Barnes and Noble 2000 Annual Report Download - page 33

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In 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. The new entity,
barnesandnoble.com llc (Barnes & Noble.com), was
formed by combining the online bookselling operations
of the Company with funds contributed by the
international media company Bertelsmann, one of the
largest integrated media companies in the world. In
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 from the date of
the IPO through November 2000. In November 2000,
Barnes & Noble.com acquired Fatbrain.com, Inc.
(Fatbrain), the third largest online bookseller. Barnes &
Noble.com issued shares of its common stock to Fatbrain
shareholders. As a result of this merger, the Company
and Bertelsmann each retained an approximate 36
percent interest in Barnes & Noble.com. Accordingly,
the Company’s share in the net losses of Barnes &
Noble.com for fiscal 2000 was based on an approximate
40 percent equity interest from the beginning of fiscal
2000 through November 2000 and approximately 36
percent thereafter.
According to Media Metrix, in January 2001, Barnes &
Noble.com was the fourth-most-trafficked shopping site
and was among the top 50 largest Web properties on the
Internet. Focused largely on the sale of books, music,
DVDs/videos, magazines and related products, Barnes &
Noble.com has capitalized on the recognized brand value
of the Barnes & Noble name to become the second
largest online distributor of books. Customers can
choose from millions of new and out-of-print titles, a
comprehensive selection of new and used college
textbooks and a variety of eBooks. Barnes & Noble.com
also features Barnes & Noble Online University, a free
online education resource offering courses through its
Web site. The broad-based curriculum covers a range
of subjects, from gardening and classical music to
Shakespeare and organizing stock portfolios. Each course
includes recommended study material, including books
and other products available for purchase through the
Web site. Barnes & Noble.com’s video store features
tens of thousands of movie titles available in both DVD
and VHS formats, more than 65,000 cast and crew
filmographies, movie reviews and ratings, as well as
editorial recommendations on the best and most
significant movies. Barnes & Noble.com recently opened
an eBookStore, featuring Microsoft Reader™ technology
for desktop PCs and laptop computers. The eBookStore
is the first online retail bookstore to offer eBooks for
the Microsoft Reader™, and features titles from more
than 30 publishers.
With access to Barnes & Noble’s more than 880,000
in-stock titles, Barnes & Noble.com has the largest
standing inventory of any online bookseller ready for
immediate delivery. The URL http://www.bn.com
makes the site easy to find. The Barnes & Noble.com
affiliate network has more than 300,000 members and
maintains strategic alliances with major Web portals
and content sites, such as AOL, Yahoo and MSN. Barnes
& Noble.com is also a leader in business-to-business
e-commerce with the industry’s leading Business
Solutions division, Fatbrain. Fatbrain’s Web-based
services reach more than 3.5 million employee desktops
at nearly 350 Fortune 1000 companies worldwide.
There are more than 500 individual Fatbrain co-branded
corporate online bookstores and information resource
centers, most of which are accessed using the sponsoring
organizations’ corporate intranets.
Barnes & Noble further differentiates its product
offerings from those of its competitors by publishing
books under its own imprints for sale in its retail stores
and through Barnes & Noble.com’s online and direct-
mail book sales. With publishing and distribution
rights to over 2,500 titles, Barnes & Noble Books offers
customers high-quality books at exceptional values, while
generating attractive gross margins.
As a result of its acquisitions of Babbage’s Etc. and Funco
in October 1999 and June 2000, respectively, the
Company is the nation’s largest video game and PC
entertainment software specialty retailer. The Company
owns and operates 978 video game and entertainment
software stores located in 49 states, Puerto Rico and
Guam. The Company’s video game and entertainment
software stores range in size from 500 to 5,000 square
feet (averaging 1,500 square feet) depending upon
market demographics. Stores feature video game
hardware and software, PC entertainment software and
a multitude of accessories.
2000 Annual Report ■Barnes & Noble, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued