquisition costs are being amortized over
the lease terms of the underlying leases. System costs are
capitalized and included in property and equipment. These
costs are depreciated over their estimated useful lives from
the date the systems become operational. The Company
had , and , of property and equipment,
net of accumulated depreciation, at May ,  and May ,
, respectively, and ,, , and , of
depreciation expense for fiscal , fiscal  and fiscal
, respectively. Capitalized software costs of ,
and , for fiscal  and fiscal , respectively,
are included in property and equipment. The Company
had , and , of amortizable intangible
assets, net of amortization, at May ,  and May , ,
respectively. The Company reviews its long-lived assets
for impairment whenever events or changes in circum-
stances indicate that the carrying amount of an asset may
not be recoverable and considers market participants
in accordance with Accounting Standards Codification
(ASC) -, Accounting for the Impairment or Disposal of
Long-Lived Assets (ASC -). 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 undiscounted cash
flows. If the estimated future cash flows are less than the
carrying amount of the assets, an impairment loss calcula-
tion is prepared. The impairment loss calculation com-
pares the carrying amount of the assets to the individual
store’s fair value based on its estimated discounted 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 adminis-
trative expenses totaled , , and , during
fiscal , fiscal  and fiscal , respectively.
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 , , the Company had , of goodwill and
, of unamortizable intangible assets (those with an
indefinite useful life), accounting for approximately .
of the Company’s total assets. ASC -, Goodwill and
Other Intangible Assets, requires that goodwill and other
unamortizable intangible assets no longer be amortized,
but instead be tested for impairment at least annually or
earlier if there are impairment indicators. The Company
performs a two-step process for impairment testing of
goodwill as required by ASC -. 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 completed its annual goodwill
impairment test as of the first day of the third quarter of
fiscal . In performing the valuations, the Company
used cash flows that reflected management’s forecasts and
discount rates that included risk adjustments consistent
with the current market conditions. Based on the results
of the Company’s step one testing, the fair values of the
B&N Retail, B&N College and NOOK reporting units as of
that date exceeded their carrying values; therefore, the
second step of the impairment test was not required to be
performed and no goodwill impairment was recognized.
Impairment losses included in selling and administrative
expenses related to goodwill totaled ,  and ,
during fiscal , fiscal  and fiscal , respectively.
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. Impairment losses included in selling and adminis-
trative expenses related to unamortizable intangible assets
totaled , , and  during fiscal , fiscal  and
fiscal , respectively. Changes in market conditions,
among other factors, could have a material impact on these
estimates.
The impairments in fiscal  related to certain publish-
ing contracts. The publishing contracts include the value
of long-standing relationships with authors, agents and
publishers established upon the Company’s acquisition of
Sterling in . Given Sterling’s strong history of main-
taining such relationships, the Company believes they
produce value indefinitely without an identifiable remain-
2015 Annual Report 41