-----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, NPAiW+HgBFk+hn1G38f1kzftg2uv59/9U4YFohllb8BCMP7It4fphYOEiNVFL1t0 Ot3jhP8GvMLkIqyWdEqEMA== /in/edgar/work/20000908/0000950123-00-008385/0000950123-00-008385.txt : 20000922 0000950123-00-008385.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950123-00-008385 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000729 FILED AS OF DATE: 20000908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARNES & NOBLE INC CENTRAL INDEX KEY: 0000890491 STANDARD INDUSTRIAL CLASSIFICATION: [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: 719052 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 y40152e10-q.txt BARNES AND NOBLE, INC. 1 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 July 29, 2000 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________ Commission File Number: 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 August 31, 2000: 64,203,210. 2 BARNES & NOBLE, INC. AND SUBSIDIARIES July 29, 2000 Index to Form 10-Q
Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations - For the 13 weeks and the 26 weeks ended July 29, 2000 and July 31, 1999.................................... 3 Consolidated Balance Sheets - July 29, 2000, July 31, 1999 and January 29, 2000..................................................................... 4 Consolidated Statement of Changes in Shareholders' Equity - July 29, 2000..................................................................... 6 Consolidated Statements of Cash Flows - For the 26 weeks ended July 29, 2000 and July 31, 1999........................................................ 7 Notes to Consolidated Financial Statements................................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk N/A PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders.......................... 22 Item 5. Other Information............................................................ 23 Item 6. Exhibits and Reports on Form 8-K............................................. 23
3 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 26 weeks ended ------------------------------- ------------------------------- July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999 ------------ ------------ ------------ ------------ Sales $ 924,330 727,165 1,818,586 1,445,501 Cost of sales and occupancy 676,263 527,890 1,330,430 1,053,855 ------------ ------------ ------------ ------------ Gross profit 248,067 199,275 488,156 391,646 ------------ ------------ ------------ ------------ Selling and administrative expenses 190,712 149,749 371,991 300,605 Depreciation and amortization 34,562 26,594 67,567 52,393 Pre-opening expenses 1,848 1,525 3,331 2,326 ------------ ------------ ------------ ------------ Operating profit 20,945 21,407 45,267 36,322 Interest (net of interest income of $245, $293, $376 and $1,005, respectively) and amortization of deferred financing fees (13,283) (5,005) (23,056) (9,747) Equity in net loss of Barnes & Noble.com (17,940) (6,532) (35,538) (18,076) Gain on formation of Barnes & Noble.com -- 25,000 -- 25,000 Other income (expense), net (4,502) 5,033 (8,536) 3,957 ------------ ------------ ------------ ------------ Earnings (loss) before income taxes and cumulative effect of a change in accounting principle (14,780) 39,903 (21,863) 37,456 Income tax provision (benefit) (6,134) 16,360 (9,073) 15,357 ------------ ------------ ------------ ------------ Earnings (loss) before cumulative effect of a change in accounting principle (8,646) 23,543 (12,790) 22,099 Cumulative effect of a change in accounting principle, net of tax benefits of $3,125 -- -- -- (4,500) ------------ ------------ ------------ ------------ Net earnings (loss) $(8,646) 23,543 (12,790) 17,599 ============ ============ ============ ============ Earnings (loss) per common share Basic Earnings (loss) before cumulative effect of a change in accounting principle $ (0.13) 0.34 (0.20) 0.32 Cumulative effect of a change in accounting principle, net of tax benefits $ -- -- -- (0.07) Net earnings (loss) $ (0.13) 0.34 (0.20) 0.25 Diluted Earnings (loss) before cumulative effect of a change in accounting principle $ (0.13) 0.33 (0.20) 0.31 Cumulative effect of a change in accounting principle, net of tax benefits $ -- -- -- (0.06) Net earnings (loss) $ (0.13) 0.33 (0.20) 0.25 Weighted average common shares outstanding Basic 64,126,000 69,356,000 64,165,000 69,143,000 Diluted 64,126,000 71,826,000 64,165,000 71,928,000
See accompanying notes to consolidated financial statements. 3 4 BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Balance Sheets (thousands of dollars, except per share data)
July 29, July 31, January 29, 2000 1999 2000 ---------- ---------- ---------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 33,294 9,558 24,247 Receivables, net 68,950 54,069 58,240 Merchandise inventories 1,121,094 913,617 1,102,453 Prepaid expenses and other current assets 70,046 76,543 56,579 ---------- ---------- ---------- Total current assets 1,293,384 1,053,787 1,241,519 ---------- ---------- ---------- Property and equipment: Land and land improvements 3,247 3,247 3,247 Buildings and leasehold improvements 434,381 394,192 417,535 Fixtures and equipment 625,523 489,763 565,345 ---------- ---------- ---------- 1,063,151 887,202 986,127 Less accumulated depreciation and amortization 492,632 357,513 418,078 ---------- ---------- ---------- Net property and equipment 570,519 529,689 568,049 ---------- ---------- ---------- Intangible assets, net 423,794 85,364 298,011 Investment in Barnes & Noble.com 204,993 264,502 240,531 Other noncurrent assets 61,117 48,791 65,681 ---------- ---------- ---------- Total assets $2,553,807 1,982,133 2,413,791 ========== ========== ==========
(Continued) See accompanying notes to consolidated financial statements. 4 5 BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Balance Sheets (thousands of dollars, except per share data)
July 29, July 31, January 29, 2000 1999 2000 ----------- ----------- ----------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 578,193 394,403 599,376 Accrued liabilities 214,431 210,376 323,475 ----------- ----------- ----------- Total current liabilities 792,624 604,779 922,851 ----------- ----------- ----------- Long-term debt 745,000 347,400 431,600 Deferred income taxes 122,220 119,898 125,006 Other long-term liabilities 92,522 80,662 87,974 Shareholders' equity: Common stock; $.001 par value; 300,000,000 shares authorized; 69,696,902, 69,390,807 and 69,553,839 shares issued, respectively 70 69 70 Additional paid-in capital 656,963 651,918 654,584 Accumulated other comprehensive earnings (5,126) 4,605 (1,198) Retained earnings 266,911 172,802 279,701 Treasury stock, at cost, 5,504,700, 0 and 4,025,900 shares, respectively (117,377) -- (86,797) ----------- ----------- ----------- Total shareholders' equity 801,441 829,394 846,360 ----------- ----------- ----------- Commitments and contingencies -- -- -- ----------- ----------- ----------- Total liabilities and shareholders' equity $ 2,553,807 1,982,133 2,413,791 =========== =========== ===========
See accompanying notes to consolidated financial statements. 5 6 BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Statement of Changes in Shareholders' Equity (thousands of dollars, except per share data) (unaudited)
Accumulated Additional Other Treasury Common Paid-In Comprehensive Retained Stock at Stock Capital Losses Earnings Cost Total --------- --------- --------- --------- --------- --------- Balance at January 29, 2000 $ 70 $ 654,584 $ (1,198) $ 279,701 $ (86,797) $ 846,360 --------- --------- --------- --------- --------- --------- Net loss -- -- -- (12,790) -- (12,790) Other comprehensive loss (net of deferred income tax benefit of $2,673) -- -- (3,928) -- -- (3,928) Exercise of 143,063 common stock options -- 2,379 -- -- -- 2,379 Treasury stock acquired, 1,478,800 shares -- -- -- -- (30,580) (30,580) --------- --------- --------- --------- --------- --------- Balance at July 29, 2000 $ 70 $ 656,963 $ (5,126) $ 266,911 $(117,377) $ 801,441 ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 6 7 BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (thousands of dollars, except per share data) (unaudited)
26 weeks ended ---------------------------- July 29, 2000 July 31, 1999 --------- --------- Cash flows from operating activities: Net earnings (loss) $ (12,790) 17,599 Adjustments to reconcile net earnings (loss) to net cash flows from operating activities: Depreciation and amortization 68,067 52,580 Loss on disposal of property and equipment 874 3,334 Increase in other long-term liabilities for scheduled rent increases in long-term leases 5,092 6,843 Cumulative effect of change in accounting principle, net of taxes -- 4,500 Other (income) expense, net 8,536 (3,957) Gain on the formation of Barnes & Noble.com -- (25,000) Equity in net loss of Barnes & Noble.com 35,538 18,076 Changes in operating assets and liabilities, net (167,851) (160,159) --------- --------- Net cash flows from operating activities (62,534) (86,184) --------- --------- Cash flows from investing activities: Acquisition of consolidated subsidiary, net of cash received (148,492) -- Purchases of property and equipment (52,754) (73,455) Investment in iUniverse.com (8,000) (10,142) Proceeds from the partial sale of Chapters Inc. -- 21,558 Proceeds from the formation of Barnes & Noble.com -- 25,000 Net increase in other noncurrent assets (4,372) (8,843) --------- --------- Net cash flows from investing activities (213,618) (45,882) --------- --------- Cash flows from financing activities: Net increase in revolving credit facility 313,400 98,300 Proceeds from exercise of common stock options, including related tax benefits 2,379 12,243 Purchase of treasury stock through repurchase program (30,580) -- --------- --------- Net cash flows from financing activities 285,199 110,543 --------- --------- Net increase (decrease) in cash and cash equivalents 9,047 (21,523) Cash and cash equivalents at beginning of period 24,247 31,081 --------- --------- Cash and cash equivalents at end of period $ 33,294 9,558 ========= ========= Changes in operating assets and liabilities, net: Receivables, net $ (14,444) 3,454 Merchandise inventories 10,021 31,456 Prepaid expenses and other current assets (1,009) (29,534) Accounts payable and accrued liabilities (162,419) (165,535) --------- --------- Changes in operating assets and liabilities, net $(167,851) (160,159) ========= ========= Supplemental cash flow information: Cash paid during the period for: Interest $ 14,970 9,758 Income taxes $ 58,118 43,079 Supplemental disclosure of subsidiary acquired: Assets acquired $ 180,140 Liabilities assumed 31,648 --------- Cash paid $ 148,492 =========
