Barnes and Noble 2012 Annual Report Download - page 26

be material. A  change in actual non-returnable inven-
tory would have aff ected net earnings by approximately
. million in fi scal .
The Company also estimates and accrues shortage for the
period between the last physical count of inventory and
the balance sheet date. Shortage rates are estimated and
accrued based on historical rates and can be aff ected by
changes in merchandise mix and changes in actual shortage
trends. The Company does not believe there is a reasonable
likelihood that there will be a material change in the future
estimates or assumptions used to calculate shortage rates.
However, if the Company’s estimates regarding shortage
rates are incorrect, it may be exposed to losses or gains that
could be material. A  change in actual shortage rates
would have aff ected net earnings by approximately .
million in fi scal .
Research and Development Costs for Software Products
Software development costs for products to be sold, leased,
or otherwise marketed are capitalized in accordance with
ASC -, Cost of Software to be Sold, Leased, or Marketed.
Capitalization of software development costs begins upon
the establishment of technological feasibility and is dis-
continued when the product is available for sale. A certain
amount of judgment and estimation is required to assess
when technological feasibility is established, as well as
the ongoing assessment of the recoverability of capitalized
costs. The Company’s products reach technological feasi-
bility shortly before the products are released and therefore
research and development costs are generally expensed as
incurred.
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 signifi cant 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 diff erent
assumptions, stock-based compensation expense could be
materially diff erent 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 diff erent
from its estimate, the stock-based compensation expense
could be signifi cantly diff erent from what the Company
has recorded in the current period. See Note  to the
Consolidated Financial Statements for a further discussion
on stock-based compensation.
The Company does not believe there is a reasonable
likelihood there will be a material change in the future
estimates or assumptions used to determine stock-based
compensation expense. However, if actual results are not
consistent with the Company’s estimates or assumptions,
the Company may be exposed to changes in stock-based
compensation expense that could be material. If actual
results are not consistent with the assumptions used,
the stock-based compensation expense reported in the
Company’s fi nancial statements may not be representative
of the actual economic cost of the stock-based compensa-
tion. A  change in the Company’s stock-based com-
pensation expense for the year ended April ,  would
not have had a material impact on the Company’s results of
operations in fi scal .
Other Long-Lived Assets
The Company’s other long-lived assets include property
and equipment and amortizable intangibles. At April ,
, the Company had . million of property and
equipment, net of accumulated depreciation, and .
million of amortizable intangible assets, net of amortiza-
tion, accounting for approximately . of the Company’s
total assets. The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable in accordance with ASC -, Accounting for
the Impairment or Disposal of Long-Lived Assets (ASC -
). The Company evaluates long-lived assets for impair-
ment at the individual Barnes & Noble store level, except
for B&N College long-lived assets, which are evaluated for
impairment at the university contract combined store level,
which is the lowest level at which individual cash fl ows can
be identifi ed. When evaluating long-lived assets for poten-
tial impairment, the Company will fi rst compare the carry-
ing amount of the assets to the individual store’s estimated
24 Barnes & Noble, Inc. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued