-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UBhADMjcuELEDgwVv99HFPyvdb4UE2M7O3edD/tQTX6VLEum6cgTXMfbgqsQnxFg 3Yyc9CMK57HhgQTLMbhbRg== 0000889812-99-001822.txt : 19990615 0000889812-99-001822.hdr.sgml : 19990615 ACCESSION NUMBER: 0000889812-99-001822 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990501 FILED AS OF DATE: 19990611 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARNES & NOBLE INC CENTRAL INDEX KEY: 0000890491 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 061196501 STATE OF INCORPORATION: DE FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12302 FILM NUMBER: 99644807 BUSINESS ADDRESS: STREET 1: 122 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10011 BUSINESS PHONE: 2126333300 MAIL ADDRESS: STREET 1: 122 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10011 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 1, 1999 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________ Commission File Number: 1-12302 BARNES & NOBLE, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 06-1196501 - ------------------------------------------- ------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 122 Fifth Avenue, New York, NY 10011 - ------------------------------------------- ------------------------------ (Address of Principal Executive Offices) (Zip Code) (212) 633-3300 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of $.001 par value common stock outstanding as of May 31, 1999: 69,345,603. BARNES & NOBLE, INC. AND SUBSIDIARIES May 1, 1999 Index to Form 10-Q
Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations - For the 13 weeks ended May 1, 1999 and May 2, 1998.......................................................... 3 Consolidated Balance Sheets - May 1, 1999, May 2, 1998 and January 30, 1999.. 4 Consolidated Statements of Cash Flows - For the 13 weeks ended May 1, 1999 and May 2, 1998.......................................................... 6 Notes to Consolidated Financial Statements................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk N/A PART II - OTHER INFORMATION............................................................ Item 6. Exhibits and Reports on Form 8-K............................................. 14
PART I - FINANCIAL INFORMATION Item 1: Financial Statements BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Statements of Operations (thousands of dollars, except per share data) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------ 13 weeks ended -------------------------------------------- May 1, 1999 May 2, 1998 -------------------- ------------------ Sales $ 718,336 656,976 Cost of sales and occupancy 525,965 484,589 ------------ ------------ Gross profit 192,371 172,387 ------------ ------------ Selling and administrative expenses 151,932 135,557 Depreciation and amortization 25,799 20,528 Pre-opening expenses 801 2,604 ------------ ------------ Operating profit 13,839 13,698 Interest (net of interest income of $712 and $105, respectively) and amortization of deferred financing fees 4,742 5,750 Equity in net loss of barnesandnoble.com llc 11,544 13,603 ------------ ------------ Loss before benefit for income taxes and cumulative effect of change in accounting principle (2,447) (5,655) Benefit for income taxes (1,003) (2,320) ------------ ------------ Loss before cumulative effect of change in accounting principle (1,444) (3,335) Cumulative effect of change in accounting principle, net of tax benefit of $3,125 (4,500) -- ------------ ------------ Net Loss $ (5,944) (3,335) ============ ============ Loss per common share Basic Loss before cumulative effect of change in accounting principle $ (0.02) (0.05) Cumulative effect of change in accounting principle $ (0.07) -- Net Loss $ (0.09) (0.05) Diluted Loss before cumulative effect of change in accounting principle $ (0.02) (0.05) Cumulative effect of change in accounting principle $ (0.07) -- Net Loss $ (0.09) (0.05) Weighted average common shares outstanding Basic 68,931,000 68,101,000 Diluted 68,931,000 68,101,000
See accompanying notes to consolidated financial statements. 3 BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Balance Sheets (thousands of dollars, except per share data)
May 1, May 2, January 30, 1999 1998 1999 ------------- -------------- --------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 15,815 10,801 31,081 Receivables, net 43,226 29,452 57,523 Merchandise inventories 940,321 855,938 945,073 Prepaid expenses and other current assets 74,731 81,944 54,634 ---------- ---------- ---------- Total current assets 1,074,093 978,135 1,088,311 ---------- ---------- ---------- Property and equipment: Land and land improvements 3,247 681 3,197 Buildings and leasehold improvements 389,296 352,083 383,292 Fixtures and equipment 462,936 361,663 440,488 ---------- ---------- ---------- 855,479 714,427 826,977 Less accumulated depreciation and amortization 339,756 261,649 316,631 ---------- ---------- ---------- Net property and equipment 515,723 452,778 510,346 ---------- ---------- ---------- Intangible assets, net 86,166 89,423 86,980 Investment in barnesandnoble.com llc 70,763 34,060 82,307 Other noncurrent assets 50,646 40,607 39,653 ---------- ---------- ---------- Total assets $1,797,391 1,595,003 1,807,597 ========== ========== ==========