See accompanying notes to consolidated financial statements. 7 8 BARNES & NOBLE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the 26 weeks ended July 29, 2000 and July 31, 1999 (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 July 29, 2000 and the results of its operations and its cash flows for the 26 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 29, 2000 (fiscal 1999). 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 26 weeks ended July 29, 2000 are not indicative of the results to be expected for the 53 weeks ending February 3, 2001. (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 84%, 86% and 83% of the Company's merchandise inventories as of July 29, 2000, July 31, 1999 and January 29, 2000, respectively. Merchandise inventories of Babbage's Etc. LLC (Babbage's Etc.), which represent approximately 7% of merchandise inventories as of July 29, 2000, are recorded based on the average cost method. 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 July 29, 2000, July 31, 1999 and January 29, 2000. (2) Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. (3) Income Taxes The tax provisions for the 26 weeks ended July 29, 2000 and July 31, 1999 are based upon management's estimate of the Company's annualized effective tax rate. 8 9 BARNES & NOBLE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the 26 weeks ended July 29, 2000 and July 31, 1999 (thousands of dollars, except per share data) (unaudited) (4) Comprehensive Earnings Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", establishes standards for reporting and display of comprehensive earnings and its components in the financial statements. Comprehensive earnings are net earnings, plus certain other items that are recorded directly to shareholders' equity. The only such item currently applicable to the Company is the unrealized loss on available-for-sale securities, as follows:
13 weeks ended 26 weeks ended ----------------------------- ----------------------------- July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999 -------- -------- -------- -------- Net earnings (loss) $ (8,646) $ 23,543 $(12,790) $ 17,599 Other comprehensive earnings (loss): Unrealized gain (loss) on available-for-sale securities, net of deferred income tax (benefit) of $971, $3,335, ($2,786) and $3,335, respectively 1,368 4,605 (3,928) 4,605 -------- -------- -------- -------- Comprehensive earnings (loss) $ (7,278) $ 28,148 $(16,718) $ 22,204 ======== ======== ======== ========
9 10 BARNES & NOBLE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the 26 weeks ended July 29, 2000 and July 31, 1999 (thousands of dollars, except per share data) (unaudited) (5) Other Income (Expense) The following table sets forth the components of other income (expense), in thousands of dollars:
13 weeks ended 26 weeks ended ----------------------- ----------------------- July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999 ------- ------- ------- ------- Gain on partial sale of Chapters Inc. (a) $ -- 10,975 -- 10,975 Equity in net losses of Chapters Inc. (a) -- -- -- (100) Equity in net losses of iUniverse.com (b) (3,000) -- (5,534) -- Equity in net losses of Calendar Club LLC (c) (1,502) (942) (3,002) (1,918) Termination of planned acquisition of Ingram Book Group (d) -- (5,000) -- (5,000) ------- ------- ------- ------- Total other income (expense) $(4,502) 5,033 (8,536) 3,957 ======= ======= ======= =======
(a) During fiscal 1999, the Company sold a portion of its investment in Chapters Inc. (Chapters) resulting in a pre-tax gain of $10,975. Prior to this transaction, the Company accounted for its investment in Chapters under the equity method. (b) During 1999, the Company acquired a 41 percent interest in iUniverse.com for $20,000. In the first quarter of fiscal 2000, the Company invested an additional $8,000 in iUniverse.com thereby increasing its percentage ownership interest to 49 percent. This investment is being accounted for under the equity method and is reflected as a component of other noncurrent assets. (c) The Company's 50 percent interest in Calendar Club LLC is being accounted for under the equity method and is reflected as a component of other noncurrent assets. (d) In 1999, the Company and Ingram Book Group (Ingram) announced their agreement to terminate the Company's planned acquisition of Ingram. As a result, other income reflects a one-time charge of $5,000 for acquisition related costs. (6) Acquisition of Funco, Inc. In the second quarter of fiscal 2000, the Company acquired all of the outstanding shares of Funco, Inc., a Minneapolis-based electronic games retailer, through a successful tender offer and follow-up merger for $24.75 per share or approximately $159.2 million (excluding acquisition related costs). The acquisition was accounted for by the purchase method of accounting and accordingly, the Company's consolidated balance sheet reflects the acquisition. The excess of purchase price over the net assets acquired, in the amount of approximately $127 million, has been recorded as goodwill and is being amortized using the straight-line method over an estimated useful life of 30 years. The acquisition is included in the results of operations as of June 15, 2000, for the second quarter ended July 29, 2000. The pro forma effect assuming the acquisition of Funco, Inc. at the beginning of fiscal 1999 and fiscal 2000 is not material. 