Barnes and Noble 2003 Annual Report Download - page 40

state jurisdictions. These amounts begin to expire in
2010 and are subject to certain limitations under the
Internal Revenue Code. Due to the current uncertainty
regarding the realization of the related deferred tax
asset of approximately $51,424, a full valuation
allowance has been provided. Assuming the Company
completes the acquisition of bn.com in fiscal 2004, it
will be included in the Company’s federal income tax
return and a portion of this deferred tax asset may
become realizable.
12. GAMESTOP INITIAL PUBLIC OFFERING
In fiscal 1999, the Company acquired Babbage’s Etc., one
of the nation’s largest video-game and entertainment-
software specialty retailers, a company majority owned
by Leonard Riggio, for $208,670. An independent
Special Committee of the Board of Directors negotiated
and approved the acquisition on behalf of the Company.
The Company made an additional payment of $9,665 in
2002 due to certain financial performance targets having
been met during fiscal year 2001.
On June 14, 2000, the Company acquired all of the
outstanding shares of Funco, Inc., a Minneapolis-based
electronic games retailer for approximately $167,560.
The acquisition was accounted for by the purchase
method of accounting. The excess of purchase price
over the net assets acquired, in the amount of
approximately $131,400, has been recorded as
goodwill and is tested for impairment at least annually,
in conformity with SFAS No. 142.
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, GameStop completed an initial public
offering of shares of its Class A common stock at a
price of $18.00 per share, raising net proceeds of
approximately $348,000. A portion of the net proceeds
was used to repay $250,000 of indebtedness to the
Company, with the Company contributing the remaining
$150,000 of indebtedness to GameStop as additional
paid-in capital. The balance of the net proceeds
(approximately $98,000) was used for working capital
and general corporate purposes for GameStop. The
Company currently owns approximately 64 percent of
the outstanding shares of GameStop’s capital stock
through its ownership of 100 percent of GameStop’s
Class B common stock, which represents 94.5 percent of
the combined voting power of all classes of GameStop
voting stock. The Company recorded an increase in
additional paid-in capital of $155,490 ($90,184 after
taxes), representing the Company’s incremental share in
the equity of GameStop.
13. SEGMENT INFORMATION
The Company operates under two strategic groups that
offer different products. These groups have been
aggregated into two reportable operating segments:
book operating segment and video game operating
segment.
Book Operating Segment
This segment includes bookstores primarily under the
Barnes & Noble Booksellers and B. Dalton Bookseller
trade names. The 647 Barnes & Noble stores generally
offer a comprehensive title base, a café, a children’s
section, a music department, a magazine section and a
calendar of ongoing events, including author
appearances and children’s activities. The 195 B. Dalton
stores are typically small format mall-based stores. In
addition, this segment includes Barnes & Noble.com
(an online retailer of books, music and DVDs/videos),
the Company’s publishing operation (which includes
Sterling Publishing) and Calendar Club (a majority-
owned subsidiary of the Company that operates
seasonal kiosks and seasonal stores). The book
operating segment employs a merchandising strategy
that targets the mainstream consumer book market.
Video Game Operating Segment
This segment includes 1,514 video game and PC-
entertainment stores primarily under the GameStop
trade name, a Web site (www.gamestop.com) and
Game Informer magazine. The principal products of
these stores are comprised of video-game hardware and
software and PC-entertainment software.
[NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS continued ]
39 2003 Annual Report Barnes & Noble, Inc.