States District Court for the District of New Jersey and one in the United States District Court for the Western District of Texas). These actions generally purport to bring claims under federal privacy and computer fraud statutes, as well as under state statutory and common law, on behalf of all persons who have visited one or more of the company's web sites and either made an online purchase or allegedly had information about them unlawfully "intercepted," "monitored," "transmitted," or "used." All the suits (except one filed in the United States District Court for the District of New Jersey) also named Coremetrics, Inc. ("Coremetrics"), as a defendant. Coremetrics is an internet marketing company with whom the company has an agreement. These suits seek damages in unspecified amounts and other relief under state and federal law.

With Coremetrics the company filed a joint application with the Multidistrict litigation panel which resulted in all of the federal actions being consolidated and transferred to the United States District Court for the Northern District of California. Plaintiffs voluntarily dismissed the action in the Superior Court of the State of California, County of San Bernardino without prejudice. On October 16, 2001, plaintiffs filed an amended complaint in the United States District Court for the Northern District of California. The company believes that it has substantial defenses to all of these claims. On November 13, 2002, the company entered into a settlement agreement with plaintiffs in connection with all causes of action. This settlement agreement is subject to the court's review and approval and will not have a material impact on the company's consolidated financial statements.

In 2002, the FASB Emerging Issues Task Force issued EITF issue No. 02-16, "Accounting by a Reseller for Cash Consideration Received from a Vendor" (EITF 02-16). EITF 02-16 considers vendor allowances as a reduction in the price of a vendor's product that should be recognized as a reduction of cost of sales. Advertising allowances that are received for specific, identifiable and incremental costs are considered a reduction of advertising expenses and should be recognized as a reduction of SG&A. The provisions of EITF 02-16 are effective for all new arrangements, or modifications to existing arrangements, beginning after December 31, 2002. The company is currently evaluating the potential impact of the provisions of EITF 02-16 on its consolidated financial statements for 2003.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which will require the consolidation of entities that are controlled by a company through interests other than voting interests. Under the requirements of this interpretation, an entity that maintains a majority of the risks or rewards associated with Variable Interest Entities ("VIEs"), commonly known as special purpose entities, is effectively in the same position as the parent in a parent-subsidiary relationship. Disclosure requirements of VIEs are effective in all financial statements issued after January 31, 2003. The consolidation requirements apply to all VIEs created after January 31, 2003. FIN 46 requires public companies to apply the consolidation requirements to VIEs that existed prior to February 1, 2003 and remained in existence as of the beginning of annual or interim periods beginning after June 15, 2003. The company's new corporate headquarters facility, located in

Wayne, New Jersey, is leased from unrelated third parties, arranged by a multi-purpose real estate investment company that the company does not control. In addition the company does not have the majority of the associated risks or rewards. Accordingly, the company believes that FIN 46 will have no impact on the accounting for the synthetic lease for such facility. The synthetic lease is discussed in the note entitled "LEASES." The company believes that FIN 46 will not have a material impact on its consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45), which imposes new disclosure and liability-recognition requirements for financial guarantees, performance guarantees, indemnifications and indirect guarantees of the indebtedness of others. FIN 45 requires certain guarantees to be recorded at fair value. This is different from previous practice, where a liability would typically be recorded only when a loss was probable and reasonably estimable. The initial recognition and initial measurements provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. FIN 45 also requires additional disclosures, even when the likelihood of making any payments under the guarantee is remote. The disclosure requirements are effective for interim and annual periods ending after December 15, 2002. The company instituted procedures to identify guarantees contained in the various legal documents and agreements, already executed and those to be executed in the future that fall within the scope of FIN 45. The company expects that FIN 45 will not have a material impact on its consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS No. 146), which addresses the recognition, measurement, and reporting of costs associated with exit or disposal activities and supercedes Emerging Issues Task Force 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)" (EITF No. 94-3). The fundamental difference between SFAS No. 146 and EITF No. 94-3 is the requirement that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than at the date an entity commits to an exit plan. A fundamental conclusion of SFAS No. 146 is that an entity's commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. SFAS No. 146 also establishes that the initial measurement of a liability recognized be recorded at fair value. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The company believes that adoption of this pronouncement will not have a significant effect on the company's consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The company adopted SFAS No. 144 as of February 3, 2002. The adoption did not have a significant effect on the company's consolidated financial statements.