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
For the fiscal year ended January 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-12302
Barnes & Noble, Inc.
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(Exact name of registrant as specified in its Charter)
Delaware 06-1196501
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 Fifth Avenue, New York, NY 10011
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(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
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(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 $1,734,867,031 based upon the closing market price
of $32.125 per share of Common Stock on the New York Stock Exchange as of March
31, 1999.
Number of shares of $.001 par value Common Stock outstanding as of March 31,
1999: 69,012,755
(Cover Page 1 of 2)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended January 30, 1999 are incorporated by reference into Parts II and IV.
(Cover Page 2 of 2)
TABLE OF CONTENTS
Page
PART I
Item 1. Business ........................................................... 4
Item 2. Properties ......................................................... 14
Item 3. Legal Proceedings .................................................. 14
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 ............................................................ 15
Item 6. Selected Financial Data............................................. 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 16
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.......... N/A
Item 8. Financial Statements and Supplementary Data ........................ 16
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 ..... 17
Item 13. Certain Relationships and Related Transactions ..................... 17
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(*), as of January 30, 1999 operated 1,009 bookstores. Of
these 1,009 stores, 520 operate under the Barnes & Noble Booksellers, Bookstop
and Bookstar trade names, (50 of which were opened in fiscal 1998), and 489
operate under the B. Dalton Booksellers, Doubleday Book Shops and Scribner's
Bookstore trade names. Through its fifty percent interest in barnesandnoble.com
llc (barnesandnoble.com), the Company is also the world's largest bookseller on
the World Wide Web (http://www.barnesandnoble.com) and the exclusive bookseller
on America Online (keyword: bn). Barnes & Noble publishes books under its own
imprint for exclusive sale through its retail stores, mail-order catalogs and
barnesandnoble.com. During fiscal 1998, the Company's share of the consumer book
market was approximately 15%.
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. Bestsellers represent only 3% of the
Barnes & Noble store sales.
The Company's fiscal year is comprised of 52 or 53 weeks, ending on the
Saturday closest to the last day of January. The fiscal year ended January 30,
1999 (fiscal 1998) and the fiscal year ended January 31, 1998 (fiscal 1997)
were comprised of 52 weeks.
The Company's sales increased 7.5% during fiscal 1998 to $3.006 billion
from $2.797 billion during fiscal 1997. The Company's retail business reported
an operating profit of $188.6 million, up 16.0% from last year's operating
profit of $162.7 million. Expanding gross margins due to the realization of
further distribution center efficiencies and continued leverage on occupancy
expenses combined with solid sales growth were the major drivers of the 1998
operating results. On a consolidated basis, the Company's net earnings increased
42.8% to $92.4 million or $1.29 per diluted share, compared to $0.93 per diluted
share for 1997. Before the effect of barnesandnoble.com, retail earnings before
extraordinary charge increased $23.0 million, or 31.3% to $96.8 million (or
$1.35 per diluted share) from $73.8 million (or $1.06 per diluted share).
Barnes & Noble Stores
General
Barnes & Noble is the largest operator of book "super" stores in the
United States(*) with 520 Barnes & Noble stores located in 49 states and the
District of Columbia as of January 30, 1999. With more than 30 years of
bookselling experience, management has a strong sense of customers' changing
needs and the Company leads book retailing with a "community store" concept.
Barnes & Noble's typical store offers a comprehensive title base, a cafe, a
children's section, a music department and a calendar of
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(*) Based upon information reported in trade publications and public filings.
4
ongoing events, including author appearances and children's activities, that
make each Barnes & Noble store an active part of its community.
Barnes & Noble stores range in size from 10,000 to 60,000 square feet
depending upon market size. Barnes & Noble stores opened during fiscal 1998
added 1.3 million square feet to the Barnes & Noble base, bringing the total
square footage to 11.9 million square feet, a 10% increase over the prior year.
Barnes & Noble stores contributed more than 84% of the Company's total sales in
fiscal 1998. The Company plans to open approximately 50 Barnes & Noble stores in
1999 which are expected to average 26,000 square feet in size. 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 January 30, 1999, Barnes & Noble had stores in 149 of
the total 208 DMA markets (Designated Market Area). In 73 of the 149 markets the
Company has only one Barnes & Noble store. The Company believes its early market
penetration and the stores' proximity to their customers strengthen its market
position and increase its franchise value. 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 to 175,000 titles. The
comprehensive title selection is diverse and reflects local interests. In
addition, Barnes & Noble emphasizes books published by small and independent
publishers and university presses. Bestsellers represent only 3% of Barnes &
Noble store sales. Complementing this extensive on-site selection, all Barnes &
Noble stores provide customers with access to the millions of books available to
online shoppers while offering an option to have the book sent to the store or
shipped directly to the customer. The Company believes that its tremendous
selection, including many otherwise hard-to-find titles, builds customer
loyalty. During fiscal 1999 the Company expects to complete installation of
BookMaster, the Company's new in-store operating system, in all Barnes & Noble
stores. BookMaster enhances the Company's existing merchandise replenishment
systems, resulting in higher in-stock positions and better productivity at the
store level through efficiencies in receiving, cashiering and returns
processing.
Experienced Booksellers. The Company's culture of outgoing, helpful and
knowledgeable booksellers consists of 29,000 full- and part-time employees
operating over 1,000 stores as of January 30, 1999. Barnes & Noble has created
nearly 2,000 new jobs nationwide during fiscal 1998 primarily due to its Barnes
& Noble store expansion.
Store Design and Ambiance. 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 January 30, 1999, the Company had 203 Barnes &
Noble stores with music departments which range in size from 1,700 to 7,800
square feet. The music departments generally stock over 50,000 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.
5
Discount Pricing. Barnes & Noble stores employ a nationwide discount
pricing strategy. 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
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. The Company also supports communities through
efforts on behalf of First Book, a national organization dedicated to providing
books to children with little or no access to them outside of school. The
Company is one of the leading sponsors of Writer's Harvest, an annual series of
readings held across the country sponsored by Share our Strength, one of the
nation's foremost anti-poverty organizations.
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 includes catalogued sales rankings of over 750,000 titles in
over 150 subjects, provides each store with comprehensive title selections in
those subjects in which it seeks to expand. During 1998, the Company continued
rolling out the next generation of its state-of-the-art store system,
BookMaster. The new store system greatly enhances store-level customer service
and productivity with its extremely fast register transactions and its title
database with more than one million titles designed specifically for book
browsing. The roll-out will be completed in 1999.
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 existing structures into dynamic bookstores in the Barnes & Noble
store format such as conversions of old movie theaters, bowling alleys, power
plants and landmark buildings.
6
The number of Barnes & Noble stores located in each state and the
District of Columbia as of January 30, 1999 are listed below:
NUMBER NUMBER
STATE OF STORES STATE OF STORES
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Alaska 1 Missouri 8
Alabama 5 Montana 3
Arizona 11 Nebraska 4
Arkansas 2 Nevada 5
California 74 New Hampshire 3
Colorado 13 New Jersey 17
Connecticut 11 New Mexico 2
Delaware 1 New York 33
Dist. of Columbia 1 North Carolina 15
Florida 36 North Dakota 2
Georgia 10 Ohio 14
Hawaii 1 Oklahoma 5
Idaho 3 Oregon 8
Illinois 22 Pennsylvania 17
Indiana 7 Rhode Island 1
Iowa 3 South Carolina 8
Kansas 4 South Dakota 1
Kentucky 4 Tennessee 8
Louisiana 5 Texas 52
Maine 1 Utah 8
Maryland 8 Vermont 1
Massachusetts 16 Virginia 13
Michigan 14 Washington 16
Minnesota 14 Wisconsin 7
Mississippi 1 Wyoming 1
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 50 new stores during fiscal 1999.
All stores will be opened under the Barnes & Noble Booksellers trade
name, and positions in those stores will be filled from within the Company
wherever possible.
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 5.0% compounded annually according to Veronis,
Suhler & Associates Communications Industry Forecast and incremental sales
generated by new stores.
7
B. Dalton Stores
General
The Company is the second largest operator of mall bookstores in the
United States(*). During fiscal 1998, B. Dalton generated revenues of
approximately $468.4 million, or 15.6% of the Company's total revenues, compared
with 18.2% of total Company revenues during fiscal 1997.