(Continued) 4 BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Balance Sheets (thousands of dollars, except per share data)
May 1, May 2, January 30, 1999 1998 1999 ------------- -------------- --------------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 439,520 429,832 498,237 Accrued liabilities 225,076 206,794 274,085 ---------- ---------- ---------- Total current liabilities 664,596 636,626 772,322 ---------- ---------- ---------- Long-term debt 340,000 358,600 249,100 Deferred income taxes 32,449 -- 32,449 Other long-term liabilities 78,108 65,381 74,937 Shareholders' equity: Common stock; $.001 par value; 300,000,000 shares authorized; 69,092,730, 68,235,489 and 68,759,111 shares issued and outstanding, respectively 69 68 69 Additional paid-in capital 532,910 474,836 523,517 Retained earnings 149,259 59,492 155,203 ---------- ---------- ---------- Total shareholders' equity 682,238 534,396 678,789 ---------- ---------- ---------- -- -- -- Commitments and contingencies ---------- ---------- ---------- Total liabilities and shareholders' equity $1,797,391 1,595,003 1,807,597 ========== ========== ==========
See accompanying notes to consolidated financial statements. 5 BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (thousands of dollars) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------ 13 weeks ended ------------------------------------------- May 1, 1999 May 2, 1998 ------------------- ------------------ Cash flows from operating activities: Net loss $ (5,944) (3,335) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 25,892 20,615 Loss on disposal of property and equipment 548 -- Increase in other long-term liabilities for scheduled rent increases in long-term leases 3,304 3,564 Culmulative effect of change in accounting principle, net of tax 4,500 -- Equity in net loss of barnesandnoble.com llc 11,544 13,603 Changes in operating assets and liabilities, net (113,407) (78,570) --------- --------- Net cash flows from operating activities (73,563) (44,123) --------- --------- Cash flows from investing activities: Purchases of property and equipment (30,910) (15,145) Investment in barnesandnoble.com llc (22,853) Net decrease (increase) in other noncurrent assets (11,086) 449 --------- --------- Net cash flows from investing activities (41,996) (37,549) --------- --------- Cash flows from financing activities: Net increase in revolving credit facility 90,900 73,800 Proceeds from exercise of common stock options including related tax benefits 9,393 5,976 --------- --------- Net cash flows from financing activities 100,293 79,776 --------- --------- Net decrease in cash and cash equivalents (15,266) (1,896) Cash and cash equivalents at beginning of period 31,081 12,697 --------- --------- Cash and cash equivalents at end of period $ 15,815 10,801 ========= ========= Changes in operating assets and liabilities, net: Receivables, net $ 14,297 14,059 Merchandise inventories 4,752 (4,356) Prepaid expenses and other current assets (27,722) (24,367) Accounts payable and accrued liabilities (104,734) (63,906) --------- --------- Changes in operating assets and liabilities, net $(113,407) (78,570) ========= ========= Supplemental cash flow information: Cash paid during the period for: Interest $ 5,091 5,171 Income taxes $ 28,450 14,918
See accompanying notes to consolidated financial statements. 6 BARNES & NOBLE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the 13 weeks ended May 1, 1999 and May 2, 1998 (thousands of dollars, except per share data) (unaudited) The unaudited consolidated financial statements include the accounts of Barnes & Noble, Inc. and its wholly owned subsidiaries (collectively, the Company). In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position as of May 1, 1999 and the results of its operations and its cash flows for the 13 weeks then ended. These consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements should be read in conjunction with the Company's annual report on Form 10-K for the 52 weeks ended January 30, 1999 (fiscal 1998). The Company follows the same accounting policies in preparation of interim reports. Due to the seasonal nature of the business, the results of operations for the 13 weeks ended May 1, 1999 are not indicative of the results to be expected for the 52 weeks ending January 29, 