Please provide a detailed explanation of how each answer was achieved.
Barnes & Noble "As-if" On-B/S Lease Follow the instructions below and perform a 'notional capitalization' of B&N operating leases. Compare the leverage ratio before and after. Estimating the PV of operating lease liabilities 1. Estimate a discount rate: In general it may be disclosed in footnote, you may calculate the average rate on debt from long-term debt footnote, and it may also be inferred from a capital lease disclosure. Alternatively you can simply take the Interest Expense/Debt outstanding. For the purpose of this exercise, you may assume it is 10% 2. Estimate future yearly lease payment e.g. assume lease payments remain same as last year reported (or continue the trend down) Infer the number of yearly payments represented by sum 3. Calculate the PV of all lease payments (reported and estimated) Add the amount to both the asset side and the liabilities side See solution on last hand-out page barnesandnoble.com inc. CONSOLIDATED BALANCE SHEETS December 31, December 31, 2001 (in thousands, except per share data) Current assets: ASSETS Cash and cash equivalents .... . .. . ..." . . .. . $ 70,144 $105,125 Marketable securities ...... 10.141 Receivables, net of allowance $4,048 and $1,166 . 14.631 15,698 Merchandise inventories. 48,303 48,563 Barnes & Noble Prepaid expenses and other current a 3,991 3,874 Total current assets 137,069 183.401 Fixed assets, net 58,871 85,771 Goodwill, net . . 13,777 16,777 looks Other non-current ass Total assets $209,734 $287.376 LIABILITIES AND EQUITY 'Debt-Free" Current liabilities: Accounts payable $ 16,071 $ 4,652 Accrued liabilities . 70.456 90.590 Payable to affiliate . 48.261 43,531 Total current liabilities. 134,788 138,773 Minority interest . . . . . . . . . ... 52.305 105.845 Commitments and contingencies Stockholders' equity: Preferred Stock: $0.001 par value; 50,000,000 shares authorized; none issued and outstanding . . . . Common Stock Series A; $0.001 par value; 750,000,000 shares authorized; 43,802,228 and 43,787,478 shares issued and outstanding . ... 44 44 Common Stock Series B; $0.001 par value; 1,000 shares authorized; I share issued and outstanding . . Common Stock Series C; $0.001 par value; 1,000 shares authorized; 1 share issued and outstanding . .. Paid-in capital.. 189.294 189.279 Accumulated deficit . (166.697) (146.565) Total stockholders' equity 22.641 42.758 Total liabilities and stockholders' equ $209,734 $287.376 10. Commitments B&N.com currently leases warehouse facilities, office space and equipment under non-cancelable operating leases. Rental expense under operating lease agreements was $6,055, $7,772 and $6,973 for the years ended December 31, 2002, 2001 and 2000, respectively. Future minimum lease payments under non-cancelable operating leases as of December 31, 2002 are: Future Year ending December 31, Minimum Lease Payments 2003 $ 6,081 2004 6.133 2005 5,037 2006 4.048 2007 3,724 Thereafter. .... 23,731 $48.754 The Company has pledged a portion of its cash equivalents for stand-by letters of credit that guarantee certain real property leases. Obligations under Letters of Credit as of December 31, 2002, 2001 and 2000 were $3,809, $3,989 and $5,539, respectively
