SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 19972, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number: 1-12302
BARNES & NOBLE, INC.
- ----------------------------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1196501
- --------------------------------- --------------------------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
122 Fifth Avenue, New York, NY 10011
- --------------------------------------- ------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(212) 633-3300
- ----------------------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- ------------------------------------------------------------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X|X| No --- -----|_|
Number of shares of $.001 par value common stock outstanding as of May 30, 1997: 33,317,786
----------29,
1998: 68,242,752.
BARNES & NOBLE, INC. AND SUBSIDIARIES
May 3, 19972, 1998
Index to Form 10-Q
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statements of Operations - For the 13 weeks ended
May 2, 1998 and May 3, 1997 and April 27, 1996................................................................... 3
Consolidated Balance Sheets - May 2, 1998, May 3, 1997 April 27, 1996 and
February 1, 1997.............................................January 31, 1998 ............................................... 4
Consolidated Statements of Cash Flows - For the 13 weeks ended
May 2, 1998 and May 3, 1997 and April 27, 1996.........................1997..................................... 6
Notes to Consolidated Financial Statements.....................Statements........................ 7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................... 8Operations.......................................... 9
PART II - OTHER INFORMATION.............................................. 12INFORMATION.................................................
Item 1. Legal Proceedings................................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................. 13
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(thousands of dollars, except per share data)
(unaudited)
- --------------------------------------------------------------------------------
13 weeks ended
---------------------------------------------------
May 2, May 3,
April 27,1998 1997
1996
------ --------------------- ------------
Revenues ......................................... $ 666,344 595,731 508,755
Cost of sales buying and occupancy 388,624 333,476
----------- ---------...................... 492,114 448,217
------------ ------------
Gross profit 207,107 175,279
----------- ---------................................. 174,230 147,514
------------ ------------
Selling and administrative expenses 120,240 104,227
Rental expense 62,164 53,115.............. 149,608 122,811
Depreciation and amortization .................... 21,923 17,747 13,589
Pre-opening expenses ............................. 2,604 3,854
4,489
----------- --------------------- ------------
Operating profit (loss)............................. 95 3,102 (141)
Interest (net of interest income of $112$105 and $191,$112,
respectively) and amortization of deferred
financing fees ............................... 5,750 9,648
8,344
----------- --------------------- ------------
Loss before benefit for income taxes ...... (5,655) (6,546) (8,485)
Benefit for income taxes ......................... (2,320) (2,685)
(3,092)
----------- --------------------- ------------
Net loss ..................................... $ (3,335) (3,861)
(5,393)
=========== ===================== ============
Net loss per common share
Basic ..................................... $ (0.12) (0.16)(0.05) (0.06)
Diluted ................................... $ (0.05) (0.06)
Weighted average common shares outstanding
33,220,000 32,968,000Basic ..................................... 68,101,000 66,441,000
Diluted ................................... 68,101,000 66,441,000
See accompanying notes to consolidated financial statements.
