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 March 31, 2000
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: 0-26063
barnesandnoble.com inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-4048787
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
76 Ninth Avenue, New York, NY 10011
(Address of Principal Executive Offices) (Zip Code)
(212) 414-6000
(Registrant's Telephone Number, Including Area Code)
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 No
--- ---
Number of shares of $.001 par value Class A Common Stock, Class B Common Stock
and Class C Common Stock outstanding as of May 8, 2000 was 30,780,433, one and
one, respectively.
barnesandnoble.com inc.
March 31, 2000
Index to Form 10-Q
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements......................................................... 3
Item 2: Management's Discussion and Analysis of Financial Condition and Results of 8
Operations...............................................................
Item 3: Quantitative and Qualitative Disclosures About Market Risk.................. 15
PART II - OTHER INFORMATION............................................................
Item 1: Legal Proceedings............................................................ 16
Item 2: Changes in Securities and Use of Proceeds ................................... 16
Item 3: Defaults upon Senior Securities.............................................. 16
Item 4: Submission of Matters to a Vote of Security Holders.......................... 16
Item 5: Other Information............................................................ 16
Item 6: Exhibits and Reports on Form 8-K............................................. 17
Signatures................................................................... 18
2
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
--------------------
barnesandnoble.com inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars, except per share data)
(unaudited)
Three Months Ended
-------------------------
March 31, March 31,
2000 1999 (1)
----------- ----------
Net sales $ 78,244 $ 32,317
Cost of sales 63,051 25,016
----------- ----------
Gross profit 15,193 7,301
----------- ----------
Operating expenses:
Marketing and sales 32,204 18,909
Technology and web site
development 6,364 3,519
General and administrative 5,296 3,512
Depreciation and amortization 6,319 2,595
Stock based compensation 11,915 --
Equity in net loss of Enews including
amortization of intangibles 5,206 --
----------- ----------
Total operating expenses 67,304 28,535
Loss from operations (52,111) (21,234)
Interest income, net 7,907 1,016
----------- ----------
Loss before minority interest (44,204) (20,218)
Minority interest 35,204 16,174
----------- ----------
Net loss $ (9,000) $ (4,044)
=========== ==========
Basic and diluted loss before minority
interest per share ($ 0.30) ($ 0.14)
Basic and diluted weighted average shares
outstanding if converted (2) 145,176 143,750
Basic and diluted net loss per
common share . ($ 0.30) ($ 0.14)
Basic and diluted weighted average
common shares outstanding 28,809 28,750
(1) Represents pro forma results as if the shares issued in the initial public
offering of barnesandnoble.com inc. and the acquisition of the interest in
barnesandnoble.com llc was completed as of the beginning of the earliest
period presented.
(2) For periods prior to May 25, 1999, reflects the pro forma effect of the
shares issued in the Company's Initial Public Offering assuming they were
issued in the beginning of 1997.
See accompanying notes to consolidated financial statements.
3
barnesandnoble.com inc.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except share and per share data)
March 31, December 31,
2000 1999
------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 39,547 $ 247,403
Marketable securities 321,375 230,644
Receivables, net 20,447 15,520
Merchandise inventories 8,918 3,886
Prepaid expenses and other current assets 8,476 8,161
------------- --------------
Total current assets 398,763 505,614
------------- --------------
Fixed assets, net 110,937 97,854
Long term marketable securities 71,852 71,852
Other non-current assets 38,296 4,198
------------- --------------
Total assets $ 619,848 $ 679,518
------------- --------------
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 12,089 $ 19,204
Accrued liabilities 26,569 39,627
Due to affiliate 7,415 17,109
------------- --------------
Total current liabilities 46,073 75,940
------------- --------------
Minority interest 457,931 482,896
------------- --------------
Stockholders' equity:
Preferred Stock: $0.001 par value; 50,000,000 shares
authorized; none issued and outstanding -- --
Common Stock Series A; $0.001 par value; 750,000,000
shares authorized; 30,386,261 and 0 shares issued
and outstanding, respectively 30 29
Common Stock Series B; $0.001 par value; 1,000 shares
authorized; 1 and 0 shares issued and outstanding,
respectively -- --
Common Stock Series C; $0.001 par value; 1,000 shares
authorized; 1 and 0 shares issued and outstanding,
respectively -- --
Paid-in capital 138,613 134,452
Accumulated deficit (22,799) (13,799)(1)
------------- --------------
Total stockholders' equity 115,844 120,682
------------- --------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 619,848 $ 679,518
------------- --------------
(1) Represents accumulated deficit of barnesandnoble.com inc. since the
Company's initial public offering on May 25, 1999.
See accompanying notes to consolidated financial statements.
4
barnesandnoble.com inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars, except per share data)
(unaudited)
Three Months Ended
------------------------------------
Pro forma (1)
March 31, March 31,
2000 1999
----------------- -------------
Cash flows from operating activities:
Net loss $ (9,000) $ (4,044)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization 6,009 2,595
Non-cash acquisition, disposition and
investment related costs 12,857 --
Decrease (increase) in receivables, net (4,927) 655
Increase in merchandise inventories (5,032) (717)
Increase in prepaid expenses and
other current assets (315) (600)
Increase (decrease) in accounts payable (7,115) 3,455
Decrease in due to affiliate (9,694) (5,126)
Decrease in accrued liabilities (13,058) (12,047)
Minority interest in loss (35,204) (16,174)
----------------- -------------
Net cash flows used in operating activities (65,479) (32,003)
Cash flows from investing activities:
Purchases of fixed assets (19,039) (3,691)
Purchases of marketable securities (90,731) --
Increase in restricted cash -- (235)
Increase in other non-current assets (34,151) (75)
----------------- -------------
Net cash flows used in investing activities (143,921) (4,001)
Cash flows from financing activities:
Proceeds from exercise of stock options 1,544 --
----------------- -------------
Net cash flows from financing activities 1,544 --
Net change in cash and cash equivalents (207,856) (36,004)
Cash and cash equivalents at beginning of period 247,403 96,940
----------------- -------------
Cash and cash equivalents at end of period $ 39,547 $ 60,936
----------------- -------------
(1) Represents pro forma results as if the shares issued in the initial public
offering of barnesandnoble.com inc. and the acquisition of the interest in
barnesandnoble.com llc was completed as of the beginning of the earliest
period presented.
See accompanying notes to consolidated financial statements.
5
barnesandnoble.com inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000 and March 31, 1999
(in thousands of dollars, except per share data)
The unaudited consolidated financial statements include the accounts of
barnesandnoble.com inc. (the "Company") and barnesandnoble.com llc ("B&N.com").
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 March 31, 2000 and the results of its operations and
its cash flows for the three months 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 year ended December 31, 1999. The Company followed
the same accounting policies in preparation of this report as in such Annual
Report. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
1. Organization
The Company is a holding company whose sole asset is a 20.36% equity
interest in B&N.com, an online retailer of knowledge, information, education and
entertainment related products, and whose sole business is currently acting as
sole manager of B&N.com. As sole manager of B&N.com, the Company controls all of
the affairs of B&N.com and as a result, B&N.com is consolidated with the
Company. Barnes & Noble, Inc. ("Barnes & Noble") and Bertelsmann A.G.
("Bertelsmann") each beneficially own a 39.82% equity interest (equivalent to an
aggregate of 115 million Membership Units) in B&N.com. Each Membership Unit held
by these companies is convertible into one share of the Company's Class A Common
Stock. As reflected in the statements of operations, the loss before minority
interest represents the total loss for the period and the net loss represents
the portion of the loss attributable to the Company subsequent to the
commencement of its activities.
2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual results
could differ from these estimates.
3. Business Combinations and Investments
In January 2000, B&N.com acquired a 32% common stock interest in
Enews.com, the largest retailer of magazine subscriptions on the Internet, and
warrants to acquire an additional 8% of common stock. The purchase price was
$26,428 in cash and stock valued at $12,857, to expand its presence in the
growing on-line magazine subscription market. The Company has accounted for this
acquisition using the equity method of accounting. Pro forma results of
operations for the first quarter of 1999 have not been included as they would
not have had a material effect on overall results of operations of the Company.
6
barnesandnoble.com inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000 and March 31, 1999
(in thousands of dollars, except per share data)
B&N.com invests certain of its excess cash in debt instruments of the
U.S. Government and its agencies, and of high quality corporate issuers. All
highly liquid instruments with an original maturity of three months or less are
considered cash equivalents; those with original maturities greater than three
months are considered marketable securities. B&N.com classified investments in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities".
At March 31, 2000, short-term investments in marketable securities
consist primarily of U.S. Treasury Securities, U.S. government agency securities
and investments in high quality corporate issuers and were classified as
held-to-maturity. Unrealized holding gains and losses at March 31, 2000 were not
significant.
4. Stockholders' Equity
There are three classes of common stock authorized: Class A Common
Stock ("Class A Common"), Class B Common Stock ("Class B Common") and Class C
Common Stock ("Class C Common"). The holders of Class A Common generally have
rights identical to holders of Class B Common and Class C Common (collectively
"High Vote Stock"), except that each holder of Class A Common is entitled to one
vote per share and each holder of High Vote Stock is entitled to the number of
votes per share equal to: (i) ten, multiplied by the sum of (a) the aggregate
number of High Vote Stock owned by such holder and (b) the aggregate number of
Membership Units owned by such holder; divided by (ii) the number of shares of
High Vote Stock owned by such holder. Pursuant to the Company's Amended and
Restated Certificate of Incorporation (the "Amended Charter"), the holders of
the Class B Common Stock and the holders of the Class C Common Stock have the
right to each elect three of the Company's directors. Otherwise, holders of
Class A Common and High Vote Stock (collectively "Common Stock") generally will
vote together as a single class on all matters (including the election of the
directors who are not elected directly by the holders of the High Vote Stock)
presented to the stockholders for their vote or approval, except as otherwise
required by applicable Delaware law.
The Board of Directors is authorized to issue up to an aggregate of 50
million shares of Preferred Stock. The rights and characteristics of the
Preferred Stock are at the discretion of the Board of Directors. There is no
Preferred Stock outstanding.
7
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
(in thousands of dollars)
Overview
The Company is a holding company whose sole asset is its 20.36% equity
interest in B&N.com and whose sole business is acting as sole manager of
B&N.com. Since launching its online business in May 1997, B&N.com has become one
of the world's largest Web sites and the sixth largest e-commerce site,
according to Media Metrix. Focused largely on the sale of books, music,
software, magazines, prints, posters and related products, B&N.com has
capitalized on the recognized brand value of the Barnes & Noble name to become
the second largest, and one of the fastest growing, online distributors of
books.
Customers can choose from millions of new and out-of-print titles and
enjoy a variety of related content such as author chats, book synopses and
reader reviews. The site also offers for sale thousands of bargain books
discounted up to 91 percent, the most popular software and magazine titles, gift
items for every occasion, a Prints & Posters Gallery and a free eCard service.
With access to Barnes & Noble's more than 750,000 in-stock titles, B&N.com has
the largest standing inventory of any online bookseller ready for immediate
delivery. The URL http://www.bn.com makes the site easy to find.
B&N.com's affiliate network has more than 360,000 members and the
Company maintains strategic alliances with major Web portals and content sites,
such as AOL, Lycos and MSN. The affiliate network, which began 1999 with 48,000
members, is among the fastest growing in e-commerce. B&N.com is also a leader in
business-to-business e-commerce with its unique Business Solutions program.
The results of operations discussed hereafter include the consolidated
results of the Company and B&N.com. In view of the rapidly changing nature of
B&N.com's business and its limited operating history, the Company believes that
period-to-period comparisons of the operating results of B&N.com, including
gross profit margin and operating expenses as a percentage of sales, are not
necessarily meaningful and should not be relied upon as an indication of future
performance.
Results of Operations
Net Sales
Three Months Ended March 31,
------------------------------------------------------
2000 1999 % Change
--------------- --------------- ------------
Net sales $ 78,244 $ 32,317 142%
Net sales are composed of sales of books, music, software, prints &
posters and related products, net of returns, as well as outbound shipping and
handling charges. Growth in net sales reflects a significant increase in units
sold due to the growth of B&N.com's customer base and repeat purchases from
B&N.com's existing customers. B&N.com added more than 850,000 customers during
the first quarter 2000, raising the cumulative customer count to nearly five
million as of March 31, 2000, an increase of over 21 percent from the year-end
1999 total. Cumulative repeat customer orders reached 68.1 percent in the first
quarter, a significant increase from 56.0 percent a year ago, reflecting
increased customer loyalty.
Gross Profit
Three Months Ended March 31,
---------------------------------------------------------
2000 1999 % Change
--------------- ------------------ -----------
Gross profit $ 15,193 $ 7,301 108%
Gross margin 19.4% 22.6%
Gross profit is net sales less the cost of sales, which consists of the
cost of merchandise sold to customers, and outbound and inbound shipping costs.
Gross profit increased due to the Company's increased sales volume, however,
gross margin decreased in the first quarter of 2000 to 19.4% from 22.6% in the
first quarter of 1999. The decrease in gross margin is due primarily to the
increase, from 40% to 50%, in May 1999 of the discount offered on New York Times
best sellers, the introduction of music during the third quarter of 1999 which
has a lower gross margin than the Company's book products and a lower than
anticipated internal fill rate.
The Company intends to expand its operations by promoting new or
complementary products or sales formats and by expanding the breadth and depth
of its product and service offerings. In March 2000 the Company offered a new
Stephen King short story, Riding the Bullet, as a free digital download to
customers. The response was overwhelming, with hundreds of thousands of
customers participating in the offer. Gross margins attributable to new business
areas may be lower than those associated with the Company's existing business
activities. Therefore, to the extent lower margin products become a larger
portion of the Company's product mix, a proportionate impact on overall product
gross margin is expected.
Marketing and Sales
Three Months Ended March 31,
-----------------------------------------------
2000 1999 % Change
------------- ------------- ----------
Marketing and sales $ 32,204 $ 18,909 70%
Percentage of net sales 41.1% 58.5%
Marketing and sales expenses consist primarily of advertising and
promotional expenditures, as well as payroll and related expenses for personnel
engaged in marketing, selling and fulfillment activities. All fulfillment costs,
including the cost of operating and staffing distribution and customer service
centers, are included in marketing and sales. Marketing and sales expenses
increased primarily due to the increases in the B&N.com's advertising and
promotional expenditures and increased payroll and related costs associated with
fulfilling customer demand. Such expenses decreased as a percentage of net sales
due to the significant increase in net
9
sales and the Company's efforts to improve the productivity of its marketing
expenditures. B&N.com intends to continue pursuing its aggressive branding and
campaigns; and anticipates its variable costs of fulfillment to increase based
on anticipated sales growth. Fixed fulfillment costs are expected to increase as
a result of opening two new distribution facilities; the Memphis facility began
operation on May 1 and the Reno facility, which is expected to open later this
year. B&N.com expects total fulfillment costs as a percentage of sales to be
higher as a result. B&N.com has included in marketing expenses approximately
$4.3 million, or 5.5% of sales, of coupon redemptions for the first quarter of
2000. Had B&N.com treated coupon redemptions as a reduction to sales and
marketing expense, gross margin would have decreased from 19.4% to 14.8% and
marketing and sales expense as a percentage of sales would have decreased from
41.1% to 37.8%.
Accounting standard setters are currently reviewing financial
statements of internet companies in order to achieve a consensus with respect to
the financial statement presentation of certain items. Included in this review
is the current practice of including certain warehouse and fulfillment costs in
marketing and sales expense instead of in cost of sales. Also being reviewed by
accounting standard setters is the practice of classifying certain coupon
redemption costs as marketing and sales expense instead of as a reduction to
sales.
Technology and Web Site Development
Three Months Ended March 31,
--------------------------------------------------
2000 1999 % Change
-------------- -------------- ------------
Technology and web site
development $ 6,364 $ 3,519 81%
Percentage of net sales 8.1% 10.9%
Technology and Web site development expenses consist principally of
payroll and related expenses for web page production, editorial and network
operations personnel and consultants, and infrastructure related to systems and
telecommunications. As a percentage of net sales, technology and Web site
development expenses have steadily decreased, demonstrating the leveraging of
these expenses. The increase in technology and Web site development expenses in
dollars, was primarily attributable to increased staffing and associated costs
related to enhancing the features, content and functionality of B&N.com's Web
site and transaction-processing systems. Technology and Web site development
expenses are also a result of increased investments in systems and
telecommunications infrastructure, including investments associated with the
introduction of new product lines and the enhancement of existing product lines.
For example, in January 2000, the Company and Microsoft announced that they
would develop an eBook Superstore using Microsoft Reader software. The Company
expects to open an eBook Superstore in the second quarter of 2000. In February
2000, the Company launched bnRadio, the first Internet radio service linked to
an e-commerce company that allows customers to listen to full-length songs and
excerpts from audio books, and click to immediately order any selections they
hear. Additional technology and Web site expenses were also required to support
the significant increase in net sales. B&N.com believes that continued
investment in technology and Web site development is critical to attaining its
strategic objectives. As a result, B&N.com expects technology and Web site
development expenses to continue to increase.
10
General and Administrative
Three Months Ended March 31,
--------------------------------------------
2000 1999 % Change
----------- ------------- ------------
General and administrative $ 5,296 $ 3,512 51%
Percentage of net sales 6.8% 10.9%
General and administrative expenses consist of payroll and related
expenses for executive, finance and administrative personnel, recruiting,
professional fees and other general corporate expenses including costs to
process credit card transactions. The increase in general and administrative
expenses was primarily a result of increased salaries and related expenses
associated with the hiring of additional personnel and professional fees related
to B&N.com's growth and expanded activities. Such expenses decreased as a
percentage of net sales due to the significant increase in net sales and the
effects of leveraging these expenses over a larger sales base. B&N.com expects
general and administrative expenses to increase as B&N.com expands its staff and
incurs additional costs related to the growth of its business; however, B&N.com
expects continued decreases of general and administrative expenses as a
percentage of sales.
Depreciation and Amortization
Three Months Ended March 31,
---------------------------------------------
2000 1999 % Change
------------- ------------- -----------
Depreciation and
amortization $ 6,319 $ 2,595 144%
Percentage of net sales 8.1% 8.0%
The increase in depreciation and amortization expenses was primarily
attributable to the increase of purchases of fixed assets of $19.0 million in
the first quarter of 2000 as compared to $3.7 million for the first quarter of
1999. Over the next twelve months the Company anticipates higher depreciation
and amortization expenses related to the significant additions of fixed assets
placed in service to support the operations of the two new distribution centers.
11
Stock Based Compensation
Three Months Ended March 31,
------------------------------------------------
2000 1999 % Change
-------------- ------------- ------------
Stock based compensation $ 11,915 $ - -
Percentage of net sales 15.2% -
Stock based compensation for the first quarter of 2000 consists of the
expenses incurred from a payment of $10,940 to Jonathan Bulkeley, former Chief
Executive Officer, in March 2000 for the surrender and cancellation of
exercisable stock options and the repricing of a portion of the Company's
options in February 2000. An additional $800 represents a severance payment to
Mr. Bulkeley under the terms of his Employment Agreement. On March 1, 2000 the
Company repriced approximately 5 million (net of cancellations) of 16 million
then outstanding options which were originally granted at an average exercise
price of $16.15. The new exercise price for the options is $8.00, the closing
market price of the Company's stock as of March 1, 2000. Based on current
accounting pronouncements, the Company is accounting for the repriced options as
if they were variable options and as a result, recorded a non-cash charge of
$175 in the first quarter of 2000.
Equity in Net Loss of Enews including Amortization of Intangibles.
Three Months Ended March 31,
--------------------------------------------
2000 1999 % Change
------------ ------------ ------------
Equity in net loss
of Enews including
amortization of intangibles $ 5,206 $ - -
Percentage of net sales 6.7% -
Equity in net loss of Enews including amortization of intangibles
consists of expenses from the Company's previously announced acquisition of an
equity stake in Enews.com, the largest retailer of magazine subscriptions on the
Internet. In recent months Enews.com has been cited by Media Metrix as the No. 1
fastest growing e-commerce site, as measured by average daily visitors; by PC
Data as the 8th largest e-commerce site on the Web and as a Top 100 Web Site
and by Nielsen/NetRatings as the 15th Top Advertiser on the Web.
12
Interest Income, Net
Three Months Ended March 31,
--------------------------------------------
2000 1999 % Change
----------- ----------- --------------
Interest income, net $ 7,907 $ 1,016 678%
Percentage of net sales 10.1% 3.1%
An increase in interest income on cash and marketable securities was
related to funds received from the Company's initial public offering in the
second quarter of 1999 which are currently invested in various fixed income and
money market investments.
Income Taxes
The Company has not generated any taxable income to date and therefore
has not paid any federal income taxes since inception. The Company has provided
a full valuation allowance on the deferred tax asset, consisting primarily of
net operating loss carryforwards, due to the uncertainty of its realizability.
Liquidity and Capital Resources
As of March 31, 2000, the Company's cash, cash equivalents and
short-term marketable securities were $360.9 million, compared to $478.0 million
on December 31, 1999. At March 31, 2000, the Company had $71.9 million in
long-term marketable securities, equaling the $71.9 million of long-term
marketable securities at December 31, 1999. The Company completed the first
quarter 2000 with a debt-free balance sheet and cash and investments totaling
$432.8 million. On May 25, 1999, the Company completed an initial public
offering of 28,750,000 shares of Class A Common Stock at a price of $18 per
share. The net proceeds to the Company from the initial public offering were
approximately $484.4 million. At the completion of the initial public offering,
the Company received additional capital contributions of $50.0 million.
Net cash flows used in operating activities were $65.5 million for the
three months ended March 31, 2000 and $32.0 million for the three months ended
March 31, 1999. Cash used for the three months ended March 31, 2000, was
primarily attributable to a net loss of $9.0 million and a corresponding
decrease in minority interest of $35.2 million, a decrease in payables to
affiliates of $9.7 million, a $7.1 million decrease in accounts payable and a
decrease in accrued liabilities of $13.1 million. In addition, receivables
increased $4.9 million, merchandise inventories increased $5.0 million and
prepaid expenses and other current assets increased $0.3 million. This was
partially offset by depreciation and amortization of $6.0 million and non-cash
acquisition, disposition and investment related costs of $12.9 million. Cash
used for the three months ended March 31, 1999, was primarily attributable to a
net loss of $4.0 million and a corresponding decrease in minority interest of
$16.2 million, a decrease in payables to affiliates of $5.1 million and a
decrease in accrued liabilities of $12.0 million. In addition, merchandise
inventories increased $0.7 million and prepaid expenses and other current assets
increased $0.6 million. This was partially offset by depreciation and
amortization of $2.6 million, a decrease in receivables of $0.7 million and an
increase in accounts payable of $3.5 million.
13
Net cash used in investing activities of $143.9 million for the three
months ended March 31, 2000 was attributable to a $90.7 million increase in
marketable securities, a $34.2 million increase in other non-current assets and
purchases of fixed assets totaling $19.0 million. Net cash used in investing
activities of $4.0 million for the three months ended March 31, 1999 was
primarily attributable to purchases of fixed assets.
Net cash flows from financing activities were $1.5 million for the
three months ended March 31, 2000, attributable to proceeds from the exercise of
stock options.
At March 31, 2000, the Company's principal sources of liquidity
consisted of $39.5 million of cash and cash equivalents and $321.4 million of
short-term marketable securities. Long term marketable securities totaled $71.9
million. Preparing two distribution centers for operation this year is expected
to require continued significant capital expenditures. The Memphis distribution
facility was completed on May 1. Total capital expenditures for the Reno
facility are expected to be between $15 million and $20 million over the next
six months. The distribution centers are being established to enhance service
and availability to customers and improve purchasing efficiencies. Expenditures
to stock inventories at both facilities will continue over the next six months.
As of March 31, 2000, the Company's remaining principal commitments consisted of
obligations outstanding under operating leases and commitments for advertising,
marketing and promotion arrangements. The Company anticipates a continued
increase in its capital expenditures consistent with anticipated growth in
operations, infrastructure and personnel.
The Company believes that current cash and investments will be
sufficient to meet its anticipated cash needs for at least twelve months.
However, any projection of future cash needs and cash flows is subject to
substantial uncertainty. If current cash and short term investments in addition
to cash generated from operations is insufficient to satisfy the Company's
liquidity requirements, the Company may seek to sell additional equity or debt
securities or to obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders. There can be no assurance that financing will be available in
amounts or on terms acceptable to the Company, if at all. In addition, the
Company will, from time to time, consider the acquisition of or investment in
complementary businesses, products and technologies, which might increase the
Company's liquidity requirements or cause the Company to issue additional equity
or debt securities.
Year 2000
Year 2000 Compliance
Neither the Company nor B&N.com have experienced any material Year 2000
problems. However, there can be no assurance that problems will not arise for
the Company or B&N.com, their suppliers or others with whom the Company or
B&N.com do business with in 2000. The Company and B&N.com intend to continue to
monitor their compliance, as well as the compliance of others whose operations
are material to B&N.com's business.
Forward-Looking Statements
This report may 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 and B&N.com 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," "estimate," "expect," "intend," "plan" and
similar expressions, as they relate to the Company, B&N.com or the management of
the Company, identify forward-looking statements. Such statements reflect the
current views of the Company with
14
respect to future events, the outcome of which is subject to certain risks,
including among others general economic and market conditions, changes in
product demand, the growth rate of Internet usage and e-commerce, possible
disruptions in the Company's or B&N.com's computer or telephone systems,
possible increases in shipping rates or interruptions in shipping service,
effects of competition, the level and volatility of interest rates, changes in
tax and other governmental rules and regulations applicable to the Company or
B&N.com, the success of B&N.com's strategic investments, the successful
development and integration of B&N.com's new distribution centers and other
factors that 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
herein as anticipated, believed, estimated, expected, intended or planned.
Subsequent written and oral forward-looking statements attributable to the
Company, B&N.com or persons acting on their behalf are expressly qualified in
their entirety by the cautionary statements in this paragraph.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
None
15
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
No material developments have occurred with respect to previously
reported legal proceedings.
Item 2: Changes in Securities and Use of Proceeds
The effective date of the Company's registration statement, filed on
Form S-1 under the Securities Act of 1933 (File No. 333-64211) relating to the
initial public offering of its Class A Common Stock, was May 25, 1999. Pursuant
to the initial public offering, a total of 28,750,000 shares of the Company's
Class A Common Stock were sold to an underwriting syndicate. The managing
underwriters of the initial public offering were Goldman, Sachs & Co., Merrill
Lynch & Co., Salomon Smith Barney and Wit Capital Corporation. The initial
public offering was completed on May 28, 1999, at an initial public offering
price of $18.00 per share. The initial public offering resulted in gross
proceeds to the Company of $517.5 million, $31.1 million of which were applied
to the underwriting discount and approximately $2.0 million of which were
applied to initial public offering expenses. As a result, net proceeds of the
initial public offering to the Company were approximately $484.4 million. Such
net proceeds were used by the Company to acquire 28,750,000 Membership Units of
B&N.com. Since May 28, 1999, B&N.com has invested approximately $321.4 million
of such net proceeds in short-term marketable securities and $71.9 million in
long-term marketable securities. The remainder of the funds have been used to
purchase fixed assets and support the operations of B&N.com. Except as indicated
in the Company's prospectus, none of the net proceeds of the initial public
offering were paid by the Company or B&N.com, directly or indirectly, to any
director, officer or general partner of the Company or B&N.com or any of their
associates, or to any persons owning ten percent or more of any class of the
Company's equity securities, or any affiliates of the Company or B&N.com.
Item 3: Defaults upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Securities Holders
None
Item 5: Other Information
None
16
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Form 10-Q:
Exhibit 10.1 Separation Agreement among the Company,
B&N.com and Jonathan Bulkeley
Exhibit 27 Financial Data Schedule
(b) No report on 8-K was filed by registrant during the
fiscal quarter for which this report is filed.
17
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.
barnesandnoble.com inc.
-----------------------
(Registrant)
Date: May 15, 2000 By: /s/ Marie Toulantis
--------------------
Marie Toulantis
Chief Financial Officer
18