10 11 BARNES & NOBLE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the 26 weeks ended July 29, 2000 and July 31, 1999 (thousands of dollars, except per share data) (unaudited) (7) Segment Information Historically, the Company operated as a single segment. As a result of the acquisitions of Babbage's Etc. in 1999 and Funco, Inc. in 2000, the Company is currently operating under two segments and accordingly, is required to disclose information in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). The Company's reportable segments are strategic groups that offer different products. These groups have been aggregated into two segments: bookstores and video game and entertainment software stores. Bookstores This segment includes 551 book "super" stores operated under the Barnes & Noble Booksellers, Bookstop and Bookstar names and 379 small format mall-based stores operated under the B. Dalton Bookseller, Doubleday Book Shops and Scribner's Bookstore names. Video Game and Entertainment Software Stores This segment includes 545 video game and entertainment software stores operated under the Babbage's, Software Etc. and GameStop names, 407 stores under the FuncoLand name, and Web sites, gamestop.com and funcoland.com (collectively, Video Game & Entertainment Software). The accounting policies of the segments are the same as those for the Company as a whole. Segment operating profit includes corporate expenses in each operating segment. Barnes & Noble evaluates the performance of its segments and allocates resources to them based on operating profit. 11 12 BARNES & NOBLE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the 26 weeks ended July 29, 2000 and July 31, 1999 (thousands of dollars, except per share data) (unaudited) Segment information for the 13 weeks and 26 weeks ended July 29, 2000 and July 31, 1999 follows:
13 weeks ended 26 weeks ended - ------------------------------------- ------------------------------ ------------------------------ Sales July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999 - ------------------------------------- --------- --------- --------- --------- Bookstores $ 797,008 727,165 1,571,261 1,445,501 Video game and entertainment software stores 127,322 -- 247,325 -- --------- --------- --------- --------- Total $ 924,330 727,165 1,818,586 1,445,501 ========= ========= ========= =========
13 weeks ended 26 weeks ended - ------------------------------------- ---------------------------------- ----------------------------- Operating profit (loss) July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999 - ------------------------------------- -------- ------------- -------- -------- Bookstores $ 28,425 21,407 52,050 36,322 Video game and entertainment software stores (7,480) -- (6,783) -- -------- ------------- -------- -------- Total $ 20,945 21,407 45,267 36,322 ======== ============= ======== ========
A reconciliation of operating profit (loss) reported by reportable segments to earnings before income taxes, extraordinary charge and cumulative effect of a change in accounting principle in the consolidated financial statements for the 13 weeks and 26 weeks ended July 29, 2000 and July 31, 1999 is as follows:
13 weeks ended 26 weeks ended ----------------------------- ----------------------------- July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999 -------- -------- -------- -------- Reportable segments operating profit $ 20,945 21,407 45,267 36,322 Interest, net (13,283) (5,005) (23,056) (9,747) Equity in net loss of Barnes & Noble.com (17,940) (6,532) (35,538) (18,076) Gain on formation of Barnes & Noble.com -- 25,000 -- 25,000 Other income (expense) (4,502) 5,033 (8,536) 3,957 -------- -------- -------- -------- Consolidated earnings (loss) before income taxes and cumulative effect of a change in accounting principle $(14,780) 39,903 (21,863) 37,456 ======== ======== ======== ========
12 13 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Recent Events Funco, Inc. In the second quarter of fiscal 2000, the Company acquired all of the outstanding shares of Funco, Inc., a Minneapolis-based electronic games retailer, through a successful tender offer and follow-up merger for $24.75 per share or approximately $159.2 million (excluding acquisition related costs). The acquisition was accounted for by the purchase method of accounting and accordingly, the Company's consolidated balance sheet reflects the acquisition. The excess of purchase price over the net assets acquired, in the amount of approximately $127 million, has been recorded as goodwill and is being amortized using the straight-line method over an estimated useful life of 30 years. The acquisition is included in the results of operations as of June 15, 2000, for the second quarter ended July 29, 2000. The pro forma effect assuming the acquisition of Funco, Inc. at the beginning of fiscal 1999 and fiscal 2000 is not material. 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 as of July 29, 2000 were $33.3 million compared with $9.6 million as of July 31, 1999. During the first half of fiscal 2000, retail earnings before interest, taxes, depreciation and amortization (EBITDA) increased $24.1 million to $112.8 million from $88.7 million during the comparable prior year period, reflecting higher sales levels and improving expense leverage. Merchandise inventories increased to $1,121.1 million as of July 29, 2000, from $913.6 million as of July 31, 1999, primarily due to the inclusion of Babbage's Etc. and Funco, Inc. (Video Game & Entertainment Software) inventory. The increase in book inventory supported the Company's 9.6% book sales growth, the opening of 37 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 available for shipping within 24 hours to both online customers and the retail store network. The Company's investing activities consist principally of capital expenditures for new store construction, system enhancements and store relocations/remodels. Capital expenditures totaled $52.8 million and $73.5 million during the 26 weeks ended July 29, 2000 and July 31, 1999, respectively. Total debt increased 114.5% to $745.0 million as of July 29, 2000 from $347.4 million as of July 31, 1999. Average borrowings under the Company's senior credit facility were $642.6 million and $338.4 million during the 26 weeks ended July 29, 2000 and July 31, 1999, respectively, and peaked at $785.0 million and $410.6 million during the same periods. The increase in the senior credit facility and average borrowings were primarily attributable to the funding of the Video Game & Entertainment Software acquisitions as well as the execution of the common stock repurchase program. As of July 29, 2000, the Company repurchased 5,504,700 shares at a cost of approximately $117.4 million under this program. The repurchased shares are held in treasury. As a result of 13 14 the above transactions, the ratio of debt to equity increased to 0.93:1.00 as of July 29, 2000, compared with 0.42:1.00 as of July 31, 1999. Based upon the Company's current operating levels, management believes net cash flows from operating activities and the capacity under its existing senior credit facility will be sufficient to meet the Company's normal working capital and debt service requirements for at least the next twelve months. The Company did not declare or pay any cash dividends during the 26-week periods ended July 29, 2000 and July 31, 1999. Year 2000 The Company completed its Year 2000 compliance plan during 1999. The total costs incurred to implement the plan were approximately $4.3 million. The conversion to the Year 2000 occurred without any disruptions to the Company's critical business systems either internally or from outside sources. The Company has no reason to believe that Year 2000 failures will materially affect it in the future. However, since it may take several additional months before it is known whether the Company or third party vendors, suppliers or service providers may have encountered Year 2000 problems, no assurances can be given that the Company will not experience disruptions as a result of Year 2000 compliance failures. The Company will continue to monitor Year 2000 exposures both internally and with its vendors, suppliers and service providers. Such monitoring will be ongoing and encompassed in normal operations. Associated costs are not expected to be significant. Results of Operations 13 weeks ended July 29, 2000 and July 31, 1999 Sales During the 13 weeks ended July 29, 2000, the Company's sales grew 27.1% to $924.3 million from $727.2 million during the 13 weeks ended July 31, 1999. Contributing to this improvement was a 17.5% increase attributable to the inclusion of Video Game & Entertainment Software sales of $127.3 million for the second quarter of 2000. During the second quarter, Barnes & Noble "super" store sales rose 12.6% to $713.5 million from $633.5 million during the same period a year ago and accounted for 77.2% of total Company sales or 89.5% of total bookstore sales. During the second quarter, the 12.6% increase in Barnes & Noble bookstore sales was primarily attributable to a same store sales gain of 6.6% coupled with 37 new stores opened since July 31, 1999 which contributed a 7.4% increase in square footage. Sales were strong across all book categories, particularly children's books, fiction, non-fiction and educational books (teaching aids and workbooks for the growing home school market), as well as music and cafes. In addition, the number of stores included in the comparable store sales base increased to 94.4% as of July 29, 2000 compared with 90.0% as of July 31, 1999. During the second quarter, B. Dalton sales declined 10.4% and represented 8.8% of total Company sales. The decrease was primarily a result of 69 store closings and a 14.7% reduction in its square footage since July 31, 1999. B. Dalton's same store sales increased 0.9% during the second quarter. 14 15 During the second quarter, the Company opened eight Barnes & Noble stores and closed one, bringing its total number of Barnes & Noble bookstores to 551 with 12.9 million square feet. The Company closed 10 B. Dalton stores, ending the period with 379 B. Dalton stores and 1.5 million square feet. The Company opened 14 Babbage's Etc. stores and closed one, bringing its total number of Babbage's Etc. stores to 545. Funco, Inc. ended the quarter with 407 stores. As of July 29, 2000, the Company operated 1,882 stores in all fifty states, the District of Columbia and Puerto Rico. Cost of Sales and Occupancy During the 13 weeks ended July 29, 2000, cost of sales and occupancy increased $148.4 million, or 28.1%, to $676.3 million from $527.9 million during the 13 weeks ended July 31, 1999. As a percentage of sales, cost of sales and occupancy increased to 73.2% during fiscal 2000's second quarter from 72.6% during the same period one year ago. This increase is primarily due to the inclusion of Video Game & Entertainment Software cost of sales and occupancy partially offset by improved leverage in the bookstore business. Selling and Administrative Expenses Selling and administrative expenses increased $41.0 million to $190.7 million during the 13 weeks ended July 29, 2000 from $149.7 million during the 13 weeks ended July 31, 1999 primarily due to the inclusion of Video Game & Entertainment Software selling and administrative expenses in the second quarter of fiscal 2000. During the second quarter, selling and administrative expenses as a percentage of sales was 20.6%, unchanged from the same period one year ago. Depreciation and Amortization During the second quarter, depreciation and amortization increased $8.0 million, or 30.0%, to $34.6 million from $26.6 million during the same period last year. The increase was primarily the result of the depreciation on the 37 new Barnes & Noble stores opened since July 31, 1999 and the inclusion of Video Game & Entertainment Software store depreciation and amortization. Pre-opening Expenses Pre-opening expenses increased $0.3 million, or 21.2%, to $1.8 million during the 13 weeks ended July 29, 2000 from $1.5 million for the 13 weeks ended July 31, 1999 primarily due to the inclusion of Video Game & Entertainment Software store pre-opening expenses in the second quarter of fiscal 2000. Operating Profit The Company's consolidated operating profit decreased to $20.9 million during the 13 weeks ended July 29, 2000 from $21.4 million during the 13 weeks ended July 31, 1999, primarily due to the inclusion of operating losses of $7.5 million from Video Game & Entertainment Software stores. Bookstore operating profit increased 32.8% to $28.4 million due to increased sales and higher operating margins. 15 16 Interest Expense, Net and Amortization of Deferred Financing Fees Net interest expense and amortization of deferred financing fees increased to $13.3 million during the 13 weeks ended July 29, 2000 from $5.0 million during the 13 weeks ended July 31, 1999. This increase was primarily the result of increased borrowings under the Company's revolving credit facility used to fund the common stock repurchase program and the Company's Video & Entertainment Software acquisitions, partially offset by the Company's strong cash flows from the bookstore business. Other Income (Expense) Other expense of ($4.5) million for the second quarter of 2000 resulted from equity losses from the Company's investments. Other income of $5.0 million for the second quarter of 1999 resulted from a one-time gain on the partial sale of Chapters, partially offset by equity losses from the Company's investments as well as acquisition costs incurred for the termination of the planned Ingram acquisition. Income Taxes The benefit for income taxes during the 13 weeks ended July 29, 2000 was ($6.1) million compared with a provision for income taxes of $16.4 million during the 13 weeks ended July 31, 1999. Tax effects were based upon management's estimate of the Company's annualized effective tax rates. The Company's effective tax rate was 41.5% for the second quarter of 2000, compared to 41.0% for the second quarter of 1999. 16 17 Net Earnings (Loss) As a result of the factors discussed above, the Company reported a consolidated net loss of ($8.6) million (or ($0.13) per diluted share) during the 13 weeks ended July 29, 2000, compared with net earnings of $23.5 million (or $0.33 per diluted share) during the 13 weeks ended July 31, 1999. Components of earnings per share are as follows:
13 WEEKS ENDED ----------------------- JULY 29, 2000 JULY 31, 1999 ----- ----- Retail Earnings Per Share Bookstores $0.19 0.13 Video game and entertainment software stores (0.12) -- ----- ----- Retail EPS $0.07 0.13 EPS Impact of Investing Activities Cash: Gain on Barnes & Noble.com $ -- 0.21 Chapters Gain -- 0.09 Non-Cash: Share of net losses of Barnes & Noble.com (0.16) (0.05) Share of net losses from other equity investments (0.04) (0.01) ----- ----- Total Investing Activities $(0.20) 0.24 Other Adjustments Ingram write-off $ -- (0.04) ----- ----- Total Other Adjustments $ -- (0.04) ----- ----- Consolidated EPS $(0.13) 0.33 ===== =====