3
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars)
- --------------------------------------------------------------------------------
May 3, April 27, February 1,
1997 1996 1997
------ --------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,347 9,256 12,447
Receivables, net 40,433 42,024 45,558
Merchandise inventories 731,483 705,600 732,203
Prepaid expenses and other current assets 76,654 45,653 76,747
---------- --------- ---------
Total current assets 858,917 802,533 866,955
---------- --------- ---------
Property and equipment:
Land and land improvements 681 681 681
Buildings and leasehold improvements 333,867 281,770 326,392
Fixtures and equipment 307,575 222,845 289,684
---------- --------- ---------
642,123 505,296 616,757
Less accumulated depreciation and
amortization 198,151 146,559 181,983
---------- --------- ---------
Net property and equipment 443,972 358,737 434,774
---------- --------- ---------
Intangible assets, net 92,680 95,985 93,494
Other noncurrent assets 51,601 59,147 51,424
---------- --------- ---------
Total assets $1,447,170 1,316,402 1,446,647dollars, except per share data)
May 2, May 3, January 31,
1998 1997 1998
---------- ---------- ----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 10,801 10,347 12,697
Receivables, net ................................................... 29,997 40,433 43,858
Merchandise inventories ............................................ 856,582 731,483 852,107
Prepaid expenses and other current assets .......................... 99,178 76,654 68,902
---------- ---------- ----------
Total current assets ............................................. 996,558 858,917 977,564
---------- ---------- ----------
Property and equipment:
Land and land improvements ......................................... 681 681 681
Buildings and leasehold improvements ............................... 352,083 333,867 347,598
Fixtures and equipment ............................................. 392,814 307,575 378,058
---------- ---------- ----------
745,578 642,123 726,337
Less accumulated depreciation and amortization
265,650 198,151 244,207
---------- ---------- ----------
Net property and equipment ................................ 479,928 443,972 482,130
---------- ---------- ----------
Intangible assets, net ................................................. 89,423 92,680 90,237
Other noncurrent assets ................................................ 40,704 51,601 41,240
---------- ---------- ----------
Total assets ....................................................... $1,606,613 1,447,170 1,591,171
========== ========== ==========
========= =========
(Continued)
4
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars)
- --------------------------------------------------------------------------------
May 3, April 27, February 1,
1997 1996 1997
------ --------- -----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit facility $ 79,300 67,500 40,000
Accounts payable 364,166 347,967 373,340
Accrued liabilities 209,160 180,050 240,923
---------- --------- ----------
Total current liabilities 652,626 595,517 654,263
---------- --------- ----------
Long-term debt 290,000 290,000 290,000
Other long-term liabilities 50,570 35,341 46,395
Shareholders' equity:
Common stock; $.001 par value;
100,000,000 shares authorized;
33,253,337, 32,989,785 and
33,188,125 shares issued and
outstanding, respectively 33 33 33
Additional paid-in capital 448,144 442,471 446,298
Retained earnings (deficit) 5,797 (46,960) 9,658
---------- --------- ----------
Total shareholders' equity 453,974 395,544 455,989
---------- --------- ----------
Commitments and contingencies
---------- --------- ----------
Total liabilities and
shareholders' equity $1,447,170 1,316,402 1,446,647dollars, except per share data)
May 2, May 3, January 31,
1998 1997 1998
---------- ---------- ----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit facility .......................................... $ -- 79,300 --
Accounts payable ................................................... 432,711 364,166 459,795
Accrued liabilities ................................................ 215,524 209,160 253,050
---------- ---------- ----------
Total current liabilities ....................................... 648,235 652,626 712,845
---------- ---------- ----------
Long-term debt ......................................................... 358,600 290,000 284,800
Other long-term liabilities ............................................ 65,382 50,570 61,771
Shareholders' equity:
Common stock; $.001 par value; 100,000,000
shares authorized; 68,235,489, 66,506,674 and
67,921,830 shares issued and outstanding,
respectively .................................................... 68 67 68
Additional paid-in capital ......................................... 474,836 448,110 468,860
Retained earnings .................................................. 59,492 5,797 62,827
---------- ---------- ----------
Total shareholders' equity ...................................... 534,396 453,974 531,755
---------- ---------- ----------
Commitments and contingencies
---------- ---------- ----------
Total liabilities and shareholders' equity ......................... $1,606,613 1,447,170 1,591,171
========== ========== ==========
========= =========
See accompanying notes to consolidated financial statements.
5
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(thousands of dollars)
(unaudited)
13 weeks ended
--------------------
May 3, April 27,
1997 1996
------- ---------
Cash flows from operating activities:
Net loss $ (3,861) (5,393)
Adjustments to reconcile net loss
to net cash flows from operating
activities:
Depreciation and amortization 18,243 13,946
Loss on disposal of property and
equipment 54 223
Increase in other long-term liabilities
for scheduled rent increases in long-term
leases 4,123 4,322
Changes in operating assets and
liabilities, net (34,941) (48,036)
--------- --------
Net cash flows from operating activities (16,382) (34,938)
--------- --------
Cash flows from investing activities:
Purchases of property and equipment (26,191) (51,855)
Net increase in other noncurrent assets (673) (9,029)
--------- --------
Net cash flows from investing activities (26,864) (60,884)
--------- --------
Cash flows from financing activities:
Net increase (decrease) in revolving
credit facility 39,300 (4,900)
Proceeds from issuance of long-term debt -- 100,000
Proceeds from exercise of common stock options 1,846 702
--------- --------
Net cash flows from financing activities 41,146 95,802
--------- --------
Net decrease in cash and cash equivalents (2,100) (20)
Cash and cash equivalents at beginning of period 12,447 9,276
--------- --------
Cash and cash equivalents at end of period 10,347 9,256
========= ========
Changes in operating assets and liabilities, net:
Receivables, net $ 5,125 6,995
Merchandise inventories 720 34,751
Prepaid expenses and other current assets 93 3,889
Accounts payable and accrued liabilities (40,879) (93,671)
--------- --------
Changes in operating assets and liabilities, net $ (34,941) (48,036)
========= ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 3,673 2,636
Income taxes
13 weeks ended
----------------------------
May 2, May 3,
1998 1997
-------- --------
Cash flows from operating activities:
Net loss ............................................................................... $ (3,335) (3,861)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization .................................................... 22,010 18,243
Loss on disposal of property and equipment ....................................... 205 54
Increase in other long-term liabilities for scheduled rent
increases in long-term leases ................................................ 3,565 4,123
Changes in operating assets and liabilities, net ................................. (85,452) (34,941)
-------- --------
Net cash flows from operating activities ..................................... (63,007) (16,382)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment .................................................... (19,314) (26,191)
Proceeds from sales of property and equipment .......................................... 200 --
Net decrease (increase) in other noncurrent assets ..................................... 449 (673)
-------- --------
Net cash flows from investing activities ............................................ (18,665) (26,864)
-------- --------
Cash flows from financing activities:
Net increase in revolving credit facility .............................................. 73,800 39,300
Proceeds from exercise of common stock options including related
tax benefits ........................................................................ 5,976 1,846
-------- --------
Net cash flows from financing activities .......................................... 79,776 41,146
-------- --------
Net decrease in cash and cash equivalents .................................................. (1,896) (2,100)
Cash and cash equivalents at beginning of period ........................................... 12,697 12,447
-------- --------
Cash and cash equivalents at end of period ................................................. $ 10,801 10,347
======== ========
Changes in operating assets and liabilities, net:
Receivables, net ....................................................................... $ 13,861 5,125
Merchandise inventories ................................................................ (4,475) 720
Prepaid expenses and other current assets .............................................. (30,276) 93
Accounts payable and accrued liabilities ............................................... (64,562) (40,879)
-------- --------
Changes in operating assets and liabilities, net .................................... $(85,452) (34,941)
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest ............................................................................ $ 5,171 3,673
Income taxes ........................................................................ $ 14,918 13,331
11,134
See accompanying notes to consolidated financial statements.
6
BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 13 weeks ended May 2, 1998 and May 3, 1997 and April 27, 1996
(thousands of dollars)
(unaudited)
The unaudited consolidated financial statements include the accounts
of Barnes & Noble, Inc. and its wholly-ownedwholly owned subsidiaries (collectively, the
Company).
In the opinion of the Company's management, the accompanying
unaudited consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
its consolidated financial position as of May 3, 19972, 1998 and the results of its
operations and its cash flows for the 13 weeks then ended. These consolidated
financial statements are condensed and therefore do not include all of the
information and footnotes required by generally accepted accounting
principles. The consolidated financial statements should be read in
conjunction with the Company's annual report on Form 10-K for the 5352 weeks
ended February 1, 1997.January 31, 1998. The Company follows the same accounting policies in
preparation of interim reports. Certain prior year amounts have been
reclassified to conform to the 1998 presentation.
Due to the seasonal nature of the business, the results of operations
for the 13 weeks ended May 3, 19972, 1998 are not indicative of the results to be
expected for the 52 weeks ending January 31, 1998.30, 1999.
(1) Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market.
Cost is determined using the retail inventory method on the first-in,
first-out (FIFO) basis for 79%84%, 77%79% and 79%83% of the Company's merchandise
inventories as of May 2, 1998, May 3, 1997 April 27, 1996 and February 1, 1997,January 31, 1998, respectively.
The remaining merchandise inventories are valued on the last-in, first-out
(LIFO) method.
If substantially all of the merchandise inventories currently valued
at LIFO costs were valued at current costs, merchandise inventories would
increase approximately $4,352, $8,800 $7,826 and $8,800$5,102 as of May 2, 1998, May 3,
1997 April 27, 1996 and February 1, 1997,January 31, 1998, respectively.
(2) Income Taxes
The tax provisions for the 13 weeksperiods ended May 2, 1998 and May 3, 1997 and April 27,
1996
are based upon management's estimate of itsthe Company's annualized effective tax
rates.
Permanent differences include amortizationrate.
(3) Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued
Statement of goodwill which decreasesPosition 98-1, "Accounting for the benefitCosts of Computer Software
Developed or Obtained for income taxes.
(3) Earnings Per Common ShareInternal Use" (SOP 98-1). SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. The pronouncement requires all costs related to the development
of internal use software other than those incurred during the application
development stage to be expensed as incurred. Costs incurred during the
application development stage are required to be capitalized and amortized
over the estimated useful life of the software. In February,accordance with SOP 98-1,
the Company will adopt its provisions effective for the fiscal year ending
January 29,
7
BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 13 weeks ended May 2, 1998 and May 3, 1997
(thousands of dollars)
(unaudited)
2000. Adoption is not expected to have a material effect on the Company's
consolidated financial statements as the Company's policies are substantially
in compliance with SOP 98-1.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
(SOP 98-5). SOP 98-5 requires an entity to expense all start-up activities (as
defined) as incurred. In accordance with SOP 98-5, the Company will adopt its
provisions effective for the fiscal year ending January 29, 2000. The impact
of adoption of SOP 98-5 is not expected to have a material effect on the
Company's consolidated financial statements.
In 1997 the Financial Accounting Standards Board issuedCompany adopted Statement of Financial Accounting
Standards No. 128 , "Earnings per Share" ("SFAS
No. 128")(SFAS 128). Under SFAS No. 128, the
presentation of Primaryprimary and Fully Diluted
Earningsfully diluted earnings per Share will beshare is replaced by
basic and diluted earnings per share. Basic and Diluted Earningsearnings per Share. The
presentation of Basic Earnings per Sharecommon share includes
no potentialdilutive effect of common stock equivalents and is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding. Diluted earnings per common share reflects, in
periods in which they have a dilutive effect, the impact of common shares
issuable upon exercise of stock options. For the first quarter of 1998 and
thus no dilution. In accordance with SFAS 128,1997 incremental shares attributed to outstanding stock options were not
included because the Company will adoptresult would be anti-dilutive. All historical data
weighted average share and per share amounts have been restated to reflect the
provisionsadoption of SFAS No. 128 effective January 31, 1998 and restate all prior
periods to conform to this new pronouncement. Adoption is not expected to have
any material effect on the Company's reported Earnings per Share.
7128.
8
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The primary sources of the Company's cash for seasonal working
capital requirements and capital investments are net cash flows from operating
activities, funds available under its revolvingsenior credit facility and short-term
vendor financing.