Most B. Dalton stores range in size from 2,800 to 6,000 square feet.
These stores stock between 15,000 and 25,000 titles, feature new releases,
bestsellers and children's books, and carry a solid selection of titles in
categories such as business, computers, cooking and reference. B. Dalton employs
a market-by-market discount pricing strategy which generally discounts hardcover
bestsellers from 15% to 25% off the publishers' suggested retail prices. B.
Dalton also offers a Book$avers discount card for an annual fee which allows
customers an additional 10% discount on substantially all purchases. The
Company's 15 Doubleday and eight Scribner's bookstores utilize a more upscale
format in select shopping malls and place a greater emphasis on hardcover and
gift books.
The Company is continuing to execute a strategy to maximize returns
from its B. Dalton stores in response to declining sales attributable primarily
to superstore competition and, to a lesser extent, weaker overall consumer
traffic in shopping malls. Part of the Company's strategy has been to close
underperforming stores, which has resulted in the closing of between 40 to 60
B. Dalton stores per year since 1989 as leases come up for renewal.
Merchandising and Marketing
Each B. Dalton store carries a solid 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 87% 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 and
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(*) Based upon information reported in trade publications and public filings.
8
lease renewals for all B. Dalton stores are made after an extensive review of
demographic data, mall tenants, location within the mall and competitive
factors.
The number of B. Dalton stores located in each state and the District
of Columbia as of January 30, 1999 are listed below:
NUMBER NUMBER
STATE OF STORES STATE OF STORES
- ----- --------- ----- ---------
Alabama 1 Montana 3
Arizona 12 Nebraska 3
Arkansas 1 Nevada 3
California 75 New Hampshire 2
Colorado 10 New Jersey 12
Connecticut 5 New Mexico 2
Dist. Of Columbia 4 New York 19
Florida 24 North Carolina 11
Georgia 12 North Dakota 4
Idaho 3 Ohio 24
Illinois 20 Oklahoma 4
Indiana 8 Oregon 6
Iowa 11 Pennsylvania 24
Kansas 6 South Carolina 5
Kentucky 3 South Dakota 2
Louisiana 11 Tennessee 4
Maine 2 Texas 32
Maryland 10 Utah 6
Massachusetts 8 Virginia 13
Michigan 22 Washington 15
Minnesota 21 West Virginia 1
Mississippi 1 Wisconsin 7
Missouri 15 Wyoming 2
Given the Company's continuing plans to execute its strategy to
maximize returns from its B. Dalton division, the Company anticipates it will
continue to realize a decline in the number of B. Dalton stores during 1999
primarily due to lease expirations. During fiscal 1998, the Company opened 4 B.
Dalton stores and closed 43 stores, primarily as a result of electing not to
renew expiring leases.
barnesandnoble.com
General
barnesandnoble.com, a limited liability company created in November
1998 was formed by combining the online bookselling operations of the Company,
which began in early 1997, with funds contributed by the international media
company Bertelsmann AG (Bertelsmann), one of the largest integrated media
companies in the world. barnesandnoble.com has one of the world's largest
selection of books - more than eight million in-print and out-of-print books. As
of December 1998, in less than two years of operations, it has become the fourth
largest e-commerce site and among the top 25 overall sites on the
9
World Wide Web, according to Media Metrix. Through the Company,
barnesandnoble.com has access to the largest standing inventory of any online
bookseller with more than 750,000 titles ready for immediate delivery. The
site's database features more than six and one half million out-of-print and
rare books, as well as the largest online selection of bargain books discounted
up to 90 percent. During 1998, many major enhancements were introduced,
including one-click ordering, a powerful and user friendly search engine, e-mail
book reviews and product-notification services, Software and Magazine stores, a
Gift Center and Bargain Book store and online gift certificates. Also during
1998, the site began to add music and video to its product offerings, an
initiative scheduled to be fully rolled out during 1999. barnesandnoble.com is
the exclusive bookseller to America Online (AOL)'s more than 17 million
subscribers. barnesandnoble.com's affiliate network pays the highest commissions
with the best linking and best reporting tools, including daily updated sales
information, and is a leader in business-to-business e-commerce with its unique
Business Solutions program.