17 18 Results of Operations 26 weeks ended July 29, 2000 and July 31, 1999 Sales Sales totaled $1.819 billion during the 26 weeks ended July 29, 2000, a 25.8% increase over sales of $1.446 billion during the 26 weeks ended July 31, 1999. Contributing to this improvement was a 17.1% increase attributable to the inclusion of Video Game & Entertainment Software sales for the first half of 2000. During the 26 weeks ended July 29, 2000, Barnes & Noble "super" store sales rose 12.1% to $1.406 billion from $1.254 billion during the same period a year ago and accounted for 77.3% of total Company sales or 89.5% of total bookstore sales. During the 26 weeks ended July 29, 2000, the 12.1% increase in Barnes & Noble bookstore sales was primarily attributable to a same store sales gain of 6.7% coupled with 37 new stores opened since July 31, 1999 which contributed a 7.4% increase in square footage. Sales were strong across all book categories, particularly children's books, fiction, non-fiction and educational books (teaching aids and workbooks for the growing home school market), as well as music and cafes. In addition, the number of stores included in the comparable store sales base increased to 94.4% as of July 29, 2000 compared with 90.0% as of July 31, 1999. During the 26 weeks ended July 29, 2000, B. Dalton sales declined 13.2% and represented 8.8% of total Company sales. The decrease was primarily a result of 69 store closings and a 14.7% reduction in its square footage since July 31, 1999. In addition, B. Dalton's same store sales decreased 0.8% during the first half of fiscal 2000. During the first half of fiscal 2000, the Company opened 11 Barnes & Noble stores and closed two, bringing its total number of Barnes & Noble bookstores to 551 with 12.9 million square feet. The Company closed 21 B. Dalton stores, ending the period with 379 B. Dalton stores and 1.5 million square feet. The Company opened 23 Babbage's Etc. stores and closed four, bringing its total number of Babbage's Etc. stores to 545. Funco, Inc. ended the quarter with 407 stores. As of July 29, 2000 the Company operated 1,882 stores in all fifty states, the District of Columbia and Puerto Rico. Cost of Sales and Occupancy During the 26 weeks ended July 29, 2000, cost of sales and occupancy increased $276.5 million, or 26.2%, to $1,330.4 million from $1,053.9 million during the 26 weeks ended July 31, 1999. As a percentage of sales, cost of sales and occupancy increased to 73.2% during fiscal 2000's first half from 72.9% during the same period last year. This increase is primarily due to the inclusion of Video Game & Entertainment Software cost of sales and occupancy partially offset by improved leverage in the bookstore business. Selling and Administrative Expenses Selling and administrative expenses increased $71.4 million, or 23.8%, to $372.0 million during the 26 weeks ended July 29, 2000 from $300.6 million during the 26 weeks ended July 31, 1999 primarily due to the inclusion of Video Game & Entertainment Software selling and administrative expenses in the first half of fiscal 2000. As a 18 19 percentage of sales, selling and administrative expenses decreased to 20.5% during fiscal 2000's first half from 20.8% during the same period last year. Depreciation and Amortization During the first half of fiscal 2000, depreciation and amortization increased $15.2 million, or 29.0%, to $67.6 million from $52.4 million during the same period last year. The increase was primarily the result of the depreciation on the 37 new Barnes & Noble stores opened since July 31, 1999 and the inclusion of Video Game & Entertainment Software store depreciation and amortization. Pre-opening Expenses Pre-opening expenses increased $1.0 million, or 43.2%, to $3.3 million during the 26 weeks ended July 29, 2000 from $2.3 million for the 26 weeks ended July 31, 1999 primarily due to the inclusion of Video Game & Entertainment Software store pre-opening expenses in fiscal 2000. Operating Profit The Company's consolidated operating profit increased to $45.3 million during the 26 weeks ended July 29, 2000 from $36.3 million during the 26 weeks ended July 31, 1999, primarily due to the inclusion of operating losses of $6.8 million from Video Game & Entertainment Software stores. Bookstore operating profit increased 43.3% to $52.1 million due to increased sales and higher operating margins. Interest Expense, Net and Amortization of Deferred Financing Fees Net interest expense and amortization of deferred financing fees increased to $23.1 million during the 26 weeks ended July 29, 2000 from $9.7 million during the 26 weeks ended July 31, 1999. This increase was primarily the result of increased borrowings under the Company's revolving credit facility used to fund the common stock repurchase program and the Company's Video Game & Entertainment Software acquisitions, partially offset by the Company's strong cash flows from the bookstore business. Other Income (Expense) Other expense of ($8.5) million for the first half of fiscal 2000 resulted from equity losses from the Company's investments. Other income of $4.0 million for the first half of fiscal 1999 resulted from a one-time gain on the partial sale of Chapters, partially offset by equity losses from the Company's investments as well as acquisition costs incurred for the termination of the planned Ingram acqusition. Income Taxes The benefit for income taxes during the 26 weeks ended July 29, 2000 was ($9.1) million compared with a provision for income taxes of $15.4 million during the 26 weeks ended July 31, 1999. Tax effects were based upon management's estimate of the Company's annualized effective tax rates. The Company's effective tax rate is 41.5% for fiscal 2000, compared to 41.0% for fiscal 1999. 19 20 Net Earnings (Loss) As a result of the factors discussed above, the Company reported a consolidated net loss of ($12.8) million (or ($0.20) per diluted share) during the 26 weeks ended July 29, 2000, compared with net earnings of $17.6 million (or $0.25 per diluted share) during the 26 weeks ended July 31, 1999. Components of earnings per share are as follows:
