Prior to January 2003, all non-performance based volume rebates were
treated as a reduction of inventory cost while all cooperative
advertising and other performance-based rebates were treated as a
reduction of marketing expense or cost of goods sold, as appropriate,
in the period the expense occurred.
Since January 2003, all vendor considerations are a reduction of
inventory cost rather than an offset to the related expense.
This was a change in accounting principle directed by the Emerging
Issues Task Force Consensus No. 02-16, "Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a
Vendor."
Please request clarification if needed.
Sincerely,
Wonko
"Due to the recent change in accounting rules for recording vendor
consideration (Emerging Issues Task Force Consensus No. 02-16), the
company recorded a one-time, non-cash adjustment, reducing first
quarter net income for GAAP purposes by $62 million after taxes. Pro
forma net income shows Staples' results as if the company had always
been subject to the new accounting method."
http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=0001157523-03-002065&nad=
"Form 8-K Staples, Inc." Edgar Online, May 20, 2003
"In November 2002, the Emerging Issues Task Force ("EITF") reached
consensus on Issue No. 02-16, "Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendor" ("Issue
02-16"). Issue 02-16 addresses the accounting for vendor consideration
received by a customer and is effective for new arrangements, or
modifications of existing arrangements, entered into after December
31, 2002. Under this consensus, there is a presumption that amounts
received from vendors should be considered a reduction of inventory
cost unless certain restrictive conditions are met. Under previous
accounting guidance, we accounted for all non-performance based volume
rebates as a reduction of inventory cost and all cooperative
advertising and other performance based rebates as a reduction of
marketing expense or cost of goods sold, as appropriate, in the period
the expense was incurred. Beginning with contracts entered into in
January 2003, we adopted a policy to treat all vendor consideration as
a reduction of inventory cost rather than as an offset to the related
expense because the administrative cost of tracking the actual related
expenses, to determine whether we meet the restrictive conditions
required by Issue 02-16, would exceed the benefit. To record the
impact of including cooperative advertising and other performance
based rebates in inventory as of May 3, 2003, we recorded an
aggregate, non-cash adjustment of $98 million ($62 million net of
taxes) as an increase to cost of goods sold and occupancy costs, or
$0.13 per diluted share. This adjustment reflects all of our
outstanding vendor contracts, as substantially all contracts were
either entered into or amended in the first quarter of 2003. While
there was no material impact to our results of operations for the
second quarter of 2003, the new accounting method resulted in
reporting $52 million and $111 million of our cooperative advertising
rebates earned in the second quarter and first half of 2003,
respectively, as cost of goods sold and occupancy costs. These amounts
would have been reported as a reduction of operating and selling
expenses under previous accounting guidance."
http://biz.yahoo.com/e/030819/spls10-q.html "Form 10-Q for STAPLES
INC" Yahoo Finance, August 19, 2003 |
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