Barnes and Noble 2006 Annual Report Download - page 29

(Thousands of dollars, except per share data)
For the  weeks ended February ,  (fi scal )
and for the  weeks ended January ,  (fi scal
) and January ,  (fi scal ).
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business
Barnes & Noble, Inc. (Barnes & Noble), through its
subsidiaries (collectively, the Company), is primarily
engaged in the sale of books. As of February ,  the
Company operated  bookstores,  primarily under
the Barnes & Noble Booksellers trade name (hereafter
collectively referred to as Barnes & Noble stores) and
 primarily under the B. Dalton Bookseller trade name
(hereafter collectively referred to as B. Dalton stores).
Barnes & Noble conducts the online part of its business
through barnesandnoble.com llc (Barnes & Noble.com),
one of the largest sellers of books on the Internet. The
Company publishes books under its own imprints which
include the imprints of Sterling Publishing Co., Inc.
(Sterling Publishing). Additionally, the Company owns
an approximate  interest in Calendar Club L.L.C.
(Calendar Club), an operator of seasonal kiosks.
Consolidation
The consolidated fi nancial statements include the
accounts of Barnes & Noble and its wholly and majority-
owned subsidiaries. Investments in affi liates in which
ownership interests range from  to , are
accounted for under the equity method. All signifi cant
intercompany accounts and transactions have been
eliminated in consolidation. The Company consolidates
a variable interest entity in which the Company absorbs
a majority of the entity’s expected losses, receives a
majority of the entity’s expected residual returns, or
both, as a result of ownership.
Use of Estimates
In preparing fi nancial statements in conformity with
generally accepted accounting principles, the Company
is required to make estimates and assumptions that
aff ect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at
the date of the fi nancial statements and revenues and
expenses during the reporting period. Actual results
could diff er from those estimates.
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 are stated at the lower of cost
or market. Cost is determined primarily by the retail
inventory method on the fi rst-in, fi rst-out (FIFO)
basis for  and  of the Company’s merchandise
inventories as of February ,  and January , ,
respectively. The remaining merchandise inventories
are recorded based on the average cost method.
Market is determined based on the estimated net
realizable 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 aff ected
by changes in merchandise mix and changes in actual
shortage trends.
Property and Equipment
Property and equipment are carried at cost, less accu-
mulated depreciation and amortization. For fi nancial
reporting purposes, depreciation is computed using the
straight-line method over estimated useful lives. For tax
purposes, diff erent methods are used. Maintenance and
repairs are expensed as incurred, while major improve-
ments and remodeling costs are capitalized. Leasehold
improvements 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 amortized over the lease terms of the underly-
ing leases. Costs incurred in purchasing management
information systems are capitalized and included in
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2006 Annual Report 27