Other Strategies
Proprietary Publishing. With publishing and distribution rights to over
2,000 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, direct mail catalogs and barnesandnoble.com. 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
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, in the front of the Company's stores, and on the
barnesandnoble.com Web site. The Company continued to expand its publishing in
the past year, especially our trade and juvenile lines.
Strategic Investments. The Company maintains an equity investment in
Chapters, Inc., an Ontario corporation which is publicly traded on the Toronto
Stock Exchange. Chapters is the largest book retailer in Canada and the third
largest in North America(*), operating 327 bookstores, including 52 superstores.
The Company also maintains an equity investment in Calendar Club L.L.C., an
operator of seasonal calendar kiosks both in the United States and
internationally.
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(*) Based upon information reported in trade publications and public filings.
10
Store Operations
The Company has seasoned 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- and
part-time booksellers. By comparison, each Barnes & Noble store generally
employs a manager, two assistant managers and approximately 40 full- 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 increased use of its distribution center 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 1,700
publishers and approximately 50 wholesale distributors. Purchases from the top
five suppliers (including publishers and wholesale distributors) accounted for
approximately 45% of the Company's book purchases during fiscal 1998, and no
single supplier accounted for more than 16% 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.
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 one million), (ii) the Company's ability to maximize available
discounts and (iii) its positive relationships with publishers, which are
enhanced by the Company's significant purchasing volume.
11
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 four 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 is now sourced through the Company's new distribution center
increasing direct buying from publishers rather than wholesalers. Improved
just-in-time deliveries to stores and increased inventory turnover provide added
benefits.
In addition, the Company's distribution network provides a significant
competitive advantage for barnesandnoble.com. By stocking nearly 750,000 titles,
the Company is currently in a position to provide overnight delivery service to
online customers at gross margins which allow barnesandnoble.com 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 Barnes & Noble stores, resulting in higher in-stock positions and better
productivity at the store level through efficiencies in receiving, cashiering
and returns processing. During the 52 weeks ending January 29, 2000 (fiscal 99),
the Company expects to complete installation of the BookMaster system.
The Company continues to implement systems to improve efficiencies in
back office processing in the human resources, finance and merchandising areas.
An offsite business recovery capability has been developed and implemented to
assure uninterrupted systems support.
12
Competition
The retail bookselling business is highly competitive. The Company
competes in the superstore business with Borders Group, Inc. and other national
chains which have substantially fewer superstores than the Company, and in the
mall bookstore business with Walden Book Company, Inc., a subsidiary of Borders
Group, Inc. and the largest operator of mall bookstores in the country(*). The
Company also competes with regional chains, as well as independent single store
operators, local multi-store operators, department stores, variety discounters,
drug stores and warehouse clubs. Many of the Company's competitors have been
expanding in both store size and number of outlets. The Company competes with
Internet-based competition from numerous booksellers including online companies,
such as Amazon.com, Inc., traditional book retailers and publishers. The Company
expects future online competition to intensify.
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.
Seasonality
The Company's business, like that of many retailers, is seasonal, with
the major portion of sales and operating profit realized during the quarter
which includes the Christmas selling season. The growth in Barnes & Noble stores
continues to reduce such seasonal fluctuation. The Company has now reported
operating profit for eleven consecutive quarters.
Acquisition of Ingram Book Group
On November 6, 1998, the Company announced an agreement to purchase the
Ingram Book Group, a group of privately held subsidiaries of Ingram Industries
Inc., for $600 million, consisting of approximately $200 million in cash and
approximately $400 million in common stock of the Company. The closing of the
transaction is subject to the satisfaction of certain conditions including the
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
Employees
The Company currently employs approximately 4,200 full-time salaried,
11,000 full-time hourly and 14,000 part-time hourly employees. The Company's
employees are not represented by unions and the Company believes that its
relationship with its employees is excellent.
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(*) Based upon information reported in trade publications and public filings.
13
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 519 leased
stores open as of January 30, 1999 expire as follows:
Lease Terms to Expire During Number of
(twelve months ending on or about January 31) Stores
--------------
2000....................................................... 10
2001....................................................... 6
2002....................................................... 28
2003....................................................... 44
2004....................................................... 27
2005 and later............................................. 404
All B. Dalton stores are leased. The leases generally provide for an
initial ten-year term with no renewal option. The terms of the 489 B. Dalton
leases as of January 30, 1999 expire as follows:
Lease Terms to Expire During Number of
(twelve months ending on or about January 31) Stores
--------------
2000....................................................... 170
2001....................................................... 78
2002....................................................... 45
2003....................................................... 32
2004....................................................... 38
2005 and later............................................. 126
The Company generally has been able to renew expiring leases on
favorable terms, and believes that renewals of leases expiring in the future
will not have a material adverse effect on the Company's financial condition or
results of operations.
ITEM 3. LEGAL PROCEEDINGS
In March 1998, the American Booksellers Association (ABA) and 26
independent bookstores filed a lawsuit in the United States District Court for
the Northern District of California against the Company and Borders Group Inc.
(Borders) 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. In November 1998, six other
independent booksellers instituted an action in the same court against the same
defendants asserting similar claims and seeking similar relief. The Company
intends to vigorously defend both actions.
14
In August 1998, The Intimate Bookshop, Inc. and its owner, Wallace
Kuralt, filed a lawsuit in the United States District Court for the Southern
District of New York against the Company, Borders, Amazon.com, Inc., certain
publishers and others alleging violation of the Robinson-Patman Act and other
federal law, New York statutes governing trade practices and common law. The
Complaint seeks certification of a class consisting of all retail booksellers in
the United States, whether or not currently in business, which were in business
and were members of the ABA at any time during the four-year period preceding
the filing of the Complaint. The Complaint alleges that the named plaintiffs
have suffered damages of $11.25 million or more and requests treble damages on
behalf of the named plaintiffs and each of the purported class members, as well
as of injunctive and declaratory relief (including an injunction requiring the
closure of all of defendants' stores within 10 miles of any location where
plaintiff either has or had a retail bookstore during the four years preceding
the filing of the Complaint, and prohibiting the opening by defendants of any
bookstore in such areas for the next 10 years), disgorgement of alleged
discriminatory discounts, rebates, deductions and payments, punitive damages,
interest, costs, attorneys fees and other relief. Many of the allegations in the
Complaint are similar to those contained in the ABA action described above. The
Company intends to vigorously defend the action.
In November 1998, a former bookstore chain in Texas which has filed for
bankruptcy protection, filed an amended complaint in an action in the Bankruptcy
Court for the Northern District of Texas against the Company alleging various
antitrust and related claims. Among other things, the plaintiff alleges that the
Company conspired with national book publishers to obtain lower prices and to
monopolize the Dallas/Fort Worth book retail market. The plaintiff is seeking
$11 million in actual damages, plus treble damages, punitive damages, and
attorneys' fees. The Company intends to vigorously defend this action.
In addition to the above actions, 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 13 weeks ended January 30, 1999.
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 (restated to adjust for the two-for-one stock-split effected
September 22, 1997).
15
Fiscal 1998 Fiscal 1997
------------------------ ----------------------
High Low High Low
----------- --------- ----------- ---------
First Quarter $39 13/16 30 1/4 $19 15/16 15 3/16
Second Quarter 48 31 15/16 25 1/2 18 1/2
Third Quarter 41 11/16 22 3/16 32 1/4 22 3/8
Fourth Quarter 48 26 3/4 34 1/4 25 13/16
Approximate Number of Holders of Common Equity
Approximate
Number of
Record Holders
as of
Title of Class March 31, 1999
- -------------- --------------
Common stock, $0.001 par value 2,018
Dividends
The terms of the Company's debt agreements prohibits payment of cash
dividends. During fiscal 1998, 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 January 30, 1999 (the Annual Report) under the
section entitled "Selected Financial Data" is incorporated herein by reference.
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.
16
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 1999 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission within 120 days of the
Company's fiscal year ended January 30, 1999 (the "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.
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.
17
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.