CashThe Company's cash and cash equivalents were $10.8 million as of May 2, 1998
compared with $10.3 million as of May 3, 1997
in comparison to $9.3 million as of April 27, 1996. Cash1997. Consolidated cash flows from
operating activities, improved significantlynet of capital expenditures, for the last twelve months
rose to $7.6 million, up from a deficit of ($8.0) million during the prior
period. During the 13 weeks ended May 3, 1997 to ($16.4) million from ($34.9)
million during the same period of the prior fiscal year. This
improvement was primarily due to improved2, 1998, consolidated earnings before
interest, taxes, depreciation and amortization ("EBITDA") as
well as improvements in inventory management. EBITDA(EBITDA) increased $7.4$1.2 million
to $22.0 million from $20.8 million. During the first quarter, the Company's
wholly owned subsidiary, barnesandnoble.com, reported a loss before interest,
taxes, depreciation and amortization of ($12.2) million forreflecting continuing
strategic investment spending and increased operating costs. For the 13 weeks ended May 3,
1997 from $13.4 millionfirst
quarter, EBITDA in the sameretail business increased $13.1 million to $34.2
million from $21.1 million during the prior year period, last year.reflecting higher
gross margins and improving expense leverage (primarily in Barnes & Noble
store operating, rental and pre-opening costs).
Merchandise inventories increased 3.7%$125.1 million to $856.6 million as of May
2, 1998, compared with $731.5 million as of May 3, 1997, from $705.6 million as of April 27, 1996.1997. The controlled growth in consolidated inventory levels was
achieved during a period of 17.1%increase
supported the Company's revenue growth of 11.9% and 19.7%
square footage growth.
Duringa planned expansion in the
13 weeks ended May 3, 1997, cash flows were used
primarilyCompany's distribution center inventory to over 600,000 titles available for
immediate shipping to both online customers and the retail stores.
The Company's investing activities consist principally of capital expenditures
related to the Company's
Barnes & Noblefor new store expansionconstruction, system enhancements, store relocations/remodels
and to a lesser extent, for
increases in working capital related to such expansion.expenditures incurred by barnesandnoble.com. Capital expenditures
totaled $26.2$19.3 million and $51.9$26.1 million during the 13 weeks ended May 2, 1998
and May 3, 1997, and April 27, 1996,
respectively. TheseCapital expenditures were primarily forduring the first quarter
of 1998 reflected the opening of 14 fewer new Barnes & Noble stores compared
with the Company's new online business and
enhancementssame period of the prior year.
The ratio of debt to the Company's management information and
in-store systems.
Total debtequity was 0.67:1.00 as of May 2, 1998, compared with
0.81:1.00 as of May 3, 19971997. This significant improvement during a period of
record growth is the result of the Company's continued positive cash flows,
expanded gross margin, improved operating leverage and April 27, 1996 wasstrong emphasis on
working capital management.
Total debt decreased 2.9% to $358.6 million as of May 2, 1998 from $369.3
million and $357.5 million, respectively. Borrowingsas of May 3, 1997. Average borrowings under the Company's senior
credit facility averaged $165.2were $347.7 million and $122.5$355.2 million during the 13 weeks
ended May 2, 1998 and May 3, 1997, and April 27,
1996, respectively, and peaked at $190.2$380.8 million
and $180.3$380.2 million during the same periods, respectively.
Asperiods. The reduced average borrowings,
which were accomplished during a period of May 3, 1997,11.9.% revenue growth and strategic
investment in barnesandnoble.com, reflect the Company's senior credit facility
includes a $325,000 revolving credit facilitycommitment to
working capital management and a $100,000
term loan facility and provides for an additional commitment
of $125,000 which became available toexpense controls.
Based upon the Company in May,
1997. Based uponCompany's current operating levels and the planned
store expansion plans,
management believes net cash flows generated from operations, short-term vendor financingoperating activities and its borrowingthe capacity
under its $850.0 million senior credit facility will be sufficient to meet the
Company's working capital and debt service requirements fund restructuring reserves and support the
continued rolloutdevelopment of Barnes & Noble storesits short- and long-term strategies for at least the next
twelve moths.months.
The Company is continuing its comprehensive evaluation of all computer systems
and microprocessors and is in the process of replacing, modifying and/or
converting those systems which are not yet Year 2000 compliant. The
incremental costs over the next two years are being determined as part of the
continuing evaluation. Management
9
does not expect such costs to have a material adverse impact on the financial
position or results of operations of the Company.
