SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
For the fiscal year ended February 1, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission File No. 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)
Registrant's telephone number, including area code: (212) 633-3300
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share New York Stock Exchange
(Title of Class) (Name of Exchange on
which registered)
Securities registered pursuant to Section 12(b) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $948,632,750 based upon the closing market price of
$37.25 per share of Common Stock on the New York Stock Exchange as of April 4,
1997.
Number of shares of $.001 par value Common Stock outstanding as of April 4,
1997: 33,238,528
(Cover page 1 of 2)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Portions of the Registrant's Annual Report to Shareholder for the fiscal year
ended February 1, 1997 are incorporated by reference into Parts II and IV.
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business.................................................. 4
Item 2. Properties................................................ 15
Item 3. Legal Proceedings......................................... 15
Item 4. Submission of Matters to a Vote of Security Holders....... 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 16
Item 6. Selected Financial Data................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation..................... 17
Item 8. Financial Statements and Supplementary Data............... 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 17
PART III
Item 10. Directors and Executive Officers of the Registrant........ 17
Item 11. Executive Compensation.................................... 17
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................. 18
Item 13. Certain Relationships and Related Transactions............ 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................... 18
3
PART I
ITEM 1. BUSINESS
General
Barnes & Noble, Inc. ("Barnes & Noble" or the "Company"), the world's
largest bookseller, operated 431 "super" bookstores in 47 states and the
District of Columbia and 577 mall-based bookstores in 46 states and the District
of Columbia as of February 1, 1997. The Company's rapidly expanding "super"
store business operates under the Barnes & Noble Booksellers, Bookstop and
Bookstar tradenames (collectively "Barnes & Noble stores") and its mall-based
business operates under the B. Dalton Bookseller, Doubleday Book Shops and
Scribner's Bookstore tradenames (collectively "B. Dalton").The Company is the
world's largest supplier of books through direct-mail catalogs and it publishes
books under its own imprint for exclusive sale through its retail bookstores and
mail-order catalogs. The Company is also the exclusive bookseller in America
Online's Marketplace and has plans to launch a World Wide Web site, operating
the "world's largest bookseller online," during 1997.
The Company's principal business is the retail sale of trade books
(generally hardcover and paperback consumer titles, excluding educational
textbooks and specialized religious titles), mass market paperbacks (such as
mystery, romance, science fiction and other popular fiction), children's books,
off-price bargain books and magazines. These collectively account for
substantially all of the Company's sales.
The Company generated revenues of $2.448 billion during the 53 weeks
ended February 1, 1997, an increase of 23.8% compared to revenues of $1.977
billion during the 52 weeks ended January 27, 1996. During the 53 weeks ended
February 1, 1997 revenues from the Barnes & Noble stores rose 37.9% to $1.861
billion from $1.350 billion during the 52 weeks ended January 27, 1996. The
Company's net earnings increased to $51.2 million during the 53 weeks ended
February 1, 1997 from $34.3 million during the 52 weeks ended January 27, 1996
and net earnings per common share were $1.48 compared with $1.05 for the same
respective periods.
Barnes & Noble Stores
General
The Company is the largest operator of book "super" stores in the
United States with 431 stores, of which 91 were opened during the 53 weeks ended
February 1, 1997. During the 53 weeks ended February 1, 1997, Barnes & Noble
stores generated 76.0% of total Company revenues, up from 68.3% during the 52
weeks ended January 27, 1996, and contributed more than 85% of the Company's
operating profits. The Barnes & Noble stores realized a comparable store sales
increase of 7.3% during the 53 weeks ended February 1, 1997.
Barnes & Noble stores average 22,000 square feet and, depending upon
market size, range in size from 10,000 to 60,000 square feet. Since its
acquisition of 23 stores from Bookstop, Inc. ("Bookstop"), most of which
averaged 10,000 square feet, the Barnes & Noble store prototype has grown
steadily in size, reaching an average of 27,000 square feet in 1995, and has
since remained relatively constant through 1996. The Company upgraded 12 of its
early generation Barnes & Noble and Bookstop stores during the 53 weeks
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ended February 1, 1997 when it relocated and expanded the stores to conform to
its current "super" store prototype. The Company expects to complete this
modernization program during 1997 with eight more store relocations or
expansions. With its current, overall market leadership position and its high
standards for site selection, store design, merchandising and customer service,
the Company believes that its Barnes & Noble "super" store business has
significant growth opportunities and intends to expand its operations in new and
existing markets. During the 53 weeks ended February 1, 1997, the Company opened
91 Barnes & Noble stores and plans to continue to open as many new stores in the
future that meet its strict standard for return on investment. As of February 1,
1997, the total square footage of the Barnes & Noble stores exceeded 9.3 million
square feet, a 33% increase over the prior year. The Company intends to open
approximately 70 stores during the 52 weeks ending January 31, 1998. The Company
believes that the key elements contributing to the success of the Barnes & Noble
stores are:
Proximity to Customers. The Company's strategy is to increase its share
of the consumer book market, as well as to increase the size of the market.
Since it began its "super" store roll-out, the Company has employed a market
clustering strategy. As of February 1, 1997 Barnes & Noble had stores in 132 of
the total 208 ADI markets (Area of Dominant Influence), and more than one
"super" store in 61 of these markets. The Company believes its early market
penetration and the stores' proximity to their customers strengthen its market
position and increase its franchise value. During the 53 weeks ended February
1, 1997, the Barnes & Noble stores' share of the consumer book market increased
to approximately 9%. Most Barnes & Noble stores are located in high-traffic
areas with convenient access to major commercial thoroughfares and ample
parking. Most stores offer extended shopping hours, generally 9:00 a.m. to 11:00
p.m., seven days a week.
Dominant Title Selection. Each Barnes & Noble store features an
authoritative selection of books, ranging between 60,000 and 175,000 titles.
Each store's comprehensive title selection is customized to the local
community's interests and demands. To further the breadth of title selection,
Barnes & Noble funds the Discover Great New Writers program supporting the work
of newly published authors, and emphasizes books published by small and
independent publishers and university presses. In addition to this extensive
on-site selection, each store will special order any book from the more than 1.2
million books in print. The Company believes that its tremendous selection,
including many otherwise hard-to-find titles, builds customer loyalty.
Experienced Booksellers. Six years into its "super" store roll-out, the
Company has a large and experienced base of booksellers from which it can select
managers and booksellers to fill positions in the Company's expanding business.
The Company's culture of outgoing, helpful and knowledgeable booksellers
consists of 24,000 full- and part-time employees operating over 1,000 stores as
of February 1, 1997. During the 53 weeks ended February 1, 1997, 75% of the new
Barnes & Noble store managers were promoted from within this group, a record for
which the Company expects to realize the benefits of better store-level
execution, staffing and customer service.
Store Design and Ambiance. The Barnes & Noble stores are designed to be
reminiscent of an old world library, with wood fixtures, antique style chairs
and tables, ample public space, a cafe and public restrooms. Barnes & Noble's
literary cafes, for which the Starbucks Coffee Company is the sole provider of
coffee products, further the image of its "super" stores as a community meeting
place.
Music Departments. As of February 1, 1997, the Company had 124 Barnes
& Noble stores with music departments which range in size from 2,000 to 4,000
square feet. The music departments generally stock over 50,000
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titles in classical music, opera, jazz, blues and pop rock, tailored to the
tastes of the Company's core customers - the 35- to 45-year age group. Listening
stations are available for customers to preview selected compact disks.
Discount Pricing. The Barnes & Noble stores employ a nationwide
discount pricing strategy. The New York Times hardcover bestsellers are
discounted 30% off the publishers' suggested retail price, with a 10% discount
on most other hardcover books. The Company believes that its pricing strategies
enable the Company to be highly competitive.
Marketing and Community Relations. Barnes & Noble stores are launched
with a major grand opening campaign involving extensive print and radio
advertising, direct-mail marketing and community events. Each store plans its
own community-based calendar of events, including author appearances, children's
storytelling hours, poetry readings and discussion groups. The Company believes
its community focus encourages customer loyalty, significant word-of-mouth
publicity and free media coverage.
Proprietary Product. The Company features titles published under the
Barnes & Noble Books imprint in its Barnes & Noble and B. Dalton stores and
mail-order catalogs. During the 53 weeks ended February 1, 1997, sales of Barnes
& Noble's self-published titles grew 40% over the 52 weeks ended January 27,
1996. During 1996 the Company introduced more than 350 new titles under its own
imprint, bringing its total catalog of self-published books to 1,500 titles.
Sales of these books enable the Company to distinguish its product offerings
from those of its competitors and offer customers high quality books at
excellent values while generating higher gross margins. Barnes & Noble expects
its proprietary publishing will become a larger part of its operations and plans
to increase the number of titles it publishes.
Merchandising and Marketing
The Company's merchandising strategy for its Barnes & Noble stores is
to be the authoritative community bookstore which carries a dominant selection
of titles in all subjects, including an extensive selection of titles from small
independent publishers and university presses. Each Barnes & Noble store stocks
from 60,000 to 175,000 titles, of which approximately 50,000 titles are common
to all stores; the balance is crafted to reflect the lifestyles and interests of
each store's customers. Before a store opens, the Company's buyers study the
community and customize the title selection with offerings from the store's
local publishers and authors. After the store opens, each Barnes & Noble store
manager is responsible for adjusting the buyers' selection to the interests,
lifestyles and demands of the store's local customers. The Company's proprietary
database, which has catalogued sales rankings of over 650,000 titles in over 110
subjects, provides each store with comprehensive title selections in those
subjects in which it seeks to expand. The Company's current on-line proprietary
inventory management information system, WINGS, enables store managers to
respond quickly to local sales trends. During 1997, the Company will roll-out
the next generation of its state-of-the-art store systems with its significantly
improved "BookMaster." The new store system greatly enhances store-level
customer service and productivity with its extremely fast register transactions
and its 2.5 million title database designed specifically for book browsing.
Barnes & Noble store openings are launched with a major grand opening
campaign involving extensive print and radio advertising, direct-mail marketing
and community events. In markets where stores are clustered, the Company
generally leverages its existing advertising expenses with full-page
6
promotional ads funded by cooperative advertising funds from publishers. In
addition, the Company's mail-order catalogs generally include addresses of
Barnes & Noble stores located in the particular geographical area.
Store Locations and Properties
The Company's experienced real estate personnel select sites for new
Barnes & Noble stores after an extensive review of demographic data and other
information relating to market potential, bookstore visibility and access,
available parking, surrounding businesses, compatible nearby tenants,
competition and the location of other Barnes & Noble stores. Most stores are
located in high-visibility areas adjacent to main traffic corridors in strip
shopping centers or freestanding buildings. The Company has been successful in
converting buildings into dynamic bookstores in the Barnes & Noble store format.
The number of Barnes & Noble stores located in each state and the
District of Columbia as of February 1, 1997 are listed below:
NUMBER NUMBER
STATE OF STORES STATE OF STORES
- ----- --------- ----- ---------
Alaska 1 Montana 2
Alabama 5 Nebraska 2
Arizona 11 Nevada 5
Arkansas 2 New Hampshire 3
California 64 New Jersey 14
Colorado 9 New Mexico 2
Connecticut 9 New York 29
Dist. of Columbia 1 North Carolina 11
Florida 34 North Dakota 1
Georgia 8 Ohio 11
Hawaii 1 Oklahoma 4
Idaho 3 Oregon 7
Illinois 17 Pennsylvania 11
Indiana 5 Rhode Island 1
Iowa 2 South Carolina 4
Kansas 4 South Dakota 1
Kentucky 3 Tennessee 6
Louisiana 4 Texas 51
Maine 1 Utah 7
Maryland 3 Vermont 1
Massachusetts 14 Virginia 9
Michigan 10 Washington 11
Minnesota 13 Wisconsin 6
Missouri 7 Wyoming 1
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Expansion
The Company believes its Barnes & Noble store format offers the
greatest opportunity to increase its share of the expanding consumer book market
and intends to strengthen its position as the world's leading operator of book
superstores by opening approximately 70 new stores during the 52 weeks ending
January 31, 1998. The Company believes its lower capital program will strengthen
its financial position, improve its cash flow and allow its "super" store
profits to grow with the maturation of the base of "super" stores.
All stores will be opened under the Barnes & Noble Booksellers
tradename, and with nearly 24,000 full- and part-time employees operating its
1,008 stores, the Company believes it will be able to fill positions in its new
stores with experienced managers and booksellers.
The Company anticipates that its expansion plans will be supported by a
combination of continuing strong demand for consumer books, which has grown over
the past five years at a rate of 6% compounded annually according to Veronis,
Suhler & Associates Communications Industry Forecast ("Veronis Suhler") and
incremental sales generated by new "super" stores. The Company estimates that as
much as 80% of the sales generated by a new Barnes & Noble store can be
incremental to the community in which the store is located.
Demographic trends in the United States support the prospect of
continued growth in the retail book industry. The principal book buying
population is between 35 and 54 years of age. According to the U.S. Bureau of
the Census, over the next five years this age group is expected to increase 10%.
In addition, Veronis Suhler estimates that more than 70% of consumer book buyers
have some college education. According to the U.S. Bureau of Labor Statistics,
the percentage of the U.S. population with some college education is at an
all-time high.
B. Dalton
General
The Company is the second largest operator of mall bookstores in the
United States. During the 53 weeks ended February 1, 1997, B. Dalton generated
revenues of approximately $564.9 million, or 23.1% of the Company's total
revenues, compared to 30.5% of total Company revenues during the 52 weeks ended
January 27, 1996.
Most B. Dalton stores range in size from 2,800 to 6,000 square feet.
These stores stock between 15,000 and 25,000 titles, feature new releases,
bestsellers and children's books, and carry a standard selection of titles in
categories such as business, computers, cooking and reference. B. Dalton employs
a market-by-market discount pricing strategy which generally discounts hardcover
bestsellers from 15% to 25% off the publishers' suggested retail prices. B.
Dalton also offers a Book$avers discount card for an annual fee which allows
customers an additional 10% discount on substantially all purchases.
The Company's 24 Doubleday and 9 Scribner's bookstores utilize a more
upscale format aimed at the "carriage trade" in higher-end shopping malls and
place a greater emphasis on hardcover and gift books.
8
During the past six years, the Company has pursued a two-pronged
strategy to maximize returns from its B. Dalton division in response to
declining sales attributable primarily to superstore competition and, to a
lesser extent, weaker overall consumer traffic in shopping malls. The first part
of the Company's strategy has been to rigorously identify and close
underperforming stores. Since 1989, the Company has closed more than 50 B.
Dalton stores per year. During the fourth quarter of 1995, the Company
accelerated its store closing strategy, and provided for these closing costs as
part of the non-cash restructuring charge of $123.8 million ($87.3 million
after-tax or $2.65 per common share) with the aim of forming a core of more
profitable B. Dalton stores for the future. The Company's B. Dalton store
operations began to stabilize during 1996. During the 53 weeks ended February 1,
1997, same-store sales for the B. Dalton stores improved from a decline of 4.3%
during the 52 weeks ended January 27, 1996 to a decline of 1%.
Concurrent with the implementation of the store closing strategy, the
Company has been expanding the size of some of its new B. Dalton stores and is
seeking better locations within malls for increased visibility and higher
traffic flow. A new B. Dalton prototype was developed for this purpose in 1993
and, since that time, more than 100 new or converted stores have been opened and
are performing, on average, better than the remaining store base.
Merchandising and Marketing
Each B. Dalton store carries a standard selection of core titles within
a variety of subject categories which are supplemented by new releases,
bestsellers and other titles specially selected to meet local demand. B.
Dalton's merchandise strategy is to expand title assortments within categories
it believes have significant growth potential, such as children's books, mass
market paperbacks (such as mystery, romance, science fiction and other popular
fiction), publishers' remainders and other bargain books including the Company's
self-published books. B. Dalton's product offerings are merchandised to attract
shoppers responding to movies, television talk show topics and current events.
Each store has the ability to customize its selection to its local customers
based upon their interests and demands.
B. Dalton's advertising and promotional programs focus on point-of-sale
and storefront signage and other in-store promotions designed to attract walk-by
mall traffic. B. Dalton takes full advantage of cooperative advertising funds
made available by publishers and generally limits its expenditures and
promotional programs to the amount of such funds. In addition, stores
customarily incur advertising costs, often in amounts equal to a percentage of
their annual sales, for lease required advertising of mall-related promotional
events.
Store Locations and Properties
Approximately 90% of B. Dalton stores are located in enclosed regional
shopping malls. The remaining stores are located in strip shopping centers and
central business districts. Site selections for all new B. Dalton stores are
made after an extensive review of demographic data, mall tenants, proposed
location within the mall and competitive factors.
9
The number of B. Dalton stores located in each state and the District
of Columbia as of February 1, 1997 are listed below:
NUMBER NUMBER
STATE OF STORES STATE OF STORES
- ----- --------- ----- ---------
Alabama 2 Montana 4
Arizona 12 Nebraska 3
Arkansas 2 Nevada 3
California 81 New Hampshire 2
Colorado 12 New Jersey 19
Connecticut 7 New Mexico 2
Delaware 1 New York 25
Dist. of Columbia 4 North Carolina 12
Florida 32 North Dakota 4
Georgia 16 Ohio 24
Idaho 3 Oklahoma 5
Illinois 21 Oregon 6
Indiana 8 Pennsylvania 26
Iowa 12 South Carolina 8
Kansas 7 South Dakota 2
Kentucky 4 Tennessee 5
Louisiana 13 Texas 41
Maine 2 Utah 7
Maryland 14 Virginia 16
Massachusetts 10 Washington 17
Michigan 28 West Virginia 1
Minnesota 24 Wisconsin 11
Mississippi 1 Wyoming 2
Missouri 16
The Company remains committed to opening stores in new shopping mall
projects which meet the Company's return on investment criteria and anticipates
opening four new B. Dalton stores during the 52 weeks ending January 31, 1998.
Given the declining rate of new mall development and the Company's continuing
plans to close B. Dalton stores pursuant to its restructuring plan, the Company
anticipates it will continue to realize a decline in the number of B. Dalton
stores during 1997. During the 53 weeks ended February 1, 1997, the Company
opened eight B. Dalton stores and closed 72 stores, primarily as a result of not
renewing expiring leases.
Other Strategies
Proprietary Publishing. With publishing and distribution rights to over
1,500 titles covering a wide range of subject categories, the Company further
differentiates its product offerings from those of its competitors by publishing
books under its own Barnes & Noble Books imprint for exclusive sale in its
retail stores and direct mail catalogs. As part of this activity, the Company
licenses titles directly from domestic and international publishers as well as
from literary agents, commissions books directly from
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authors, reprints classic titles in the public domain and creates collections of
fiction and non-fiction using in-house editors. These books are published under
the Barnes & Noble Books imprint. By self-publishing books, the Company is able
to significantly lower its merchandise costs and pass on a portion of the
savings to its customers. While the prices of these books represent significant
value to customers, they also generate substantially higher gross profit margins
than those realized on sales of non-proprietary books.
Books published by the Company are featured prominently in the
Company's direct-mail catalogs and in the front of the Company's stores. The
Company is continuing to expand the scope of its publishing program by
increasing the number of titles it publishes, particularly dictionaries,
reference books, children's books and classics. During the 53 weeks ended
February 1, 1997, sales of the Company's proprietary books increased 40% over
proprietary book sales during the 52 weeks ended January 27, 1996.
Mail-Order. Complementing its leadership position as the world's
largest bookseller, Barnes & Noble is the world's largest supplier of books
through direct-mail catalogs. The Company mails over 20 million catalogs each
year to its in-house mailing list of over one million customers. The Company
acquires new customers by mailing additional catalogs to potential customers on
targeted mailing lists, as well as by placing catalog-request ads in national
and local newspapers and upscale magazines. Through the direct-mail catalogs,
the Company sells publishers' remainders and imported books at up to 80% off
publishers' suggested retail prices, as well as the Company's self-published
books under its Barnes & Noble Books imprint. The Company believes that its
extensive catalog mailings over the past ten years have created substantial name
recognition in the United States and internationally, and have facilitated the
introduction of Barnes & Noble stores and the Company's online business.
Online Business. The Company believes the emergence of the World Wide
Web as a viable marketplace for retail distribution poses substantial
opportunities. During the 53 weeks ended February 1, 1997, the Company developed
its online business including distribution, editorial, customer service and
merchandising and marketing partnerships. In early 1997 Barnes & Noble launched
an online business as the exclusive bookseller for America Online (AOL keyword:
Barnes and Noble). The Company plans to launch its own World Wide Web site
(BarnesandNoble.com) during the first half of 1997. The Company expects its
existing asset base can be leveraged with significant competitive advantages
which include: its distribution center, its 2.5 million title database, its
special order capabilities, its direct marketing expertise, its franchise value
and name recognition, its international presence and reputation and particularly
its bookselling expertise.
Strategic Investments. During the 53 weeks ended February 1, 1997, the
Company selectively pursued strategic alliances with Chapters Inc. ("Chapters")
and Calendar Club LLC ("Calendar Club") to further leverage its invested capital
with its extensive retailing experience. Chapters is the largest book retailer
in Canada with 360 mall bookstores and the leading Canadian book superstore
retailer with 12-15 book superstores. During September 1996 the Company
purchased 20% of Chapters' common stock and, shortly thereafter, its ownership
position was diluted to 13% when Chapters consummated an initial public offering
during December 1996. The Company activated its one-year maintenance right
during April 1997 and plans to increase its investment in Chapters to its
original 20% during May 1997. Also during 1996, the Company acquired 50% of
Calendar Club, an operator of seasonal calendar kiosks in the
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United States and internationally. Based upon their financial performance during
1996, Barnes & Noble expects its return on investment in these companies to grow
significantly in the future.
Store Operations
The Company has separate management teams for its Barnes & Noble and B.
Dalton stores, including those for real estate, merchandising and store
operations. Field management includes regional store directors and district
managers supervising multiple store locations. Each B. Dalton store generally
employs a manager, an assistant manager and approximately seven full-time and
part-time booksellers. By comparison, each Barnes & Noble store generally
employs a manager, two assistant managers and approximately 40 full-time and
part-time booksellers. Most Barnes & Noble stores also employ a full-time
community relations manager. The Company's large employee base provides the
Company with experienced booksellers to fill positions in the Company's new
Barnes & Noble stores. The Company anticipates that a significant percentage of
the personnel required to manage its expanding business will continue to come
from within its existing operations.
Field management for all of the Company's bookstores, including
regional store directors, district managers and store managers, participate in a
bonus program tied to sales. The Company believes that the compensation of its
field management is competitive with that offered by other specialty retailers
of comparable size.
The Company has a twelve-week manager training program in which
existing store managers train new store managers in all areas of store
operations. Store managers are generally responsible for training other
booksellers in accordance with detailed procedures and guidelines prescribed by
the Company, utilizing training aids available at each bookstore. In addition,
district managers participate in semi-annual training and merchandising
conferences.
Purchasing
Barnes & Noble's buyers negotiate terms, discounts and cooperative
advertising allowances with publishers for all of the Company's bookstores. The
Company's substantial purchasing power enables it to maximize available
discounts and the Company's multiple strategies greatly enhance its ability to
create customized marketing programs with many of its vendors. The Company has
teams of buyers who specialize in customizing inventory for each of the
Company's bookselling strategies. Store inventories are further customized by
the store managers, who may respond to local demand by purchasing a limited
amount of fast-selling titles through a nationwide wholesaling network.
The Company purchases books on a regular basis from over 1,200
publishers and approximately 50 wholesale distributors. Purchases from the top
five suppliers (including publishers and wholesale distributors) accounted for
approximately 48% of the Company's book purchases during the 53 weeks ended
February 1, 1997, and no single supplier accounted for more than 19% of the
Company's purchases during this period. Consistent with retail book industry
practice, substantially all of the Company's book purchases are returnable for
full credit, a practice which substantially reduces the Company's risk of
inventory obsolescence.
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Publishers control the distribution of titles by virtue of copyright
protection, which limits availability on most titles to a single publisher.
Since the retail, or list, prices of titles, as well as the retailers' cost
price, are also generally determined by publishers, the Company has limited
options concerning availability, cost and profitability of its book inventory.
However, these limitations are mitigated by (i) the substantial number of titles
available (over 1.2 million), (ii) the Company's ability to maximize volume
discounts, (iii) its positive relationships with publishers, which are enhanced
by the Company's significant purchasing volume and (iv) its ability to obtain
most titles from alternative wholesale distributors.
Publishers periodically offer their excess inventory in the form of
remainder books to book retailers and wholesalers through an auction process
which generally favors booksellers such as the Company who are able to buy
substantial quantities. These books are generally purchased in large quantities
at favorable prices and are then sold to consumers at significant discounts off
publishers' list prices.
Distribution
Over the past two years, the Company has invested significant capital
in its systems and technology, by building new platforms, implementing new
software applications and opening a new distribution center. During September
1996 the Company opened a new state-of-the-art 344,000 square foot distribution
facility in South Brunswick, New Jersey. Historically, the Company replenished
through its distribution network some of its fast-moving frontlist titles and
bargain and self-published books and had the remaining inventory drop-shipped
directly to the stores from wholesalers and publishers. Significantly more
inventory will be replenished through its new distribution center which will
provide increasing gross margins with more direct buying from publishers rather
than wholesalers; improve store-level just-in-time deliveries to yield higher
sales volumes; and increase inventory turnover.
The Company's distribution network will also provide a significant
competitive advantage for its new online business. By stocking over 400,000
titles, the Company will be in a position to provide overnight delivery service
to its online customers at gross margins which will allow the Company to offer
very deep discounts.
Management Information and Control Systems
The Company has focused a majority of its information resources on
strategically positioning and implementing systems to support store operations,
merchandising and finance. The Company determined that an open-architecture
distributed computing environment would provide the flexibility needed in the
future and as a result a migration to a client server platform was initiated.
Building on the Company's previous proprietary inventory management
system, during 1996 the Company introduced a new client server store system
("BookMaster"). BookMaster is an inventory management system with integrated
point of sale features that utilizes a proprietary data-warehouse-based
replenishment system. It enhances communications and real-time access to our
network of stores, distribution center and wholesalers. In addition,
implementation of just-in-time replenishment has provided for more rapid
replenishment of books to all stores. The BookMaster system will replace
existing systems over the next two years.
As applications have been developed and placed into production, network
expansion to support them has been essential. The Company has implemented a
client server based payroll and human resource management system which has
improved operational efficiencies in payroll processing and simplified the
ability to manage payroll requirements and analysis.
An offsite business recovery capability has been developed and
implemented to assure uninterrupted systems support.
13
Trademarks and Servicemarks
B. Dalton Bookseller, Bookstar and Book$avers are Company-owned service
marks registered with the United States Patent and Trademark Office. Barnes &
Noble, Doubleday Book Shops and Scribner's Bookstores are federally registered
service marks which have been licensed to the Company under long-term license
agreements which are royalty-free. These license agreements provide the Company
with the exclusive right to use the Doubleday and Scribner's service marks only
in connection with the retail sale of books.
Employees
The Company currently employs approximately 3,100 full-time salaried,
10,200 full-time hourly and between 10,500 and 10,700 part-time hourly
employees. The fluctuation in the number of part-time hourly employees is due to
the seasonality of the business. The Company's employees are not represented by
unions, except in the case of one Doubleday store, and the Company believes that
its relationship with its employees is excellent.
14
ITEM 2. PROPERTIES
All but one of the Barnes & Noble stores are leased. The leases
typically provide for an initial term of ten or fifteen years with one or more
renewal options. The terms of the Barnes & Noble store leases for its 430 leased
stores open as of February 1, 1997 expire as follows:
Lease Terms to Expire During Number of
(twelve months ending on or about January 31) Stores
---------
1998............................................... 3
1999............................................... 2
2000............................................... 4
2001............................................... 6
2002............................................... 7
2003 and later..................................... 408
All B. Dalton stores are leased. The leases generally provide for an
initial ten-year term with no renewal option. The terms of the 577 B. Dalton
leases as of February 1, 1997 expire as follows:
Lease Terms to Expire During Number of
(twelve months ending on or about January 31) Stores
---------
1998............................................... 124
1999............................................... 72
2000............................................... 62
2001............................................... 76
2002............................................... 49
2003 and later..................................... 194
Stores scheduled for closing pursuant to the Company's restructuring
plan are included in the preceding table. The Company has generally been able to
renew expiring leases on favorable terms, and it believes that renewals of
leases expiring in the next two fiscal years will not have a material adverse
effect on the Company's financial condition or results of operations.
ITEM 3. LEGAL PROCEEDINGS
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the 14 weeks ended February 1, 1997.
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's common stock is traded on the New York Stock Exchange
(NYSE) under the symbol "BKS". The following table sets forth, for the periods
indicated, the high and low sales prices of the common stock on the NYSE
Composite Tape:
Fiscal 1996 Fiscal 1995
--------------------- --------------------
High Low High Low
--------- -------- ------- --------
First Quarter $36 1/4 23 3/4 32 3/4 27 1/4
Second Quarter 37 3/4 28 3/4 38 7/8 26 5/8
Third Quarter 35 3/4 29 5/8 42 1/4 33 7/8
Fourth Quarter 34 3/8 25 3/4 39 3/4 23 1/4
Approximate Number of Holders of Common Equity
Approximate
Number of
Record Holders
as of
Title of Class April 4, 1997
-------------- -------------
Common stock, $0.001 par value 885
Dividends
The terms of the Company's senior credit facility prohibit and the
indenture governing the Company's senior subordinated notes due 2003 limit
payment of cash dividends. During the 53 weeks ended February 1, 1997, the
Company did not declare or pay any cash dividends or make distributions or
payments on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
The information included in the Company's Annual Report to Shareholders
for the fiscal year ended February 1, 1997 (Annual Report) under the section
entitled "Selected Financial Data" is incorporated herein by reference.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information included in the Annual Report under the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information included in the Annual Report under the sections
entitled: "Consolidated Statements of Operations", "Consolidated Balance
Sheets", "Consolidated Statements of Changes in Shareholders' Equity",
"Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial
Statements" are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors and executive officers of the
Company is incorporated herein by reference to the Company's definitive Proxy
Statement relating to the Company's 1997 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission within 120 days of the
Company's fiscal year ended February 1, 1997 (Proxy Statement).
The information with respect to compliance with Section 16(a) of the
Securities Exchange Act is incorporated herein by reference to the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to executive compensation is incorporated
herein by reference to the Proxy Statement.
The information with respect to compensation of directors is
incorporated herein by reference to the Proxy Statement.
17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to security ownership of certain
beneficial owners and management is incorporated herein by reference to the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to certain relationships and related
transactions is incorporated herein by reference to the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements:
(i) "The Report of Independent Certified Public Accountants"
included in the Annual Report is incorporated herein by
reference.
(ii) The information included in the Annual Report under the
sections entitled: "Consolidated Statements of Operations",
"Consolidated Balance Sheets", "Consolidated Statements of
Changes in Shareholders Equity", "Consolidated Statements of
Cash Flows" and "Notes to Consolidated Financial Statements"
are incorporated herein by reference.
2. Schedules:
All schedules are omitted because the information is either not
applicable or is contained in the consolidated financial statements
incorporated herein by reference.
18
3. Exhibits:
The following are filed as Exhibits to this form:
Exhibit
No. Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Company,
as amended.(1)
3.2 Amendment to the Amended and Restated Certificate of Incorporation
of the Company filed May 30, 1996.(2)
3.3 Amended and Restated By-laws of the Company.(1)
3.4 Amendment to the Company's By-laws adopted May 31, 1995.(3)
4.1 Specimen Common Stock certificate. (1)
10.1 Credit Agreement, dated as of March 28, 1996, among the Company,
its subsidiaries, The Chase Manhattan Bank (National Association),
as Administrative Agent (the "Agent") and the Banks party
thereto.(4)
10.2 Amendment No. 1, dated as of December 28, 1996, to the Company's
Credit Agreement. (5)
10.3 Pledge and Security Agreement dated as of March 29, 1996, among
the Company, its subsidiaries and the Agent.(4)
10.4 Amended and Restated Indenture for the Subordinated Notes, between
the Company and United States Trust Company of New York, as
trustee.(6)
10.5 1996 Incentive Plan.(2)
10.6 1991 Employee Incentive Plan.(1)
10.7 Extended Savings Plan.(1)
10.8 Amendment to the Extended Savings Plan dated as of December 22,
1995.(4)
10.9 Employees' Retirement Plan.(1)
10.10 Supplemental Compensation Plan.(7)
10.11 License Agreement for "Barnes & Noble" service mark, dated as of
February 11, 1987.(1)
10.12 Consents to "Barnes & Noble" License Agreement Assignments, dated
as of November 18, 1988 and November 16, 1992, respectively.(4)
10.13 License Agreement for "Doubleday Book Shops" service mark, dated
as of May 31, 1990. (1)
10.14 License Agreement for "Scribner's Bookstores" mark, dated as of
February 21, 1989.(1)
10.15 Lease dated June 3, 1987 between B. Dalton, as tenant, and
Bromley Rockleigh Associates, L.P., as landlord.(1)
10.16 Services Agreement, dated as of November 16, 1992, between
Barnes & Noble Bookstores, Inc. and the Company.(1)
10.17 Aircraft Use Agreement, dated as of June 30, 1993, between the
Company and B&N Aircraft Company, Inc.(6)
19
10.18 Asset Purchase Agreement dated as of July 29, 1996 among NeoStar
Retail Group, Inc. (and its wholly-owned subsidiary, Software Etc.
Stores, Inc.) and Barnes & Noble, Inc.(8)
10.19 Stock Option and Repurchase Agreements, dated as of August 1,
1988, between the Company and each of Mitchell S. Klipper and
Stephen Riggio, as amended November 16, 1992.(6)
10.20 Stock Option Certificates, dated March 15, 1993, granting options
to purchase Common Stock to each of Mitchell S. Klipper, Stephen
Riggio and Irene R. Miller pursuant to the Company's 1991
Employee Incentive Plan.(6)
10.21 Employment Agreements between the Company and each of Mitchell S.
Klipper and Stephen Riggio, dated as of April 1, 1993 and July
15, 1993, respectively.(6)
10.22 Stock Option Certificates, dated September 28, 1993, granting
options to purchase Common Stock to Leonard Riggio, Mitchell S.
Klipper and Stephen Riggio.(9)
13.1 The sections of the Company's Annual Report entitled: "Selected
Financial Data", "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Consolidated Statements of
Operations", "Consolidated Balance Sheets", "Consolidated
Statements of Changes in Shareholders' Equity", "Consolidated
Statements of Cash Flows", "Notes to Consolidated Financial
Statements" and "The Report of Independent Certified Public
Accountants".(5)
21.1 List of Subsidiaries(4)
23.1 Consent of BDO Seidman, LLP.(5)
- ---------------------------
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form S-4 (Commission File No. 33-59778) and
incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended April 27, 1996.
(3) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended April 29, 1995.
(4) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended January 27, 1996.
(5) Filed herewith.
(6) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Commission File No. 33-50548) and
incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Form 10-Q for
the fiscal quarter ended July 29, 1995.
(8) Previously filed as an exhibit to the Company's Form 10-Q for
the fiscal quarter ended July 27, 1996.
(9) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Commission File No. 33-77484) and
incorporated herein by reference.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By:/s/ Leonard Riggio
------------------
Leonard Riggio, Chairman
of the Board and Chief
Executive Officer
April __, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Leonard Riggio Chairman of the Board and Chief May 2, 1997
- ------------------------ Executive Officer (Principal
Leonard Riggio Executive Officer)
/s/ Irene R. Miller Vice Chairman and Chief May 2, 1997
- ------------------------ Financial Officer
Irene R. Miller (Principal Financial
and Accounting Officer)
/s/ Matthew A. Berdon Director May 2, 1997
- ------------------------
Matthew A. Berdon
/s/ William Dillard, II Director May 2, 1997
- ------------------------
William Dillard, II
/s/ Jan Michiel Hessels Director May 2, 1997
- ------------------------
Jan Michiel Hessels
/s/ Margaret T. Monaco Director May 2, 1997
- ------------------------
Margaret T. Monaco
/s/ Stephen Riggio Director May 2, 1997
- ------------------------
Stephen Riggio
/s/ Michael N. Rosen Director May 2, 1997
- ------------------------
Michael N. Rosen
/s/ William Sheluck, Jr. Director May 2, 1997
- ------------------------
William Sheluck, Jr.
21