Barnes and Noble 1999 Annual Report Download - page 46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 45
7. Barnes & Noble.com
On November 12, 1998, the Company and Bertelsmann AG
(Bertelsmann) completed the formation of a limited liability
company to operate the online retail bookselling operations of
the Company’s wholly owned subsidiary, barnesandnoble.com
inc. (Barnes & Noble.com Inc.). The new entity, Barnes &
Noble.com, was structured as a limited liability company.
Under the terms of the relevant agreements, effective as of
October 31, 1998, the Company and Bertelsmann each
retained a 50 percent membership interest in Barnes &
Noble.com. The Company contributed substantially all of the
assets and liabilities of its online operations to the joint venture
and Bertelsmann paid $75,000 to the Company and made a
$150,000 cash contribution to the joint venture. Bertelsmann
also agreed to contribute an additional $50,000 to the joint
venture for future working capital requirements. The
Company recognized a pre-tax gain during fiscal 1998 in the
amount of $126,435, of which $63,759 was recognized in
earnings based on the $75,000 received directly and $62,676
($36,351 after taxes) was reflected in additional paid-in capital
based on the Company’s share of the incremental equity of
the joint venture resulting from the $150,000 Bertelsmann
contribution.
On May 25, 1999, Barnes & Noble.com Inc. completed
an initial public offering (IPO) of 28.75 million shares of
Class A Common Stock and used the proceeds to purchase
a 20 percent interest in Barnes & Noble.com. As a result, the
Company and Bertelsmann each retained a 40 percent interest
in Barnes & Noble.com. The Company recorded an increase in
additional paid-in capital of $116,158 after taxes representing
the Company’s incremental share in the equity of Barnes &
Noble.com. The Company will continue to account for its
investment under the equity method.
Under the terms of the November 12, 1998 joint venture
agreement between the Company and Bertelsmann, the Company
received a $25,000 payment from Bertelsmann in connection
with the IPO. The Company recognized the $25,000 pre-tax
gain in the second quarter of 1999. The estimated fair
market value of Barnes & Noble.com at January 29, 2000
was $742,000.
Summarized financial information for Barnes & Noble.com
follows:
12 months ended December 31,
1999 1998
Net sales $ 202,567 61,834
Gross profit $ 42,630 14,265
Loss before taxes $ ( 102,405) ( 83,148)
Cash and cash equivalents $ 478,047 96,940
Other current assets 27,567 14,736
Noncurrent assets 173,904 90,468
Current liabilities 75,940 32,995
Net assets $ 603,578 169,149
8. Employees’ Retirement
and Defined Contribution Plans
As of December 31, 1999, substantially all employees of the
Company were covered under a noncontributory defined
benefit pension plan (the Pension Plan). As of January 1, 2000,
the Pension Plan was amended and frozen so that employees
no longer earn benefits for subsequent service. Subsequent
service continues to be the basis for vesting of benefits not
yet vested at December 31, 1999 and the Pension Plan will
continue to hold assets and pay benefits. The amendment was
treated as a curtailment in fiscal 1999 resulting in a pre-tax
gain of $14,142 which is included as a reduction of selling
and administrative expenses.
The Company maintains defined contribution plans (the Savings
Plans) for the benefit of substantially all employees. In addition,
the Company provides certain health care and life insurance
benefits (the Postretirement Plan) to retired employees, limited
to those receiving benefits or retired as of April 1, 1993.