UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended April 27, 2013
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 No. 1-12302
Barnes & Noble, Inc.
(Exact name of registrant as specified in its Charter)
| Delaware | 06-1196501 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 122 Fifth Avenue, New York, NY | 10011 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (212) 633-3300
Securities registered pursuant to Section 12(b) of the Act:
| Title of Class |
Name of Exchange on which registered | |
| Common Stock, $0.001 par value per share |
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x
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 ¨ No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer x | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ | |||
| (Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $611,254,527 based upon the closing market price of $14.85 per share of Common Stock on the New York Stock Exchange as of October 29, 2012.
As of May 31, 2013, 59,702,169 shares of Common Stock, par value $0.001 per share, were outstanding, which number includes 282,735 shares of unvested restricted stock that have voting rights and are held by members of the Board of Directors and the Company’s employees.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the 2013 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 April 27, 2013 are incorporated by reference into Parts II and IV.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and information relating to Barnes & Noble that are based on the beliefs of the management of Barnes & Noble as well as assumptions made by and information currently available to the management of Barnes & Noble. When used in this communication, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will,” “forecasts,” “projections,” and similar expressions, as they relate to Barnes & Noble or the management of Barnes & Noble, identify forward-looking statements. Such statements reflect the current views of Barnes & Noble with respect to future events, the outcome of which is subject to certain risks, including, among others, the general economic environment and consumer spending patterns, decreased consumer demand for Barnes & Noble’s products, low growth or declining sales and net income due to various factors, risk that international expansion will not be successfully achieved or may be achieved later than expected, possible disruptions in Barnes & Noble’s computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible risks that inventory in channels of distribution may be larger than able to be sold, possible risks associated with reducing the extent of internal manufacturing and design of devices, including possible reduction in sales of content, accessories and other merchandise and other adverse financial impacts, possible risk that component parts will be rendered obsolete or otherwise not be able to be effectively utilized in devices to be sold, possible risk that financial and operational forecasts and projections are not achieved, possible risk that returns from consumers or channels of distribution may be greater than estimated, the risk that the expected sales lift from Borders’ store closures is not achieved in whole or part, the risk that digital sales growth is less than expectations and the risk that it does not exceed the rate of investment spend, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of Barnes & Noble’s online, digital and other initiatives, the performance and successful integration of acquired businesses, the success of Barnes & Noble’s strategic investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, product and component shortages, the potential adverse impact on the business resulting from the review of a potential separation of the NOOK digital business, the risk that the transactions with Microsoft Corporation (Microsoft) and Pearson plc do not achieve the expected benefits for the parties including the risk that NOOK Media LLC’s (NOOK Media) applications are not commercially successful or that the expected distribution of those applications is not achieved, the risk that any subsequent spin-off, split-off or other disposition by Barnes & Noble of its interest in NOOK Media or other separation of Barnes & Noble’s businesses results in adverse impacts on Barnes & Noble or NOOK Media (including as a result of termination of agreements and other adverse impacts), the potential impact on Barnes & Noble’s retail business of any separation, the potential tax consequences for Barnes & Noble and its shareholders of a subsequent spin-off, split-off or other disposition by Barnes & Noble of its interest in NOOK Media or other separation of Barnes & Noble’s businesses, the risk that the international expansion contemplated by the relationship with Microsoft or otherwise is not successful or is delayed, the risk that NOOK Media is not able to perform its obligations under the Microsoft commercial agreement, including with respect to the development of applications and international expansion, and the consequences thereof, the costs and disruptions arising out of any such separation of the NOOK digital and College businesses or other separation of Barnes & Noble’s businesses, the risk that Barnes & Noble may not recoup its investments in the NOOK digital business as part of any separation transaction, the risks, difficulties, and uncertainties that may result from the separation of businesses that were previously co-mingled
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including necessary ongoing relationships, and potential for adverse customer impacts and other factors which may be outside of Barnes & Noble’s control, including those factors discussed in detail in Item 1A, “Risk Factors,” and in Barnes & Noble’s other filings made hereafter from time to time with the SEC. Our forward looking statements relating to international expansion are also subject to the following risks, among others that may affect the introduction, success and timing of the NOOK® e-reader and content in countries outside the United States: we may not be successful in reaching agreements with international companies, the terms of agreements that we reach may not be advantageous to us, our NOOK® device may require technological changes to comply with applicable laws, and marketplace acceptance and other companies have already entered the marketplace with products that have achieved some customer acceptance. 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 Barnes & Noble or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Barnes & Noble undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Form 10-K.
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| ITEM 1. | BUSINESS |
General
Barnes & Noble, Inc. (Barnes & Noble or the Company), one of the nation’s largest booksellers,1 is a leading content, commerce and technology company providing customers easy and convenient access to books, magazines, newspapers and other content across its multi-channel distribution platform. As of April 27, 2013, the Company operates 1,361 bookstores in 50 states, including 686 bookstores on college campuses, operates one of the Web’s largest eCommerce sites and develops digital reading products and operates one of the largest digital bookstores. Given the dynamic nature of the book industry, the challenges faced by traditional booksellers, and the robust innovation pipeline fueling new opportunities in hardware, software and content creation and delivery, Barnes & Noble is utilizing the strength of its retail footprint to bolster its leadership in selling content to drive sales across its multiple channels.
Of the 1,361 bookstores, 675 operate primarily under the Barnes & Noble Booksellers trade name. Barnes & Noble College Booksellers, LLC (B&N College) operates 686 college bookstores at colleges and universities across the United States. Barnes & Noble Retail (B&N Retail) operates the 675 retail bookstores. Retail also includes the Company’s eCommerce site and Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), a leader in general trade book publishing. The NOOK segment represents the Company’s digital business, offering digital books and magazines for sale and consumption through the web, NOOK® reading devices and reading software for iOS, Android and Windows 8. The Company employed approximately 34,000 full and part-time employees as of April 27, 2013.
The Company’s principal business is the sale of trade books (generally hardcover and paperback consumer titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, eBooks and other digital content, textbooks and course-related materials, NOOK®2 and related accessories, bargain books, magazines, gifts, emblematic apparel and gifts, school and dorm supplies, café products and services, educational toys & games, music and movies direct to customers through its bookstores or on barnesandnoble.com. The Company also offers a textbook rental option to its customers, electronic textbooks and other course materials through a proprietary digital platform (NOOK Study™). The Company offers its customers a full suite of textbook options—new, used, digital and rental.
To address dynamic changes in the book selling industry, Barnes & Noble has been transforming its business from a store-based model to a multi-channel model centered on its retail stores, Internet and digital commerce. The Company offers readers the option of store visits, eCommerce, and digital delivery of books to devices of their choosing, including the award winning NOOK® eReaders.
| 1 | Based upon sales reported in trade publications and public filings. |
| 2 | Any reference to NOOK® include the Company’s NOOK 1st Edition™, NOOK Wi-Fi 1st Edition™, NOOK Color™, NOOK Simple Touch™, NOOK Tablet™, NOOK Simple Touch with GlowLight™, NOOK® HD and NOOK® HD+ eReader devices, and each of which includes the trademark symbol (® or ™, as applicable) even if a trademark symbol is not included. |
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Barnes & Noble’s strategy is to:
| • | utilize the strong Barnes & Noble brand and retail footprint to attract customers to its multi-channel platform; |
| • | expand its distribution channels through strategic partnerships with world-class hardware and software companies and retail partners; |
| • | drive content sales through the web, NOOK® Readers and 3rd party devices; |
| • | use its infrastructure to deliver digital content to customers; and |
| • | continue to grow campus partnerships including store locations and students served while continuing its investment in the digital higher education business |
The Company has a multi-channel marketing strategy that deploys various merchandising programs and promotional activities to drive traffic to both its stores and website. At the center of this program is the Company’s website, barnesandnoble.com.
On April 27, 2012, the Company entered into an investment agreement between the Company, Morrison Investment Holdings, Inc. (Morrison) and Microsoft Corporation (Microsoft) pursuant to which the Company would form a Delaware limited liability company (NOOK Media), and transfer to NOOK Media the Company’s digital device, digital content and college bookstore businesses and NOOK Media would sell to Morrison, and Morrison would purchase, 300,000 convertible preferred membership interests in NOOK Media for an aggregate purchase price of $300.0 million. On October 4, 2012, NOOK Media was formed and the Company sold to Morrison 300,000 convertible preferred membership interests in NOOK Media for an aggregate purchase price of $300.0 million. The convertible preferred membership interests have a liquidation preference equal to Microsoft’s original investment. Concurrently with its entry into this agreement, the Company has also entered into a commercial agreement with Microsoft, whereby, among other things, NOOK Media has developed and distributed a Windows 8 application for e-reading and digital content purchases, and has entered into an intellectual property license and settlement agreement with Microsoft and Microsoft Licensing GP. As part of the commercial agreement, for each of the first three years since the launch of the application for Windows 8, NOOK Media received and will continue to receive advance payments of $60.0 million per year from Microsoft. These advance payments are subject to deferral under certain circumstances. Microsoft has paid and is obligated to continue to pay to NOOK Media $25.0 million each year for the first five years of the term for purposes of assisting NOOK Media in acquiring local digital reading content and technology development in the performance of NOOK Media’s obligations under the commercial agreement. Under the terms of this transaction, NOOK Media was debt-free at inception, except for trade accounts payable and other working capital requirements. Under the limited liability company agreement of NOOK Media, no distributions may be made by NOOK Media without Morrison’s approval.
On December 21, 2012, NOOK Media entered into an agreement with a subsidiary of Pearson plc (Pearson) to make a strategic investment in NOOK Media. That transaction closed on January 22, 2013, and Pearson invested approximately $89.5 million of cash in NOOK Media at a post-money valuation of approximately $1.789 billion in exchange for convertible preferred membership interests representing a 5% equity stake in NOOK Media. Following the closing of the transaction, the Company owns approximately 78.2% of NOOK Media and Microsoft, which holds convertible preferred membership interests, owns approximately 16.8%. The convertible preferred membership interests have a liquidation preference equal to the original investment. In
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addition, NOOK Media granted warrants to Pearson to purchase up to an additional 5% of NOOK Media under certain conditions at a pre-money valuation of NOOK Media of approximately $1.789 billion.
At closing, NOOK Media and Pearson entered into a commercial agreement with respect to distributing Pearson content in connection with this strategic investment.
On August 18, 2011, the Company entered into an investment agreement between the Company and Liberty GIC, Inc. (Liberty) pursuant to which the Company issued and sold to Liberty, and Liberty purchased, 204,000 shares of the Company’s Series J Preferred Stock, par value $0.001 per share (Preferred Stock), for an aggregate purchase price of $204.0 million in a private placement exempt from the registration requirements of the 1933 Act. The shares of Preferred Stock will be convertible, at the option of the holders, into shares of Common Stock, based on the initial conversion rate. The initial conversion rate reflects an initial conversion price of $17.00 and is subject to adjustment in certain circumstances. The initial dividend rate for the Preferred Stock is equal to 7.75% per annum of the initial liquidation preference of the Preferred Stock to be paid quarterly and subject to adjustment in certain circumstances.
The Company was incorporated in Delaware in 1986.
Segments
The Company identifies its operating segments based on the way the business is managed (focusing on the financial information distributed) and the manner in which the chief operating decision maker interacts with other members of management. The Company has three operating segments: B&N Retail, B&N College and NOOK.
B&N Retail
This segment includes 675 bookstores as of April 27, 2013, primarily under the Barnes & Noble Booksellers trade name. These stores generally offer a dedicated NOOK® area, a comprehensive trade book title base, a café, and departments dedicated to Juvenile, Toys & Games, DVDs, Music, Gift, Magazine and Bargain products. The stores also offer a calendar of ongoing events, including author appearances and children’s activities. The B&N Retail segment also includes the Company’s eCommerce website, barnesandnoble.com, and its publishing operation, Sterling Publishing.
Barnes & Noble stores range in size from 3,000 to 60,000 square feet depending upon market size, with an overall average store size of 26,000 square feet. In fiscal 2013, the Company reduced the Barnes & Noble store base by 0.3 million square feet, bringing the total square footage to 17.7 million square feet, a 1.7% decrease from fiscal 2012. The Company opened two new Barnes & Noble stores in fiscal 2013, which total 49,000 square feet in size.
The Company believes that the key elements contributing to the success of B&N Retail are:
Proximity to Customers. The Company’s strategy has been to increase its share of the consumer book market, as well as to increase the size of the market through a market clustering strategy. As of April 27, 2013, Barnes & Noble had stores in 162 of the total 210 Designated Market Area markets. In 67 of the 162 markets, the Company has only one Barnes & Noble store.
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The Company believes its bookstores’ proximity to its customers strengthens its market position and increases the value of its brand. 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 seven days a week.
Extensive Title Selection. Each Barnes & Noble store features an authoritative selection of books, ranging from 21,000 to 170,000 titles. The comprehensive title selection is diverse and reflects local interests. Bestsellers typically represent between 2% and 5% 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 at barnesandnoble.com while offering an option to have the book sent to the store or shipped directly to the customer. The website additionally allows customers to purchase over three million eBooks, newspapers and magazines. The Company believes that its tremendous selection, including many otherwise hard-to-find titles, builds customer loyalty.
Store Design and Ambiance. Many of the Barnes & Noble stores create a comfortable atmosphere with ample public space, a café offering, among other things, sandwiches and bakery items, and public restrooms. The cafés, for which the Starbucks Corporation is the sole provider of coffee products, foster the image of the stores as a community meeting place. In addition, the Company continues to develop and introduce new product line extensions, such as proprietary gifts, and Barnes & Noble @ School, providing education tools for teachers, librarians and parents. These offerings and services have helped to make many of the stores neighborhood institutions.
NOOK® Boutique/Counter. The Company is utilizing its traditional retail bookstores to promote NOOK® via NOOK counters, NOOK Boutiques™ and NOOK Digital Shops™ within the bookstores. These dedicated areas provide customers the ability to see, feel and experiment with NOOK®, speak to knowledgeable booksellers, NOOKsellers and receive pre- and post-sales customer support. The Company offers NOOK® owners Always Free NOOK Support in all of its retail bookstores, as well as free Wi-Fi connectivity to enjoy the Read In Store™ feature to read NOOK Books™ for free, and the More In Store™ program, which offers free, exclusive content and special promotions. The Retail bookstores also offer NOOK Book Two-for-One Weekends, a special, in-store only, ‘Buy One Get One Free’ offer on a select list of popular and bestselling eBooks. These acclaimed devices, which provide a fun, easy-to-use and immersive reading experience, include NOOK® HD, NOOK® HD+, NOOK Simple Touch™ and NOOK Simple Touch with GlowLight™. NOOK expanded its extensive catalog of reading and entertainment with Google Play on NOOK® HD and NOOK® HD+. NOOK® customers using NOOK® HD and NOOK® HD+ can enjoy the best in reading and entertainment with access to one of the world’s largest digital reading content catalogs, more than 700,000 Android apps and games, millions of songs, thousands of movies and TV shows, plus popular Google services like the Chrome™ browser, Gmail™, YouTube™, Google Search™ and Google Maps™. The NOOK® devices have also opened up an additional market for NOOK® related accessories such as stands, covers, lights and other items. The Company is collaborating with top designers such as Jonathan Adler, Kate Spade, Jack Spade and Legendary Palm Beach Design House Lilly Pulitzer® to further personalize customers reading experience.
Educational Toys & Games Department. Barnes & Noble stores have expanded the educational toys & games and adult games & puzzles departments both in stores and online. The Company has also created the “ultimate playroom” for children with the rollout of 2,500 square foot boutiques in select stores. The department has implemented a program that enhances ease and appropriateness of product choice for consumers by designating products to specific age
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groupings based on development milestones. This strategy is complemented by the launch of B&N Kids’ Expert Circle on barnesandnoble.com. The program is meant to serve as a trusted resource for parents and educators by partnering with experts in the fields of literacy, arts and educations, child development and pediatric medicine, who will share advice and parenting tips and offer book and toy suggestions on B&N Kids.
Music/DVD/BluRay Departments. Many of the Barnes & Noble stores have music/DVD/BluRay departments, which range in size from 1,000 to 5,000 square feet. The music/DVD/BluRay departments typically stock over 14,000 titles. The Company’s DVD and BluRay selection focuses on current and classic movies, documentaries, episodic and British TV shows and foreign films. The music selection is tailored to the tastes of the Company’s core customers, centering on classical music, jazz, pop rock and show tunes.
Discount Pricing. Barnes & Noble stores employ an aggressive nationwide discount pricing strategy. The current pricing is 30% off publishers’ suggested retail prices for hardcover bestsellers and 20% off select feature titles in departments such as children’s books and computer books. The Barnes & Noble Member Program offers members greater discounts and other benefits for products and services as well as exclusive offers and promotions via email or direct mail. barnesandnoble.com also utilizes a competitive model that includes everyday low pricing as well as various promotional offerings designed for members and non-members alike and enables the Company to offer better value to its customers.
The Barnes & Noble Kids’ Club Program provides exclusive benefits and discounts to participants.
Marketing and Community Relations. 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, word-of-mouth publicity and media coverage. The Company also supports communities through efforts on behalf of local non-profit organizations that focus on literacy, the arts or K-12 education.
Merchandising and Marketing. The Company’s merchandising strategy for its Barnes & Noble stores is to be the authoritative community bookstore carrying an extensive selection of titles in all subjects, including an extensive selection of titles from small independent publishers and university presses. Each Barnes & Noble store features an extensive selection of books from 21,000 to 170,000 unique titles, of which approximately 28,000 titles are common to virtually all stores. Each store is tailored to reflect the lifestyles and interests of the area’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. BookMaster, the Company’s proprietary inventory management database, has more than 14 million titles. It includes approximately 4.1 million active titles and provides each store with comprehensive title selections. By enhancing the Company’s existing merchandise replenishment systems, BookMaster allows the Company to achieve high in-stock positions and productivity at the store level through efficiencies in receiving, cashiering and returns processing. The Company also leverages its system investments through utilization of the Company’s proprietary order management system, which enables customers to place orders at stores for any of the over one million titles in stock throughout the Company’s supply chain.
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The Company has a multi-channel eCommerce marketing strategy that deploys various merchandising programs and promotional activities to drive traffic to both its stores and website. At the center of this eCommerce program is the Company’s website, barnesandnoble.com. In this way, the website serves as both the Company’s direct-to-home delivery service and as an important broadcast channel and advertising medium for the Barnes & Noble brand. For example, the online store locator at barnesandnoble.com receives millions of customer visits each year providing store hours, directions, information about author events and other in-store activities. Similarly, in Barnes & Noble stores, NOOK® customers can access free Wi-Fi connectivity; enjoy the Read In Store™ feature to browse many complete eBooks for free, and the More In Store™ program, which offers free, exclusive content and special promotions.
Another example of a multi-channel initiative is the Barnes & Noble MasterCard®, an affinity credit card issued by Barclays Bank Delaware. Holders of the Barnes & Noble MasterCard® receive an additional 5% rebate for all purchases made in Barnes & Noble stores or at barnesandnoble.com. In addition, points are accumulated for purchases made elsewhere, and are redeemed for Barnes & Noble gift cards which can be used for purchases in either channel. The Company believes that its website complements its bookstores in many ways. It not only serves as a marketing tool, it offers convenient shopping alternatives for its customers. Customers can reserve products online and pick them up in store, as well as order products online while in the store and have them ship directly to their home.
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, freestanding buildings and regional shopping malls. The real estate personnel continue to focus on renegotiating leases as they expire.
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The B&N Retail segment includes 675 bookstores as of April 27, 2013, primarily under the Barnes & Noble Booksellers trade name. The number of Barnes & Noble stores located in each state and the District of Columbia as of April 27, 2013 are listed below:
| STATE |
NUMBER OF STORES |
STATE |
NUMBER OF STORES | |||
| Alabama | 7 | Missouri | 13 | |||
| Alaska | 2 | Montana | 4 | |||
| Arizona | 18 | Nebraska | 4 | |||
| Arkansas | 5 | Nevada | 4 | |||
| California | 77 | New Hampshire | 4 | |||
| Colorado | 16 | New Jersey | 24 | |||
| Connecticut | 13 | New Mexico | 3 | |||
| Delaware | 2 | New York | 43 | |||
| District of Columbia | 1 | North Carolina | 21 | |||
| Florida | 43 | North Dakota | 3 | |||
| Georgia | 20 | Ohio | 19 | |||
| Hawaii | 3 | Oklahoma | 5 | |||
| Idaho | 3 | Oregon | 7 | |||
| Illinois | 29 | Pennsylvania | 26 | |||
| Indiana | 12 | Rhode Island | 3 | |||
| Iowa | 7 | South Carolina | 11 | |||
| Kansas | 4 | South Dakota | 1 | |||
| Kentucky | 7 | Tennessee | 8 | |||
| Louisiana | 7 | Texas | 53 | |||
| Maine | 1 | Utah | 10 | |||
| Maryland | 13 | Vermont | 1 | |||
| Massachusetts | 18 | Virginia | 25 | |||
| Michigan | 21 | Washington | 18 | |||
| Minnesota | 20 | West Virginia | 1 | |||
| Mississippi | 3 | Wisconsin | 11 | |||
| Wyoming | 1 |
Sterling Publishing
Sterling Publishing is a leading publisher of non-fiction trade titles. Founded in 1949, Sterling publishes a wide range of non-fiction and illustrated books and kits across a variety of imprints, in categories such as health & wellness, music & popular culture, food & wine, crafts & photography, puzzles & games and history & current affairs, as well as a large children’s line. Sterling with a solid backlist and robust value publishing program, has a 13,000+ title base of eBooks and print books. In addition, Sterling also distributes approximately 1,300 titles on behalf of client publishers.