2000. (1) Merchandise Inventories Merchandise inventories are stated at the lower of cost or market. Cost is determined using the retail inventory method on the first-in, first-out (FIFO) basis for 86%, 84% and 86% of the Company's merchandise inventories as of May 1, 1999, May 2, 1998 and January 30, 1999, respectively. The remaining merchandise inventories are valued on the last-in, first-out (LIFO) method. If substantially all of the merchandise inventories currently valued at LIFO costs were valued at current costs, merchandise inventories would remain unchanged as of May 1, 1999 and January 30, 1999, and would have increased approximately $4,352 as of May 2, 1998. (2) Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation, including the Company's investment in barnesandnoble.com llc (barnesandnoble.com) which has been presented in the accompanying consolidated financial statements under the equity method as of the beginning of fiscal 1998. (3) Income Taxes The tax provisions for the periods ended May 1, 1999 and May 2, 1998 are based upon management's estimate of the Company's annualized effective tax rate. (4) Change in Accounting Principle In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires an entity to expense all start-up activities (as defined) as incurred. The Company has historically amortized costs associated with the opening of new stores over the respective store's first 12 months of operations. In accordance with SOP 98-5, the Company recorded a one- 7 BARNES & NOBLE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the 13 weeks ended May 1, 1999 and May 2, 1998 (thousands of dollars, except per share data) (unaudited) time non-cash charge reflecting the cumulative effect of a change in accounting principle, in the amount of $4,500 after taxes, representing such start-up costs capitalized as of the beginning of fiscal year 1999. The effect of the change on operating results for the 13 weeks ended May 1, 1999 was an increase in operating profit of $1.5 million and a decrease in net income of $3.6 million or $.05 per share. The Company will, on a prospective basis, expense all such start-up costs as incurred. (5) Subsequent Events barnesandnoble.com Initial Public Offering On May 25, 1999, barnesandnoble.com completed an initial public offering of 28.75 million shares of Class A Common Stock, raising a total of approximately $485 million after commissions and expenses. As a result, the Company and Bertelsmann AG (Bertelsmann) will each retain a 40% interest in barnesandnoble.com. Under the terms of the November 12, 1998 joint venture agreement (the "Agreement") between the Company and Bertelsmann, on May 28, 1999 Bertelsmann contributed an additional $50 million to barnesandnoble.com. Additionally, the terms of the Agreement provide that the Company is entitled to receive an additional $25 million payment from Bertelsmann due to the value of the initial public offering by barnesandnoble.com. The Company will recognize a gain of approximately $25 million ($14.8 million after taxes, or $0.21 per share) in the second quarter to reflect the Bertelsmann payment. The Company will continue to account for its investment in barnesandnoble.com under the equity method. Termination of Ingram Book Group Acquisition On June 2, 1999, Barnes & Noble, Inc. and the Ingram Book Group (Ingram) announced their agreement to terminate Barnes & Noble's planned acquisition of Ingram. Barnes & Noble's application before the Federal Trade Commission (FTC) for the purchase was formally withdrawn. As a result, the Company will expense acquisition costs of approximately $5 million ($3 million after taxes or $0.04 per share) in the second quarter. These costs relate primarily to legal, accounting and other transaction related costs incurred in connection with the proposed acquisition of Ingram. Partial Divestiture of Chapters Inc. Investment On June 2, 1999, the Company entered into an agreement to sell 1,000,000 shares of its holdings in Chapters Inc. (Chapters) via a secondary offering. Upon completion of the offering, the Company will retain a seven percent interest in Chapters. As a result of this transaction, the company will record a pretax gain of approximately $10.7 million ($6.3 million after taxes or $0.09 per share) in the second quarter. Prior to the above transaction, the investment in Chapters was accounted for under the equity method. On a prospective basis, the Company will be required to account for its remaining investment under the provisions of Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" and it will be considered an available-for-sale investment. 