Barnes and Noble 2004 Annual Report Download - page 31

2. GAMESTOP SPIN-OFF
On October 1, 2004, the Company’s independent
directors approved an overall plan for the complete
disposition of all of its Class B common stock in
GameStop Corp. (GameStop), the Company’s Video
Game operating segment. This disposition was
completed in two steps, as part of an overall plan as
described below.
The first step in the disposition was the sale of
6,107,338 shares of GameStop Class B common stock
held by the Company to GameStop (the Stock Sale) for
an aggregate consideration of $111,520, consisting of
$37,500 in cash and a promissory note in the principal
amount of $74,020, bearing interest at a rate of 5.5
percent per annum. A scheduled payment on the note of
$37,500 was received in January 2005 and the
remaining balance is due in three equal annual
installments of $12,173 commencing October 1, 2005.
The Stock Sale was completed on October 1, 2004.
Because of the capital nature of the disposition, the
proceeds from the Stock Sale were recorded as a
reduction in the basis of the investment in GameStop,
resulting in no gain for financial reporting purposes. In
that regard, the tax adjustments associated with the
related taxable capital gain on the Stock Sale,
amounting to $14,443, have been charged directly to
retained earnings. Also included in the charge to
retained earning are $263 of GameStop costs related to
the redemption of their shares from the Company.
The second step in the disposition was the spin-off by
the Company of its remaining 29,901,662 shares of
GameStop’s Class B common stock (the Spin-Off).
The Spin-Off was completed on November 12, 2004
with the distribution of 0.424876232 of a share of
GameStop Class B common stock as a tax-free
distribution on each outstanding share of the
Company’s common stock to the Company’s
stockholders of record as of the close of business on
November 2, 2004. The Class B shares retained their
super voting power of 10 votes per share and are
separately listed on the New York Stock Exchange
under the symbol GME.B. As a result of the Stock Sale
and the Spin-Off, GameStop is no longer a subsidiary of
the Company and, accordingly, the Company will
present all historical results of operations of GameStop
as discontinued operations. The discontinued
operations generated sales of $1,232,141, $1,578,838
and $1,352,791 and net income of $20,001 (net of
$19,413 in tax), $40,571 (net of $26,666 in tax) and
$33,262 (net of $22,401 in tax) for fiscal 2004 (to the
date of the Spin-Off), 2003 and 2002, respectively.
Net assets related to discontinued operations of
$329,549 are reported on the January 31, 2004 balance
sheet. These net assets consist of the following:
Cash and cash equivalents
$204,905
Receivables, net 9,563
Merchandise inventories 223,526
Prepaid expenses and other current assets 22,001
Net property and equipment 104,031
Goodwill 333,468
Other noncurrent assets 5,567
Total assets 903,061
Accounts payable 218,129
Accrued liabilities 61,242
Deferred income taxes 83,455
Minority interest 207,472
Other long-term liabilities 3,214
Total liabilities
573,512
Net assets $329,549
3. BARNES & NOBLE.COM ACQUISITION
On September 15, 2003, the Company completed its
acquisition of all of Bertelsmann AG’s (Bertelsmann)
interest in barnesandnoble.com inc. (bn.com) and
barnesandnoble.com llc (Barnes & Noble.com). The
purchase price paid by the Company was $165,406
(including acquisition related costs) in a combination of
cash and a note, equivalent to $2.80 per share in
bn.com or membership unit in Barnes & Noble.com.
The note issued to Bertelsmann in the amount of
$82,000 was paid in the fourth quarter of fiscal 2003.
As a result of the acquisition, the Company increased its
economic interest in Barnes & Noble.com to
approximately 75 percent.
On May 27, 2004, the Company completed a merger
(the Merger) of bn.com with a wholly owned subsidiary
of the Company. The purchase price paid by the
Company was $158,776 (including acquisition related
costs). Under the terms of the Merger, the holders of
bn.com’s outstanding common stock, other than the
Company and its subsidiaries, received $3.05 in cash
for each share that they owned. The Merger was
approved by the shareholders of bn.com at a special
meeting held on May 27, 2004. As a result of the
Merger, bn.com became a privately held company,
wholly owned by the Company.
The acquisitions were accounted for by the purchase
method of accounting and, accordingly, the results of
[NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS continued ]
29 2004 Annual Report Barnes & Noble, Inc.