Operations
The Company has seasoned management teams for its retail stores, including those for real estate, merchandising and store operations. Field management includes regional vice presidents and district managers supervising multiple store locations.
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The Barnes & Noble management team is led by experienced management in both traditional product lines and in digital eCommerce. The Barnes & Noble management team employs highly skilled professionals with both media expertise and supply chain management skills. This combination ensures a positive customer experience regardless of a customer’s preference for a physical product or a digital one.
Each Barnes & Noble store generally employs a store manager, two assistant store managers, two merchandise managers, a café manager, a receiving manager and approximately 40 full- and part-time booksellers. Many Barnes & Noble stores also employ a full-time community relations manager. The large employee base provides the Company with experienced booksellers to fill new positions in the Company’s Barnes & Noble stores. The Company anticipates that a significant percentage of the personnel required to manage its stores will continue to come from within its existing operations.
Field management for all of the Company’s bookstores, including regional vice presidents, district managers and store managers, participate in an incentive program tied to store productivity. The Company believes that the compensation of its field management is competitive with that offered by other specialty retailers of comparable size.
Barnes & Noble has in-store training programs providing specific information needed for success at each level, beginning with the entry-level positions of bookseller. District managers participate in annual training and merchandising conferences. Store managers are generally responsible for training other booksellers and employees in accordance with detailed procedures and guidelines prescribed by the Company utilizing a blended learning approach, including on-the job training, eLearning, facilitator-led training and training aids available at each bookstore.
Purchasing
Barnes & Noble’s buyers negotiate terms, discounts and cooperative advertising allowances with publishers and other suppliers for barnesandnoble.com and all of the Company’s bookstores. The Company’s distribution centers enable it to maximize available discounts and enhance its ability to create marketing programs with many of its vendors. The Company has buyers who specialize in customizing inventory for bookselling in stores and online. Store inventories are further customized by store managers, who may respond to local demand by purchasing a limited amount of fast-selling titles through a nationwide wholesaling network, including the Company’s distribution centers.
The Company’s B&N Retail segment purchases physical books on a regular basis from over 800 publishers and over 50 wholesalers or distributors. Purchases from the top five suppliers (including publishers, wholesalers and distributors) accounted for approximately 55% of the B&N Retail’s book purchases during fiscal 2013, and no single supplier accounted for more than 17% of B&N Retail’s purchases during this period. Consistent with industry practice, a substantial majority of the physical 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
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limitations are mitigated by the substantial number of titles available, the Company’s ability to maximize available discounts and its well-established relationships with publishers, which are enhanced by the Company’s significant purchasing volume.
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
The Company has invested significant capital in its systems and technology by building new platforms, implementing new software applications and building and maintaining efficient distribution centers. This investment has enabled the Company to source an increasingly larger percentage of its inventory through its own distribution centers, resulting in increased direct buying from publishers rather than wholesalers. Greater volume through the Company’s own distribution centers lowers distribution costs per unit, increases inventory turns, and improves product margins. This has also led to improved just-in-time deliveries to stores and the ability to offer “Fast&Free Delivery” through its website and for in-store orders placed by customers for home delivery.
As of April 27, 2013, the Company has approximately 1,975,000 square feet of distribution center capacity. The Company has an approximately 1,145,000 square foot distribution center in Monroe Township, New Jersey, which ships merchandise to stores throughout the country and to online customers. The Company also has an approximately 600,000 square foot distribution center in Reno, Nevada, which is used to facilitate distribution to stores and online customers in the western United States. The Company also has approximately 230,000 square feet of distribution center capacity for facilitating sales by Sterling Publishing to third parties.
Information Technologies
The Company has focused a majority of its information technology resources on strategically positioning and implementing systems to support store operations, online technology requirements, merchandising, distribution, marketing and finance.
BookMaster, the Company’s proprietary bookstore inventory management system, integrates point-of-sale features that utilize a proprietary data-warehouse based replenishment system. BookMaster enhances communications and real-time access to the Company’s network of bookstores, distribution centers and wholesalers. In addition, the implementation of just-in-time replenishment has provided for more rapid replenishment of books to all of the Company’s bookstores, resulting in higher in-stock positions and better productivity at the bookstore level through efficiencies in receiving, cashiering and returns processing.
The Company continues to implement systems to improve efficiencies in back office processing in the human resources, finance and merchandising areas.
The Company believes that it has built a leading interactive eCommerce platform, and plans to continue to invest in technologies that will enable it to offer its customers the most convenient and user-friendly online shopping experience. B&N Retail has licensed existing
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commercial technology when available and has focused its internal development efforts on those proprietary systems necessary to provide the highest level of service to its customers. The overall mix of technologies and applications allows the Company to support a distributed, scalable and secure eCommerce environment.
The Company uses Intel®-based server technology in a fully redundant configuration to power its website, which is hosted in two locations. At these locations, the Company maintains computers that store its web pages in electronic form and transmits them to requesting users (known as hosting). The Company utilizes two hosting locations. Both locations are hosted internally by the Company. Either site has sufficient capacity to support the volume of traffic directed toward the Company’s website during peak periods. Both hosting locations are configured with excess Internet telecommunications capacity to ensure quick response time and use three separate Internet service providers. By maintaining redundant host locations, the Company has significantly reduced its exposure to downtime and service outages. Additionally, the Company believes its technology investments are scalable.
Competition
The book business is highly competitive in every channel in which Barnes & Noble operates. B&N Retail stores compete primarily on the quality of the shopping and store experience and the price and availability of products. The importance of price varies depending on the competitor, with some of Barnes & Noble’s competitors engaging in significant discounting and other promotional activities. B&N Retail competes with other bookstores, including Books-A-Million. It also faces competition from many online businesses, notably Amazon.com and Apple. Increases in consumer spending via the Internet may significantly affect its ability to generate sales in B&N Retail stores. B&N Retail also faces competition from mass merchandisers, such as Costco, Target and Wal-Mart. Some of the Company’s competitors have greater financial and other resources and different business strategies than B&N Retail does. B&N Retail stores also compete with specialty retail stores that offer books in particular subject areas, independent store operators, variety discounters, drug stores, warehouse clubs, mail-order clubs and other retailers offering books, music, toys, games, gifts and other products in its market segments.
The music and movie businesses are also highly competitive and the Company faces competition from mass merchants, discounters and electronic distribution. The store experience is geared towards the Company’s customer base, including a strong BluRay presence as well as a tailored, returnable product assortment.
Seasonality
The B&N Retail business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during its third fiscal quarter, which includes the holiday selling season.
Employees
The Company cultivates a culture of outgoing, helpful and knowledgeable employees. As of April 27, 2013, the B&N Retail segment had approximately 28,000 full- and part-time booksellers. The B&N Retail segment’s employees are not represented by unions, with the exception of 37 employees, and the Company believes that its relationship with its employees is generally excellent.
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B&N College
As of April 27, 2013, B&N College operated 686 stores nationwide. B&N College’s customer base can purchase various items from their campus stores, including textbooks and course-related materials, emblematic apparel and gifts, trade books, computer products, NOOK® products and related accessories, school and dorm supplies, convenience and café items and more recently textbook rentals. B&N College provides extensive textbook rental options to its customers and has expanded its electronic textbooks and other course materials through a proprietary digital platform (NOOK Study™). A significant number of textbooks are now available in multiple formats: new, used, rental and digital (rental and ownership), resulting in improved choice and substantial student savings.
B&N College operates 651 traditional college bookstores and 35 academic superstores, which are generally larger in size, offer cafés and provide a sense of community that engages the surrounding campus and local communities in college activities and culture. The traditional bookstores range in size from 500 to 48,000 square feet. The academic superstores range in size from 8,000 to 75,000 square feet.
B&N College generally operates its stores pursuant to multi-year management service agreements under which a school designates B&N College to operate the official school bookstore on campus and B&N College provides the school with regular payments that represent a percentage of store sales and, in some cases, include a minimum fixed guarantee.
B&N College’s business strategy is to maintain long-term relationships with colleges and universities by providing high-quality service to college administrators, faculty and students.
The Company believes that the key elements contributing to the success of B&N College are:
| • | Conversion of more institutionally run college bookstores to contract-managed stores; |
| • | Opening College Superstores in select markets; |
| • | Optimizing comparable store sales through: |
| ¡ | Expanding targeted email and social media marketing; |
| ¡ | Increasing web sales of textbooks and other collegiate merchandise; |
| ¡ | Expansion of textbook rentals and electronic textbook sales; and |
| ¡ | New merchandising initiatives to roll out additional products and services to B&N College locations. In addition to expanding product selection in existing stores, initiatives include two concept stores – RechargeU, offering fresh and pre-packaged foods and beverages and The Tech Store, which provides multiple, interactive stations for students to try computer hardware as well as purchase related computer accessories. |
Customers. B&N College’s three customer constituencies are students, faculty members and campus administrators. B&N College’s customer base consists of students and faculty members who exhibit relatively predictable purchasing patterns based on the timing of university and college terms.
Marketing. B&N College builds relationships with students from their acceptance letter and forward throughout their enrollment. By leveraging email and social media marketing channels that are relevant to students, B&N College engages and promotes its bookstore offerings
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and benefits and promotions to drive traffic and sales. To reach its target customers, B&N College uses dynamic digital marketing strategies, both through email and social media, fully customized to the individual school brand, focused on customer acquisition, engagement and driving traffic and sales, both in store and online. These campaigns celebrate and support the lifecycle of students from freshman through Alumni, and drive awareness and loyalty for back to school, holiday, graduation, homecoming, game day and monthly general merchandise promotions. B&N College also offers NOOK Study™, a software solution for higher education.
B&N College utilizes a social commerce platform which integrates the social networking features of approximately 600 campus bookstore Facebook pages with its eCommerce website. This creates a seamless social shopping experience and expands the Company’s social media and communication capabilities. B&N College also integrates this tool in its marketing, communications, and customer service initiatives.
B&N College leverages its advanced online bookstore platform to simplify the purchasing experience for its customers and drive textbook sales. B&N College’s Registration Integration™ service enables students to reserve and order textbooks online at the time they enroll in a course. Over 35% of our stores actively utilize Registration Integration.
Store Locations
Traditional Bookstores. As of April 27, 2013, B&N College operated 651 bookstores in its traditional format, including state universities, private universities and community colleges. The typical B&N College bookstore is located on campus in a location convenient to students and faculty. These bookstores range in size from 500 to 48,000 square feet.
Academic Superstores. As of April 27, 2013, B&N College operated 35 B&N College academic superstores at select major campuses, such as the University of Pennsylvania, Yale University, the College of William and Mary, Boston University, DePaul University, Vanderbilt University, and Georgia Institute of Technology. B&N College academic superstores offer universities an exciting establishment on their campuses and further enable B&N College to differentiate itself. B&N College academic superstores, which range in size from 8,000 to 75,000 square feet, include a café, and carry a large selection of course-required textbooks, supplies, emblematic clothing and gifts, and trade and reference books. B&N College academic superstores are positioned in locations that attract customers from the neighborhood community as well as students and faculty from the university. They are open extended hours and have ongoing events such as author signings. These stores differ from traditional format B&N College stores since the majority have a customer base that includes the general public and sales which are less dependent on course-required materials.
B&N College maintains individual customized websites for the bookstores it manages. Students can choose to shop in the comfortable and inviting atmosphere of B&N College’s bookstores, or they can opt to go to the virtual bookstore for their collegiate needs. Designed to appeal to faculty, students, alumni and parents, the sites feature both services and eCommerce options. Services include faculty and author profiles, calendars of events and general store operating policies. eCommerce options include a full college shopping experience, from online textbook ordering and school specific merchandise to general reading.
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The number of B&N College stores located in each state listed below and the District of Columbia as of April 27, 2013, is listed below:
| STATE |
NUMBER OF STORES |
STATE |
NUMBER OF STORES | |||
| Alabama | 17 | Missouri | 8 | |||
| Arizona | 9 | Nevada | 1 | |||
| Arkansas | 8 | New Hampshire | 5 | |||
| California | 34 | New Jersey | 18 | |||
| Colorado | 3 | New Mexico | 7 | |||
| Connecticut | 7 | New York | 70 | |||
| Delaware | 2 | North Carolina | 23 | |||
| District of Columbia | 2 | North Dakota | 1 | |||
| Florida | 35 | Ohio | 29 | |||
| Georgia | 13 | Oklahoma | 5 | |||
| Idaho | 1 | Oregon | 4 | |||
| Illinois | 20 | Pennsylvania | 62 | |||
| Indiana | 14 | Rhode Island | 3 | |||
| Iowa | 6 | South Carolina | 14 | |||
| Kansas | 2 | South Dakota | 2 | |||
| Kentucky | 32 | Tennessee | 12 | |||
| Louisiana | 11 | Texas | 64 | |||
| Maryland | 20 | Virginia | 21 | |||
| Massachusetts | 29 | Washington | 14 | |||
| Michigan | 25 | West Virginia | 12 | |||
| Minnesota | 6 | Wisconsin | 6 | |||
| Mississippi | 9 |
Operations
B&N College has seasoned management teams for its college bookstores, including those for marketing to prospective new accounts, merchandising and store operations. Field management includes territory vice presidents and regional managers supervising multiple store locations.
Each B&N College store generally employs a store manager and assistant store manager, a textbook manager and a range of full- and part-time booksellers, with the larger stores staffed with up to 100 employees. The large employee base provides the Company with experienced booksellers to fill positions in new B&N College stores. In addition, over 100 student employees participate in management training programs each year, which has historically resulted in several new store managers annually. B&N College anticipates that a significant percentage of the personnel required to manage its new stores will continue to come from within its existing operations.
Field management for all B&N College stores, including territory vice presidents, regional managers and store managers, participate in an incentive program tied to store productivity. B&N College believes that the compensation of its field management is competitive with that offered by other specialty retailers of comparable size.
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B&N College has in-store training programs providing specific information needed for success at each level, beginning with the entry-level bookseller position. Store managers participate in annual sales and leadership conferences, and regional managers participate in at least semi-annual sales and leadership conferences. Store and regional managers are generally responsible for training other booksellers and employees in accordance with detailed procedures and guidelines prescribed by B&N College. The Company utilizes a blended learning approach, including on-the job training, e-Learning, facilitator-led training and training aids available at each bookstore.
Purchasing
B&N College’s purchasing procedures vary by product type and are usually made at the store level, with corporate oversight. Faculty members are responsible for selecting (adopting) the appropriate textbooks for their course offerings. This process typically occurs three months in advance of the two peak selling periods, the fall term (August/September) and the spring term (January/February), when students purchase course materials and supplies for upcoming classes. After titles are adopted for the upcoming term, B&N College determines how much inventory it will need to purchase based on several factors, including student enrollment and the previous term’s textbook sales histories. B&N College first uses the Text Net™ system to determine if other company stores have the necessary new or used books on hand and may transfer the inventory to the appropriate stores. After internal sourcing, B&N College purchases books from outside suppliers. B&N College also offers rental and eBook options on a significant percentage of its titles to ensure that students are given the choice of all available formats. As part of its contract with the particular institution, B&N College guarantees that it will order textbooks for all courses.
B&N College’s primary suppliers of new textbooks include Pearson Education (Prentice Hall), Cengage (Thomson) Learning, MBS Textbook Exchange, Inc. (MBS), McGraw-Hill, MPS (VHPS) and John Wiley & Sons. B&N College’s primary suppliers of used textbooks are students, returns of previously rented books and MBS. The stores offer a “cash for books” program in which students can sell their books back to the store at the end of the semester. Buybacks are heaviest in December and May. Students typically receive 50% of the price they originally paid for the book if it has been adopted for a future class or the current wholesale price if it has not. Both textbooks and trade books are generally returnable to publishers for full credit.
The larger superstores, which feature an expanded selection of trade books, use the Barnes & Noble BookMaster system. In the smaller stores, trade (general reading) book purchasing also is controlled at the store level.
B&N College stores also feature collegiate and athletic apparel relating to a school and/or its sports programs and other custom-branded school spirit products, including t-shirts, sweatshirts and hats. Other merchandise, such as laptops and other computer related products, notebooks, backpacks, school supplies and related items are also offered. In addition, many stores also provide students with a place to purchase convenience items, such as food, beverages and dormitory products. General merchandise vendors and products are initially selected by the merchants in the B&N College home office and approved assortments are provided to the stores. Stores make selections from these assortments based on the unique needs of their campus, in conjunction with the home office merchants.
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Competition
Approximately 50% of college bookstores are operated by the educational institutions themselves. Follett Corporation, a contract operator of campus bookstores, Nebraska Book Company, a contract operator of on-campus and off-campus bookstores, Amazon.com, and Chegg.com, an online textbook rental company, compete directly with B&N College. In addition, publishers are increasing efforts to sell directly to students and technology companies like Apple and Amazon.com are increasing their digital offerings to students. B&N College offers customers a full suite of textbook options—new, used, digital and rental.
Seasonality
The B&N College business is highly seasonal, with the major portion of sales and operating profit realized during the second and third fiscal quarters, when college students generally purchase textbooks for the upcoming semesters. Revenues from textbook rentals, which primarily occur at the beginning of the semester, are recognized over the rental period.
Employees
As of April 27, 2013, B&N College had approximately 5,100 full- and part-time employees. B&N College’s employees are not represented by unions, with the exception of 30 employees, and the Company believes that its relationship with its employees is generally excellent.
NOOK
This segment includes the Company’s digital business, which includes the Company’s eBookstore, digital newsstand and sales of NOOK® devices and accessories through B&N Retail, B&N College and third party distribution partners. The underlying strategy of the NOOK business is to offer customers any digital book, newspaper or magazine, anytime, on any device. The Company remains committed to delivering to customers the best digital bookstore experience, while reducing its existing cost structure. As part of this commitment, the Company’s intends to continue to offer the best black-and-white and color eReaders on the market, backed by quality customer service and technology support for those devices. The Company will continue to sell its existing device inventory through reduced and promotional pricing. At the same time, it will leverage all Barnes & Noble retail, digital and partnership assets, as well as existing NOOK customer relationships.
Barnes & Noble’s NOOK digital bookstore and Reading Apps™ provide customers the ability to purchase and read their digital content and access to their Lifetime Library on a wide range of digital platforms, including Windows 8 PCs and tablets, iPad™, iPhone® , Android™ smartphones and tablets, PC and Mac®. Barnes & Noble has implemented innovative features on its digital platform to ensure that
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customers can access their NOOK content from almost all of today’s most popular devices. The NOOK digital bookstore offers one of the most comprehensive catalogs of books and magazines, numbering over 3 million titles. NOOK continues to enhance its catalog and added approximately 426,000 new titles in the past year and 167,000 in the fourth quarter.
NOOK currently sells a number of different devices to satisfy customers digital needs, including media tablets NOOK® HD, NOOK® HD+, and award winning dedicated ereaders NOOK Simple Touch™ and NOOK Simple Touch with GlowLight™. These devices are designed in Palo Alto, California and to date have been sourced, manufactured and produced by the Company. NOOK® HD and NOOK® HD+ provide customers access to the millions of books and magazines in the NOOK Store, and, through Google Play, more than 700,000 Android apps and games, millions of songs, thousands of movies and TV shows, plus popular Google services like the Chrome™ browser, Gmail™, YouTube™, Google Search™ and Google Maps™. NOOK Simple Touch™ and NOOK Simple Touch with GlowLight™ provide customers a simple, easy to use, intuitive eReader on an E Ink display that replicates the experience of reading from physical paper and provides access to the Company’s digital content store. Always Free NOOK Support in any of the B&N Retail bookstores provides customers the ability to interact with a knowledgeable NOOKseller to receive pre- and post- customer sales support. The bookstores also provide free Wi-Fi connectivity for NOOK® devices, Read In Store™ access, which allows owners to read NOOK Books™ for free, and the More In Store™ program, which offers free, exclusive content and special promotions. NOOK® devices also allow for digital lending of a wide selection of books through its LendMe® technology.
Third-Party Distribution Network. In addition to selling NOOK® devices through its bookstores, the Company also sells devices through other third-party retail channels. The Company’s third-party retail partners include Best Buy, Walmart, Staples, Target, Kmart, Sears, Radio Shack, Books-A-Million, OfficeMax, Fred Meyer, P.C. Richard & Son, Office Depot, Fry’s Electronics and Systemax Inc. retailers. These additional retailers expand the reach of our NOOK® devices.
