Barnes and Noble 2007 Annual Report Download - page 26

Advertising Costs
The costs of advertising are expensed as incurred dur-
ing the year pursuant to Statement of Position 93-7,
“Reporting on Advertising Costs.” Advertising costs
charged to selling and administrative expenses were
$27,981, $28,124 and $27,846 during fi scal 2007, 2006
and 2005, respectively.
The Company receives payments and credits from
vendors pursuant to co-operative advertising and
other programs, including payments for product
placement in stores, catalogs and online. In accor-
dance with Emerging Issues Task Force Issue 02-16,
“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 recover-
ies. Costs associated with store closings of $9,378,
$7,425 and $6,905 during fi scal 2007, 2006 and 2005,
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 outstand-
ing. Diluted earnings per share refl ect, in periods in
which they have a dilutive eff ect, the impact of com-
mon 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.
In July 2006, the Financial Accounting Standards Board
issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (FIN 48). FIN 48 clari-
fi es the accounting for uncertain income tax positions
that are recognized in a company’s fi nancial statements
in accordance with the provisions of FASB Statement
No. 109, “Accounting for Income Taxes” (SFAS 109).
FIN 48 also provides guidance on the derecognition of
uncertain positions, fi nancial statement classifi cation,
accounting for interest and penalties, accounting for
interim periods and new disclosure requirements. The
Company adopted FIN 48 as of February 4, 2007. The
adoption of FIN 48 did not result in any adjustments to
the Company’s reserves for uncertain tax positions.
Stock-Based Compensation
Eff ective January 29, 2006, the Company adopted the
provisions of SFAS No. 123R, “Share-Based Payment”
(SFAS 123R), using the modifi ed prospective transition
method. Under this transition method, stock-based
compensation expense recognized for share-based
awards during fi scal 2006 includes (a) compensa-
tion expense for all stock-based compensation awards
granted prior to, but not yet vested as of, January 29,
2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS 123, and
(b) compensation expense for all stock-based compen-
sation awards granted subsequent to January 29, 2006,
based on the grant date fair value estimated in accor-
dance with the provisions of SFAS 123R. In accordance
with the modifi ed prospective transition method, results
for fi scal 2005 have not been restated. Prior to the adop-
tion of SFAS 123R, the Company recognized stock-based
compensation expense in accordance with APB 25 and
related Interpretations, as permitted by SFAS 123.
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 pric-
ing model. There are two signifi cant inputs into the
Black-Scholes option pricing model: expected volatility
24 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued