Barnes and Noble 2003 Annual Report Download - page 28

[NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS continued ]
27 2003 Annual Report Barnes & Noble, Inc.
$2,916, $2,894 and $2,292 during fiscal 2003, 2002
and 2001, respectively.
Derivative Instruments
Under an agreement which expired February 3, 2003,
the Company used an interest-rate swap as a derivative
to modify the interest characteristics of its outstanding
floating rate debt, thereby reducing its exposure to
fluctuations in interest rates. The Company’s
accounting policy was based on its designation of such
instruments as cash flow hedges whereby changes in the
fair value in the derivative have been included in other
comprehensive income. The Company did not enter
into the contract for speculative purposes.
Revenue Recognition
Revenue from sales of the Company’s products is
recognized at the time of sale. Sales returns (which are
not significant) are recognized at the time returns are
made.
The Barnes & Noble Membership Program entitles the
customer to receive a 10 percent discount on all
purchases made during the twelve-month membership
period. The annual membership fee of $25.00 is non-
refundable after the first 30 days of the membership
term. Revenue is being recognized over the twelve-
month membership period based upon historical
spending patterns for Barnes & Noble customers.
Refunds of membership fees due to cancellations within
the first 30 days are minimal.
Subscription revenue is recognized on a straight-line
basis as magazine issues are delivered.
Advertising Costs
The costs of advertising are expensed as incurred during
the year pursuant to Statement of Position 93-7,
“Reporting on Advertising Costs”. In addition,
consideration received from vendors in conjunction
with the Company’s cooperative advertising program is
netted against the related expenses. Advertising costs
are charged to selling and administrative expenses. As a
result of the adoption of requirements set forth in
Emerging Issues Task Force (EITF) Issue 02-16,
“Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor”, which
are effective for arrangements entered into after
December 31, 2002, the Company has reclassified some
of its co-op advertising from an offset to selling and
administrative expenses to a reduction in costs of sales
and occupancy. The implementation of EITF Issue 02-
16 did not have a material effect on the Company’s
annual results of operations.
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 fixtures and leasehold
improvements and, when a store is closed, a provision for
future lease obligations, net of expected sublease
recoveries. Costs associated with store closings of $5,952,
$10,111 and $9,831 during fiscal 2003, 2002 and 2001,
respectively, 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 reflect, in periods in which they have
a dilutive effect, the impact of common shares issuable
upon exercise of the Company’s and GameStop’s
outstanding stock options and with respect to the
Company’s deferred compensation plan, and assumes
the conversion of the Company’s 5.25% convertible
subordinated notes for the period outstanding since
their issuance in March 2001.
Income Taxes
The provision for income taxes includes federal, state
and local income taxes currently payable and those
deferred because of temporary differences between the
financial statement and tax bases of assets and
liabilities. The deferred tax assets and liabilities are
measured using the enacted tax rates and laws that are
expected to be in effect when the differences reverse.