International Expansion. The Company sells digital content in the U.K. directly through its NOOK devices and its nook.co.uk website. The Company plans to continue to expand into additional international markets and believes that its partnership with Microsoft will help foster that expansion. Under its partnership agreements with Microsoft, the Company previously disclosed that it expected to be in 10 international markets by June 30, 2013. While substantial progress has been made towards meeting the target expansion requirement, the Company now expects expansion into these 10 markets to be accomplished by the end of 2013.
Operations
The digital products group has knowledgeable product development and operational management teams in the areas of reading software, digital content retailing and mobile device development. Digital product management oversees product concept, software development, engineering and user experience. Operational management has historically overseen demand planning, strategic sourcing, manufacturing, return and refurbishment of hardware. The Company expects that digital product management’s role will continue to focus on eReading devices and reading platforms, while also shifting to the management of third-party partner relationships, as NOOK explores moving color tablet manufacturing functions to third-party manufacturers.
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The Company’s development office in Palo Alto employs experienced engineers in the Company’s digital product area. The NOOK digital products management team is currently focused on next generation digital reading products to enhance the reading experience and help consumers discover content in new and interesting ways. The Digital Services team, which includes the Cloud and Commerce group, is responsible for maintaining and developing the NOOK’s digital bookstore service.
Purchasing/Distribution
NOOK acquires the rights to distribute digital content from publishers and distributes the content on barnesandnoble.com, NOOK® devices and other eBookstore platforms. Certain digital content is distributed under an agency pricing model in which the publishers set fixed prices for eBooks and NOOK receives a fixed commission on content sold through the eBookstore. The majority of the Company’s eBook sales are sold under the agency model.
NOOK utilizes the Company’s purchasing power and its distribution centers to synergistically facilitate the purchasing and shipping of devices and accessories.
Competition
The eReader and tablet businesses are highly competitive. NOOK competes primarily on price and device functionality. The importance of price varies depending on the competitor, with some of NOOK’s competitors engaging in significant discounting and other promotional activities. NOOK competes primarily with other eReaders and tablets on functionality, consumer appeal, availability of digital content and price. NOOK competes with many online digital businesses, notably Amazon.com and Apple. Some of the Company’s competitors have substantially greater financial and other resources and may have different business strategies than NOOK does.
Seasonality
The NOOK business, like that of many technology companies, is impacted by the launch of new products and the promotional efforts to support those new products, as well as the traditional retail holiday selling seasonality.
Employees
As of April 27, 2013, NOOK had approximately 750 full-time employees. NOOK employees are not represented by unions, and the Company believes that its relationship with its employees is generally excellent.
Trademarks and Service Marks
The trademarks and service marks owned by the Company and its subsidiaries include B&N®, Barnes & Noble®, Barnes & Noble.com®, barnesandnoble.com®, Barnes & Noble Booksellers®, NOOK®, The All-New NOOK™, The Simple Touch Reader™, NOOK 1st Edition™, NOOK Wi-Fi 1st Edition™, NOOK Color™, NOOK Tablet™, Reader’s Tablet™, NOOK Simple Touch™, NOOK Simple Touch with GlowLight™, NOOK® HD, NOOK® HD+, NOOK Books™, NOOK Bookstore™, NOOK Newsstand™, NOOK Newspapers™, NOOK Digital Shop™, PubIt!™, NOOK Kids™, Read In Store™, More In Store™, NOOK Friends™, LendMe®, NOOK Boutiques™, NOOK Books en español™, NOOK Study™, Lifetime
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Library™ , Registration Integration™, Text Net™, Books Etc™, Borders™, Borders Books & Music™ and borders.com™, some of which are registered or pending with the United States Patent and Trademark Office.
The Company regards its trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets, proprietary technology and similar intellectual property as important to its operations, and it relies on trademark, copyright and patent law, domain name regulations, trade secret protection and confidentiality or license agreements to protect its proprietary rights. The Company has registered, or applied for the registration of, a number of domain names, trademarks, service marks, patents, and copyrights by U.S. and foreign governmental authorities. Additionally, the Company has filed U.S. and international patent applications covering certain of its proprietary technology. The Company renews its registrations, which vary in duration, as it deems appropriate from time to time.
The Company has licensed in the past, and expects that it may license in the future, certain of its proprietary rights to third parties. Some of the Company’s products are designed to include intellectual property licensed or otherwise obtained from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of the Company’s products and business methods, the Company believes, based upon past experience and industry practice, such licenses generally could be obtained on commercially reasonable terms; however, there is no guarantee such licenses could be obtained at all.
Available Information
The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, proxy statements and other information with the SEC. Any materials filed by the Company with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the SEC’s Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file electronically with the SEC. The Internet address of the SEC’s website is http://www.sec.gov.
The Company makes available on its corporate website at www.barnesandnobleinc.com under “For Investors” - “SEC Documents,” free of charge, all its SEC filings as soon as reasonably practicable after the Company electronically files such material with or furnishes such materials to the SEC.
The Company has adopted Corporate Governance Guidelines, a Code of Business Conduct and Ethics and written charters for the Company’s Audit Committee, Compensation Committee and Corporate Governance & Nominating Committee. Each of the foregoing is available on the Company’s website at www.barnesandnobleinc.com under “For Investors” – “Corporate Governance” and in print to any stockholder who requests it, in writing to the Company’s Corporate Secretary, Barnes & Noble, Inc., 122 Fifth Avenue, New York, New York 10011. In accordance with SEC rules, the Company intends to disclose any amendment (other than any technical, administrative, or other non-substantive amendment) to either of the above codes, or any waiver of any provision thereof with respect to any of the executive officers, on the Company’s website within four business days following such amendment or waiver.
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| ITEM 1A. | Risk Factors |
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones faced by the Company. Additional risks and uncertainties not presently known or that are currently deemed immaterial also may impair the Company’s business operations. If any of the following risks occur, the Company’s business, financial condition, operating results and cash flows could be materially adversely affected.
Unless otherwise specified or the context otherwise requires, references below to (1) “the Company” refer to Barnes & Noble, Inc. and its subsidiaries, including Barnes & Noble College Booksellers, LLC, (2) “Barnes & Noble” refer to Barnes & Noble, Inc. and its subsidiaries excluding Barnes & Noble College Booksellers, LLC, (3) “B&N College” refer to Barnes & Noble College Booksellers, LLC and (4) “NOOK®” refer to NOOK 1st Edition™, NOOK Wi-Fi 1st Edition™, NOOK Color™, NOOK Simple Touch™, NOOK Simple Touch with GlowLight™, NOOK HD™, NOOK HD+™, and/or NOOK Tablet™ Reader, and any other NOOK branded products and devices.
The Company’s businesses are dependent on the overall economic environment and consumer spending patterns.
The Company’s businesses have been adversely impacted by the economic downturn in the United States over the last several years which, among other things, has decreased discretionary consumer spending. A deterioration of the current economic environment could have a material adverse effect on the Company’s financial condition and operating results, as well as the Company’s ability to fund its growth or its strategic business initiatives.
Barnes & Noble’s sales are primarily dependent upon discretionary consumer spending, which is affected by the overall economic environment, consumer confidence and other factors beyond its control. In addition, Barnes & Noble’s sales are dependent in part on the strength of new release products which are controlled by publishers and other suppliers. The economic downturn over the last several years has led to declines in consumer traffic and spending patterns, adversely impacting Barnes & Noble’s financial performance. The effect of the economic downturn on other retailers in shopping malls in which Barnes & Noble is located also may adversely affect Barnes & Noble. For example, if the downturn leads to one or more vacancies in a shopping mall, traffic to its store in the mall may decrease.
B&N College’s sales are also affected by the overall economic environment, including as a result of reductions in funding levels at colleges and universities, although historically the effect has been less significant than in the Barnes & Noble retail stores. B&N College’s sales are also impacted by changes in enrollments at colleges and universities. Students also may spend less on textbooks and other general merchandise in a difficult economic environment. B&N College’s business is also dependent on, among other things, college and university funding, government grants and funding, which may be negatively impacted in an economic downturn. The economic downturn has adversely impacted B&N College’s business during the past fiscal year.
Because of the Company’s existing penetration of attractive retail locations and the maturity of the market for traditional retail stores, the Company’s sales or net income may decline unless it successfully implements its business strategies.
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The Company’s core business is its operation of Barnes & Noble retail stores across the United States, and it derived over a majority of its sales from Barnes & Noble retail stores in its most recent fiscal year. Management generally believes that the Company’s retail stores are located in attractive geographic markets, and generally does not have a strategy to open retail stores in new geographic markets or to expand the total number of retail stores, and expects to close more retail stores than it opens. Management’s strategies are subject to the risks described herein and elsewhere, and may be subject to other risks that have not yet been identified, and management cannot make assurances that its business strategies will be successful.
Increases in the complexity of the Company’s businesses could place a significant strain on its management, operations, performance and resources.
Increases in the complexity of the Company’s business could place a significant strain on its management, operations, technical performance, financial resources, and internal financial control and reporting functions. These increases in complexity include each of the increase in the size and scope of the Company’s operations as a result of the acquisition of B&N College, the expansion of the Company’s digital strategy, the formation of NOOK Media LLC (NOOK Media) and the commercial agreements with and investments by Microsoft Corporation (Microsoft) and Pearson plc (Pearson) in NOOK Media. There can be no assurance that the Company will be able to manage increases in the complexity of its businesses effectively. The Company’s current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage its future operations, especially as it employs personnel in multiple geographic locations. The Company may not be able to hire, train, retain, motivate and manage required personnel, which may limit its growth. If any of this were to occur, it could damage the Company’s reputation, limit growth, negatively affect operating results and harm its business.
The Company faces the risk of disruption of supplier relationships and/or supply chain and/or inventory surplus.
The products that the Company sells originate from a wide variety of domestic and international vendors. During fiscal 2013, Barnes & Noble’s five largest suppliers accounted for approximately 46 percent of the dollar value of merchandise purchased. During fiscal 2013, B&N College’s five largest suppliers accounted for approximately 53 percent of its merchandise purchased. While the Company believes that its relationships with its suppliers are strong, most suppliers may modify the terms of these relationships due to general economic conditions or otherwise. The Company does not have long-term arrangements with most of its suppliers to guarantee availability of merchandise, content, components or services, particular payment terms or the extension of credit limits. If the Company’s current suppliers were to stop selling merchandise, content, components or services to it on acceptable terms, including as a result of one or more supplier bankruptcies due to poor economic conditions, the Company may be unable to procure the same merchandise, content, components or services from other suppliers in a timely and efficient manner and on acceptable terms, or at all. In addition, certain of our merchandise, including electronic readers, are sourced, directly or indirectly, from outside the United States, including, without limitation, from suppliers in China. Political or financial instability, merchandise quality issues, product safety concerns, trade restrictions, work stoppages, tariffs, foreign currency exchange rates, transportation capacity and costs, inflation, civil unrest, natural disasters, outbreaks of pandemics and other factors relating to foreign trade are beyond our control and could disrupt our supply of foreign-sourced merchandise and/or adversely affect our results of operations. Furthermore, the Barnes & Noble and B&N College businesses are each dependent on the continued supply of trade books, in the case of Barnes & Noble, and textbooks, in the case of B&N College. The publishing industry generally has suffered
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due, among other things, to changing consumer preferences away from the print medium and due to the difficult economic climate. A significant disruption in this industry generally could adversely impact the Company’s business. A significant unfavorable change in the Company’s relationships with key suppliers could materially adversely affect its sales and profits. In addition, any significant change in the payment terms that the Company has with its key suppliers could adversely affect its financial condition and liquidity. The Company has arrangements with third-party manufacturers. These manufacturers procure and assemble unfinished parts and components from third-party suppliers based on forecasts provided by the Company. Given production lead times, commitments may be made far in advance of finished product delivery. Sales shortfalls or incorrect forecasts or estimates by the Company, may result in higher than anticipated levels of unfinished goods or finished goods inventories.
The Company’s businesses rely on certain key personnel.
Management believes that the Company’s continued success will depend to a significant extent upon the efforts and abilities of certain key personnel of the Company.
The loss of the services of these key personnel could have a material adverse effect on the Company. The Company does not maintain “key man” life insurance on any of its officers.
The Company’s businesses could be adversely impacted if it is unsuccessful in making and integrating acquisitions it has made or may decide to pursue.
To enhance the Company’s efforts to grow and compete, from time to time it has engaged in acquisitions and entered into joint ventures, and it may engage in acquisitions or enter into joint ventures in the future. Any future acquisitions are subject to the Company’s ability to identify attractive opportunities and to negotiate favorable terms for them. Accordingly, the Company cannot make assurances that future acquisitions will be completed, or that if completed, they will be successful. These transactions may create risks such as: (1) disruption of the Company’s ongoing business, including loss of management focus on existing businesses; (2) the dilution of the equity interest of the Company’s stockholders; (3) problems retaining key personnel; (4) increased debt to finance any transaction and additional operating losses, debt and expenses of the businesses the Company acquires; (5) the difficulty of integrating a new company’s accounting, financial reporting, management, information, human resource and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not implemented; (6) the difficulty of implementing at acquired companies the controls, procedures and policies appropriate for a larger public company; and (7) potential unknown liabilities associated with an acquired company. In addition, valuations supporting the Company’s acquisitions could change rapidly given the current global economic climate. The Company could determine that such valuations have experienced impairments or other-than-temporary declines in fair value which could adversely impact its financial condition.
The Company’s businesses are seasonal.
The Company’s businesses are seasonal. For the Company’s businesses other than B&N College, sales are generally highest in the third fiscal quarter and lowest in the second and fourth fiscal quarters. For fiscal 2013, 33% of sales and 79% of operating income of B&N Retail were
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generated in its third fiscal quarter. Operating results in the Company’s businesses other than B&N College depend significantly upon the holiday selling season in the third fiscal quarter. The B&N College business is also seasonal, with sales generally highest in the second and third fiscal quarters, when college students generally purchase textbooks for the upcoming semesters and lowest in the first and fourth fiscal quarters. Less than satisfactory net sales for any fiscal quarter could have a material adverse effect on the Company’s financial condition or operating results for the year and may not be sufficient to cover any losses which may be incurred in the other fiscal quarters of the year.
The Company’s results of operations may fluctuate from quarter to quarter, which could affect the Company’s business, financial condition and results of operations.
The Company’s results of operations may fluctuate from quarter to quarter depending upon several factors, some of which are beyond its control. These factors include the timing of new product releases, the level of success of the Company’s product releases, the timing of store openings or closings, the addition or termination of B&N College contracts to manage bookstores for colleges and universities, the timing of the start of college and university semesters, shifts in the timing of certain promotions and the effect of impairments on the Company’s assets. These and other factors could affect the Company’s business, financial condition and results of operations, and this makes the prediction of the Company’s financial results on a quarterly basis difficult. The Company’s quarterly financial results have been and may in the future be below the expectations of public market analysts and investors.
The Company may not be able to adequately protect its intellectual property rights or may be accused of infringing upon intellectual property rights of third parties.
The Company regards its trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology and similar intellectual property as important to its success, and it relies on trademark, copyright and patent law, domain name regulations, trade secret protection and confidentiality or license agreements to protect its proprietary rights. Laws and regulations may not adequately protect its trademarks and similar proprietary rights. The Company may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or diminish the value of its trademarks and other proprietary rights.
The Company may not be able to discover or determine the extent of any unauthorized use of its proprietary rights. The protection of the Company’s intellectual property may require the expenditure of significant financial and managerial resources. Moreover, the steps it takes to protect its intellectual property may not adequately protect its rights or prevent third parties from infringing or misappropriating its proprietary rights. The Company also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or other intellectual property rights.
Other parties also may claim that the Company infringes their proprietary rights. Because of the changes in Internet commerce, the electronic reader and digital content business, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible that certain components of our products and business methods may unknowingly infringe existing patents or intellectual property rights of others. Because the Company’s products include complex technology, much of which is acquired from suppliers through the purchase of components or licensing of software, the Company and its suppliers and customers are and have been involved in or have been impacted by assertions, including both requests for licenses and litigation, regarding patent and other intellectual property rights. The Company has been and is currently subject to, and expects to continue to be subject to, claims and legal proceedings regarding alleged
26
infringement by it of the intellectual property rights of third parties. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, injunctions against the Company prohibiting the Company from marketing or selling certain products or the payment of damages. The Company may need to obtain licenses from third parties who allege that it has infringed their rights, but such licenses may not be available on terms acceptable to the Company, or at all. In addition, the Company may not be able to obtain or utilize on terms that are favorable to it, or at all, licenses or other rights with respect to intellectual property it does not own in providing services to other businesses and individuals under commercial agreements. These risks have been amplified by the increase in third parties whose primary business appears to be to assert such claims. If any infringement or other intellectual property claim made against the Company by any third party is successful, if the Company is required to indemnify a customer with respect to a claim against the customer, or if the Company is unable to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, the Company’s business, operating results, and financial condition could be materially and adversely affected.
The Company’s digital content offerings, including NOOK®, depend in part on effective digital rights management technology to control access to digital content. If the digital rights management technology that it uses is compromised or otherwise malfunctions, the Company could be subject to claims, and content providers may be unwilling to include their content in its service.
The Company faces data security risks with respect to personal information.
The Company’s business involves the receipt, storage, processing and transmission of personal information about customers and employees. Personal information about customers is obtained in connection with the Company’s membership programs, e-commerce operations digital media businesses as well as through retail transactions in stores operated by the Company. We may share information about such persons with vendors and third parties that assist with certain aspects of our business. The Company’s handling and use of personal information is regulated at the international, federal and state levels. Privacy and information security laws, regulations, and standards such as the Payment Card Industry Data Security Standard change from time to time, and compliance with them may result in cost increases due to necessary systems changes and the development of new processes, and may be difficult to achieve. If the Company fails to comply with these laws, regulations and standards, it could be subjected to legal risk. In addition, even if the Company fully complies with all laws, regulations, and standards and even though the Company has taken significant steps to protect personal information, the Company could experience a data security breach and its reputation could be damaged, possibly resulting in lost future sales or decreased usage of credit and debit card products. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventative measures. A party that is able to circumvent the Company’s security measures could misappropriate the Company or its users’ proprietary information and cause interruption in its operations. Any compromise of the Company’s data security could result in a violation of applicable privacy and other laws or standards, significant legal and financial exposure beyond the scope or limits of insurance coverage, increased operating costs associated with remediation, equipment acquisitions or disposal and added personnel, and a loss of confidence in its security measures, which could harm the business or investor confidence. Data security breaches may also result from non-technical means, for example, actions by an employee.
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The Company has incurred data security breaches in the past, including the Company’s discovery in 2012 that PIN pads in certain of its stores had been tampered with to allow criminal access to card data and PIN numbers on credit and debit cards swiped through the terminals. This matter has given rise to putative class action litigation on behalf of customers, banks, or other card issuers, and inquiries from federal and state government agencies. It is possible that additional litigation arising out of this matter may be filed on behalf of customers, banks, payment card companies or stockholders seeking damages allegedly arising out of this incident and other related relief. In addition, payment card companies and associations may impose fines by reason of the tampering and federal and state enforcement authorities may impose penalties or other remedies against the Company. At this point the Company is unable to predict the developments in, outcome of, and economic and other consequences of pending or future litigation or government inquiries related to this matter.
The concentration of the Company’s capital stock ownership with certain executive officers, directors and their affiliates will limit its stockholders’ ability to influence corporate matters and may involve other risks.
Leonard Riggio, the Company’s Founder and Chairman, and Stephen Riggio, are brothers and together are currently the beneficial owners of an aggregate of approximately 30.1% of the Company’s outstanding capital stock as of April 27, 2013, a majority of which is beneficially owned solely by Leonard Riggio. This concentrated control may limit the ability of the Company’s other stockholders to influence corporate matters and, as a result, the Company may take actions with which its other stockholders do not agree. Leonard Riggio is also the beneficial owner of a note issued in connection with the acquisition of B&N College and therefore one of the Company’s largest creditors. In addition, there may be risks related to the relationships Leonard Riggio, Stephen Riggio and other members of the Riggio family have with the various entities with which the Company has related party transactions.
In addition, Liberty Media, holds 204,000 shares of the Company’s Series J Preferred Stock (Preferred Stock), which are convertible, at the option of the holder thereof, into shares of Common Stock representing approximately 16.7% of the Common Stock outstanding as of April 27, 2013, based on the current conversion rate. The holders of the Preferred Stock vote on an as-converted basis with holders of Common Stock on manners submitted to a vote of Common Stock and have the right, voting as a separate class, to elect two directors to the board of directors of the Company, subject to reduction upon certain ownership requirements ceasing to be met. Liberty Media also has veto rights over certain matters relating to the Company and its subsidiaries and certain rights upon a change of control of the Company.
The Company’s businesses could be impacted by changes in international, federal, state or local laws, rules or regulations.
Changes in international, federal, state or local laws, rules or regulations, including but not limited to laws, rules or regulations related to employment, wages, data privacy, information security, intellectual property, taxes, products, product safety, health and safety, and imports and exports, could increase the Company’s costs of doing business or otherwise impact the Company’s business.
Changes in sales and other tax collection regulations or inability of the Company to utilize tax credits or assets, could harm the Company’s businesses or financial performance.
Barnes & Noble and B&N College collected sales tax on the majority of the products and services that they sold in their respective prior fiscal years that were subject to sales tax, and they
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generally have continued the same policies for sales tax within the current fiscal year. While management believes that the financial statements included elsewhere herein reflect management’s best current estimate of any potential additional sales tax liability based on current discussions with taxing authorities, there can be no assurance that the outcome of any discussions with any taxing authority will not result in the payment of sales taxes for prior periods or otherwise, or that the amount of any such payments will not be materially in excess of any liability currently recorded. In the future, the Company’s businesses may be subject to claims for not collecting sales tax on the products and services it currently sells for which sales tax is not collected. There is a risk that existing tax credits and tax assets may not be utilized or may expire.
The Company’s announced evaluation of strategic exploratory work may result in the sale of the NOOK digital business or other strategic transaction.
On January 5, 2012, the Company announced that it was pursuing strategic exploratory work to separate the NOOK business in order to capitalize on its rapid growth and its favorable leadership position in the expanding market for digital content. On October 4, 2012, the Company closed a strategic partnership with Microsoft that involved an investment by Microsoft in NOOK Media, comprised of the NOOK business and B&N College and a commercial agreement between NOOK Media and Microsoft. Additionally, on January 22, 2013, the Company closed a strategic investment by a subsidiary of Pearson in NOOK Media. The Company continues to explore all alternatives for a strategic separation of NOOK Media from the remainder of the Company’s businesses and whether such separation would create shareholder value. However, there can be no assurance that the review will result in a strategic separation or the creation of a stand-alone public company, and there is no timetable for this review. There is the potential for various adverse impacts on the Company and its businesses as a result of this partnership, including, without limitation, the risk that any spin-off, split-off or other disposition by the Company of its interest in NOOK Media or other separation of the Company’s businesses, are not able to be implemented, the risk that the transactions do not achieve the expected benefits for the parties including the risk that NOOK Media’s applications are not commercially successful or that the expected distribution of those applications is not achieved, the risk that the separation of NOOK and B&N College or any subsequent spin-off, split-off or other disposition by the Company of its interest in NOOK Media or other separation of the Company’s businesses results in adverse impacts on the Company or NOOK Media (including as a result of termination of agreements and other adverse impacts), the potential impact on B&N Retail of separation, the potential tax consequences for the Company and its shareholders of a subsequent spin-off, split-off or other disposition by the Company of its interest in NOOK Media or other separation of the Company’s businesses, the risk that the international expansion contemplated by the relationship is not successful, the risk that NOOK Media is not able to perform its obligations under the commercial agreement, including with respect to the development of applications and international expansion, and the consequences thereof, the costs and disruptions arising out of any such separation, the risk that the Company may not recoup its investments in the NOOK digital business as part of any separation transaction, and risks, difficulties, and uncertainties that may result from the separation of businesses that were previously co-mingled including necessary ongoing relationships, and potential for adverse customer impacts. Moreover, the form or nature of any such separation or any other transaction which may arise out of such partnership may have an adverse impact on the Company’s operations and stock price.
The Company’s classified board of directors and other anti-takeover defenses could deter acquisition proposals and make it difficult for a third party to acquire control of the Company. This could have a negative effect on the price of the Company’s common stock.
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The Company has a classified board of directors and other takeover defenses in its certificate of incorporation and by-laws. These defenses could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. These deterrents could adversely affect the price of the Company’s common stock and make it difficult to remove or replace members of the Board of Directors or management of the Company. The Company’s previous shareholder rights plan expired on November 17, 2012 and was not replaced. The Board may, subject to its fiduciary duties under applicable law, choose to implement a shareholder rights plan in the future.
Barnes & Noble’s business is subject to the risks of international operations.
Barnes & Noble, which has historically limited its operations to the United States, has begun to conduct operations internationally, including in China. There is no assurance that any investment by Barnes & Noble to expand its operations internationally will be successful.
In particular, the Company has announced that it is in discussions with strategic partners including publishers, retailers and technology companies in international markets that may lead to expansion of the NOOK business abroad. In addition, NOOK Media has certain obligations under its commercial agreement with Microsoft regarding international expansion of the NOOK digital business in multiple jurisdictions outside the United States. There can be no assurances that the Company will actually be successful in reaching agreements with these partners. Moreover, the terms of any agreements that are reached may not be advantageous to the Company. The NOOK® device may require technological changes to comply with applicable foreign laws. It also may not be accepted in a particular marketplace where other companies may have already entered with products that have achieved some customer acceptance.
Compliance with U.S. and foreign laws and regulations that apply to international operations, including without limitation import and export requirements, anti-corruption laws, tax laws (including U.S. taxes on foreign subsidiaries), foreign exchange controls and cash repatriation restrictions, data privacy requirements, labor laws, and anti-competition regulations, increases the costs of doing business in foreign jurisdictions, and any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation. There can be no assurance that Barnes & Noble’s employees, contractors, or agents will not violate such laws and regulations or Barnes & Noble’s policies with respect to foreign operations.
Intense competition from traditional retail sources, the Internet and suppliers of digital content and hardware may adversely affect Barnes & Noble’s businesses.
The book business is highly competitive in every channel in which Barnes & Noble operates. Barnes & Noble retail stores compete primarily on the quality of the shopping and store experience and the price and availability of products. The importance of price varies depending on the competitor, with some of Barnes & Noble’s competitors engaging in significant discounting and other promotional activities. NOOK® competes primarily with other eBook readers on functionality, consumer appeal, availability of digital content and price. Barnes & Noble competes with large bookstores including Books-A-Million and smaller format bookstores. It faces competition from many online businesses, notably Amazon.com and Apple. Increases in consumer spending via the Internet may significantly affect its ability to generate sales in Barnes & Noble retail stores. Barnes & Noble also faces competition from mass merchandisers, such as Costco, Target and Wal-Mart. Some of the Company’s competitors may have greater financial and other resources and different business strategies than Barnes & Noble does. Barnes & Noble retail stores also compete with specialty retail stores that offer books in particular subject areas, independent store operators, variety discounters, drug stores, warehouse clubs, mail-order clubs and other retailers offering books, music, toys, games, gifts and other
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products in its market segments. The music and DVD businesses are also highly competitive, and Barnes & Noble faces competition from mass merchants, discounters, the Internet and digital distribution. Barnes & Noble faces competition from the expanding market for digital content and hardware, including without limitation electronic books or “eBooks” and eBook readers. New and enhanced technologies, including new digital technologies and new web services technologies, may increase Barnes & Noble’s competition. Competition may also intensify as Barnes & Noble’s competitors enter into business combinations or alliances or established companies in other market segments expand into its market segments. Increased competition may reduce Barnes & Noble’s sales and profits.
If Barnes & Noble is unable to renew or enter into new leases on favorable terms, or at all, its sales and earnings may decline.
Substantially all of Barnes & Noble’s retail stores are located in leased premises. Barnes & Noble’s profitability depends in part on its ability to continue to optimize its store lease portfolio as to the number of retail stores, store locations and lease terms and conditions. Its ability to do so depends on, among other things, general economic and business conditions and general real estate development conditions, which are beyond its control. Barnes & Noble has 338 leases up for renewal by April 30, 2016. If the cost of leasing existing retail stores increases, Barnes & Noble may not be able to maintain its existing store locations as leases expire. In addition, Barnes & Noble may not be able to enter into new leases on acceptable terms, or at all, or it may not be able to locate suitable alternative sites or additional sites for new retail stores in a timely manner. Barnes & Noble’s sales and earnings may decline if it fails to maintain existing store locations, enter into new leases, renew leases or relocate to alternative sites, in each case on attractive terms.
Barnes & Noble faces various risks as an Internet retailer and as a digital retailer.
Business risks related to its online and digital businesses include risks associated with the need to keep pace with rapid technological change, risks associated with the timing of the adoption of new digital products or platforms, Internet security risks, risks of system failure or inadequacy, protection of digital rights, supply chain risks, government regulation and legal uncertainties with respect to the Internet and digital content, risks related to data privacy and collection of sales or other taxes by one or more states or foreign jurisdictions. If any of these risks materializes, it could have an adverse effect on Barnes & Noble’s business.
The Company faces the risk of a shift in consumer spending patterns to Internet retailers and digital content.
The Company has entered parts of the online and digital markets in which it has limited experience and may in the future expand into additional areas. The offering of digital content may present new and difficult challenges. Gross margin for digital content and products may be lower than for the Company’s traditional product lines. The gross margin for Barnes & Noble’s online sales is generally lower than for sales in its retail stores. Although the Company has entered into the online and digital spaces, it may not be able to compete effectively in those spaces and any investments made in those spaces may not be successful. Barnes & Noble also faces competition from companies engaged in the business of selling books, music and movies via electronic means, including the downloading of books, music and movie content. For example, historically Barnes & Noble offered a selection of music products in its retail stores, but has dramatically decreased such selection because of the increased competition from the download of digital music. B&N College is experiencing growing competition from alternative media and alternative sources of textbooks and course-related materials, such as websites that sell textbooks, eBooks,
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digital content and other merchandise directly to students; online resources; publishers selling directly to students; print-on-demand textbooks; CD-ROMs; textbook rental companies; and student-to-student transactions over the Internet. In addition, B&N College has significantly increased its textbook rentals, offering students a lower cost alternative to purchasing textbooks, which could be subject to inventory risks if books are not resold or re-rented. These challenges may negatively affect the Company’s operating results.
Barnes & Noble’s expansion into new products, services and technologies subjects it to additional business, legal, financial and competitive risks.
Barnes & Noble may require additional capital in the future to sustain or grow Barnes & Noble’s online and digital businesses. Barnes & Noble’s gross profits and margins in its newer activities may be lower than in its traditional activities, and it may not be successful enough in these newer activities to recoup its investments in them. In addition, Barnes & Noble may have limited or no experience in its newer products and services, and its customers may not adopt its new product or service offerings, which include digital, web services and electronic devices, including but not limited to its NOOK® eBook reader, as well as new gift products and educational toys and games products. Some of these offerings may present new and difficult technological challenges, and Barnes & Noble may be subject to claims or recalls if customers of these offerings experience service disruptions or failures or other quality issues. If any of these were to occur, it could damage the Company’s reputation, limit its growth and negatively affect its operating results.
Barnes & Noble depends on component and product manufacturing provided by third parties, many of whom are located outside of the U.S.
NOOK® and other Company products are manufactured by a third-party manufacturer outside the United States, and Barnes & Noble relies on components provided from a number of different manufacturers both within and outside the United States. Many of these manufacturers are concentrated in geographic areas outside the United States. While Barnes & Noble’s arrangements with these manufacturers may lower costs, they also reduce its direct control over production. It is uncertain what effect such diminished control will have on the quality or quantity of products or services, or Barnes & Noble’s flexibility to respond to changing conditions. Although arrangements with such manufacturers may contain provisions for warranty expense reimbursement, if reimbursement from such manufacturers is unenforceable or insufficient, Barnes & Noble may remain responsible to the consumer for warranty service in the event of product defects. Any unanticipated product defect or warranty liability, whether pursuant to arrangements with contract manufacturers or otherwise, could materially adversely affect Barnes & Noble’s reputation, financial condition and operating results. If manufacturing in these locations is disrupted for any reason, including natural disasters, information technology system failures, military actions or economic, business, labor, environmental, public health or political issues, Barnes & Noble’s financial condition and operating results could be adversely affected.
The Company or its digital business may be unable to obtain a sufficient supply of components and parts that are free of minerals mined from the Democratic Republic of Congo and adjoining countries, which could result in a shortage of such components and parts or reputational damages if the Company is unable to certify that the its products are free of such minerals. The Dodd-Frank Wall Street Reform and Consumer Protection Act included disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries (DRC) and procedures regarding a manufacturer’s efforts to prevent the sourcing of such “conflict” minerals. The Securities and Exchange Commission adopted the final rules related to “conflict” minerals in August 2012. These rules may limit the
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pool of suppliers who can provide Barnes & Noble DRC Conflict Free components and parts, and the Company cannot make assurances that it will be able to obtain products or supplies in sufficient quantities that meet the DRC Conflict Free designation as proposed by the requirements. Also, because the Barnes & Noble supply chain is complex, the Company may face reputational challenges with its customers, stockholders and other stakeholders if it is unable to sufficiently verify the origins for the defined conflict metals used in its products as required by the rules on conflict minerals.
Government regulation is evolving and unfavorable changes could harm the Company’s business.
The Company is subject to general business regulations and laws relating to all aspects of its business, including regulations and laws relating to the Internet, online commerce, digital content and products as well as its other lines of business (including governmental investigations and litigation relating to the agency pricing model for digital content distribution). Existing and future laws and regulations and their application and/or enforcement may impede the growth of the Internet, digital content distribution or other online services and impact digital content pricing, including requiring modifications or elimination of related pricing models including the agency pricing model. These regulations and laws may cover taxation, privacy, data protection, pricing, competition and/or antitrust, content, copyrights, distribution, college distribution, mobile communications, electronic contracts and other communications, consumer protection, the provision of online payment services, unencumbered Internet access to the Company’s services, the design and operation of websites, the characteristics and quality of products and services and employee benefits (including the costs associated with complying with the Patient Protection and Affordable Care Act). Unfavorable regulatory and legal developments, including among other things the U.S. Department of Justice’s lawsuit against Apple Inc. and certain U.S. publishers for allegedly colluding to raise the price of electronic books and the settlement between the U.S. Department of Justice and certain of the U.S. publishers that were party to that lawsuit, could diminish the demand for the Company’s products and services, increase its cost of doing business, decrease its margins and materially adversely impact its results of operations or financial operations.
The Company relies on third-party digital content and applications, which may not be available to the Company on commercially reasonable terms or at all.
The Company contracts with certain third-parties to offer their digital content, including on NOOK® and through its eBookstore. Its licensing arrangements with these third-parties do not guarantee the continuation or renewal of these arrangements on reasonable terms, if at all. Some third-party content providers currently or in the future may offer competing products and services, and could take action to make it more difficult or impossible for the Company to license their content in the future. Other content owners, providers or distributors may seek to limit the Company’s access to, or increase the total cost of, such content. If the Company is unable to offer a wide variety of content at reasonable prices with acceptable usage rules, its financial condition and operating results may be materially adversely affected.
B&N College may not be able to enter into new contracts and contracts for existing or additional college bookstores may not be profitable.
An important part of B&N College’s business strategy is to expand sales for its college bookstore operations by being awarded additional contracts to manage bookstores for colleges and universities. B&N College’s ability to obtain those additional contracts is subject to a number
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of factors that it is not able to control. In addition, the anticipated strategic benefits of new and additional college and university bookstores may not be realized at all or may not be realized within the time frames contemplated by management. In particular, contracts for additional managed stores may involve a number of special risks, including adverse short-term effects on operating results, diversion of management’s attention and other resources, standardization of accounting systems, dependence on retaining, hiring and training key personnel, unanticipated problems or legal liabilities, and actions of its competitors and customers. Because the terms of any contract are generally fixed for the initial term of the contract and involve judgments and estimates which may not be accurate, including for reasons outside of its control, B&N College has contracts which are not profitable, and may have such contracts in the future. Even if B&N College has the right to terminate a contract, it may be reluctant to do so even when a contract is unprofitable due, among other factors, to the potential effect on B&N College’s reputation. Any unprofitable contracts may negatively impact the Company’s operating results.
B&N College may not be able to successfully retain or renew its managed bookstore contracts on profitable terms, which could adversely impact B&N College’s profit margins.
B&N College will be competing for the retention of existing store contracts and renewal of those contracts as they expire. B&N College’s contracts are typically for five to ten years, although some extend beyond ten years. Many contracts have a 90 to 120 day cancellation right by the college or university, without penalty. B&N College may not be successful in retaining its current contracts, renewing its current contracts, or renewing its current contracts on terms that provide it the opportunity to improve or maintain the profitability of managing the store. If B&N College is unable to retain or renew its contracts on profitable terms, or at all, its profit margins could be adversely impacted.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
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| ITEM 2. | PROPERTIES |
All but one of the active Barnes & Noble stores are leased. The leases typically provide for an initial term of 10 or 15 years with one or more renewal options. The terms of the Barnes & Noble store leases for its 674 leased stores open as of April 27, 2013 expire as follows:
| Lease Terms to Expire During (12 months ending on or about April 30) |
Number of Stores (a) |
|||
| 2014 |
136 | |||
| 2015 |
111 | |||
| 2016 |
91 | |||
| 2017 |
110 | |||
| 2018 |
119 | |||
| 2019 and later |
103 | |||
| (a) | Four Barnes & Noble stores are under month-to-month leases. |
B&N College’s contracts are typically for five to ten years, although some extend beyond ten years. Many contracts have a 90 to 120 day cancellation right by the college or university, without penalty. In many cases, either party may cancel. The contracts for the 686 B&N College stores as of April 27, 2013 expire as follows:
| Lease Terms to Expire During (12 months ending on or about April 30) |
Number of Stores |
|||
| 2014 |
54 | |||
| 2015 |
35 | |||
| 2016 |
39 | |||
| 2017 |
31 | |||
| 2018 |
45 | |||
| 2019 and later |
482 | |||
In addition to the bookstores, the Company leases two distribution centers for its B&N Retail operations, one in Monroe Township, New Jersey, under a lease expiring in 2020, and the other in Reno, Nevada, under a lease expiring in 2015. The Company also leases office and warehouse space in Edison, New Jersey for Sterling Publishing under two leases, both expiring in 2015. The Company’s B&N Retail distribution centers total 1,975,000 square feet.
During fiscal 2008, the Company exercised its purchase option under a lease on one of its distribution facilities located in South Brunswick, New Jersey from the New Jersey Economic Development Authority. The Company purchased the distribution facility and equipment for approximately $21.0 million. On December 29, 2011, the Company sold its distribution facility located in South Brunswick, New Jersey for $18.0 million, which resulted in a loss of $2.2 million.
The Company’s principal administrative facilities are situated in New York, New York, and are covered by one lease which covers approximately 144,000 square feet of office space and expires in 2013. The Company also leases approximately 74,000 square feet in Basking Ridge, New Jersey for its B&N College administrative offices under a lease which expires in 2020.
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The Company leases two additional locations in New York, New York for office space: approximately 90,000 square feet under a lease expiring in 2015, for eCommerce and NOOK administrative offices, and approximately 56,000 square feet under a lease expiring in 2014, for Sterling Publishing administrative offices. Additionally, Sterling leases approximately 23,000 square feet of office space in Asheville, North Carolina under a lease expiring in 2017.
The Company also leases approximately 79,000 square feet of office space in Westbury, New York under a lease expiring in 2017, approximately 241,000 square feet of office space in Palo Alto, California under leases expiring in 2015, 2017 and 2021 and approximately 10,000 square feet internationally under leases expiring 2013, 2014, and 2021.
| ITEM 3. | LEGAL PROCEEDINGS |
The Company is involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of its business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, securities, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.
The Company records a liability when it believes that it is both probable that a liability will be incurred, and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount of a loss or potential loss. The Company may be unable to reasonably estimate the reasonably possible loss or range of loss for a particular legal contingency for various reasons, including, among others: (i) if the damages sought are indeterminate; (ii) if proceedings are in the early stages; (iii) if there is uncertainty as to the outcome of pending proceedings (including motions and appeals); (iv) if there is uncertainty as to the likelihood of settlement and the outcome of any negotiations with respect thereto; (v) if there are significant factual issues to be determined or resolved; (vi) if the proceedings involve a large number of parties; (vii) if relevant law is unsettled or novel or untested legal theories are presented; or (viii) if the proceedings are taking place in jurisdictions where the laws are complex or unclear. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. With respect to the legal matters described below, the Company has determined, based on its current knowledge, that the amount of loss or range of loss, that is reasonably possible including any reasonably possible losses in excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control. As such, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, results of operations, or cash flows.
The following is a discussion of the material legal matters involving the Company.
PATENT LITIGATION
Barnes & Noble, Inc. and its subsidiaries are subject to allegations of patent infringement by various patent holders, including non-practicing entities (NPEs), sometimes referred to as “patent trolls,” who may seek monetary settlements from us, our competitors, suppliers and resellers. In some of these cases, the Company is the sole defendant. In others, the Company is one of a number of defendants. The Company is actively defending a number of patent infringement suits, and several pending claims are in various stages of evaluation. The following cases are among the patent infringement cases pending against the Company:
Barnes & Noble, Inc. and Barnesandnoble.com llc v. LSI Corporation and Agere Systems, Inc.