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)
18
Exhibit
No. Description
------- -----------
3.5 Certificate of Designation of Preferences and Rights of Preferred
Stock, Series H of Barnes & Noble, Inc. (4)
3.6 Certificate of Amendment of The Amended and Restated Certificate of
Incorporation of Barnes & Noble, Inc., dated July 17, 1998 and filed
July 17, 1998.(4)
4.1 Specimen Common Stock certificate. (1)
4.2 Rights Agreement, dated as of July 10, 1998, between Barnes & Noble,
Inc. and The Bank of New York, as Rights Agent. (4)
10.1 Amended and Restated Credit Agreement, dated as of November 18,
1997, among the Company, its subsidiaries, The Chase Manhattan Bank
(National Association), as Administrative Agent (the "Agent") and
the Banks party thereto. (5)
10.2 Pledge and Security Agreement dated as of March 15, 1996, among
the Company, its subsidiaries and the Agent. (6)
10.3 Amendment to the Pledge and Security Agreement dated as of
November 18, 1997. (5)
10.4 1996 Incentive Plan as Amended. (10)
10.5 1991 Employee Incentive Plan. (1)
10.6 Extended Savings Plan. (1)
10.7 Amendment to the Extended Savings Plan dated as of
December 22, 1995.(6)
10.8 Amended and Restated Employees' Retirement Plan dated as of
January 1, 1998. (5)
10.9 Supplemental Compensation Plan. (7)
10.10 License Agreement for "Barnes & Noble" service mark, dated as of
February 11, 1987. (1)
10.11 Consents to "Barnes & Noble" License Agreement Assignments, dated
as of November 18, 1988 and November 16, 1992, respectively. (6)
19
Exhibit
No. Description
------- -----------
10.12 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 (collectively the "Employment Agreements"). (8)
10.13 Amendment to each of the Employment Agreements dated as of April 1,
1998. (5)
10.14 Formation Agreement dated November 12, 1998 among Barnes & Noble,
Inc., B&N.com Holding Corp., barnesandnoble.com inc., B&N.com Member
Corp., Bertelsmann AG and BOL.US Online, Inc.(9)
10.15 Amended and Restated Limited Liability Company Agreement of
barnesandnoble.com llc among Barnes & Noble, Inc., B&N.com Holding
Corp., Bertelsmann AG and BOL.US Online, Inc.(9)
10.16 Supply Agreement, dated as of October 31, 1998, between Barnes &
Noble, Inc. and barnesandnoble.com.(10)
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".(10)
21.1 List of subsidiaries.(10)
23.1 Consent of BDO Seidman, LLP.(10)
20
(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 8-K dated July
15, 1998.
(5) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended January 31, 1998.
(6) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended January 27, 1996.
(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 Registration
Statement on Form S-1 (Commission File No. 33-50548) and
incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's Form 8-K dated
November 24, 1998.
(10) Filed herewith.
21
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 By: /s/ Marie J. Toulantis
------------------ ----------------------
Leonard Riggio, Chairman Marie J. Toulantis,
of the Board and Chief Executive Vice President,
Executive Officer Finance and Chief Financial
April 30, 1999 Officer
April 30, 1999
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 Executive April 30, 1999
- ----------------------------------- Officer
Leonard Riggio
/s/ Stephen Riggio Vice Chairman April 30, 1999
- -----------------------------------
Stephen Riggio
/s/ Michael N. Rosen Secretary and Director April 30, 1999
- -----------------------------------
Michael N. Rosen
/s/ Matthew A. Berdon Director April 30, 1999
- -----------------------------------
Matthew A. Berdon
/s/ William Dillard, II Director April 30, 1999
- -----------------------------------
William Dillard, II
/s/ Jan Michiel Hessels Director April 30, 1999
- -----------------------------------
Jan Michiel Hessels
/s/ Irene R. Miller Director April 30, 1999
- -----------------------------------
Irene R. Miller
/s/ Margaret T. Monaco Director April 30, 1999
- -----------------------------------
Margaret T. Monaco
/s/ William Sheluck, Jr. Director April 30, 1999
- -----------------------------------
William Sheluck, Jr.
22