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The primary sources of the Company's cash are net cash flows from operating activities, funds available under its senior credit facility and short-term vendor financing. The Company's cash and cash equivalents were $15.8 million as of May 1, 1999 compared with $10.8 million as of May 2, 1998. During the 13 weeks ended May 1, 1999, consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) increased $7.5 million to $28.1 million from $20.6 million for the 13 weeks ended May 2, 1998. For the first quarter, EBITDA in the retail business increased $5.4 million to $39.6 million from $34.2 million during the comparable prior year period, reflecting higher gross margins and improving expense leverage (primarily in Barnes & Noble store operating, rental and pre-opening costs). Merchandise inventories increased $84.4 million, or 9.9% to $940.3 million as of May 1, 1999, compared with $855.9 million as of May 2, 1998. The increase supported the Company's 9.3% sales growth, the opening of 51 Barnes & Noble stores over the last twelve months and the strategic increase in the distribution center standing inventory to over 750,000 in-stock titles. The inventory expansion allowed the Company to increase its title offerings for both online and in-store customers. The Company's investing activities consist principally of capital expenditures for new store construction, system enhancements and store relocations/remodels. Capital expenditures totaled $30.9 million and $15.1 million during the 13 weeks ended May 1, 1999 and May 2, 1998, respectively. The increase was due primarily to the accelerated implementation of the Company's proprietary point-of-sale system (BookMaster). The ratio of debt to equity was 0.50:1.00 as of May 1, 1999, compared with 0.67:1.00 as of May 2, 1998. This significant improvement during a period of continuing growth is the result of the Company's expanded gross margin, improved operating leverage and strong emphasis on working capital management. Total debt decreased 5.2% to $340.0 million as of May 1, 1999 from $358.6 million as of May 2, 1998. Average borrowings under the Company's senior credit facility were $328.7 million and $347.7 million during the 13 weeks ended May 1, 1999 and May 2, 1998, respectively, and peaked at $377.6 million and $380.8 million during the same periods. The reduced average borrowings, which were accomplished during a period of 9.3% sales growth and 9.9% increase in merchandise inventories, reflect the Company's commitment to working capital management and expense controls. Based upon the Company's current operating levels and expansion plans, management believes net cash flows from operating activities and the capacity under its $850.0 million senior credit facility will be sufficient to meet the Company's working capital and debt service requirements and support the development of its short- and long-term strategies for at least the next twelve months. The Company did not declare or pay any cash dividends during the 13-week periods ended May 1, 1999 and May 2, 1998. 9 Year 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. The Company's computer equipment, software and devices with embedded technology that are date-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in other normal business activities. In 1997 the Company began assessing how it may be impacted by the Year 2000 issue and has formulated and commenced implementation of a comprehensive plan to address all known aspects of the issue. The Company's plan encompasses the following areas: (1) information systems that utilize date/time oriented software (IT systems), (2) computer chips, processors, and controllers, (non-IT systems) and (3) vendors and customers. The Company is in various stages of implementation which include remediation, testing and implementation. To date, approximately 85% of the Company's administrative support IT systems have at least completed the remediation phase. Of this amount, approximately 80% have completed the testing and remediation phase and 20% have been replaced or upgraded. All remaining Year 2000 compliance efforts for administrative IT functions are expected to be completed by the second quarter of fiscal 1999. Approximately 90% of non-IT systems have completed the remediation, testing and implementation phases with no material replacements necessary. The Company has been obtaining information from major vendors, suppliers, and service providers to determine if their systems will be Year 2000 compliant. There has been no indication from these sources that their systems will not be sufficiently Year 2000 compliant or that their failure to be Year 2000 compliant will cause a significant disruption in the operations of the Company. The Company is developing contingency plans to identify alternative sources which are Year 2000 compliant in the event the current parties suffer significant disruption as a result of Year 2000 compliance failures. The Company estimates that total costs to implement its Year 2000 plan will be between $4.0 and $6.0 million of which $2.4 million has already been incurred, including $1.2 million relating to the purchase of new software and hardware modifications, and $1.2 relating to Year 2000 consultants. The estimated total includes direct costs for systems enhancements which would have been implemented in the ordinary course of business but whose acquisition has been accelerated to ensure compliance by the Year 2000. The estimate excludes costs for scheduled system upgrades which have not been accelerated due to Year 2000 issues. The implementation of the Company's proprietary point-of-sale system (BookMaster), which began in 1996, is continuing and is expected to be completed in the second quarter of fiscal 1999. BookMaster, which is Year 2000 compliant, is an inventory management system with integrated point-of-sale features that utilizes a proprietary data-warehouse-based just-in-time replenishment system. It enhances communications and real-time access to the Company's network of stores, distribution center, and wholesalers. The BookMaster system has been installed in approximately 65% of all Barnes & Noble stores. By the end of the second quarter of fiscal 1999 all existing Barnes & Noble and B. Dalton stores will either be utilizing the BookMaster system or will receive Year 2000 upgrades to their existing point-of-sale systems. 10 Should some of the Company's systems not be available due to Year 2000 problems, in a reasonably likely worst case scenario, the Company may experience significant delays in its ability to perform certain functions. However, the Company does not expect an impairment in its ability to execute critical functions. Results of Operations 13 weeks ended May 1, 1999 compared with the 13 weeks ended May 2, 1998 Sales During the 13 weeks ended May 1, 1999, the Company's sales grew 9.3% to $718.3 million from $657.0 million during the 13 weeks ended May 2, 1998. During the first quarter, Barnes & Noble store sales rose 12.7% to $621.0 million from $551.0 million during the same period a year ago. As a percentage of total sales, Barnes & Noble store sales represented 86.4% of consolidated sales during the first quarter of 1999, up from 83.9% during the same period last year. During the first quarter, the 12.7% increase in Barnes & Noble store sales resulted from a same store sales gain of 5.4% coupled with 51 new stores opened since May 2, 1998 which contributed a 12.4% increase in square footage. Management attributed the strong same store sales performance to, among other things, an increase in the number of stores eligible for inclusion in the same store sales base. The number of comparable Barnes & Noble stores, as a percentage of total Barnes & Noble stores, increased to 88.3% as of May 1, 1999 compared with 85.5% as of May 2, 1998. During the first quarter, B. Dalton sales, which represented 13.1% of total sales in comparison with 15.3% during 1998, declined 6.0% primarily as a result of store closings and an 8.6% reduction in its square footage since May 2, 1998. In addition, B. Dalton's same store sales were flat during the first quarter. During the first quarter, the Company opened three Barnes & Noble stores and closed two, bringing its total number of Barnes & Noble stores to 521 with 11.9 million square feet. The Company closed 23 B. Dalton stores, ending the period with 466 B. Dalton stores and 1.8 million square feet. As of May 1, 1999 the Company operated 987 stores in fifty states and the District of Columbia. Cost of Sales and Occupancy During the 13 weeks ended May 1, 1999, cost of sales and occupancy increased $41.4 million, or 8.5%, to $526.0 million from $484.6 million during the 13 weeks ended May 2, 1998. As a percentage of sales, cost of sales and occupancy decreased to 73.2% during the first quarter from 73.8% during the same period one year ago reflecting improved leverage on occupancy costs, more favorable sales mix and better shrinkage control. Selling and Administrative Expenses Selling and administrative expenses increased $16.3 million to $151.9 million during the 13 weeks ended May 1, 1999 from $135.6 million during the 13 weeks ended May 2, 1998. During the first quarter, selling and administrative expenses increased as a percentage of sales to 21.2% from 20.6% during the prior year period. The increase was primarily attributable to Year 2000 consulting fees, the revised benefit plan for part-time employees and expenses related to the installation of the BookMaster system. 