The Company did not declare or pay any cash dividends during the 13-week
periods ended May 2, 1998 and May 3, 1997 and April 27, 1996.
8
1997.
Results of Operations
13 weeks ended May 2, 1998 compared with the 13 weeks ended May 3, 1997
and April 27, 1996
Revenues
Revenues increased 17.1%, or $86.9During the 13 weeks ended May 2, 1998, the Company's revenues grew 11.9% to
$666.3 million tofrom $595.7 million during the 13 weeks ended May 3, 1997 from $508.8 million
during1997.
During the 13 weeks ended April 27, 1996.first quarter, Barnes & Noble store revenues grew 26.3%rose 14.4% to $551.0
million from $481.6 million during the 13 weeks
ended May 3, 1997, an increasesame period a year ago. As a percentage
of $100.1 million from $381.5
million during the 13 weeks ended April 27, 1996. With the
Company's continued "super" store expansion,total revenues, Barnes & Noble store revenues represented 82.7% of
consolidated revenues during 1998, up from 80.8% during 1997.
During the first quarter, the 14.4% increase in Barnes & Noble store revenues
resulted from a same store sales gain of 6.1% coupled with 51 new stores
opened since May 3, 1997 which contributed a 13.1% increase in square footage.
Management attributed the strong same store sales performance to, among other
things, an increase in the number of stores eligible for inclusion in the same
store sales base and a reduction in self-cannibalization. The number of
comparable Barnes & Noble stores, as a percentage of total revenues, rose to
80.8% during the 13 weeks ended May 3, 1997, up from 75.0%
during the same period in the prior year. The increase in
revenues during the 13 weeks ended May 3, 1997 was primarily
attributable to an increase in comparable Barnes & Noble store
sales of 9.3% and revenues from the 87 new Barnes & Noble
stores, opened since April 27, 1996.increased to 85.5% as of May 2, 1998 compared with 74.0% as of May 3,
1997. First quarter revenues generated by barnesandnoble.com rose to $9.4
million, a 14.1% increase over revenues of $8.2 million reported for its
fourth quarter of fiscal 1997, continuing a string of successive double digit
quarterly increases.
During the first quarter, B. Dalton stores generated
18.2%revenues, which represented 15.1% of total
revenues in comparison with 18.2% during 1997, declined 7.7% primarily as a
result of store closings and a 6.4% reduction in its square footage since May
3, 1997. In addition, B. Dalton's same store sales were flat during the 13 weeks ended May 3, 1997
in comparison to 24.0% of total revenues during the same
period one year ago. B. Dalton comparable store sales
decreased (4.8%) for the period.first
quarter.
During the 13 weeks ended May 3, 1997,first quarter, the Company opened 16two Barnes & Noble stores and
closed one,four, bringing its total number of Barnes & Noble stores to 446.481 with
10.8 million square feet. The Company closed teneight B. Dalton stores, during the quarter and endedending
the period with 567 stores.520 B. Dalton stores and 2.0 million square feet. As of May 3, 19972,
1998 the Company operated 1,0131,001 stores in 5049 states and the District of
Columbia.
Cost of Sales Buying and Occupancy
During the 13 weeks ended May 3, 1997,2, 1998, cost of sales buying
and occupancy increased
$55.1$43.9 million, or 16.5%9.8%, to $388.6$492.1 million from $333.5$448.2 million forduring the same period one year ago.13
weeks ended May 3, 1997. As a percentage of revenues, cost of sales buying and
occupancy decreased to 65.2%73.9% during the 13 weeks ended May 3,
1997first quarter from 65.5%75.2% during the
13 weeks ended April 27, 1996. The
decrease in cost of sales, buying and occupancy as a
percentage of revenues was primarilysame period one year ago. Less reliance on wholesalers due to improvements in
merchandise mix and increased
direct purchasingfulfillment through the Company's distribution center.center, a better sales mix and
enhancements to the Company's inventory replenishment system, resulted in a
higher in-stock position and improved gross margins.
10
Selling and Administrative Expenses
Selling and administrative expenses increased $16.0$26.8 million or 15.4%, to $120.2$149.6 million
during the 13 weeks ended May 3,
19972, 1998 from $104.2 million during the 13 weeks ended April 27,
1996. Selling and administrative expenses decreased as a
percentage of revenues to 20.2% during the 13 weeks ended May
3, 1997 from 20.5% during the prior year period primarily due
to the Company's focus on expense controls and the continued
improvement in the Company's operating leverage resulting from
the maturation of the Company's Barnes & Noble stores.
9
Rental Expense, Depreciation and Amortization
Rental expense increased $9.1 million, or 17.0%, to $62.2$122.8 million during the 13 weeks
ended May 3, 1997 from $53.1
million during2, 1997. During the 13 weeks ended April 27, 1996. Asfirst quarter, selling and administrative
expenses increased as a percentage of revenues rental expenseto 22.4% from 20.6% during the
prior year period. The increase was 10.4% for eachprimarily attributable to increased
operating costs associated with the Company's strategic investment in
barnesandnoble.com.
Depreciation and Amortization
During the first quarter, depreciation and amortization increased $4.2
million, or 23.5%, to $21.9 million from $17.7 million during the same period
last year, as a result of the 13 weeks endeddepreciation on the 51 new Barnes & Noble stores
opened since May 3, 1997 and April 27, 1996.
Depreciation and amortization increased $4.1depreciation attributable to barnesandnoble.com's
capital expenditures.
Pre-opening Expenses
Pre-opening expenses decreased $1.3 million, or 30.6%32.4%, to $17.7$2.6 million during
the 13 weeks ended May 3, 19972, 1998 from $13.6 million during the 13 weeks ended April 27, 1996.
The increase was primarily a result of the 87 new Barnes &
Noble stores opened since April 27, 1996.
Pre-opening Expenses
Pre-opening expenses decreased $0.6 million, or 14.1%, to $3.9 million during the 13 weeks ended May
3, 1997, from $4.5primarily as a result of 36 fewer Barnes & Noble store openings
during the 52 weeks ended May 2, 1998 in comparison to the corresponding prior
year period.
Operating Profit
The Company's consolidated operating profit decreased to $0.1 million during
the 13 weeks ended April 27, 1996 primarily as
a result of fewer Barnes & Noble stores opened in the twelve
month period ended May 3, 1997 as compared to the
corresponding period of the prior year.
Operating Profit
As a result of the factors discussed above, the Company's
operating profit improved to2, 1998 from $3.1 million during the 13 weeks ended May
3, 1997 from1997. barnesandnoble.com's first quarter operating loss of ($13.6) million
was offset by a ($0.1)$13.7 million operating loss duringprofit generated by the 13 weeks ended April 27, 1996. This marks the first time
the Company posted a first-quarterretail
business. The $13.7 million operating profit since it
began its "super" store expansion. As a percentage of
revenues, operating profit increased to 0.5% for the 13 weeks
ended May 3, 1997retail business was up
over 300% from virtually break even for$3.4 million in the 13 weeks
ended April 27, 1996prior year, reflecting strong Barnes &
Noble comparable store sales,revenue gains, expanding gross margins and improvingincreasing operating
leverage.
Interest Expense, Net and Amortization of Deferred Financing Fees
InterestNet interest expense net of interest income, and amortization of deferred financing fees increaseddecreased to
$5.8 million during the 13 weeks ended May 2, 1998 from $9.6 million during the
13 weeks ended May 3, 1997. Interest expense decreased due to a decrease in the
average interest rate on borrowings as a result of the Company's refinancing of
its senior credit facility in November 1997 from $8.3 million during the 13
weeks ended April 27, 1996. The increase in net interest
expense reflects an increase inand lower average borrowings during
the 13 weeks ended May 2, 1998 as compared with the 13 weeks ended May 3, 1997 in comparison to the prior year
period related to the funding of capital expenditures and
working capital1997.
Benefit for the Company's Barnes & Noble store
expansion program.