On June 6, 2011, Barnes & Noble, Inc. filed a complaint against LSI Corporation (LSI) in the United States District Court for the Northern District of California. The complaint sought a declaratory judgment that Barnes & Noble, Inc. does not infringe U.S. Patent Nos. 5,546,420; 5,670,730; 5,862,182; 5,920,552; 6,044,073; 6,119,091; 6,404,732; 6,452,958; 6,707,867 and 7,583,582. Barnes & Noble, Inc. amended the complaint on August 10, 2011 to add barnesandnoble.com llc as a plaintiff, to add Agere Systems, Inc. (Agere) as a defendant, to add a cause of action seeking a declaratory judgment that neither Barnes & Noble, Inc. nor barnesandnoble.com llc infringes U.S. Patent No. 7,477,633, and to add causes of action seeking a declaratory judgment that each of the eleven patents-in-suit is invalid. On November 1, 2011, LSI and Agere answered the amended complaint and asserted counterclaims against Barnes & Noble, Inc. and barnesandnoble.com llc, alleging infringement of the eleven patents-in-suit. On
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November 28, 2011, Barnes & Noble, Inc. and barnesandnoble.com llc answered the counterclaims and asserted several affirmative defenses, including the defense that seven of the patents-in-suit are unenforceable as a result of standard-setting misconduct. As required by the District Court’s Local Patent Rules, LSI and Agere served their Disclosure of Asserted Claims and Infringement Contentions on July 2, 2012. In that disclosure, LSI and Agere asserted infringement of only six of the eleven patents they had previously accused Barnes & Noble, Inc. and barnesandnoble.com llc of infringing. On January 18, 2013, LSI and Agere notified Barnes & Noble that they were dropping another asserted patent. On May 20, 2013, LSI and Agere filed amended counterclaims, alleging infringement of five additional patents—U.S. Patent Nos. 8,041,394; 5,870,087; 5,568,167; 6,982,663 and 5,452,006. Barnes & Noble, Inc. and barnesandnoble.com llc responded to these amended counterclaims and asserted several affirmative defenses on June 21, 2013. The District Court has set certain pretrial dates in the case, including a claim construction hearing beginning on March 24, 2014. The District Court has not yet set a trial date in the case.
Deep9 Corporation v. Barnes & Noble, Inc. and barnesandnoble.com llc
On January 1, 2011, Deep9 Corporation (Deep9) filed a complaint against Barnes & Noble, Inc. and barnesandnoble.com llc in the United States District Court for the Western District of Washington. The complaint alleges that Barnes & Noble, Inc. and barnesandnoble.com llc infringe U.S. Patent Nos. 5,937,405 and 6,377,951. On February 1, 2011, Barnes & Noble, Inc. and barnesandnoble.com llc filed an answer denying infringement and asserting several affirmative defenses. At the same time, Barnes & Noble, Inc. and barnesandnoble.com llc filed counterclaims seeking a declaratory judgment that neither Barnes & Noble, Inc. nor barnesandnoble.com llc infringes the patents-in-suit and that each of the two patents-in-suit is invalid. The District Court issued an order regarding claim construction on January 10, 2012 and amended that order on January 24, 2012. On September 21, 2012, the District Court granted Barnes & Noble, Inc. and barnesandnoble.com llc’s motion for summary judgment of non-infringement as to both of Deep9’s patents-in-suit, and entered judgment in favor of Barnes & Noble, Inc. and barnesandnoble.com llc. On October 16, 2012, Deep9 filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. After the parties briefed the issues raised in Deep9’s appeal, the Federal Circuit heard oral argument on May 8, 2013. On May 13, 2013, the Federal Circuit issued a summary affirmance in which it affirmed the District Court’s judgment in favor of Barnes & Noble, Inc. and barnesandnoble.com llc.
Technology Properties Limited et al. v. Barnes & Noble Inc., et al.
On July 24, 2012, Technology Properties Limited, LLC, Phoenix Digital Solutions, LLC, and Patriot Scientific Corporation (collectively, TPL) submitted a complaint to the U.S. International Trade Commission (ITC), captioned Certain Wireless Consumer Electronics Devices and Components thereof, Inv. No. 337-TA-853, requesting that the ITC institute an investigation pursuant to Section 337 of the Tariff Act of 1930, as amended. The complaint alleges that the sale for importation into the United States, the importation, and/or the sale within the United States after importation of Barnes & Noble, Inc.’s NOOKTM products infringe certain claims of U.S. Patent No. 5,809,336. The complaint also asserts similar claims against the products of 23 other Respondents. The complaint requests that the ITC issue a permanent exclusion order and a permanent cease-and-desist order with respect to these products. On August 21, 2012, the ITC issued a Notice of Institution of Investigation and delegated authority for factfinding on the public interest to the Administrative Law Judge (ALJ) hearing the case. On September 24, 2012, Barnes & Noble filed a response to the complaint, denying that its products infringe the ‘336 patent and denying that it has engaged in any action that would constitute unlawful sale for importation into the United States, importation, or sale within the United States after importation. Barnes & Noble also asserted ten affirmative defenses. On February 12, 2013, TPL entered into a stipulation in which it agreed that the NOOK Simple Touch, NOOK Simple Touch with GlowLight, NOOK HD, and NOOK
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HD+ are the only Barnes & Noble products accused of infringement in the investigation; therefore, the NOOK 1st Edition, NOOK Color, and NOOK Tablet products are no longer accused of infringement in the investigation. Fact discovery ended on February 22, 2013. Initial expert reports were submitted on March 27, 2013. Following a Markman hearing on March 5, 2013, the ALJ issued a claim construction order on April 18, 2013. Expert discovery ended on May 1, 2013. On June 3-7, 2013 and June 10-11, 2013, the Administrative Law Judge conducted a hearing in the action. The parties filed their opening post-hearing briefs on June 28, 2013, and filed their reply post-hearing briefs on July 10, 2013. The Administrative Law Judge is scheduled to issue his final initial determination on September 6, 2013. The target date for Commission resolution of the investigation is January 6, 2014.
Also on July 24, 2012, TPL filed a complaint against Barnes & Noble, Inc. in the United States District Court for the Northern District of California. The complaint similarly alleges that Barnes & Noble is infringing the ‘336 patent through the importation and sale in the United States of NOOKTM products. The complaint also alleges that Barnes & Noble is infringing two other patents in the same patent family: U.S. Patent No. 5,440,749 and U.S. Patent No. 5,530,890. On September 21, 2012, TPL and Barnes & Noble filed a stipulation agreeing to stay the action pending final resolution of the ITC action. On September 26, 2012, the District Court granted the motion to stay.
Adrea LLC v. Barnes & Noble, Inc., barnesandnoble.com LLC and Nook Media LLC
On June 14, 2013, Adrea LLC filed a complaint against Barnes & Noble, Inc., barnesandnoble.com LLC and Nook Media LLC in the United States District Court for the Southern District of New York alleging that various B&N Nook products and related online services infringe U.S. Patent 7,298,851, U.S. Patent 7,299,501, and U.S. Patent 7,620,703. The current deadline to answer or to otherwise respond is August 9, 2013.
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OTHER LITIGATION
Kevin Khoa Nguyen, an individual, on behalf of himself and all others similarly situated v. Barnes & Noble, Inc.
On April 17, 2012, a complaint was filed in the Superior Court for the State of California against the Company. The complaint is styled as a nationwide class action and includes a California state-wide subclass based on alleged cancellations of orders for HP TouchPad Tablets placed on the Company’s website in August 2011. The lawsuit alleges claims for unfair business practices and false advertising under both New York and California state law, violation of the Consumer Legal Remedies Act under California law, and breach of contract. The complaint demands specific performance of the alleged contracts to sell HP TouchPad Tablets at a specified price, injunctive relief, and monetary relief, but does not specify an amount. The Company submitted its initial response to the complaint on May 18, 2012, and moved to compel plaintiff to arbitrate his claims on an individual basis pursuant to a contractual arbitration provision on May 25, 2012. The court denied the Company’s motion to compel arbitration, and the Company appealed that denial to the Ninth Circuit Court of Appeals. The Company filed its opening brief on the appeal on February 11, 2013. The answering brief was filed on April 13, 2013, and the Company’s reply brief was filed on May 23, 2013. The Company has also moved to dismiss the complaint and moved to transfer the action to New York. The court granted the Company’s motion to stay on November 26, 2012, and the action has been stayed pending resolution of the Company’s appeal from the court’s denial of its motion to compel arbitration.
PIN Pad Litigation
As previously disclosed, the Company discovered that PIN pads in certain of its stores had been tampered with to allow criminal access to card data and PIN numbers on credit and debit cards swiped through the terminals. Following public disclosure of this matter on October 24, 2012, the Company was served with four putative class action complaints (three in federal district court in the Northern District of Illinois and one in the Northern District of California), each of which alleged on behalf of national and other classes of customers who swiped credit and debit cards in Barnes & Noble Retail stores common law claims such as negligence, breach of contract and invasion of privacy, as well as statutory claims such as violations of the Fair Credit Reporting Act, state data breach notification statutes, and state unfair and deceptive practices statutes. The actions sought various forms of relief including damages, injunctive or equitable relief, multiple or punitive damages, attorneys’ fees, costs, and interest. All four cases have now been transferred and/or assigned to a single Judge in the United States District Court for the Northern District of Illinois, and a single consolidated amended complaint has been filed. The Company has filed a motion to dismiss the consolidated amended complaint in its entirety. It is uncertain when the Court will render a decision on that motion. It is possible that additional litigation arising out of this matter may be commenced on behalf of customers, banks or other card issuers, payment card companies or stockholders seeking damages allegedly arising out of this incident and other related relief.
The Company also has received inquiries related to this matter from the Federal Trade Commission and eight state attorneys general, all of which have either been closed or have not had any recent activity, and the Company intends to cooperate with them if further activity arises. In addition, payment card companies and associations may impose fines by reason of the tampering and federal or state enforcement authorities may impose penalties or other remedies against the Company.
At this point the Company is unable to predict the developments in, outcome of, and economic and other consequences of pending or future litigation or state and federal inquiries related to this matter.
Dustin Torrez, an individual, on behalf of himself and all others similarly situated v. Barnes & Noble, Inc.
On October 11, 2011, a complaint was filed in the Superior Court for the State of California against the Company. The complaint is styled as a California state-wide class action. It alleges violations
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of California Civil Code section 1747.08 (the Song-Beverly Credit Card Act of 1971) due to the Company’s alleged improper requesting and recording of zip codes from California customers who used credit cards as payment. The complaint was re-filed in the Superior Court for the State of California on December 23, 2011 as a separate action. The Summons and Complaint have not been served on the Company for either action. On February 10, 2012, the plaintiff filed a request that the action filed in December be dismissed with prejudice.
Lina v. Barnes & Noble, Inc., and Barnes & Noble Booksellers, Inc. et al.
On August 5, 2011, a purported class action complaint was filed against Barnes & Noble, Inc. and Barnes & Noble Booksellers, Inc. in the Superior Court for the State of California making the following allegations against defendants with respect to salaried Store Managers at Barnes & Noble stores located in the State of California from the period of August 5, 2007 to present: (1) failure to pay wages and overtime; (2) failure to pay for missed meal and/or rest breaks; (3) waiting time penalties; (4) failure to pay minimum wage; (5) failure to provide reimbursement for business expenses; and (6) failure to provide itemized wage statements. The claims are generally derivative of the allegation that these salaried managers were improperly classified as exempt from California’s wage and hour laws. The complaint contains no allegations concerning the number of any such alleged violations or the amount of recovery sought on behalf of the purported class. The Company was served with the complaint on August 11, 2011. The parties are currently engaged in pre-certification discovery. The state court has set the following certification motion schedule: Lina’s motion for class certification is due August 12, 2013, Barnes & Noble’s opposition is due October 11, 2013, and plaintiff’s reply is due November 25, 2013. The hearing date for the certification motion is December 11, 2013. No trial date has been set.
Jones et al v. Barnes & Noble, Inc., and Barnes & Noble Booksellers, Inc. et al.
On April 23, 2013, Kenneth Jones (Jones) filed a purported Private Attorney General Act (PAGA) action complaint against Barnes & Noble, Inc. and Barnes & Noble Booksellers, Inc. in the Superior Court for the State of California making the following allegations against defendants with respect to salaried Store Managers at Barnes & Noble stores located in the State of California: (1) failure to pay wages and overtime; (2) failure to pay for missed meal and/or rest breaks; (3) waiting time penalties; (4) failure to pay minimum wage; (5) failure to provide reimbursement for business expenses; and (6) failure to provide itemized wage statements. The claims are generally derivative of the allegation that Jones and other “aggrieved employees” were improperly classified as exempt from California’s wage and hour laws. The complaint contains no allegations concerning the number of any such alleged violations or the amount of recovery sought on behalf of the plaintiff or the purported aggrieved employees. The case was initially assigned to the Honorable Barbara Scheper. Because the underlying factual claims in the Jones complaint are almost identical to the claims in the Lina v. Barnes & Noble action, Barnes & Noble filed a Notice of Related Case on May 1, 2013. On May 7, 2013, Judge Michael Johnson (before whom the Lina action is pending) ordered the Jones action related to the Lina action and assigned the Jones action to himself. The Company was served with the complaint on May 16, 2013, and filed an answer on June 10, 2013.
Trimmer v. Barnes & Noble
On January 25, 2013, Steven Trimmer (Trimmer), a former Assistant Store Manager (ASM) of the Company, filed a complaint in the United States District Court for the Southern District of New York alleging violations of the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL). Specifically, Trimmer alleges that he and other similarly situated ASMs were improperly classified as exempt from overtime and denied overtime wages prior to July 1, 2010, when the Company reclassified them as non-exempt. The complaint seeks to certify a collective action under the FLSA comprised of
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ASMs throughout the country employed from January 25, 2010 until July 1, 2010, and a class action under the NYLL comprised of ASMs employed in New York from January 25, 2007 until July 1, 2010. The parties are currently engaged in discovery with respect to the individual claims asserted by Trimmer and one opt-in plaintiff only. The Court has stayed all class-wide discovery at this point. The parties have until August 30, 2013 to complete this first phase of discovery.
| ITEM 4. | MINE SAFETY DISCLOSURE |
None.
| 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 quarterly periods indicated, the high and low sales prices of the common stock on the NYSE Composite Tape:
| Fiscal 2013 | Fiscal 2012 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
| First Quarter |
$ | 26.00 | $ | 13.30 | $ | 21.06 | $ | 10.40 | ||||||||
| Second Quarter |
16.36 | 11.17 | 17.62 | 9.75 | ||||||||||||
| Third Quarter |
17.27 | 12.70 | 18.73 | 9.35 | ||||||||||||
| Fourth Quarter |
18.35 | 12.83 | 14.74 | 10.45 | ||||||||||||
Approximate Number of Holders of Common Equity
| Title of Class |
Approximate Number of Record Holders as of May 31, 2013 |
|||
| Common stock, $0.001 par value |
2,195 | |||
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Dividends
The Company paid dividends to preferred shareholders in the amount of $15,767,000 and $7,081,000 in fiscal 2013 and 2012, respectively.
The Company paid no dividends to common stockholders during fiscal 2013 and 2012. During fiscal 2011, the Company paid a dividend of $0.25 per share on June 30, 2010 to stockholders of record at the close of business on June 11, 2010, on September 30, 2010 to stockholders of record at the close of business on September 9, 2010, and on December 31, 2010 to stockholders of record at the close of business on December 10, 2010. On February 22, 2011, the Company announced that its Board of Directors suspended its quarterly dividend payment of $0.25 per share. This provided the Company the financial flexibility to continue investing into its high growth digital strategies.
The following table provides information with respect to purchases by the Company of shares of its common stock during the fourth quarter of fiscal 2013:
| Period |
Total Number of Shares Purchased (a) |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs |
||||||||||||
| January 27, 2013 – February 25, 2013 |
9,267 | $ | 13.29 | — | $ | 2,470,561 | ||||||||||
| February 26, 2013 – March 27, 2013 |
— | $ | — | — | $ | 2,470,561 | ||||||||||
| March 28, 2013 – April 27, 2013 |
258,558 | $ | 16.36 | — | $ | 2,470,561 | ||||||||||
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| Total |
355,825 | $ | 15.66 | — | ||||||||||||
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| (a) | All of the shares on this table above were originally granted to employees as restricted stock or restricted stock units pursuant to the Company’s 2004 and 2009 Incentive Plans. The 2004 and 2009 Incentive Plans provides for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock or restricted stock units, and pursuant to the 2004 and 2009 Incentive Plans, the shares reflected above were relinquished by employees in exchange for the Company’s agreement to pay federal and state withholding obligations resulting from the vesting of the Company’s restricted stock or restricted stock units. |
On May 15, 2007, the Company announced that its Board of Directors authorized a new stock repurchase program for the purchase of up to $400.0 million of the Company’s common stock. The maximum dollar value of common stock that may yet be purchased under the current program is approximately $2.5 million as of April 27, 2013.
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Stock repurchases under this program may be made through open market and privately negotiated transactions from time to time and in such amounts as management deems appropriate. As of April 27, 2013, the Company has repurchased 34,078,089 shares at a cost of approximately $1.1 billion under its stock repurchase programs. The repurchased shares are held in treasury.
| ITEM 6. | SELECTED FINANCIAL DATA |
The information included in the Company’s Annual Report to Shareholders for the fiscal year ended April 27, 2013 included as Exhibit 13.1 to this Annual Report on Form 10-K (the Annual Report) under the section entitled “Selected Consolidated 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 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company limits its interest rate risks by investing certain of its excess cash balances in short-term, highly-liquid instruments with an original maturity of one year or less. The Company does not expect any material losses from its invested cash balances and the Company believes that its interest rate exposure is modest. As of April 27, 2013, the Company’s cash and cash equivalents totaled approximately $160,470,000.
Additionally, the Company may from time to time borrow money under its credit facility at various interest rate options based on the Base Rate or LIBO Rate (each term as defined in the credit agreement described in the Annual Report under the section titled “Notes to Consolidated Financial Statements”) depending upon certain financial tests. Accordingly, the Company may be exposed to interest rate risk on borrowings under its credit facility. The Company had $77,000,000 and $324,200,000 in borrowings under its credit facility at April 27, 2013 and April 28, 2012, respectively.
The Company does not have any material foreign currency exposure as nearly all of its business is transacted in United States currency.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information included in the Annual Report under the sections entitled: “Consolidated Statements of Operations,” “Consolidated Statements of Comprehensive Income (Loss),” “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.
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| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
As previously disclosed, the Audit Committee completed a competitive process to review the appointment of the Company’s independent registered public accounting firm for the fiscal year ending April 27, 2013. The Audit Committee invited several firms to participate in this process. As a result of this process and following careful deliberation, on October 16, 2012, the Audit Committee notified BDO USA, LLP (BDO) that it had determined to dismiss BDO as the Company’s independent registered public accounting firm, effective as of that same date. On and effective as of that same date, the Company entered into an engagement letter with Ernst & Young LLP (E&Y), approved by the Audit Committee, and engaged E&Y as the Company’s independent registered public accounting firm. In approving the selection of E&Y as the Company’s independent registered public accounting firm, the Audit Committee considered all relevant factors, including any non-audit services previously provided by E&Y to the Company.
BDO’s reports on the Company’s consolidated financial statements for the years ended April 28, 2012 and April 30, 2011 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the Company’s fiscal 2011 and fiscal 2012 and the subsequent interim period preceding BDO’s dismissal, there were:
(i) no “disagreements” (within the meaning of Item 304(a) of Regulation S-K) with BDO on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of BDO, would have caused it to make reference to the subject matter of the disagreements in its reports on the consolidated financial statements of the Company; and
(ii) no “reportable events” (as such term is defined in Item 304(a)(1)(v) of Regulation S-K). However, BDO was consulted on the accounting for the transactions with Microsoft, which closed on October 4, 2012, for which no conclusions were reached by the Company or BDO as of the date of termination.
| ITEM 9A. | CONTROLS AND PROCEDURES |
(a) Evaluation of Disclosure Controls and Procedures
The management of the Company established and maintains disclosure controls and procedures that are designed to ensure that material information relating to the Company and its subsidiaries required to be disclosed in the reports that are filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, the Company’s management conducted an evaluation (as required under Rules 13a-15(b) and 15d-15(b) under the Exchange Act), under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports. Based on management’s evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective as a result of the material weakness that existed in the Company’s internal control over financial reporting as described in Management’s Annual Report on Internal Control over Financial Reporting below.
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(b) Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework). Based upon an evaluation performed as of April 27, 2013, the Company identified a material weakness in its internal control over the reporting and review of the reconciliation of its Distribution Center accrual. Management of the Company determined that the Company had incorrectly overstated certain accruals over an extended period of time for the periods prior to April 27, 2013 as a result of inadequate controls over the accrual reconciliation process at its distribution centers.
The material weakness described above resulted in misstatements in the Company’s annual and interim financial statements. As a result of the material weakness, management has concluded that the Company did not maintain effective internal controls over financial reporting as of April 27, 2013.
The effectiveness of internal control over financial reporting was audited by Ernst & Young, an independent registered public accounting firm, as stated in their report included elsewhere herein.
(c) Changes in Internal Control over Financial Reporting
Except for the material weakness noted above, there have been no changes in the Company’s internal control over financial reporting during the most recent quarter ended April 27, 2013 that have materially affected, or are reasonably likely to affect, internal control over financial reporting.
