Barnes and Noble 2005 Annual Report Download - page 26

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2005 Annual Report ■Barnes & Noble, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Thousands of dollars, except per share data)
For the 52 weeks ended January 28, 2006 (fiscal 2005),
January 29, 2005 (fiscal 2004) and January 31, 2004
(fiscal 2003).
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 January 28, 2006
the Company operated 799 bookstores, 681 primarily
under the Barnes & Noble Booksellers trade name
(hereafter collectively referred to as Barnes & Noble
stores) and 118 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, since January 2003, also
include the imprints of Sterling Publishing Co., Inc.
(Sterling Publishing). Additionally, the Company owns
an approximate 74% interest in Calendar Club L.L.C.
(Calendar Club), an operator of seasonal kiosks.
Consolidation
The consolidated financial statements include the
accounts of Barnes & Noble and its wholly and
majority-owned subsidiaries. Investments in affiliates in
which ownership interests range from 20% to 50%, are
accounted for under the equity method. All significant
intercompany accounts and transactions have been
eliminated in consolidation. Additionally, the Financial
Accounting Standards Board (FASB) Interpretation No.
46, “Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51”, as revised (FIN 46R),
requires an entity determined to be a variable interest
entity to be consolidated by the enterprise that absorbs
the majority of the entity’s expected losses, receives a
majority of the entity’s expected residual returns or
both. FIN 46R was applied in fiscal 2004 in accounting
for the acquisition of an incremental ownership interest
in a subsidiary of Calendar Club (see Note 8 to the
Notes to Consolidated Financial Statements).
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.
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 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.
Property and Equipment
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. For tax purposes, different methods are used.
Maintenance and repairs are expensed as incurred,
while major improvements 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 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
January 28, 2006, the Company had $806,376 of