Barnes and Noble 2006 Annual Report Download - page 37

3. GAMESTOP SPIN-OFF
On October , , 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 seg-
ment. This disposition was completed in two steps as
described below.
The fi rst step in the disposition was the sale of ,,
shares of GameStop Class B common stock held by the
Company to GameStop (the Stock Sale) for an aggregate
consideration of ,, consisting of , in
cash and a promissory note in the principal amount of
,, bearing interest at a rate of . per annum.
Scheduled payments on the note of ,, ,
and , were received in January , October
 and October , respectively, and the remaining
balance of , is due on October , . The Stock
Sale was completed on October , . 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
fi nancial reporting purposes. In that regard, the tax
adjustments associated with the related taxable capital
gain on the Stock Sale, amounting to ,, have been
charged directly to retained earnings. Also included in
the charge to retained earnings are  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 ,, shares of
GameStop’s Class B common stock (the Spin-Off ). The
Spin-Off was completed on November ,  with
the distribution of . 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 , . The Class
B shares retained their super voting power of  votes
per share and were 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 discon-
tinued operations generated sales of ,, and
,, and net income of , (net of , in
tax) and , (net of , in tax) for fi scal 
(to the date of the Spin-Off ) and , respectively.
4. BARNES & NOBLE.COM ACQUISITION
On September , , the Company completed its
acquisition of all of Bertelsmann AG’s (Bertelsmann)
interest in barnesandnoble.com llc (Barnes & Noble.
com). The purchase price paid by the Company was
, (including acquisition related costs) in a
combination of cash and a note. The note issued to
Bertelsmann in the amount of , was paid in
fi scal . As a result of the acquisition, the Company
increased its economic interest in Barnes & Noble.
com to approximately . On May , , the
Company completed a merger (the Merger) pursuant
to which Barnes & Noble.com became a wholly owned
subsidiary of the Company. The purchase price paid by
the Company in the Merger was , (including
acquisition related costs).
Prior to the quarter ended July , , the Company
reported the results of Barnes & Noble.com on a one
month lag basis. Subsequent to the Merger, the results
of Barnes & Noble.com have been included based on
a reporting period which is consistent with that of the
Company. As a result of this change, retained earnings
has been charged directly for the , loss of Barnes &
Noble.com for the month of January , and all other
reported results are presented as though the reporting
period of Barnes & Noble.com was changed at the
beginning of fi scal .
Goodwill arising from the Bertelsmann acquisition
that is deductible for income tax purposes exceeded
the related amount for fi nancial reporting purposes
by approximately ,. In accordance with SFAS
No. , “Accounting for Income Taxes”, the Company
is recognizing the tax benefi ts of amortizing such
excess as a reduction of goodwill as it is realized on the
Company’s income tax returns (see Note  to the Notes
to Consolidated Financial Statements).
2006 Annual Report 35