| Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies Business Barnes & Noble, Inc. (Barnes & Noble or the Company), one of the nation’s largest booksellers, 3 provides customers a unique experience across its omni-channel distribution platform. As of April 27, 2019, the Company operates 627 bookstores in 50 states, maintains an eCommerce site, develops digital reading products and operates NOOK, one of the largest digital bookstores. Barnes & Noble is utilizing the strength of its retail footprint in combination with its online and digital businesses to provide an omni-channel experience for its customers, fulfilling its commitment to offer customers any book, anytime, anywhere and in any format. Barnes & Noble Retail (B&N Retail) operates 627 retail bookstores, primarily under the Barnes & Noble Booksellers ® ® 4 reading devices, co-branded ® The Company’s principal business is the sale of trade books (generally, hardcover and paperback titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, eBooks and other digital content, NOOK ® The Company identifies its operating segments based on the way the business is managed (focusing on the financial information distributed) and the manner in which the chief operating decision maker interacts with other members of management and makes decisions on the allocation of resources. The Company’s two operating segments are B&N Retail and NOOK. Consolidation The consolidated financial statements include the accounts of Barnes & Noble, Inc. and its wholly and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. 3 Based upon sales reported in trade publications and public filings. 4 Any references to NOOK ® ® ® ® Samsung Galaxy Tab ® ® ® ® ® ® devices, each of which includes a registered trademark symbol ( ® Cash and Cash Equivalents The Company considers all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Merchandise Inventories Merchandise inventories, except NOOK merchandise inventories, are stated at the lower of cost or market. Cost is determined primarily by the retail inventory method under the first-in, first-out Market is determined based on the estimated net realizable value, which is generally the selling price. Reserves for non-returnable non-returnable 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. Property and Equipment and Other Long-Lived Assets Property and equipment are carried at cost, less accumulated depreciation and amortization. For financial reporting purposes, depreciation is computed using the straight-line method over estimated useful lives. Maintenance and repairs are expensed as incurred, while major maintenance and remodeling costs are capitalized if they extend the useful life of the asset. Leasehold improvements are capitalized and amortized over the shorter of their estimated useful lives or the terms of the respective leases. Fixtures and equipment are capitalized and amortized over the shorter of their estimated useful lives or 10 years. Capitalized lease acquisition costs are being amortized over the lease terms of the underlying leases. System costs are capitalized and included in property and equipment. These costs are depreciated over their estimated useful lives from the date the systems become operational. The Company had $256,790 and $255,524 of property and equipment, net of accumulated depreciation, at April 27, 2019 and April 28, 2018, respectively, and $97,267, $105,696 and $117,105 of depreciation expense for fiscal 2019, fiscal 2018 and fiscal 2017, respectively. Capitalized software costs of $63,723 and $72,462 for fiscal 2019 and fiscal 2018, respectively, are included in property and equipment. 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 and considers market participants in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets 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, 2019, the Company had $70,030 of goodwill (on its Retail reporting unit) and $303,700 of unamortizable intangible assets (those with an indefinite useful life), accounting for approximately 21.9% of the Company’s total assets. ASC 350-30 Historically, the Company completed its annual goodwill and trade name impairment test as of the first day of its fiscal third quarter of each fiscal year. During the third quarter of fiscal 2019, the Company voluntarily changed the date of its annual goodwill and trade name impairment testing from the first day of fiscal November to the first day of fiscal January. This voluntary change is preferable as it better aligns the timing of the goodwill and trade name impairment testing with the Company’s strategic and annual operating planning process and allows for the inclusion of the most recent holiday sales results in the quantitative and qualitative considerations of the annual impairment tests. The voluntary change in accounting principle related to the annual testing date will not delay, accelerate or avoid an impairment charge. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require application of significant estimates and assumptions with the use of hindsight. Accordingly, the change will be applied prospectively. The Company completed its annual goodwill impairment test as of the first day of the third quarter of fiscal 2019 (October 28, 2018). The fair value of the B&N Retail reporting unit exceeded its carrying value and no impairment existed. The Company completed its new annual goodwill impairment test as of the first day of fiscal January (December 30, 2018). The fair value of the B&N Retail reporting unit exceeded its carrying value and no impairment existed. Although no impairment existed, the Company’s goodwill is at risk of impairment if B&N Retail comparable store sales decline, store closings accelerate, the assumed long-term discount rate increases, or in general the Company does not achieve its forecasted multi-year strategic plan. The Company completed its annual goodwill impairment test as of the first day of the third quarter of fiscal 2018 (October 29, 2017). The fair value of the B&N Retail reporting unit exceeded its carrying value based on the annual goodwill impairment test performed as of that date. Subsequent to the annual goodwill impairment test as of October 29, 2017, sales trends unexpectedly softened during the holiday selling season. Given the lower than expected sales results, the Company revised its forecasted outlook. Following the announcement on January 4, 2018 of the Company’s holiday sales results and its revised outlook, the market price of the Company’s common stock sharply declined. Due to those new impairment indicators, the Company performed an interim goodwill impairment test as of December 30, 2017. As a result of the interim testing, the Company recognized an impairment of its B&N Retail reporting unit goodwill of $133,612 during the third quarter of fiscal 2018. There was no impairment loss related to goodwill during fiscal 2017. The Company completed its annual other unamortizable intangible assets impairment test for its trade name as of the first day of the third quarter of fiscal 2019 (October 28, 2018) and determined that no impairment was necessary. The Company completed its new annual other unamortizable intangible assets impairment test as of the first day of fiscal January (December 30, 2018) and determined that no impairment was necessary. Although no impairment was necessary, the Company’s trade name is at risk of impairment if B&N Retail comparable store sales decline, store closings accelerate, the assumed long-term discount rate increases, or in general the Company does not achieve its forecasted multi-year strategic plan. The Company completed its annual other unamortizable intangible assets impairment test for its publishing contracts as of the first day of fiscal January (December 30, 2018). As a result of the testing, the Company recognized an impairment of $5,594 during the third quarter of fiscal 2019. The publishing contracts include the value of long-standing relationships with authors, agents and publishers. Given Sterling’s strong history of maintaining such relationships, the Company believes they produce value indefinitely without an identifiable remaining useful life. However, given the increased costs related to these publishing contracts, these contracts were impaired. There were no impairment losses related to unamortizable intangible assets during fiscal 2018 and fiscal 2017. Deferred Charges Costs incurred to obtain long-term financing are amortized over the terms of the respective debt agreements using the straight-line method, which approximates the effective interest method. Unamortized costs included in other non-current Revenue Recognition On April 29, 2018, the Company adopted Topic 606 using the modified retrospective approach for all contracts not completed as of the adoption date. Financial results for reporting periods beginning after April 28, 2018 are presented in accordance with Topic 606, while prior periods will continue to be reported in accordance with our pre-adoption The primary impact of adopting Topic 606 relates to the timin g of revenue recognition for gift card breakage. The Company estimates the portion of the gift card liability for which the likelihood of redemption is remote based upon the Company’s historical redemption patterns. Prior to adoption of Topic 606, the Company recorded this amount in revenue on a straight-line basis over a 12-month In accordance with Topic 606, revenue shall be recognized upon satisfaction of all contractual performance obligations and transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for corresponding goods or services. Substantially all of the Company’s sales are single performance obligation arrangements for retail sale transactions for which the transaction price is equivalent to the stated price of the product or service, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product or service at the point of sale. Revenue from retail sales is recognized at the point of sale, net of sales tax and estimated future returns. Revenue from eCommerce sales is recognized upon estimated delivery and receipt of the shipment by the Company’s customers. Freight costs are included within the Company’s cost of sales and occupancy. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. All of the Company’s sales are recognized as revenue on a “net” basis, including sales in connection with any periodic promotions offered to customers. The Company does not treat any promotional offers as expenses. NOOK acquires the rights to distribute digital content from publishers and distributes the content on www.barnesandnoble.com, NOOK ® The Barnes & Noble Membership Program offers members greater discounts and other benefits for products and services, as well as exclusive offers and promotions via e-mail non-refundable 12-month The following table summarizes disaggregated revenue from contracts with customers by product line: Sales by Product Line 52 weeks ended 52 weeks ended 52 weeks ended Media (a) 68 % 69 % 70 % Digital (b) 2 % 3 % 3 % Other (c) 30 % 28 % 27 % Total 100 % 100 % 100 % (a) Includes tangible books, music, movies and newsstand. (b) Includes NOOK ® (c) Includes Toys & Games, café products, gifts and miscellaneous other. Research and Development Costs for Software Products The Company follows the guidance in ASC 985-20, Cost of Software to Be Sold, Leased or Marketed, Internal-Use Software and Website Development Costs Direct costs incurred to develop software for internal use and website development costs are capitalized and amortized over an estimated