26 WEEKS ENDED ----------------------- JULY 29, 2000 JULY 31, 1999 ----- ----- Retail Earnings Per Share Bookstores $0.35 0.22 Video game and entertainment software stores (0.14) -- ----- ----- Retail EPS $0.21 0.22 EPS Impact of Investing Activities Cash: Gain on Barnes & Noble.com $ -- 0.21 Chapters Gain -- 0.09 Non-Cash: Share of net losses of Barnes & Noble.com (0.33) (0.15) Share of net losses from other equity investments (0.08) (0.02) ----- ----- Total Investing Activities $(0.41) 0.13 Other Adjustments Change in accounting for pre-opening costs $ -- (0.06) Ingram write-off -- (0.04) ----- ----- Total Other Adjustments $ -- (0.10) ----- ----- Consolidated EPS $(0.20) 0.25 ===== =====
20 21 Disclosure Regarding 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 Barnes & Noble.com, the performance and successful integration of acquired businesses, the success of the Company's strategic investments, unanticipated increases in merchandise or occupancy costs, unanticipated adverse litigation results or effects, and other factors which may be outside of the Company's control. In addition, the video game market has historically been cyclical in nature and dependent upon the introduction of new generation systems and related interactive software. 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 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. 21 22 PART II - OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on June 7, 2000. At the close of business on the record date for the meeting (which was April 18, 2000), there were 64,104,265 shares of Common Stock outstanding and entitled to vote at the meeting. Holders of 56,347,688 shares of Common Stock (representing a like number of votes) were present at the meeting, either in person or by proxy. The following individuals were elected to the Company's Board of Directors to hold office for a term of three years and until their respective successors are duly elected and qualified.
Nominee In Favor Withheld ------- -------- -------- William Dillard II 55,915,672 432,016 Irene R. Miller 55,935,889 411,799 Michael N. Rosen 55,733,973 613,715
The Shareholders ratified the appointment of BDO Seidman, LLP as independent certified public accountants for the fiscal year ending February 3, 2001 by a vote of:
In Favor Against Abstained -------- ------- --------- 56,082,016 120,263 145,409
22 23 Item 5: Other Information Shareholder Proposals Any shareholder proposal submitted outside the processes of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the Exchange Act), for presentation at the Company's 2001 Annual Meeting will be considered untimely for purposes of Rules 14a-4 and 14a-5 under the Exchange Act if notice of such shareholder proposal is received by the Company after January 8, 2001. Item 6: Exhibits and Reports on Form 8-K (a) Exhibits filed with this Form 10-Q: Exhibit 10: Agreement and Plan of Merger among the Company, Funco, Inc. and B&N Acquisition Corporation incorporated by reference to Exhibit 2.1 of Form 8-K filed on May 10, 2000. Exhibit 27: Financial Data Schedule (b) The following reports on Form 8-K were filed during the Company's quarter ended July 29, 2000: On May 10, 2000, the Company filed a Form 8-K under Items 5 and 7. Item 5 provided information concerning the planned acquisition of Funco, Inc. Item 7 filed as exhibits the Agreement and Plan of Merger among the Company, Funco, Inc. and B&N Acquisition Corporation, the Shareholder Agreement between the Company and David R. Pomije and the press release announcing the execution of the Merger Agreement. On June 23, 2000, the Company filed a Form 8-K reporting under Items 5 and 7. Item 5 provided information concerning the completed acquisition of Funco, Inc. Item 7 incorporated by reference to the Report on Form 8-K filed by the Company on May 10, 2000, the Agreement and Plan of Merger. 23 24 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) By: /s/Maureen O'Connell By: /s/Michael Archbold Maureen O'Connell Michael Archbold Chief Financial Officer Vice President, Chief Financial Officer of Retail September 8, 2000 24 EX-27 2 y40152ex27.txt FINANCIAL DATA SCHEDULE
5 6-MOS FEB-03-2001 JAN-30-2000 JUL-29-2000 33,294 0 68,950 0 1,121,094 1,293,384 1,063,151 492,632 2,553,807 792,624 745,000 0 0 70 801,371 2,553,807 1,818,586 1,818,586 1,330,430 1,330,430 70,898 0 23,056 (21,863) (9,073) (12,790) 0 0 0 (12,790) (0.20) (0.20)
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