Barnes and Noble 2010 Annual Report Download - page 39

Customer’s Accounting for Certain Consideration Received from
a Vendor, the Company classifies certain co-op advertising
received as a reduction in costs of sales and occupancy. The
gross advertising expenses noted above were completely
offset 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 fixtures 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 recoveries. Costs
associated with store closings of $4,503, $3,236, $11,875
and $9,378 during fiscal 2010, the transition period, fiscal
2008 and 2007, respectively, are included in selling and
administrative expenses in the accompanying consolidated
statements of operations.
Net Earnings (Loss) Per Common Share
Basic earnings per share represent net earnings (loss)
attributable to common shareholders divided by the
weighted-average number of common shares outstand-
ing for the period. 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
outstanding stock options. The Company’s unvested
restricted shares and common shares issuable under
the Company’s deferred compensation plan are deemed
participating securities and are excluded from the dilutive
impact of common equivalent shares outstanding under the
two-class method since these shares are entitled to partici-
pate in dividends declared on common shares. Under the
two-class method, earnings (loss) attributable to unvested
restricted shares and common shares issuable under the
Company’s deferred compensation plan are excluded from
net earnings (loss) attributable to common shareholders
for purposes of calculating basic and diluted earnings (loss)
per common share. See Note 11 for further information
regarding the calculation of basic and diluted earnings
(loss) per common share.
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. The Company regularly
reviews its deferred tax assets for recoverability and estab-
lishes a valuation allowance, if determined to be necessary.
Stock-Based Compensation
The calculation of stock-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 pricing model.
There are two significant inputs into the Black-Scholes
option pricing model: expected volatility and expected
term. The Company estimates expected volatility based
on traded option volatility of the Company’s stock over a
term equal to the expected term of the option granted. The
expected term of stock option awards granted is derived
from historical exercise experience under the Company’s
stock option plans and represents the period of time that
stock option awards granted are expected to be outstand-
ing. The assumptions used in calculating the fair value of
stock-based payment awards represent management’s best
estimates, but these estimates involve inherent uncertain-
ties and the application of management’s judgment. As a
result, if factors change and the Company uses different
assumptions, stock-based compensation expense could be
materially different in the future. In addition, the Company
is required to estimate the expected forfeiture rate, and
only recognize expense for those shares expected to vest. If
the Company’s actual forfeiture rate is materially different
from its estimate, the stock-based compensation expense
could be significantly different from what the Company
has recorded in the current period. See Note 7 to the
Consolidated Financial Statements for a further discussion
on stock-based compensation.
Gift Cards
The Company sells gift cards which can be used in its stores
or on Barnes & Noble.com. The Company does not charge
administrative or dormancy fees on gift cards, and gift
cards have no expiration dates. Upon the purchase of a gift
card, a liability is established for its cash value. Revenue
associated with gift cards is deferred until redemption
of the gift card. Over time, some portion of the gift cards
issued is not redeemed. The Company estimates the por-
tion of the gift card liability for which the likelihood of
redemption is remote based upon the Company’s historical
redemption patterns. The Company records this amount
in income on a straight-line basis over a 12-month period
beginning in the 13th month after the month the gift card
was originally sold. If actual redemption patterns vary from
the Company’s estimates, actual gift card breakage may
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