Benefit For Income Taxes
The benefit for income taxes during the 13 weeks ended May 3,
19972, 1998 was $2.7$ 2.3
million compared to $3.1with $2.7 million during the 13 weeks ended April 27, 1996. The taxMay 3, 1997. Tax
benefits were based upon management's estimate of the Company's annualized
effective tax rates.
10
Net Loss
As a result of the factors discussed above, the Company's
resultsCompany reported a
consolidated net loss of operations were($3.3) million during the 13 weeks ended May 2, 1998
compared with a net loss of ($3.9) million during the 13 weeks ended May 3,
1997 compared to a net loss of
($5.4) million during the 13 weeks ended April 27, 1996.1997. During the 13 weeks ended May 3, 1997,first quarter, the net loss per common share improved towas ($0.05) per
share (based on 68.1 million shares) compared with a net loss of ($0.06) per
share (based on 66.4 million shares) during the same period a year ago. The
consolidated first quarter net loss reflects barnesandnoble.com's net loss of
($8.0) million or ($0.12) per share from ($0.16)share. Excluding barnesandnoble.com, net
earnings for the Company's retail operations increased to $4.7 million or
$0.07 per share forduring the same period in13 weeks ending May 2, 1998 compared with a net
loss of ($3.7) million or ($0.06) per share during the prior year.13 weeks ending May 3,
1997.
11
Forward-Looking Statements
This report containsmay contain certain forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) and
information relating to the Company that are based on the beliefs of the
management of the Company as well as assumptions made by and information
currently available to the management of the Company. When used in this
report, the words "anticipate," believe,"believe," "estimate," "expect," "intend,"
"plan" and similar expressions, as they relate to the Company or the
management of the Company, identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events, the outcome of which is subject to certain risks, including among
others general economic and market conditions, decreased consumer demand for
the Company's products, possible disruptions in the Company's computer or
telephone systems, increased or unanticipated costs or effects associated with
year 2000 compliance by the Company or its service or supply providers,
possible work stoppages, or increases in labor costs, possible increases in
shipping rates or interruptions in shipping service, effects of competition,
possible disruptions or delays in the opening of new stores or the level
and volatility ofinability
to relocation suitable sites for new stores, higher than anticipated store
closing or relocation costs, higher interest rates, the performance of the
Company's online initiatives such as barnesandnoble.com, unanticipated
increases in merchandise or occupancy costs, and other factors which may be
outside of the Company's control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described hereintherein as
anticipated, believed, estimated, expected, intended or planned. Subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements in this paragraph.
1112
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
In March 1998, the American Booksellers Association and twenty-six independent
bookstores filed a lawsuit in the United States District Court for the
Northern District of California against the Company and Borders Group Inc.
alleging violations of the Robinson-Patman Act, the California Unfair Trade
Practice Act and the California Unfair Competition Law. The Complaint seeks
injunctive and declaratory relief; treble damages on behalf of each of the
bookstore plaintiffs, and, with respect to the California bookstore
plaintiffs, any other damages permitted by California law; disgorgement of
money, property and gains wrongfully obtained in connection with the purchase
of books for resale, or offered for resale, in California from March 18, 1994
until the action is completed and pre-judgment interest on any amounts awarded
in the action, as well as attorney fees and costs. The Company intends to
vigorously defend this action.
In addition to the above action, various claims and lawsuits arising in the
normal course of business are pending against the Company. The subject matter
of these proceedings primarily includes commercial disputes and employment
issues. The results of these proceedings are not expected to have a material
adverse effect on the Company's consolidated financial position or results of
operations.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit filed with this Form 10-Q:
None.Exhibit 27 : Financial Data Schedule
(b) No report on Form 8-K was filed by the registrant during the
fiscal quarter for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARNES & NOBLE, INC.
--------------------
(Registrant)
Date: __________, 1997June 16, 1998 By: /s/ William F. Duffy
--------------------
William F. DuffyMarie J. Toulantis
----------------------
Marie J. Toulantis
Executive Vice President, Finance
and Chief
Accounting Officer
1314