(d) Remediation of Material Weakness in Internal Control over Financial Reporting
In response to the material weakness, management is redesigning its reconciliation process and related systems relating to its distribution center accruals in order to remediate the material weakness.
Even before identification of the aforementioned material weakness in internal control over financial reporting, the Company had begun making improvements to its existing processes as follows:
| • | During the fourth quarter of fiscal 2013, the Company implemented additional procedures to better identify, analyze and measure certain components of the accrual. These procedures included increased oversight, additional resources, enhanced analytics and monthly reviews. However, as of April 27, 2013 these procedures and controls did not fully address the control design deficiency and also were not operating effectively, which resulted in the material weakness discussed above. |
| • | As a result of the control weakness discussed above, management of the Company determined it needed to expand the scope of the project to remediate the matter. |
| • | An outside advisor was retained by the Company subsequent to year-end in order to evaluate, design and implement effective controls over this process. This advisor will continue to work with the Company until the material weakness is remediated. |
| • | In addition to the outside advisors, internal personnel were assembled on a project team, including IT, internal audit, finance and accounting personnel. |
| • | In order to ensure the accuracy of its distribution center accrual going forward, management of the Company continues to enhance and test the IT data flow within its systems. |
| • | Manual controls are being designed and tested to improve the reconciliation process. |
| • | Management of the company plans to hire additional personnel to enhance the reconciliation process in future periods. Monthly reviews will be formalized across cross-functional teams as well. |
These improvements are targeted at strengthening the Company’s internal control over financial reporting and to remediate the material weakness. The Company remains committed to a strong internal control environment.
| ITEM 9B. | OTHER INFORMATION |
None.
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| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information with respect to directors, executive officers, the code of ethics and corporate governance of the Company is incorporated herein by reference to the Company’s definitive Proxy Statement relating to the Company’s 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the Company’s fiscal year ended April 27, 2013 (the Proxy Statement).
The information with respect to compliance with Section 16(a) of the 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 AND RELATED STOCKHOLDER MATTERS |
Equity Compensation Plan Information
The following table sets forth equity compensation plan information as of April 27, 2013:
| Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a)) |
|||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders |
3,376,000 | $ | 17.91 | 2,568,000 | ||||||||
| Equity compensation plans not approved by security holders |
— | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
3,376,000 | $ | 17.91 | 2,568,000 | ||||||||
|
|
|
|
|
|
|
|||||||
The information with respect to security ownership of certain beneficial owners and management is incorporated herein by reference to the Proxy Statement.
46
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information with respect to certain relationships and related transactions and director independence is incorporated herein by reference to the Proxy Statement.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information with respect to principal accountant fees and services is incorporated herein by reference to the Proxy Statement.
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| (a) | 1. Consolidated Financial Statements: |
| (i) | “The Report of Independent Registered 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 Statements of Comprehensive Income (Loss),” “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. | Schedule: |
Valuation and Qualifying Accounts.
For the 52-week period ended April 27, 2013, 52-week period ended April 28, 2012 and the 52-week period ended April 30, 2011 (in thousands):
| Balance at beginning of period |
Charge (recovery) to costs and expenses |
Write-offs | Balance at end of period |
|||||||||||||
| Allowance for Doubtful Accounts |
||||||||||||||||
| April 27, 2013 |
$ | 5,941 | $ | 516 | $ | (369 | ) | $ | 6,088 | |||||||
| April 28, 2012 |
$ | 4,565 | $ | 1,844 | $ | (468 | ) | $ | 5,941 | |||||||
| April 30, 2011 |
$ | 2,522 | $ | 2,096 | $ | (53 | ) | $ | 4,565 | |||||||
47
The following are filed as Exhibits to this form:
| Exhibit No. |
Description | |
| 2.1 | Stock Purchase Agreement dated as of August 7, 2009 among the Company, Leonard Riggio and Louise Riggio. (15) | |
| 3.1 | Amended and Restated Certificate of Incorporation of the Company, as amended. (1) | |
| 3.2 | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June 17, 1998 and filed July 17, 1998. (2) | |
| 3.3 | Amended and Restated By-laws of the Company. (9) | |
| 3.4 | Amendment to Amended and Restated By-laws of the Company. (16) | |
| 3.5 | Form of Certificate of Designation, dated as of November 17, 2009. (17) | |
| 4.1 | Specimen Common Stock certificate. (1) | |
| 4.2 | Issuance and sale of Series J Preferred Stock of the Company to Liberty GIC, Inc. as of August 18, 2011. (28) | |
| 10.1 | Employment Agreement between the Company and Mitchell S. Klipper, dated as of February 18, 2002. (3) | |
| 10.2 | The Company’s Amended and Restated 1996 Incentive Plan. (4) | |
| 10.3 | Employment Agreement between the Company and Stephen Riggio, dated as of February 18, 2002. (5) | |
| 10.4 | The Company’s 2004 Executive Performance Plan. (6) | |
| 10.5 | The Company’s 2004 Incentive Plan. (6) | |
| 10.6 | Form of Option Award Agreement of the Company. (7) | |
| 10.7 | Form of Restricted Stock Award Agreement of the Company. (7) | |
| 10.8 | Amendment to the Company’s 2004 Incentive Plan. (8) | |
| 10.9 | Amendment to the Company’s Amended and Restated 1996 Incentive Plan. (8) | |
| 10.10 | Letter Agreement (including General Release and Waiver) entered into on October 8, 2008, between barnesandnoble.com llc and Marie J. Toulantis. (10) | |
| 10.11 | First Amendment to the Company’s 2004 Executive Performance Plan. (11) | |
| 10.12 | Second Amendment to the Company’s 2004 Incentive Plan. (11) | |
48
| Exhibit No. |
Description | |
| 10.13 | The Company’s Amended and Restated Deferred Compensation Plan. (11) | |
| 10.14 | Amendment to Employment Agreement between the Company and Stephen Riggio, dated December 18, 2008. (11) | |
| 10.15 | Amendment to Employment Agreement between the Company and Mitchell S. Klipper, dated as of December 18, 2008. (11) | |
| 10.16 | Employment Agreement between the Company and William J. Lynch, Jr., dated January 6, 2009. (12) | |
| 10.17 | The Company’s 2009 Executive Performance Plan. (14) | |
| 10.18 | The Company’s 2009 Incentive Plan. (14) | |
| 10.19 | Letter Agreement between Barnes & Noble.com, llc and Ravi Gopalakrishnan, dated as of March 5, 2009. (30) | |
| 10.20 | Letter Agreement between Barnes & Noble.com, llc and Jamie Iannone, dated as of March 29, 2009. (30) | |
| 10.21 | Letter Agreement between Barnes & Noble College Booksellers, LLC and Max J. Roberts, dated as of September 30, 2009. (30) | |
| 10.22 | Junior Subordinated Seller Note, dated September 30, 2009, issued by the Company to Leonard Riggio and Louise Riggio. (16) | |
| 10.23 | Employment Agreement between the Company and Joseph J. Lombardi, dated March 17, 2010. (18) | |
| 10.24 | Employment Agreement between the Company and William J. Lynch, Jr., dated March 17, 2010. (18) | |
| 10.25 | Employment Agreement between the Company and Mitchell S. Klipper, dated March 17, 2010. (18) | |
| 10.26 | Letter Agreement between Barnes & Noble.com, llc and Daniel A. Gilbert, dated as of March 22, 2010. (30) | |
| 10.27 | Barnes & Noble.com Digital Products Device Development Incentive Bonus Plan, dated as of May 2, 2010. (30) | |
| 10.28 | Form of Barnes & Noble.com Digital Products Device Development Incentive Bonus Plan Participation Agreement. (30) | |
| 10.29 | Employment Agreement between the Company and Leonard Riggio, dated May 12, 2010. (19) | |
49
| Exhibit No. |
Description | |
| 10.30 | Employment Agreement between the Company and Stephen Riggio, dated May 12, 2010. (19) | |
| 10.31 | Indemnification Agreement between the Company and David G. Golden, dated August 19, 2010. (20) | |
| 10.32 | Indemnification Agreement between the Company and David A. Wilson, dated August 19, 2010. (20) | |
| 10.33 | Form of Performance Unit Award Agreement pursuant to the Company’s 2009 Incentive Plan. (21) | |
| 10.34 | Employment Agreement between the Company and Eugene V. DeFelice, dated September 27, 2010. (22) | |
| 10.35 | Form of Indemnification Agreement between the Company and Company’s directors and officers, dated January 5, 2011. (23) | |
| 10.36 | Credit Agreement, dated April 29, 2011, among the Company, Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders (Credit Agreement). (24) | |
| 10.37 | Investment Agreement between the Company and Liberty GIC, Inc., dated August 18, 2011. (25) | |
| 10.38 | Transitional Employment Agreement between the Company and Joseph J. Lombardi, dated October 21, 2011. (26) | |
| 10.39 | Employment Agreement between the Company and Michael P. Huseby, dated March 9, 2012. (27) | |
| 10.40 | First Amendment to the Amended and Restated Credit Agreement, dated as of April 27, 2012, among Bank of America, N.A., as administrative agent, collateral agent, and other lenders. (28) | |
| 10.41 | Investment Agreement between the Company, Morrison Investment Holdings, Inc. and Microsoft Corporation, dated April 27, 2012. (28) | |
| 10.42 | The Company’s Amended and Restated 2009 Incentive Plan. (29) | |
| 10.43 | Commercial Agreement dated as of April 27, 2012, between Barnes & Noble, Inc. and Microsoft Corporation. (32) | |
| 10.44 | Confidential Settlement and Patent License Agreement dated as of April 27, 2012, among Barnes & Noble, Inc., barnesandnoble.com llc, Microsoft Corporation and Microsoft Licensing GP. (32) | |
| 10.45 | Form of Option Award Agreement pursuant to the Company’s Amended and Restated 2009 Incentive Plan. (31) | |
50
| Exhibit No. |
Description | |
| 10.46 | Form of Restricted Stock Award Agreement pursuant to the Company’s Amended and Restated 2009 Incentive Plan. (31) | |
| 10.47 | Form of Restricted Stock Unit Award Agreement pursuant to the Company’s Amended and Restated 2009 Incentive Plan. (31) | |
| 10.48 | Second Amendment to Amended and Restated Credit Agreement, dated as of October 4, 2012. (34) | |
| 10.49 | Third Amendment to Amended and Restated Credit Agreement, dated as of December 21, 2012. (35) | |
| 10.50 | General Release and Waiver and Consulting Agreement between the Company and Dan Gilbert, dated as of February 1, 2013. (35) | |
| 10.51 | Amended Employment Agreement between the Company and William J. Lynch, Jr., dated March 7, 2013. (36) | |
| 10.52 | Fourth Amendment to Amended and Restated Credit Agreement, dated as of June 24, 2013. (38) | |
| 10.53 | Letter amendment to the Amended and Restated Credit Agreement, dated as of April 26, 2013, among Bank of America, N.A., as administrative agent, collateral agent, and other lenders. (37) | |
| 13.1 | The sections of the Company’s Annual Report entitled: “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Consolidated Statements of Operations,” “Consolidated Statements of Comprehensive Income (Loss),” “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 Registered Public Accounting Firm.” (39) | |
| 14.1 | Code of Business Conduct and Ethics. (13) | |
| 16.1 | Letter re change in certifying accountant. (33) | |
| 21.1 | List of Significant Subsidiaries. (39) | |
| 23.1 | Consent of Ernst & Young, LLP. (39) | |
| 23.2 | Report of Ernst & Young, LLP. (39) | |
| 23.3 | Consent of BDO USA, LLP. (39) | |
| 23.4 | Report of BDO USA, LLP. (39) | |
| 31.1 | Certification by the Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a), under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (39) | |
| 31.2 | Certification by the Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a), under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (39) | |
51
| Exhibit No. |
Description | |
| 32.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (39) | |
| 32.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (39) | |
| 101.INS | XBRL Instance Document. (39) | |
| 101.SCH | XBRL Taxonomy Extension Schema Document. (39) | |
| 101.CAL | XBRL Taxonomy Calculation Linkbase Document. (39) | |
| 101.DEF | XBRL Taxonomy Definition Linkbase Document. (39) | |
| 101.LAB | XBRL Taxonomy Label Linkbase Document. (39) | |
| 101.PRE | XBRL Taxonomy Presentation Linkbase Document. (39) | |
| (1) | Previously filed as an exhibit to the Company’s Registration Statement on Form S-4 (Commission File No. 33-59778) filed with the SEC on March 22, 1993. | |
| (2) | Previously filed as an exhibit to the Company’s Form 10-Q for the fiscal quarter ended August 1, 1998. | |
| (3) | Previously filed as an exhibit to the Company’s Form 10-K for the fiscal year ended February 2, 2002. | |
| (4) | Previously filed as an exhibit to the Company’s Registration Statement on Form S-8 (Commission File No. 333-90538) filed with the SEC on June 14, 2002. | |
| (5) | Previously filed as an exhibit to the Company’s Form 10-K for the fiscal year ended February 1, 2003. | |
| (6) | Previously filed as an exhibit to the Company’s Form 10-Q for the fiscal quarter ended May 1, 2004. | |
| (7) | Previously filed as an exhibit to the Company’s Form 10-K for the fiscal year ended January 29, 2005. | |
| (8) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on December 21, 2006. | |
| (9) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on April 14, 2008. | |
52
| Exhibit No. |
Description | |
| (10) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on October 10, 2008. | |
| (11) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on December 19, 2008. | |
| (12) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on January 8, 2009. | |
| (13) | Previously filed as an exhibit to the Company’s Form 10-K for the fiscal year ended January 31, 2009. | |
| (14) | Previously filed as an exhibit to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 16, 2009. | |
| (15) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on August 10, 2009. | |
| (16) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on October 1, 2009. | |
| (17) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on November 18, 2009. | |
| (18) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on March 19, 2010. | |
| (19) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on May 13, 2010. | |
| (20) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on August 23, 2010. | |
| (21) | Previously filed as an exhibit to the Company’s Form 10-Q for the fiscal quarter ended July 31, 2010. | |
| (22) | Previously filed as an exhibit to the Company’s Form 10-Q for the fiscal quarter ended October 30, 2010. | |
| (23) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on January 10, 2011. | |
| (24) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on May 2, 2011. | |
| (25) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on August 18, 2011. | |
| (26) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on October 21, 2011. | |
53
| Exhibit No. |
Description | |
| (27) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on March 12, 2012. | |
| (28) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on April 30, 2012. | |
| (29) | Previously filed as an exhibit to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on July 23, 2012. | |
| (30) | Previously filed as an exhibit to the Company’s Form 10-Q for the fiscal quarter ended July 28, 2012. | |
| (31) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on September 12, 2012. | |
| (32) | Previously filed as an exhibit to the Company’s Form 8-K/A filed with the SEC on October 2, 2012. | |
| (33) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on October 19, 2012. | |
| (34) | Previously filed as an exhibit to the Company’s Form 10-Q for the fiscal quarter ended October 27, 2012. | |
| (35) | Previously filed as an exhibit to the Company’s Form 10-Q for the fiscal quarter ended January 26, 2013. | |
| (36) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on March 8, 2013. | |
| (37) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on April 26, 2013. | |
| (38) | Previously filed as an exhibit to the Company’s Form 8-K filed with the SEC on June 26, 2013. | |
| (39) | Filed herewith. | |
54
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/ Michael P. Huseby | |
| Michael P. Huseby | ||
| President of Barnes & Noble, Inc. and Chief Executive Officer of NOOK Media LLC | ||
| July 26, 2013 | ||
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 | July 26, 2013 | ||
| Leonard Riggio | ||||
| /s/ Michael P. Huseby |
President of Barnes & Noble, Inc. and Chief Executive Officer of NOOK Media LLC |
July 26, 2013 | ||
| Michael P. Huseby | (principal executive officer) | |||
| /s/ Allen W. Lindstrom |
Chief Financial Officer |
July 26, 2013 | ||
| Allen W. Lindstrom | (principal financial and accounting officer) | |||
| /s/ George Campbell Jr. |
Director | July 26, 2013 | ||
| George Campbell Jr. | ||||
| /s/ Mark D. Carleton |
Director | July 26, 2013 | ||
| Mark D. Carleton | ||||
| /s/ William Dillard II |
Director | July 26, 2013 | ||
| William Dillard II | ||||
| /s/ David G. Golden |
Director | July 26, 2013 | ||
| David G. Golden | ||||
| /s/ Patricia L. Higgins |
Director | July 26, 2013 | ||
| Patricia L. Higgins | ||||
| /s/ Gregory B. Maffei |
Director | July 26, 2013 | ||
| Gregory B. Maffei | ||||
| /s/ David A. Wilson |
Director | July 26, 2013 | ||
| David A. Wilson | ||||
55
Exhibit 13.1
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of Barnes & Noble, Inc. and its subsidiaries (collectively, the Company) set forth on the following pages should be read in conjunction with the consolidated financial statements and notes included elsewhere in this report. On September 29, 2009, the Board of Directors of Barnes & Noble, Inc. authorized a change in the Company’s fiscal year end from the Saturday closest to the last day of January to the Saturday closest to the last day of April. The change in fiscal year, which became effective on September 30, 2009 upon the closing of the acquisition of Barnes & Noble College Booksellers, Inc. (B&N College) by Barnes & Noble, Inc., gives the Company and B&N College the same fiscal year. The change was intended to better align the Company’s fiscal year with the business cycles of both Barnes & Noble, Inc. and B&N College. As a result of the change in the Company’s fiscal year end, the Company is providing financial data for the transition period and comparable prior period as defined below.
The Statement of Operations Data for the 52 weeks ended April 27, 2013 (fiscal 2013), 52 weeks ended April 28, 2012 (fiscal 2012), 52 weeks ended April 30, 2011 (fiscal 2011), and the Balance Sheet Data as of April 27, 2013 and April 28, 2012 are derived from, and are qualified by reference to, audited consolidated financial statements which are included elsewhere in this report. The Statement of Operations Data for the 52 weeks ended May 1, 2010 (fiscal 2010), 13 weeks ended May 2, 2009 (transition period), 52 weeks ended January 31, 2009 (fiscal 2008), the Balance Sheet Data as of April 30, 2011, May 1, 2010, May 2, 2009 and January 31, 2009 and the Statement of Operations Data for the 13 weeks ended May 3, 2008 are derived from unaudited consolidated financial statements not included elsewhere in this report.
F-1
| Fiscal Year (In thousands of dollars, except per share data) |
Fiscal 2013 |
Fiscal 2012(j) |
Fiscal 2011(j) |
Fiscal 2010(j) |
13
weeks ended May 2, 2009(j) |
13
weeks ended May 3, 2008(j) |
Fiscal 2008(j) |
|||||||||||||||||||||
| STATEMENT OF OPERATIONS DATA: |
Restated | Restated | Restated | Restated | Restated | Restated | ||||||||||||||||||||||
| Sales |
||||||||||||||||||||||||||||
| Barnes & Noble Retail |
$ | 4,568,243 | 4,852,913 | 4,926,834 | 4,947,469 | 1,105,152 | 1,155,882 | 5,121,804 | ||||||||||||||||||||
| Barnes & Noble College (a) |
1,763,248 | 1,743,662 | 1,778,159 | 833,648 | — | — | — | |||||||||||||||||||||
| NOOK |
780,433 | 933,471 | 695,182 | 105,435 | — | — | — | |||||||||||||||||||||
| Elimination (b) |
(272,919 | ) | (400,847 | ) | (401,610 | ) | (78,798 | ) | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total sales |
6,839,005 | 7,129,199 | 6,998,565 | 5,807,754 | 1,105,152 | 1,155,882 | 5,121,804 | |||||||||||||||||||||
| Cost of sales and occupancy |
5,156,499 | 5,211,683 | 5,197,252 | 4,120,842 | 772,931 | 807,263 | 3,531,993 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Gross profit |
1,682,506 | 1,917,516 | 1,801,313 | 1,686,912 | 332,221 | 348,619 | 1,589,811 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Selling and administrative expenses |
1,675,376 | 1,739,452 | 1,629,465 | 1,395,725 | 289,026 | 308,400 | 1,264,320 | |||||||||||||||||||||
| Depreciation and amortization |
227,134 | 232,667 | 228,647 | 207,774 | 45,879 | 41,314 | 173,557 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Operating profit (loss) |
(220,004 | ) | (54,603 | ) | (56,799 | ) | 83,413 | (2,684 | ) | (1,095 | ) | 151,934 | ||||||||||||||||
| Interest income (expense), net and amortization of deferred financing fees (c) |
(35,345 | ) | (35,304 | ) | (57,350 | ) | (28,237 | ) | (199 | ) | 807 | (2,344 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Earnings (loss) from continuing operations before taxes |
(255,349 | ) | (89,907 | ) | (114,149 | ) | 55,176 | (2,883 | ) | (288 | ) | 149,590 | ||||||||||||||||
| Income taxes |
(97,543 | ) | (25,067 | ) | (45,276 | ) | 12,422 | (1,156 | ) | (115 | ) | 59,006 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Earnings (loss) from continuing operations (net of income tax) |
(157,806 | ) | (64,840 | ) | (68,873 | ) | 42,754 | (1,727 | ) | (173 | ) | 90,584 | ||||||||||||||||
| Earnings (loss) from discontinued operations (net of income tax) (d) |
— | — | — | — | (654 | ) | (1,658 | ) | (9,506 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net earnings (loss) |
(157,806 | ) | (64,840 | ) | (68,873 | ) | 42,754 | (2,381 | ) | (1,831 | ) | 81,078 | ||||||||||||||||
| Net loss attributable to noncontrolling interests (e) |
— | — | 37 | 32 | 30 | — | 30 | |||||||||||||||||||||
|
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|
|
|||||||||||||||
| Net earnings (loss) attributable to Barnes & Noble, Inc. |
$ | (157,806 | ) | (64,840 | ) | (68,836 | ) | 42,786 | (2,351 | ) | (1,831 | ) | 81,108 | |||||||||||||||
|
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|
|
|||||||||||||||
| Earnings (loss) attributable to Barnes & Noble, Inc. |
||||||||||||||||||||||||||||
| Earnings (loss) from continuing operations |
$ | (157,806 | ) | (64,840 | ) | (68,873 | ) | 42,754 | (1,727 | ) | (173 | ) | 90,584 | |||||||||||||||
| Less loss attributable to noncontrolling interests |
— | — | 37 | 32 | 30 | — | 30 | |||||||||||||||||||||
|
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|
|
|
|||||||||||||||
| Net earnings (loss) from continuing operations attributable to Barnes & Noble, Inc. |
$ | (157,806 | ) | (64,840 | ) | (68,836 | ) | 42,786 | (1,697 | ) | (173 | ) | 90,614 | |||||||||||||||
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|
|||||||||||||||
| Basic earnings per common share |
||||||||||||||||||||||||||||
| Earnings (loss) from continuing operations attributable to Barnes & Noble, Inc. |
$ | (3.02 | ) | (1.34 | ) | (1.22 | ) | 0.75 | (0.03 | ) | (0.00 | ) | 1.59 | |||||||||||||||
| Loss from discontinued operations attributable to Barnes & Noble, Inc. |
— | — | — | — | (0.01 | ) | (0.03 | ) | (0.17 | ) | ||||||||||||||||||
|
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|
|
|
|
|
|||||||||||||||
| Net earnings (loss) attributable to Barnes & Noble, Inc. |
$ | (3.02 | ) | (1.34 | ) | (1.22 | ) | 0.75 | (0.04 | ) | (0.03 | ) | 1.42 | |||||||||||||||
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|
|||||||||||||||
| Diluted earnings per common share |
||||||||||||||||||||||||||||
| Earnings (loss) from continuing operations attributable to Barnes & Noble, Inc. |
$ | (3.02 | ) | (1.34 | ) | (1.22 | ) | 0.74 | (0.03 | ) | (0.00 | ) | 1.55 | |||||||||||||||
| Loss from discontinued operations attributable to Barnes & Noble, Inc. |
— | — | — | — | (0.01 | ) | (0.03 | ) | (0.17 | ) | ||||||||||||||||||
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|
|
|
|||||||||||||||
| Net earnings (loss) attributable to Barnes & Noble, Inc. |
$ | (3.02 | ) | (1.34 | ) | (1.22 | ) | 0.74 | (0.04 | ) | (0.03 | ) | 1.38 | |||||||||||||||
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|
|||||||||||||||
| Dividends paid per share |
$ | — | — | 0.75 | 1.00 | 0.25 | 0.15 | 0.90 | ||||||||||||||||||||
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| Weighted average common shares outstanding |
||||||||||||||||||||||||||||
| Basic |
58,247 | 57,337 | 56,588 | 55,344 | 54,759 | 57,614 | 55,207 | |||||||||||||||||||||
| Diluted |
58,247 | 57,337 | 56,588 | 56,153 | 54,759 | 57,614 | 56,529 | |||||||||||||||||||||
F-2
| Fiscal Year (In thousands of dollars, except per share data) |
Fiscal 2013 |
Fiscal 2012 |
Fiscal 2011 |
Fiscal 2010 (k) |
13
weeks ended May 2, 2009 (l) |
13
weeks ended May 3, 2008 (m) |
Fiscal 2008 (n) |
|||||||||||||||||||||
| Restated | Restated | Restated | Restated | Restated | Restated | |||||||||||||||||||||||
| OTHER OPERATING DATA: |
||||||||||||||||||||||||||||
| Number of stores |
||||||||||||||||||||||||||||
| Barnes & Noble stores |
675 | 691 | 705 | 720 | 726 | 717 | 726 | |||||||||||||||||||||
| Barnes & Noble College |
686 | 647 | 636 | 637 | — | — | — | |||||||||||||||||||||
| B. Dalton stores |
— | — | — | — | 51 | 83 | 52 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
1,361 | 1,338 | 1,341 | 1,357 | 777 | 800 | 778 | |||||||||||||||||||||
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|
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|
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|
|
|
|
|
|
|
|
|||||||||||||||
| Comparable sales increase (decrease) |
||||||||||||||||||||||||||||
| Barnes & Noble Retail (f) |
(3.4 | )% | 1.4 | % | 0.7 | % | (4.8 | )% | (5.7 | )% | (1.5 | )% | (5.4 | )% | ||||||||||||||
| Barnes & Noble College (g) |
(1.2 | )% | (0.3 | )% | (0.8 | )% | (0.2 | )% | — | — | — | |||||||||||||||||
| Capital expenditures (h) |
$ | 165,835 | 163,552 | 110,502 | 127,779 | 22,822 | 38,278 | 192,153 | ||||||||||||||||||||
| BALANCE SHEET DATA: |
||||||||||||||||||||||||||||
| Total assets |
$ | 3,732,536 | 3,774,699 | 3,596,466 | 3,705,686 | 2,664,279 | 2,779,006 | 2,877,864 | ||||||||||||||||||||
| Total liabilities |
$ | 2,443,631 | 2,730,155 | 2,675,969 | 2,706,815 | 1,804,915 | 2,024,633 | 2,028,031 | ||||||||||||||||||||
| Long-term debt |
$ | 77,000 | 324,200 | 313,100 | 260,400 | — | 86,700 | — | ||||||||||||||||||||
| Long-term subordinated note (i) |
$ | 127,250 | 150,000 | 150,000 | 150,000 | — | — | — | ||||||||||||||||||||
| Shareholders’ Equity |
$ | 713,743 | 852,271 | 920,497 | 997,321 | 1,008,216 | 959,680 | 1,010,271 | ||||||||||||||||||||
| (a) | B&N College results are included since the Acquisition on September 30, 2009. |
| (b) | Represents sales from NOOK to B&N Retail and B&N College on a sell through basis. |
| (c) | Amounts for fiscal 2013, fiscal 2012, fiscal 2011, fiscal 2010, the transition period, the 13 weeks ended May 3, 2008, and fiscal 2008 are net of interest income of $71, $0, $320, $452, $211, $1,369 and $1,518, respectively. |
| (d) | Represents the results of Calendar Club for all periods presented. |
| (e) | Noncontrolling interest represents the 50% outside interest in Begin Smart LLC. During the second quarter of fiscal 2011, the Company purchased the remaining 50% outside interest in Begin Smart LLC. |
| (f) | Comparable store sales increase (decrease) is calculated on a 52-week basis, including sales from stores that have been open for at least 15 months and all eReader device revenue deferred in accordance with Accounting Standards Codification (ASC) 605-25 Revenue Recognition, Multiple Element Arrangements, and does not include sales from closed or relocated stores. |
| (g) | Comparable store sales increase (decrease) is calculated on a 52-week basis, including sales from stores that have been open for at least 15 months and all eReader device revenue deferred in accordance with ASC 605-25 Revenue Recognition, Multiple Element Arrangements, and does not include sales from closed or relocated stores. Additionally, for textbook rentals, comparable store sales reflects the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period. |
| (h) | Excludes Calendar Club capital expenditures of $308 and $1,988 for the 13 weeks ended May 3, 2008 and fiscal 2008, respectively. |
| (i) | See Notes 6 and 21 to the Notes to Consolidated Financial Statements. |
| (j) | Fiscal 2008 and 2009 have been restated as a result of the overstatement of certain Distribution Center accruals as fully discussed in Note 2 of the consolidated financial statements. |
| (k) | Fiscal 2010 reflects an adjustment of $10,167 ($6,110 after tax) to decrease cost of sales to correctly present the statement of operations for fiscal 2010. The Company also decreased accounts payable by $81,040 and increased retained earnings by $69,477, net of tax to correct the consolidated balance sheet for the cumulative impact in periods prior to fiscal 2010. In addition, the Company recorded an adjustment to decrease deferred tax liability and increase retained earnings by $26,026 at May 2, 2009. |
| (l) | The 13 weeks ended May 2, 2009 reflects an adjustment of $560 ($342 after tax) to decrease cost of sales to correctly present the statement of operations that period. The Company also decreased accounts payable by $70,873 and increased retained earnings by $63,367, net of tax to correct the consolidated balance sheet for the cumulative impact in periods prior to the 13 weeks ended May 2, 2009 . In addition, the Company recorded an adjustment to decrease deferred tax liability and increase retained earnings by $26,026 at May 2, 2009. |
| (m) | The 13 weeks ended May 3, 2008 reflects an adjustment of $652 ($393 after tax) to decrease cost of sales to correctly present the statement of operations for that period. The Company also decreased accounts payable by $70,313 and increased retained earnings by $63,024, net of tax to correct the consolidated balance sheet for the cumulative impact in periods prior to the 13 weeks ended May 3, 2008. In addition, the Company recorded an adjustment to decrease deferred tax liability and increase retained earnings by $26,026 at May 2, 2009. |
| (n) | Fiscal 2008 reflects an adjustment of $8,603 ($5,188 after tax) to decrease cost of sales to correctly present the statement of operations for fiscal 2010. The Company also decreased accounts payable by $69,660 and increased retained earnings by $62,631, net of tax to correct the consolidated balance sheet for the cumulative impact in periods prior to fiscal 2008. In addition, the Company recorded an adjustment to decrease deferred tax liability and increase retained earnings by $26,026 at May 2, 2009. |
F-3
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Barnes & Noble, Inc.’s (Barnes & Noble or the Company) fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. As used in this section, “fiscal 2013” represents the 52 weeks ended April 27, 2013, “fiscal 2012” represents the 52 weeks ended April 28, 2012 and “fiscal 2011” represents the 52 weeks ended April 30, 2011.
General
Barnes & Noble, one of the nation’s largest booksellers,1 is a leading content, commerce and technology company providing customers easy and convenient access to books, magazines, newspapers and other content across its multi-channel distribution platform. As of April 27, 2013, the Company operated 1,361 bookstores in 50 states, including 686 bookstores on college campuses, and operates one of the Web’s largest eCommerce sites and develops digital reading products and operates one of the largest digital bookstores. Given the dynamic nature of the book industry, the challenges faced by traditional booksellers, and the robust innovation pipeline fueling new opportunities in hardware, software and content creation and delivery, Barnes & Noble is utilizing the strength of its retail footprint to bolster its leadership in selling content to drive sales across its multiple channels.
Of the 1,361 bookstores, 675 operate primarily under the Barnes & Noble Booksellers trade name. Barnes & Noble College Booksellers, LLC (B&N College) operates 686 college bookstores at colleges and universities across the United States. Barnes & Noble Retail (B&N Retail) operates the 675 retail bookstores and includes the Company’s eCommerce site. B&N Retail also includes Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), a leader in general trade book publishing. The NOOK segment represents the Company’s digital business, offering digital books and magazines for sale and consumption through the web, NOOK® reading devices and reading software for iOS, Android and Windows. The Company employed approximately 34,000 full and part-time employees as of April 27, 2013.
The Company’s principal business is the sale of trade books (generally hardcover and paperback consumer titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, eBooks and other digital content, textbooks and course-related materials, NOOK®2 and related accessories, bargain books, magazines, gifts, emblematic apparel and gifts, school and dorm supplies, café products and services, educational toys & games, music and movies direct to customers through its bookstores or on barnesandnoble.com. The Company also offers a textbook rental option to its customers, electronic textbooks and other course materials through a proprietary digital platform (NOOK Study™). The Company offers its customers a full suite of textbook options—new, used, digital and rental.
To address dynamic changes in the book selling industry, Barnes & Noble has been transforming its business from a store-based model to a multi-channel model centered on its retail stores, Internet and digital commerce. The Company offers readers the option of store visits, eCommerce, and digital delivery of books to devices of their choosing, including the award winning NOOK® eReaders.
| 1 | Based upon sales reported in trade publications and public filings. |
| 2 | Any reference to NOOK® include the Company’s NOOK 1st Edition™, NOOK Wi-Fi 1st Edition™, NOOK Color™, NOOK Simple Touch™, NOOK Tablet™, NOOK Simple Touch with GlowLight™, NOOK® HD and NOOK® HD+ eReader devices, and each of which include the trademark symbol (® or ™, as applicable) even if a trademark symbol is not included. |
F-4
Barnes & Noble’s strategy is to:
| • | utilize the strong Barnes & Noble brand and retail footprint to attract customers to its multi-channel platform; |
| • | expand its distribution channels through strategic partnerships with world-class hardware and software companies and retail partners; |
| • | drive content sales through the web, NOOK® Readers and 3rd party devices; |
| • | use its infrastructure to deliver digital content to customers; and |
| • | continue to grow campus partnerships including store locations and students served while continuing its investment in the digital higher education business |
The Company has a multi-channel marketing strategy that deploys various merchandising programs and promotional activities to drive traffic to both its stores and website. At the center of this program is the Company’s website, barnesandnoble.com.
On April 27, 2012, the Company entered into an investment agreement between the Company, Morrison Investment Holdings, Inc. (Morrison) and Microsoft Corporation (Microsoft) pursuant to which the Company would form a Delaware limited liability company (NOOK Media), and transfer to NOOK Media the Company’s digital device, digital content and college bookstore businesses and NOOK Media would sell to Morrison, and Morrison would purchase, 300,000 convertible preferred membership interests in NOOK Media for an aggregate purchase price of $300.0 million. On October 4, 2012, NOOK Media was formed and the Company sold to Morrison 300,000 convertible preferred membership interests in NOOK Media for an aggregate purchase price of $300.0 million. The convertible preferred membership interests have a liquidation preference equal to Microsoft’s original investment. Concurrently with its entry into this agreement, the Company has also entered into a commercial agreement with Microsoft, whereby, among other things, NOOK Media has developed and distributed a Windows 8 application for e-reading and digital content purchases, and has entered into an intellectual property license and settlement agreement with Microsoft and Microsoft Licensing GP. As part of the commercial agreement, for each of the first three years since the launch of the application for Windows 8, NOOK Media received and will continue to receive advance payments of $60.0 million per year from Microsoft. These advance payments are subject to deferral under certain circumstances. Microsoft has paid and is obligated to continue to pay to NOOK Media $25.0 million each year for the first five years of the term for purposes of assisting NOOK Media in acquiring local digital reading content and technology development in the performance of NOOK Media’s obligations under the commercial agreement. Under the terms of this transaction, NOOK Media was debt-free at inception, except for trade accounts payable and other working capital requirements. Under the limited liability company agreement of NOOK Media, no distributions may be made by NOOK Media without Morrison’s approval.
On December 21, 2012, NOOK Media entered into an agreement with a subsidiary of Pearson plc (Pearson) to make a strategic investment in NOOK Media. That transaction closed on January 22, 2013, and Pearson invested approximately $89.5 million of cash in NOOK Media at a post-money valuation of approximately $1.789 billion in exchange for convertible preferred membership interests representing a 5% equity stake in NOOK Media. Following the closing of the transaction, the Company owns approximately 78.2% of NOOK Media and Microsoft, which holds convertible preferred membership interests, owns approximately 16.8%. The convertible preferred membership interests have a liquidation preference equal to the original investment. In addition, NOOK Media granted warrants to Pearson to purchase up to an additional 5% of NOOK Media under certain conditions at a pre-money valuation of NOOK Media of approximately $1.789 billion.
At closing, NOOK Media and Pearson entered into a commercial agreement with respect to distributing Pearson content in connection with this strategic investment.
F-5
On August 18, 2011, the Company entered into an investment agreement between the Company and Liberty GIC, Inc. (Liberty) pursuant to which the Company issued and sold to Liberty, and Liberty purchased, 204,000 shares of the Company’s Series J Preferred Stock, par value $0.001 per share (Preferred Stock), for an aggregate purchase price of $204.0 million in a private placement exempt from the registration requirements of the 1933 Act. The shares of Preferred Stock will be convertible, at the option of the holders, into shares of Common Stock, based on the initial conversion rate. The initial conversion rate reflects an initial conversion price of $17.00 and is subject to adjustment in certain circumstances. The initial dividend rate for the Preferred Stock is equal to 7.75% per annum of the initial liquidation preference of the Preferred Stock to be paid quarterly and subject to adjustment in certain circumstances.
Segments
The Company identifies its operating segments based on the way the business is managed (focusing on the financial information distributed) and the manner in which the chief operating decision maker interacts with other members of management. The Company’s three operating segments are: B&N Retail, B&N College and NOOK.
B&N Retail
This segment includes 675 bookstores as of April 27, 2013, primarily under the Barnes & Noble Booksellers trade name. These stores generally offer a dedicated NOOK® area, a comprehensive trade book title base, a café, and departments dedicated to Juvenile, Toys & Games, DVDs, Music, Gift, Magazine and Bargain products. The stores also offer a calendar of ongoing events, including author appearances and children’s activities. The B&N Retail segment also includes the Company’s e-Commerce website, barnesandnoble.com, and its publishing operation, Sterling Publishing.
Barnes & Noble stores range in size from 3,000 to 60,000 square feet depending upon market size, with an overall average store size of 26,000 square feet. In fiscal 2013, the Company reduced the Barnes & Noble store base by 0.3 million square feet, bringing the total square footage to 17.7 million square feet, a 1.7% decrease from fiscal 2012. The Company opened two new Barnes & Noble stores in fiscal 2013, which total 49,000 square feet in size. Each Barnes & Noble store features an authoritative selection of books, ranging from 21,000 to 170,000 titles. The comprehensive title selection is diverse and reflects local interests. Bestsellers typically represent between 2% and 5% of Barnes & Noble store sales. BookMaster, the Company’s proprietary inventory management database, has more than 14 million titles. By enhancing the Company’s existing merchandise replenishment systems, BookMaster allows the Company to achieve high in-stock positions and productivity at the store level through efficiencies in receiving, cashiering and returns processing. Complementing this extensive on-site selection, all Barnes & Noble stores provide customers with access to the millions of books available to online shoppers at barnesandnoble.com while offering an option to have the book sent to the store or shipped directly to the customer. At the center of this eCommerce program is the Company’s website, barnesandnoble.com.
Sterling Publishing
Sterling Publishing is a leading publisher of non-fiction trade titles. Founded in 1949, Sterling publishes a wide range of non-fiction and illustrated books and kits across a variety of imprints, in categories such as health & wellness, music & popular culture, food & wine, crafts & photography,
F-6
puzzles & games and history & current affairs, as well as a large children’s line. Sterling with a solid backlist and robust value publishing program, has a 13,000+ title base of eBooks and print books. In addition, Sterling also distributes approximately 1,300 titles on behalf of client publishers.
B&N College
B&N College is one of the largest contract operators of bookstores on college and university campuses across the United States. As of April 27, 2013, B&N College operated 686 stores nationwide. B&N College’s customer base, which is mainly comprised of students and faculty, can purchase various items from their campus stores, including textbooks and course-related materials, emblematic apparel and gifts, trade books, computer products, NOOK® products and related accessories, school and dorm supplies, convenience and café items, and more recently, textbook rentals. B&N College provides extensive textbook rental options to its customers and has expanded its electronic textbooks and other course materials through a proprietary digital platform (NOOK Study™). A significant number of textbooks are now available in multiple formats: new, used, rental and digital (rental and ownership), resulting in improved choice and substantial student savings.
B&N College operates 651 traditional college bookstores and 35 academic superstores, which are generally larger in size, offer cafés and provide a sense of community that engages the surrounding campus and local communities in college activities and culture. The traditional bookstores range in size from 500 to 48,000 square feet. The academic superstores range in size from 8,000 to 75,000 square feet.
B&N College generally operates its stores pursuant to multi-year management service agreements under which a school designates B&N College to operate the official school bookstore on campus and B&N College provides the school with regular payments that represent a percentage of store sales and, in some cases, include a minimum fixed guarantee.
B&N College’s business strategy is to maintain long-term relationships with colleges and universities by providing high-quality service to college administrators, faculty and students.
NOOK
This segment includes the Company’s digital business, which includes the Company’s eBookstore, digital newsstand and sales of NOOK® devices and accessories through B&N Retail, B&N College and third party distribution partners.
The underlying strategy of the NOOK business is to offer customers any digital book, newspaper or magazine, anytime on any device. The Company remains committed to delivering to customers the best digital bookstore experience, while reducing its existing cost structure. As part of this commitment, the Company intends to continue to offer the best black-and-white and color eReaders on the market, backed by quality customer service and technology support for those devices. The Company will continue to sell its existing device inventory through reduced and promotional pricing. At the same time, it will leverage all Barnes & Noble retail, digital and partnership assets, as well as existing NOOK customer relationships.
