Barnes and Noble 2005 Annual Report Download - page 20

19 2005 Annual Report Barnes & Noble, Inc.
[MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS continued ]
Contractual Obligations
The following table sets forth the Company’s contractual obligations as of January 28, 2006 (in millions):
Payments Due by Period
Less Than 1-3 3-5 More Than
Contractual Obligations Total 1 Year Years Years 5 Years
Long-term debt $ — $ — $ — $ — $ —
Capital lease
obligations ———— —
Operating leases 2,401.3 344.9 647.4 563.5 845.5
Purchase
obligations 32.9 30.4 2.0 0.3 0.2
Other long-term
liabilities reflected on the
registrant’s balance sheet
under GAAP ———— —
Total $ 2,434.2 $ 375.3 $ 649.4 $ 563.8 $ 845.7
See also Note 9 to the Notes to Consolidated Financial Statements for information concerning the Company’s Pension and
Postretirement Plans.
OFF-BALANCE SHEET ARRANGEMENTS
As of January 28, 2006, the Company had no off-
balance sheet arrangements as defined in Item 303 of
the Regulation S-K.
IMPACT OF INFLATION
The Company does not believe that inflation has had a
material effect on its net sales or results of operations.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
See Note 17 to the Notes to Consolidated Financial
Statements.
CRITICAL ACCOUNTING POLICIES
Management’s Discussion and Analysis of Financial
Condition and Results of Operations discusses the
Company’s consolidated financial statements, which
have been prepared in accordance with accounting
principles generally accepted in the United States. The
preparation of these financial statements require
management to make estimates and assumptions in
certain circumstances that affect amounts reported in the
accompanying consolidated financial statements and
related footnotes. In preparing these financial
statements, management has made its best estimates and
judgments of certain amounts included in the financial
statements, giving due consideration to materiality. The
Company does not believe there is a great likelihood that
materially different amounts would be reported related
to the accounting policies described below. However,
application of these accounting policies involves the
exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ
from these estimates.
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost or
market. Cost is determined primarily by the retail
inventory method on the first-in, first-out (FIFO) basis
for 95% and 96% of the Company’s merchandise
inventories as of January 28, 2006 and January 29, 2005,
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
affected by changes in merchandise mix and changes in
actual shortage trends.
OTHER LONG-LIVED ASSETS
The Company’s other long-lived assets include property
and equipment and amortizable intangibles. At January
28, 2006, the Company had $806.4 million of property