11 Depreciation and Amortization During the first quarter, depreciation and amortization increased $5.3 million, or 25.7%, to $25.8 million from $20.5 million during the same period last year, as a result of the depreciation on the 51 new Barnes & Noble stores opened since May 2, 1998. Pre-opening Expenses Pre-opening expenses decreased $1.8 million, or 69.2%, to $0.8 million during the 13 weeks ended May 1, 1999 from $2.6 million for the 13 weeks ended May 2, 1998, primarily as a result of the first quarter adoption of Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires an entity to expense all start-up activities (as defined) as incurred. The Company has historically amortized costs associated with the opening of new stores over the respective store's first 12 months of operations. Operating Profit The Company's consolidated operating profit increased to $13.8 million during the 13 weeks ended May 1, 1999 from $13.7 million during the 13 weeks ended May 2, 1998. Interest Expense, Net and Amortization of Deferred Financing Fees Net interest expense and amortization of deferred financing fees decreased to $4.7 million during the 13 weeks ended May 1, 1999 from $5.8 million during the 13 weeks ended May 2, 1998. Interest expense decreased due to a combination of both lower average borrowings and declining interest rates. Benefit for Income Taxes The benefit for income taxes during the 13 weeks ended May 1, 1999 was $1.0 million compared with $2.3 million during the 13 weeks ended May 2, 1998. Tax benefits were based upon management's estimate of the Company's annualized effective tax rates. Net Loss As a result of the factors discussed above, the Company reported a consolidated net loss of ($5.9) million during the 13 weeks ended May 1, 1999, compared with a net loss of ($3.3) million during the 13 weeks ended May 2, 1998. For the first quarter of 1999, the net loss per common share was ($0.09) per share (based on 68.9 million shares) compared with ($0.05) per share (based on 68.1 million shares) for the corresponding prior-year period. The consolidated first quarter net loss reflects the Company's 50% share in barnesandnoble.com's net losses of ($6.8) million or ($0.10) per share and the cumulative effect of a change in accounting principle of ($4.5) million, net of tax, or ($0.07) per share during the first quarter of 1999, compared with 100% of barnesandnoble.com's net losses of ($8.0) million or ($0.12) per share, in the first quarter of 1998. Excluding barnesandnoble.com and the change in accounting principle, the retail business net income increased 14.4% to $5.4 million or $0.08 per share for the 13 weeks ended May 1, 1999 compared to $4.7 million or $0.07 per share during 13 weeks ended May 2, 1998. 12 Forward-Looking Statements This report may contain certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to the Company that are based on the beliefs of the management of the Company as well as assumptions made by and information currently available to the management of the Company. When used in this report, the words "anticipate," "believe," "estimate," "expect," "intend," "plan" and similar expressions, as they relate to the Company or the management of the Company, identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events, the outcome of which is subject to certain risks, including among others general economic and market conditions, decreased consumer demand for the Company's products, possible disruptions in the Company's computer or telephone systems, increased or unanticipated costs or effects associated with year 2000 compliance by the Company or its service or supply providers, possible work stoppages, or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible disruptions or delays in the opening of new stores or the inability to obtain suitable sites for new stores, higher than anticipated store closing or relocation costs, higher interest rates, the performance of the Company's online initiatives such as barnesandnoble.com, unanticipated increases in merchandise or occupancy costs, and other factors which may be outside of the Company's control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described therein as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. 13 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit filed with this Form 10-Q: Exhibit 27 : Financial Data Schedule (b) No report on Form 8-K was filed by the registrant during the fiscal quarter for which this report is filed. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BARNES & NOBLE, INC. (Registrant) Date: June 11, 1999 By: /s/ Michael Archbold -------------------- Michael Archbold Vice President, Treasurer (Chief Accounting Officer) 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 3-MOS JAN-29-2000 JAN-31-1999 MAY-1-1999 15,815 0 43,226 0 940,321 1,074,093 855,479 339,756 1,797,391 664,596 340,000 0 0 69 532,910 1,797,391 718,336 718,336 525,965 525,965 26,600 0 4,742 (2,447) (1,003) (1,444) 0 0 (4,500) (5,944) (0.09) (0.09)
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