Barnes and Noble 2012 Annual Report Download - page 11

Barnes & Noble’s strategy is to:
• continue to invest in the digital business to fuel NOOK
and content sales;
• use its infrastructure to deliver digital content to cus-
tomers wirelessly and online;
• utilize the strong Barnes & Noble brand and retail foot-
print to attract customers to its multi-channel platform;
and
• expand its distribution channels through strategic
partnerships with world-class hardware and software
companies and retail partners.
The Company has a multi-channel marketing strategy that
deploys various merchandising programs and promotional
activities to drive traffi c to both its stores and website.
At the center of this program is the Company’s website,
barnesandnoble.com.
On April , , the Company entered into an investment
agreement among the Company, Morrison Investment
Holdings, Inc. (Morrison), and Microsoft Corporation
(Microsoft) pursuant to which the Company will form a
Delaware limited liability company (NewCo), and transfer
to NewCo the Company’s digital device, digital content
and college bookstore businesses and NewCo will sell to
Morrison, and Morrison will purchase,  million con-
vertible preferred membership interests in NewCo for an
aggregate purchase price of . million. Concurrently
with its entry into this agreement, the Company has also
entered into a commercial agreement with Microsoft,
pursuant to which, among other things, NewCo will develop
and distribute a Windows  application for e-reading and
digital content purchases, and an intellectual property
license and settlement agreement with Microsoft and
Microsoft Licensing GP.
As part of the partnership with Microsoft described above,
the Company, through NewCo, plans to launch the NOOK
digital bookstore in  countries within  months, putting
NOOK.com websites onto the screens of tens of millions
of Windows users. Once the NOOK digital bookstore is
launched, customers in these countries will have access to
one of the world’s largest marketplaces of digital copy-
right content and reading technologies, enabling them to
buy and consume books, magazines and other forms of
content on the world’s best mobile platforms, including
Windows™, IOS™, and Android™. The Company is also
exploring opportunities to give consumers outside of the
U.S. access to its award-winning NOOK portfolio of reading
products through potential distribution partnerships yet
to be announced. While there can be no assurances, the
Company intends to have one or more distribution agree-
ments in place to sell NOOK™ devices in certain countries
outside the U.S. prior to the  holiday season.
On August , , the Company entered into an invest-
ment agreement between the Company and Liberty GIC,
Inc. (Liberty) pursuant to which the Company issued and
sold to Liberty, and Liberty purchased, , shares of
the Company’s Series J Preferred Stock, par value .
per share (Preferred Stock), for an aggregate purchase
price of . million in a private placement exempt
from the registration requirements of the  Act. The
shares of Preferred Stock will be convertible, at the option
of the holders, into shares of Common Stock representing
. of the Common Stock outstanding as of August ,
, (after giving pro forma eff ect to the issuance of the
Preferred Stock), based on the initial conversion rate. The
initial conversion rate refl ects an initial conversion price
of . and is subject to adjustment in certain circum-
stances. The initial dividend rate for the Preferred Stock is
equal to . per annum of the initial liquidation prefer-
ence of the Preferred Stock to be paid quarterly and subject
to adjustment in certain circumstances.
SEGMENTS
Prior to year-end, the Company reported an operating
segment titled B&N.com, which included both the NOOK
digital business and eCommerce operations. Due to the
increased focus on the digital business and the Company’s
recently developed ability to review the digital business
separate from its eCommerce business, the Company
performed an evaluation on the eff ect of its impact on
the identifi cation of operating segments. The assessment
considered the way the business is managed (focusing on
the fi nancial information distributed) and the manner in
which the chief operating decision maker interacts with
other members of management. As a result of this assess-
ment, during the fourth quarter of fi scal  the Company
has determined that the segment previously referred to
B&N.com is no longer applicable and has created a new
segment titled NOOK to report upon its digital business,
moving the eCommerce business (i.e., sales of physical
merchandise over the Internet) into the B&N Retail seg-
ment. Also as a result of this assessment, certain corporate
offi ce and other costs have been allocated to all three seg-
ments. The Company’s three operating segments are: B&N
Retail, B&N College and NOOK.
2012 Annual Report 9