Barnes and Noble 2003 Annual Report Download - page 11

book superstore competition. Part of the Company’s
strategy has been to close underperforming stores,
which has resulted in the closing of 772 B. Dalton
bookstores since 1989.
On September 15, 2003, the Company completed its
acquisition of all of Bertelsmann AG’s (Bertelsmann)
interest in Barnes & Noble.com. As a result of the
acquisition, the Company increased its economic
interest in Barnes & Noble.com from approximately 38
percent to approximately 75 percent. Subsequent to the
purchase, Barnes & Noble.com employees exercised 3.9
million stock options thereby reducing the Company’s
economic interest in Barnes & Noble.com to
approximately 73 percent. On January 8, 2004, the
Company entered into a merger agreement with
barnesandnoble.com inc. (bn.com), the holding
company whose sole asset is its approximate 30 percent
interest in Barnes & Noble.com and whose sole
business is acting as sole manager of Barnes &
Noble.com. Upon consummation of the merger, Barnes
& Noble.com will become a wholly owned subsidiary
of the Company. The closing of the merger is expected
to occur during the second quarter of fiscal 2004.
Barnes & Noble.com is a leading Internet-based retailer
of books, music, DVD/video and online courses. Since
opening its online store (www.bn.com) in March 1997,
Barnes & Noble.com has attracted more than 17
million customers in 230 countries. Barnes &
Noble.com’s bookstore includes the largest in-stock
selection of in-print book titles with access to
approximately one million titles for immediate delivery,
supplemented by more than 30 million listings from
its nationwide network of out-of-print, rare and used
book dealers. Barnes & Noble.com offers its customers
fast delivery, easy and secure ordering and rich
editorial content.
According to comScore Media Metrix, in December
2003, Barnes & Noble.com’s Web site was the eleventh
most-trafficked shopping site and was among the top 65
largest Web properties on the Internet. Co-marketing
agreements with major Web portals such as America
Online, GoogleTM and Microsoft Network as well as
content sites have extended Barnes & Noble.com’s
brand recognition and increased consumer exposure to
its site. Barnes & Noble.com has also established a
network of remote virtual storefronts across the
Internet by creating direct links with more than
189,000 affiliate Web sites.
Barnes & Noble further differentiates its product
offerings from those of its competitors by publishing
books under its own imprints. The Company, through
its January 2003 acquisition of Sterling, is one of the
top 25 publishers in the nation and the industry’s
leading publisher of how-to books. Sterling has an
active list of more than 4,500 owned and distributed
titles, and publishes and distributes more than 1,000
new titles annually. As the leading publisher of how-to
books, Sterling has particular strength in art technique,
gardening, cooking, health, crafts, puzzle and game,
woodworking, and house and home. With the addition
of the Sterling titles, the Company has publishing or
distribution rights to nearly 10,000 titles and offers
customers high quality books at exceptional values,
while generating attractive gross margins.
The Company acquired Babbage’s Etc. and Funco, Inc. in
October 1999 and June 2000, respectively. Through a
corporate restructuring, Babbage’s Etc. became a wholly
owned subsidiary of Funco, Inc. and the name of Funco,
Inc. was changed to GameStop, Inc. In February 2002,
the Company completed an initial public offering (IPO)
for its GameStop subsidiary. The Company retained an
approximate 63 percent interest in GameStop. GameStop
is the nation’s largest video-game and PC-entertainment
software specialty retailer, based on the number of United
States (U.S.) stores operated by GameStop and its total
U.S. revenues. As of January 31, 2004, GameStop operates
1,514 video-game and entertainment-software stores
located in 49 states, the District of Columbia, Ireland,
Puerto Rico and Guam, primarily under the GameStop
trade name. The 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.
GameStop also operates a Web site (www.gamestop.com),
and publishes Game Informer magazine (collectively,
GameStop).
[MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS continued ]
10 2003 Annual ReportBarnes & Noble, Inc.