useful life of three to seven years. During fiscal 2019 and fiscal 2018, the Company capitalized costs, primarily related to labor, consulting, hardware and software, of $15,496 and $17,572, respectively. Amortization of previously capitalized amounts was $23,409, $21,807 and $23,584 for fiscal 2019, fiscal 2018 and fiscal 2017, respectively. Costs related to the design or maintenance of internal-use software and website development are expensed as incurred. Advertising Costs The costs of advertising are expensed as incurred during the year pursuant to ASC 720-35, Advertising Costs The Company receives payments and credits from vendors pursuant to co-operative co-op 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 $1,510, $474 and $1,434 during fiscal 2019, fiscal 2018 and fiscal 2017, respectively, are included in selling and administrative expenses in the accompanying consolidated statements of operations. Net Earnings (Loss) per Share In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class non-forfeitable Basic earnings per common share are calculated by dividing the net income, adjusted for income allocated to participating securities, by the weighted average number of common shares outstanding during the period. Diluted net income per common share reflects the dilution that would occur if any potentially dilutive instruments were exercised or converted into common shares. The dilutive effect of participating securities is calculated using the more dilutive of the treasury stock method or two-class 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 establishes a valuation allowance, if determined to be necessary. The Company establishes a reserve for uncertain tax positions. If the Company considers that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. A reserve for an uncertain income tax position will be recognized if it has less than a 50% likelihood of being sustained. The tax positions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments for those positions. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. Gift Cards The Company sells gift cards, which can be used in its stores, on www.barnesandnoble.com, on NOOK ® 12-month The Company’s contract liabilities relate to its gift card program. Below is a summary of the changes during fiscal 2019: Total Company Gift card liabilities balance as of April 28, 2018 $ 323,465 Adoption of Topic 606 (90,147 ) Gift card breakage (42,282 ) Gift card redemptions (247,231 ) Gift card issuances 271,654 Gift card liabilities balance as of April 27, 2019 $ 215,459 The Company recognized gift card breakage of $42,282, $43,922 and $35,524 during fiscal 2019, fiscal 2018 and fiscal 2017, respectively. Accounts Receivable Accounts receivable, as presented on the Company’s consolidated balance sheets, is net of allowances. An allowance for doubtful accounts is determined through an analysis of the aging of accounts receivable and assessments of collectability based on historic trends, the financial condition of the Company’s customers and an evaluation of economic conditions. The Company writes off uncollectible trade receivables once collection efforts have been exhausted. Costs associated with allowable customer markdowns and operational chargebacks, net of the expected recoveries, are part of the provision for allowances included in accounts receivable. These provisions result from seasonal negotiations, as well as historic deduction trends net of expected recoveries, and the evaluation of current market conditions. Reclassifications Certain prior period amounts have been reclassified for comparative purposes to conform with the fiscal 2019 presentation. Recently Adopted Accounting Pronouncements In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments 2016-15). 2016-15 In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers The majority of the Company’s revenue is generated from the sale of product in its retail stores, which will continue to be recognized when control of the product is transferred to the customer. The adoption of Topic 606 resulted in the following changes: 1) presentation of estimated merchandise returns as both an asset, equal to the inventory value net of processing costs, and a corresponding return liability, compared to the previous practice of recording an estimated net return liability; and 2) the timing of revenue recognition for gift card breakage. The Company estimates the portion of the gift card liability for which the likelihood of redemption is remote based upon the Company’s historical redemption patterns. Prior to adoption of Topic 606, the Company recorded this amount in revenue on a straight-line basis over a 12-month The below tables set forth the adjustments to the Company’s consolidated statement of operations and consolidated balance sheet as a result of the newly adopted revenue recognition standard. 52 Weeks Ended April 27, 2019 As Reported Balances Impact of Sales $ 3,552,745 3,561,575 (8,830 ) Cost of sales and occupancy 2,479,725 2,479,725 — Gross profit $ 1,073,020 1,081,850 (8,830 ) April 27, 2019 As Reported Balances Impact of Assets Prepaid expenses and other current assets $ 69,807 70,050 (243 ) Liabilities and Shareholders’ Equity Accrued liabilities $ 268,143 267,521 622 Gift card liabilities $ 215,459 296,776 (81,317 ) Deferred taxes $ 70,261 50,158 20,103 Retained earnings $ (186,823 ) (248,903 ) 62,080 In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): internal-use 350-40 Recent Accounting Pronouncements In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) 2016-02), 2016-02 right-of-use 2016-02 2016-02 Reporting Period The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. The reporting periods ended April 27, 2019, April 28, 2018 and April 29, 2017 each contained 52 weeks. |
