Barnes and Noble 1999 Annual Report Download - page 37

Acquisition of Babbage’s Etc.
On October 28, 1999, the Company acquired Babbage’s Etc.,
one of the nation’s largest operators of video game and
entertainment software stores, for approximately $183 million
in cash plus the assumption of $26 million in certain liabilities.
If financial performance targets are met over the next two
fiscal years, Barnes & Noble will make additional payments
of approximately $10 million in 2001 and approximately
$10 million in 2002. The acquisition was accounted for by the
purchase method. The excess of purchase price over the net
assets acquired, in the amount of approximately $202 million
has been recorded as goodwill and is being amortized using the
straight-line method over an estimated useful life of 30 years.
Babbage’s Etc.’s results of operations for the fourth quarter
ended January 29, 2000 are included in the consolidated
financial statements.
Newly Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and Hedging
Activities” (SFAS 133) which establishes accounting and
reporting standards for derivative instruments and
hedging activities. 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. The Company will
adopt SFAS 133 as required for its first quarterly filing of fiscal
year 2001.
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 Company’s
revolving credit facility, and, in general, such hedges have
been fully effective. The Company may from time to time, enter
into interest rate swaps in the future and these transactions
are expected to substantially offset the effects of changes in
the underlying variable interest rates. The Company does not
believe that adoption of SFAS 133 will have a material effect on
its consolidated financial statements.
In December 1999, the Securities and Exchange Commission
staff released Staff Accounting Bulletin No. 101, “Revenue
Recognition in Financial Statements” (SAB 101), which provides
guidance on the recognition, presentation and disclosure of
revenue in financial statements. SAB 101 did not impact the
Company’s revenue recognition policies.
Year 2000
The Company completed its Year 2000 compliance plan
during 1999. The total costs incurred to implement the plan
were approximately $4.3 million. The conversion to the Year
2000 occurred without any disruptions to the Company’s
critical business systems either internally or from outside
sources. The Company has no reason to believe that Year 2000
failures will materially affect it in the future. However, since it
may take several additional months before it is known whether
the Company or third party vendors, suppliers or service
providers may have encountered Year 2000 problems, no
assurances can be given that the Company will not experience
disruptions as a result of Year 2000 compliance failures. The
Company will continue to monitor Year 2000 exposures both
internally and with its vendors, suppliers and service providers.
Such monitoring will be ongoing and encompassed in normal
operations. Associated costs are not expected to be significant.
Disclosure Regarding
Forward-Looking Statements
This report may contain certain forward-looking statements (as
such term is defined in the Private Securities Litigation Reform
Act of 1995) 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, increased or unanticipated costs or effects associated
with Year 2000 compliance by the Company or its service
or supply providers, 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, 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. In addition, the video game market has
historically been cyclical in nature and dependent upon the
introduction of new generation systems and related interactive
software. 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
1999 ANNUAL REPORT
36