Barnes and Noble 2013 Annual Report Download - page 38

Merchandise Inventories
Merchandise inventories are stated at the lower of cost or
market. Cost is determined primarily by the retail inven-
tory method under both the first-in, first-out (FIFO) basis
and the last-in, first-out (LIFO) basis. B&N College’s
textbook and trade book inventories are valued using the
LIFO method, where the related reserve was not material
to the recorded amount of the Company’s inventories or
results of operations at April 27, 2013. NOOK merchandise
inventories are recorded based on the average cost method.
Market is determined based on the estimated net realiz-
able value, which is generally the selling price. Reserves
for non-returnable inventory are based on the Company’s
history of liquidating non-returnable inventory.
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 affected by
changes in merchandise mix and changes in actual shortage
trends.
During fiscal 2013, the Company recorded $222,235 of
additional inventory related charges, of which $175,872 was
charged against inventory, $13,800 against purchase com-
mitments and the remainder related to sales allowances, as
the holiday sales shortfall resulted in higher than antici-
pated levels of finished and unfinished goods. Additional
provisions may be required if the Company adopts more
aggressive short-term promotional strategies, units turn at
slower than historical paces, or permanent price mark-
downs accelerate.
Property and Equipment
Property and equipment are carried at cost, less accu-
mulated depreciation and amortization. For financial
reporting purposes, depreciation is computed using the
straight-line method over estimated useful lives. For tax
purposes, different methods are used. Maintenance and
repairs are expensed as incurred, while major maintenance
and remodeling costs are capitalized. Leasehold improve-
ments are capitalized and amortized over the shorter of
their estimated useful lives or the terms of the respective
leases. Capitalized lease acquisition costs are being amor-
tized over the lease terms of the underlying leases. Costs
incurred in purchasing management information systems
are capitalized and included in property and equipment.
These costs are amortized over their estimated useful lives
from the date the systems become operational.
Other Long-Lived Assets
The Company’s other long-lived assets include property
and equipment and amortizable intangibles. At April 27,
2013, the Company had $584,909 of property and equip-
ment, net of accumulated depreciation, and $233,195 of
amortizable intangible assets, net of amortization, account-
ing for approximately 21.9% 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 recover-
able and considers market participants in accordance
with Accounting Standards Codification (ASC) 360-10,
Accounting for the Impairment or Disposal of Long-Lived Assets
(ASC 360-10). 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 evalu-
ated 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 calculation is prepared. The
impairment loss calculation compares 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 administrative expenses totaled
$4,168, $11,747 and $2,857 during fiscal 2013, fiscal 2012
and fiscal 2011, respectively, and are related to individual
store locations.
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 April 27, 2013, the Company had $495,496 of goodwill
and $314,736 of unamortizable intangible assets (those
with an indefinite useful life), accounting for approxi-
mately 21.7% of the Company’s total assets. ASC 350-30,
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 350-30. The first
step of this test, used to identify potential impairment,
compares the fair value of a reporting unit with its carry-
36 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued