Barnes and Noble 2005 Annual Report Download - page 21

[MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS continued ]
20 2005 Annual ReportBarnes & Noble, Inc.
and equipment, net of accumulated depreciation, and
$15.7 million of amortizable intangible assets, net of
amortization, accounting for approximately 26.0% 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 Statement of Financial Accounting
Standards (SFAS) No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”. The
Company evaluates long-lived assets for impairment at
the individual 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
totaled $12.7 million, $0.0 million and $0.0 million in
fiscal 2005, 2004 and 2003, respectively.
GOODWILL AND UNAMORTIZABLE
INTANGIBLE ASSETS
At January 28, 2006, the Company had $263.7 million
of goodwill and $78.1 million of unamortizable
intangible assets (i.e. those with an indefinite useful
life), accounting for approximately 10.8% of the
Company’s total assets. SFAS No. 142, “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 SFAS No.
142. The first step of this test, used to identify potential
impairment, compares the estimated fair value of a
reporting unit with its carrying amount. The second
step (if necessary) measures the amount of the
impairment. The Company completed its annual
impairment test on the goodwill in November 2005 and
deemed that no impairment charge was necessary. The
Company has noted no subsequent indicators of
impairment. The Company tests unamortizable
intangible assets by comparing the estimated fair value
to the carrying value of such assets. Changes in market
conditions, among other factors, could have a material
impact on these estimates.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
There were no accounting standards issued during the
fiscal year ended January 28, 2006 that are reasonably
likely to affect the Company’s consolidated financial
statements.
DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS
This report may contain certain forward-looking
statements (within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and information relating to the
Company that are based on the beliefs of the
management of the Company as well as assumptions
made by and information currently available to the
management of the Company. When used in this
report, the words “anticipate,” “believe,” “estimate,”
“expect,” “intend,” “plan” and similar expressions, as
they relate to the Company or the management of the
Company, identify forward-looking statements. Such
statements reflect the current views of the Company
with respect to future events, the outcome of which is
subject to certain risks, including among others general
economic and market conditions, decreased consumer
demand for the Company’s products, possible
disruptions in the Company’s computer or telephone
systems, possible work stoppages or increases in labor
costs, possible increases in shipping rates or
interruptions in shipping service, effects of competition,
possible disruptions or delays in the opening of new
stores or the inability to obtain suitable sites for new
stores, higher-than-anticipated store closing or
relocation costs, higher interest rates, the performance
of the Company’s online initiatives such as Barnes &
Noble.com, the performance and successful integration
of acquired businesses, the successful and timely
completion and integration of the Company’s new
distribution center, the success of the Company’s
strategic investments, unanticipated increases in
merchandise or occupancy costs, unanticipated adverse
litigation results or effects, and other factors which may
be outside of the Company’s control. Should one or
more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual
results or outcomes may vary materially from those
described as anticipated, believed, estimated, expected,
intended or planned. Subsequent written and oral
forward-looking statements attributable to the
Company or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements
in this paragraph.