Barnes and Noble 2002 Annual Report Download - page 23

the prices charged by publishers and other third-party
freight distributors.
Since 1993, the Company has used AEC One Stop
Group, Inc. (AEC) as its primary music and DVD/video
supplier and to provide a music and video database. AEC
is one of the largest wholesale distributors of music and
DVD/videos in the United States. In 1999, AEC’s parent
corporation was acquired by an investor group in which
Leonard Riggio was a minority investor. The Company
paid AEC $246.4 million, $169.9 million and $160.8
million for merchandise purchased during fiscal 2002,
2001 and 2000, respectively. In addition, the Company
paid AEC $7.7 million, $2.6 million and $0.5 million
for database equipment and services during fiscal 2002,
2001 and 2000, respectively. Amounts payable to AEC
for merchandise purchased were $22.0 million and
$51.1 million as of February 1, 2003 and February 2,
2002, respectively.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board
(FASB) finalized SFAS No. 146 “Accounting for the
Costs Associated with Exit or Disposal Activities”, which
requires the Company to recognize costs associated with
exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal
plan. SFAS No. 146 replaces Emerging Issues Task Force
(EITF) Issue No. 94-3 “Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit
an Activity (Including Certain Costs Incurred in a
Restructuring)”. The provisions of SFAS No. 146 are to
be applied prospectively to exit or disposal activities
initiated after December 31, 2002. It is anticipated that
the financial impact of SFAS No. 146 will not have a
material effect on the Company.
In December 2002, the FASB issued SFAS No. 148
“Accounting for Stock-Based Compensation - Transition
and Disclosure,” which amends SFAS No. 123 “Stock-
Based Compensation,” to provide alternative methods
of transition for a voluntary change to the fair value-
based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim
financial statements about the method of accounting for
stock-based employee compensation and the effect of
the method used on reported results. The disclosure
provisions of SFAS No. 148 are effective for fiscal years
ending after December 15, 2002. The Company has
incorporated these expanded disclosures into footnotes
to the Company’s financial statements included herein.
In November 2002, the EITF reached a consensus on Issue
02-16 “Accounting by a Customer (Including a Reseller)
for Certain Consideration Received from a Vendor”,
addressing the accounting of cash consideration received
by a customer from a vendor, including vendor rebates and
refunds. The consensus reached states that consideration
received should be presumed to be a reduction of the prices
of the vendor’s products or services and should therefore
be shown as a reduction of cost of sales in the income
statement of the customer. The presumption could be
overcome if the vendor receives an identifiable benefit
in exchange for the consideration or the consideration
represents a reimbursement of a specific incremental
identifiable cost incurred by the customer in selling the
vendor’s product or service. If one of these conditions is
met, the cash consideration should be characterized as
revenues or a reduction of such costs, as applicable, in the
income statement of the customer. The consensus reached
also concludes that rebates or refunds based on the
customer achieving a specified level of purchases should be
recognized as a reduction of cost of sales based on a
systematic and rational allocation of the consideration to
be received relative to the transactions that mark the
progress of the customer toward earning the rebate or
refund provided the amounts are probable and reasonably
estimable. EITF Issue 02-16 is effective for arrangements
entered into after December 31, 2002. Implementation of
this standard is not expected to have a material effect on
the Company’s annual results of operations.
In November 2002, the FASB issued Interpretation
No. 45 “Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others” (Interpretation
45). Interpretation 45 requires a guarantor to include
disclosure of certain obligations, and if applicable, at the
inception of the guarantee, recognize a liability for the
fair value of other certain obligations undertaken in
issuing a guarantee. The recognition requirement is
effective for guarantees issued or modified after
December 31, 2002 and is not expected to have a
material impact on the Company.
[MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS continued ]
22 2002 Annual ReportBarnes & Noble, Inc.