Barnes and Noble 1998 Annual Report Download - page 42

11
Acquisition of Ingram Book Group
On Nove m ber 6, 1998, the Company announced an agre e-
ment to purchase the Ingram Book Group, a group of
subsidiaries of privately held Ingram Industries Inc., for $600
million, consisting of approximately $200 million in cash and
a p p roximately $400 million in common stock of the Company.
The closing of the transaction is subject to the satisfaction of cer-
tain conditions including the expiration of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 .
Newly Issued Accounting Pronouncements
In April 1998, the Accounting Standards Executive
Committee issued Statement of Position 98-5, “Reporting on
the Costs of Start-Up Activities” (SOP 98-5). SOP 98-5 requires
an entity to expense all start-up activities, as defined, when
i n c u r red. The Company has historically amortized costs
associated with the opening of new stores over the respective
store’s first 12 months of operations. In accordance with SOP
98-5, the Company will adopt its provisions effective for the
fiscal year ending January 29, 2000, and will record a one-time
charge reflecting the cumulative effect of a change in accounting
principle in the first quarter of fiscal year 1999, in an amount
estimated to be $4,500 after taxes, representing such start-up
costs capitalized as of the beginning of that fiscal year. In addi-
tion, the Company will, on a prospective basis, expense all such
start-up costs as incurred. W ithout consideration to the one-
time charge, the Company’s consolidated financial statements
issued subsequent to fiscal year 1998 are not expected to be
materially affected by the adoption of SOP 98-5.
In March 1998, the Accounting Standards Executive
Committee issued Statement of Position 98-1, “Accounting for
the Costs of Computer Software Developed or Obtained for
Internal Use” (SOP 98-1). SOP 98-1 is effective for the
Company’s fiscal year ending January 29, 2000. Adoption is
not expected to have a material effect on the Company’s
consolidated financial statements as the Company’s policies are
substantially in compliance with SOP 98-1.
In June 1998, the Financial Accounting Standards Board
issued SFAS 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133). SFAS 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in
the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated
as a hedge, the objective of which is to match the timing of gain
or loss recognition on the hedging derivative with the recogni-
tion of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earn-
ings effect of the hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the gain or loss is rec-
ognized in income in the period of change.
SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company currently plans to
adopt SFAS 133 on January 30, 2000. On that date, hedging
relationships will be designated anew and documented.
The Company from time to time enters into interest
rate swap agreements for the purpose of hedging risks
attributable to changing interest rates associated with the
C o m p a ny’s re volving credit facility, and, in general, such hedges
h ave been fully effective. The Company may from time to time,
enter into interest rate swaps in the future and these transactions
a r e expected to substantially offset the effects of changes in the
underlying variable interest rates. The Company does not
be l i e ve that adoption of SFAS 133 will have a material effect on
its consolidated financial statements.
H i s t o r i c a l l y, the Company has not used derivative
contracts for speculative purposes.
Year 2000
The Year 2000 issue is the result of computer pro gr a m s
being written using two digits rather than four to define the
applicable ye a r. The Company’s computer equipment and soft-
w a re and devices with embedded technology that are date-
s e n s i t i ve may recognize a date using “00” as the year 1900 rather
than the year 2000. This could result in a system failure or mis-
calculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send
i nvoices, or engage in other normal business activities.
In 1997, the Company began assessing how it may be
impacted by the Year 2000 issue and has formulated and com-
menced implementation of a comprehensive plan to address all
known aspects of the issue.
The Company’s plan encompasses the following areas:
(1) information systems that utilize date/time oriented software
(IT systems), (2) computer chips, processors and controllers
(non-IT systems), and (3) vendors and customers. T he
Company is in various stages of implementation which include
remediation, testing and implementation.
To date, approximately 80% of the Company’s adminis-
t r a t i ve support IT systems have at least completed the re m e d i a-
tion phase. Of this amount, approximately 80% have completed
the testing and remediation phase and 20% have been re p l a c e d
or upgraded. All remaining Year 2000 compliance efforts for
a d m i n i s t r a t i ve IT functions are expected to be completed by the
second quarter of fiscal 1999.
Approximately 90% of non-IT systems have completed the
remediation, testing and implementation phases with no
material replacements necessary.