F-7
The Company sells digital content in the U.K. directly through its NOOK devices and its nook.co.uk website. The Company plans to continue to expand into additional international markets and believes that its partnership with Microsoft will help foster that expansion. Under its partnership agreements with Microsoft, the Company previously disclosed that it expected to be in 10 international markets by June 30, 2013. While substantial progress has been made towards meeting the target expansion requirement, the Company now expects expansion into these 10 markets to be accomplished by the end of 2013.
The digital products group has knowledgeable product development and operational management teams in the areas of reading software, digital content retailing and mobile device development. NOOK’s development office in Palo Alto employs experienced engineers in its digital product area. The NOOK digital products management team is currently focused on next generation digital reading products to enhance the reading experience and help consumers discover content in new and interesting ways. The Digital Services team, which includes the Cloud and Commerce groups, is responsible for maintaining and developing the NOOK digital bookstore service.
Restatement of Prior Financial Statements
The Company has restated its previously reported consolidated financial statements for the years ended April 28, 2012 and April 30, 2011, including the opening stockholders’ equity balance, in order to correct certain previously reported amounts. In fiscal 2013, management determined that the Company had incorrectly overstated certain accruals for the periods prior to April 27, 2013, as a result of inadequate controls over its Distribution Center accrual reconciliation process. In accordance with ASC 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (ASC 250), the Company recorded an adjustment to decrease cost of sales by $6.7 million ($4.0 million after tax) and $8.5 million ($5.1 million after tax) to correctly present the statement of operations for fiscal 2012 and 2011, respectively. The Company also decreased accounts payable by $81.0 million, $89.5 million and $96.2 million at May 1, 2010, April 30, 2011 and April 28, 2012, respectively and increased retained earnings by $69.5 million, $74.6 million and $78.6 million, net of tax at May 1, 2010, April 30, 2011 and April 28, 2012, respectively, to correct the consolidated balance sheet.
Results of Operations
| Fiscal Year |
Fiscal 2013 | Fiscal 2012 Restated |
Fiscal 2011 Restated |
|||||||||
| Sales (in thousands) |
$ | 6,839,005 | $ | 7,129,199 | $ | 6,998,565 | ||||||
| Loss From Continuing Operations Attributable to Barnes & Noble, Inc. (in thousands) |
$ | (157,806 | ) | $ | (64,840 | ) | $ | (68,836 | ) | |||
| Diluted Loss Per Common Share From Continuing Operations |
$ | (3.02 | ) | $ | (1.34 | ) | $ | (1.22 | ) | |||
| Comparable Sales Increase (Decrease) |
||||||||||||
| Barnes & Noble stores (a) |
(3.4 | )% | 1.4 | % | 0.7 | % | ||||||
| Barnes & Noble College stores (b) |
(1.2 | )% | (0.3 | )% | (0.8 | )% | ||||||
| Stores Opened |
||||||||||||
| Barnes & Noble stores |
2 | — | 1 | |||||||||
| Barnes & Noble College |
49 | 32 | 15 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
51 | 32 | 16 | |||||||||
|
|
|
|
|
|
|
|||||||
| Stores Closed |
||||||||||||
| Barnes & Noble stores |
18 | 14 | 16 | |||||||||
| Barnes & Noble College |
10 | 21 | 16 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
28 | 35 | 32 | |||||||||
|
|
|
|
|
|
|
|||||||
| Number of Stores Open at Year End |
||||||||||||
| Barnes & Noble stores |
675 | 691 | 705 | |||||||||
| Barnes & Noble College |
686 | 647 | 636 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
1,361 | 1,338 | 1,341 | |||||||||
|
|
|
|
|
|
|
|||||||
| Square Feet of Selling Space at Year End (in millions) |
||||||||||||
| Barnes & Noble stores |
17.7 | 18.0 | 18.4 | |||||||||
| (a) | Comparable store sales increase (decrease) is calculated on a 52-week basis, including sales from stores that have been open for at least 15 months and all eReader device revenue deferred in accordance with ASC 605-25 Revenue Recognition, Multiple Element Arrangements, and does not include sales from closed or relocated stores. |
F-8
| (b) | Comparable store sales increase (decrease) is calculated on a 52-week basis, including sales from stores that have been open for at least 15 months and all eReader device revenue deferred in accordance with ASC 605-25 Revenue Recognition, Multiple Element Arrangements, and does not include sales from closed or relocated stores. Additionally, for textbook rentals, comparable store sales reflects the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period. |
The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales of the Company:
| Fiscal Year | Fiscal 2013 | Fiscal 2012 | Fiscal 2011 | |||||||||
| Sales |
100.0 | % | 100.0 | % | 100.0 | % | ||||||
| Cost of sales and occupancy |
75.4 | 73.1 | 74.3 | |||||||||
|
|
|
|
|
|
|
|||||||
| Gross margin |
24.6 | 26.9 | 25.7 | |||||||||
| Selling and administrative expenses |
24.5 | 24.4 | 23.3 | |||||||||
| Depreciation and amortization |
3.3 | 3.3 | 3.3 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating loss |
(3.2 | ) | (0.8 | ) | (0.8 | ) | ||||||
| Interest expense, net and amortization of deferred financing fees |
0.5 | 0.5 | 0.8 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from continuing operations before taxes |
(3.7 | ) | (1.3 | ) | (1.6 | ) | ||||||
| Income taxes |
(1.4 | ) | (0.4 | ) | (0.6 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Loss from continuing operations (net of income tax) |
(2.3 | )% | (0.9 | )% | (1.0 | )% | ||||||
Business Overview
The Company’s financial performance has been significantly impacted in recent years by a number of factors, including the economic downturn, increased online competition and the expanding digital market. However, the Company has benefited from reduced physical bookstore competition in the marketplace, as well as the successful execution of new merchandising strategies.
The Company derives the majority of its sales and net income from its B&N Retail and B&N College stores.
B&N Retail comparable store sales benefited as one of B&N Retail’s largest competitors in the sale of physical books, Borders Group, Inc. (Borders), completed liquidating all of its stores under Chapter 11 of the Bankruptcy Code in early fiscal 2012. While the Company expects declining physical book trends to continue industry-wide as consumer spending shifts further online and toward digital products, it expects to be the beneficiary of further market consolidation as other non-book retailers reduce their presence in the book category. Additionally, the Company continues to experience positive trends in its Gift and Toys & Games businesses as a result of the successful execution of new merchandising strategies.
The Company has leveraged its unique assets, iconic brands and reach to become a leader in the distribution of digital content. In 2009, the Company entered the eBook market. Since then, the
F-9
Company launched its NOOK® brand of eReading products, which provide a fun, easy-to-use and immersive digital reading experience. With NOOK®, customers gain access to the expansive NOOK Store™ of more than three million digital books, plus periodicals, comics, apps, movies and TV shows, and the ability to enjoy content across a wide array of popular devices through free NOOK Reading Apps™ and NOOK Video apps.
Over the past several years, the Company has introduced leading devices in the tablet and eReader categories. In April 2012, the Company introduced NOOK Simple Touch™ with GlowLightTM, the world’s first E Ink device with patent-pending lighting technology that lets you read in the dark. In September 2012, the Company introduced NOOK® HD, the lightest and highest-resolution 7-Inch HD tablet, and NOOK® HD+, one of the lightest full HD tablets.
In addition to NOOK® devices, the Company makes it easy for customers to enjoy any book, anytime, anywhere with its free line of NOOK® software specific application, which has won the Webby People’s Voice Award. Customers can use Barnes & Noble’s eReading software to access and read books from their personal Barnes & Noble digital library on devices including Windows 8 PCs and tablets, iPad™, iPhone®, Android™ smartphones and tablets, PC and Mac®. The Lifetime Library™ helps ensure that Barnes & Noble customers will always be able to access their digital libraries on NOOK® products and software-enabled devices. The Company also offers NOOK Newsstand™, which provides an extensive selection of digital newspapers and magazines, available in both subscription and single copy format, NOOK Kids™, a collection of digital picture and chapter books for children, NOOK Study™, an innovative study platform and software solution for higher education, and NOOK Video™, which offers an extensive and diverse digital collection of standard and high-definition movies and TV shows available for streaming and download.
The Company sells digital content in the U.K. directly through its NOOK devices and its nook.co.uk website. The Company plans to continue to expand into additional international markets and believes that its partnership with Microsoft will help foster that expansion. Under its partnership agreements with Microsoft, the Company previously disclosed that it expected to be in 10 international markets by June 30, 2013. While substantial progress has been made towards meeting the target expansion requirement, the Company now expects expansion into these 10 markets to be accomplished by the end of 2013. Additionally, the Company believes that its newly formed partnership with Pearson will accelerate customer access to digital content by pairing Pearson’s leading expertise in online learning with NOOK’s expertise in reading technology, online commerce and customer service. The Company has made significant investments over the past three years building the valuable NOOK® digital retailing platform, which has resulted in millions of digital customers buying content from Barnes & Noble. While the Company experienced disappointing NOOK® device sales over the most recent holiday selling season, the Company’s digital strategy is to offer customers any digital book or magazine, any time, on any device. The Company remains committed to continuing to have a premier digital bookstore. In terms of its device strategy, the Company intends to reduce its existing cost structure. Further, the Company’s business plans are being adjusted to reduce its investment in sourcing, assembling and manufacturing the Company’s own NOOK® tablets and to explore outsourcing or co-sourcing such functions. This revised strategy is intended to capitalize on the Company’s design capabilities in partnering with third parties to source co-branded tablets with NOOK® content. This new partnership model may reduce the Company’s risk associated with designing and manufacturing its own tablets in the competitive tablet market, while allowing the Company to offer its vast digital catalog, and high-quality digital bookstore service. NOOK expects to continue to innovate and design best-in-class dedicated eReaders. The Company will also focus on the sale of its existing device inventory and intends to continue to provide the resources necessary for quality customer service and support of those devices as well as devices in use by NOOK’s existing customer base.
F-10
The Company believes its footprint of more than 1,300 stores will continue to be a major competitive asset in capturing digital content share. The Company will continue to integrate its traditional retail, trade book and college bookstores businesses with its electronic and Internet offerings, using retail stores in attractive geographic markets to promote and sell digital devices and content. Customers can see, feel and experiment with the NOOK® in the Company’s stores.
Although the stores will be just a part of the offering, they will remain a key driver of sales and cash flow as the Company expands its multi-channel relationships with its customers. While the Company plans to open a few retail stores in new geographic markets, the Company expects to reduce the total net number of retail stores.
B&N College provides direct access to a large and well-educated demographic group, enabling the Company to build relationships with students throughout their college years and beyond. The Company also expects to be the beneficiary of market consolidation as more and more schools outsource their bookstore management. The Company is in a unique market position to benefit from this trend given its full suite of services: bookstore management, textbook rental and digital delivery.
Although the Company believes cash on hand, cash flows from operating activities, funds available from its senior credit facility, cash received and committed in the formation of NOOK Media, cash received from the Pearson strategic investment in NOOK Media and short-term vendor financing provide the Company with adequate liquidity and capital resources for seasonal working capital requirements, the Company may raise additional capital to support key strategic initiatives.
F-11
52 Weeks Ended April 27, 2013 Compared with 52 Weeks Ended April 28, 2012
Sales
The following table summarizes the Company’s sales for the 52 weeks ended April 27, 2013 and April 28, 2012:
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 27, 2013 |
% Total | April 28, 2012 |
% Total | ||||||||||||
| B&N Retail |
$ | 4,568,243 | 66.8 | % | $ | 4,852,913 | 68.1 | % | ||||||||
| B&N College |
1,763,248 | 25.8 | % | 1,743,662 | 24.4 | % | ||||||||||
| NOOK |
780,433 | 11.4 | % | 933,471 | 13.1 | % | ||||||||||
| Elimination |
(272,919 | ) | (4.0 | )% | (400,847 | ) | (5.6 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Sales |
$ | 6,839,005 | 100.0 | % | $ | 7,129,199 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Company’s sales decreased $290.2 million, or 4.1%, during fiscal 2013 to $6.84 billion from $7.13 billion during fiscal 2012. The increase or (decrease) by segment is as follows:
| • | B&N Retail sales for the 52 weeks ended April 27, 2013 decreased $284.7 million, or 5.9%, to $4.57 billion from $4.85 billion during the same period one year ago, and accounted for 66.8% of total Company sales. The decrease was primarily attributable to a 3.4% decrease in comparable store sales which decreased sales by $138.4 million, lower online sales which declined by $83.5 million, and closed store sales which decreased sales by $68.0 million. Core comparable store sales, which exclude sales of NOOK® products, increased 0.1% as compared to the prior year. Sales of NOOK® products declined due to lower unit volume. B&N Retail also includes third-party sales of Sterling Publishing Co., Inc. |
| • | B&N College sales increased $19.6 million, or 1.1%, to $1.76 billion during the 52 weeks ended April 27, 2013 from $1.74 billion during the 52 weeks ended April 28, 2012. This increase was attributable to a $76.5 million increase in new store sales partially offset by $16.0 million of store closures as well as a comparable store sales decrease of 1.2%, or $41.9 million. While comparable store sales are adjusted for the impact of textbook rentals, total sales dollars are negatively impacted by the continued growth of textbook rentals, which have a lower price than new or used textbooks, and a portion of rental sales are deferred over the rental period. This decrease is partially offset by higher general merchandise sales. |
| • | NOOK sales decreased $153.0 million, or 16.4%, to $780.4 million during the 52 weeks ended April 27, 2013 from $933.5 million during the 52 weeks ended April 28, 2012. This decrease was primarily due to lower device unit volume and lower average selling prices, partially offset by higher content sales. Digital content sales increased 16.2% during the 52 weeks ended April 27, 2013. |
| • | The elimination represents sales from NOOK to B&N Retail and B&N College on a sell through basis. |
In fiscal 2013, the Company opened two and closed 18 Barnes & Noble stores, bringing its total number of B&N Retail stores to 675 with 17.7 million square feet. In fiscal 2013, the Company added 49 B&N College stores and closed 10, ending the period with 686 B&N College stores. As of April 27, 2013, the Company operated 1,361 stores in the fifty states and the District of Columbia.
F-12
Cost of Sales and Occupancy
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 27, 2013 |
% Sales | April 28, 2012 |
% Sales | ||||||||||||
| B&N Retail |
$ | 3,168,520 | 69.4 | % | $ | 3,398,773 | 70.0 | % | ||||||||
| B&N College |
1,358,172 | 77.0 | % | 1,348,351 | 77.3 | % | ||||||||||
| NOOK |
902,726 | 115.7 | % | 865,406 | 92.7 | % | ||||||||||
| Elimination |
(272,919 | ) | (35.0 | )% | (400,847 | ) | (42.9 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Cost of Sales and Occupancy |
$ | 5,156,499 | 75.4 | % | $ | 5,211,683 | 73.1 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Company’s cost of sales and occupancy includes costs such as merchandise costs, distribution center costs (including payroll, freight, supplies, depreciation and other operating expenses), rental expense, management service agreement costs with schools, common area maintenance and real estate taxes, partially offset by landlord tenant allowances amortized over the life of the lease.
Cost of sales and occupancy decreased $55.2 million, or 1.1%, to $5.16 billion, in fiscal 2013 from $5.21 billion in fiscal 2012. Cost of sales and occupancy increased as a percentage of sales to 75.4% in fiscal 2013 from 73.1% in fiscal 2012. The increase or (decrease) by segment is as follows:
| • | B&N Retail cost of sales and occupancy decreased as a percentage of sales to 69.4% from 70.0% during the same period one year ago. This decrease was attributable to a higher mix of higher margin core products and increased vendor allowances. |
| • | B&N College cost of sales and occupancy decreased as a percentage of sales to 77.0% from 77.3% during the same period one year ago due to a higher mix of higher margin textbook rentals, partially offset by increases in occupancy associated with contract renewals. |
| • | NOOK cost of sales and occupancy increased as a percentage of sales to 115.7% from 92.7% during the same period one year ago. This increase was attributable to $222.2 million of additional inventory related charges, of which $189.7 million was recorded to cost of sales, as the holiday sales shortfall resulted in higher than anticipated levels of finished and unfinished goods. Additional provisions may be required if the Company adopts more aggressive short-term promotional strategies, units turn at slower than historical paces, or permanent price markdowns accelerate. Also contributing to the increase was higher occupancy costs on increased office space in Palo Alto, CA, partially offset by a higher mix of higher margin content sales. |
Gross Margin
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 27, 2013 |
% Sales | April 28, 2012 |
% Sales | ||||||||||||
| B&N Retail |
$ | 1,399,723 | 30.6 | % | $ | 1,454,140 | 30.0 | % | ||||||||
| B&N College |
405,076 | 23.0 | % | 395,311 | 22.7 | % | ||||||||||
| NOOK |
(122,293 | ) | (24.1 | )% | 68,065 | 12.8 | % | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Gross Margin |
$ | 1,682,506 | 24.6 | % | $ | 1,917,516 | 26.9 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-13
The Company’s consolidated gross margin decreased $235.0 million, or 12.3%, to $1.68 billion, in fiscal 2013 from $1.92 billion in fiscal 2012. This decrease was due to the matters discussed above.
Selling and Administrative Expenses
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 27, 2013 |
% Sales | April 28, 2012 |
% Sales | ||||||||||||
| B&N Retail |
$ | 1,023,633 | 22.4 | % | $ | 1,130,311 | 23.3 | % | ||||||||
| B&N College |
293,618 | 16.7 | % | 279,364 | 16.0 | % | ||||||||||
| NOOK |
358,125 | 70.6 | % | 329,777 | 61.9 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Selling and Administrative Expenses |
$ | 1,675,376 | 24.4 | % | $ | 1,739,452 | 24.4 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Selling and administrative expenses decreased $64.1 million, or 3.7%, to $1.68 billion in fiscal 2013 from $1.74 billion in fiscal 2012. Selling and administrative expenses increased as a percentage of sales to 24.5% in fiscal 2013 from 24.4% in fiscal 2012. The increase or (decrease) by segment is as follows:
| • | B&N Retail selling and administrative expenses decreased as a percentage of sales to 22.4% from 23.3% during the same period one year ago primarily due to lower net legal and settlement expenses. |
| • | B&N College selling and administrative expenses increased as a percentage of sales to 16.7% in fiscal 2013 from 16.0% in fiscal 2012. This increase was due to new stores and increased expenses for digital higher education initiatives. |
| • | NOOK selling and administrative expenses increased as a percentage of sales to 70.6% from 61.9% during the same period one year ago due primarily to decreased sales, the impairment of goodwill and increased costs to support international expansion. |
Depreciation and Amortization
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 27, 2013 |
% Sales | April 28, 2012 |
% Sales | ||||||||||||
| B&N Retail |
$ | 148,855 | 3.3 | % | $ | 162,693 | 3.4 | % | ||||||||
| B&N College |
46,849 | 2.7 | % | 45,343 | 2.6 | % | ||||||||||
| NOOK |
31,430 | 6.2 | % | 24,631 | 4.6 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Depreciation and Amortization |
$ | 227,134 | 3.3 | % | $ | 232,667 | 3.3 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Depreciation and amortization decreased $5.5 million, or 2.4%, to $227.1 million in fiscal 2013 from $232.7 million in fiscal 2012. This decrease was primarily attributable to store closings and fully depreciated assets, partially offset by additional capital expenditures.
F-14
Operating Profit (Loss)
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 27, 2013 |
% Sales | April 28, 2012 |
% Sales | ||||||||||||
| B&N Retail |
$ | 227,235 | 5.0 | % | $ | 161,136 | 3.3 | % | ||||||||
| B&N College |
64,609 | 3.7 | % | 70,604 | 4.0 | % | ||||||||||
| NOOK |
(511,848 | ) | (100.9 | )% | (286,343 | ) | (53.8 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Operating Loss |
$ | (220,004 | ) | (3.2 | )% | $ | (54,603 | ) | (0.8 | )% | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Company’s consolidated operating loss increased $165.4 million, or 302.9%, to an operating loss of $220.0 million in fiscal 2013 from an operating loss of $54.6 million in fiscal 2012. This increase was due to the matters discussed above.
Interest Expense, Net and Amortization of Deferred Financing Fees
| 52 weeks ended | ||||||||||||
| Dollars in thousands |
April 27, 2013 |
April 28, 2012 |
% of Change | |||||||||
| Interest Expense, Net and Amortization of Deferred Financing Fees |
$ | 35,345 | $ | 35,304 | 0.1 | % | ||||||
|
|
|
|
|
|
|
|||||||
Net interest expense and amortization of deferred financing fees remained flat at $35.3 million in fiscal 2013, as interest related to the Microsoft Commercial Agreement financing transaction was offset by lower average borrowings.
Income Taxes
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 27, 2013 |
Effective Rate |
April 28, 2012 |
Effective Rate |
||||||||||||
| Income Taxes |
$ | (97,543 | ) | 38.2 | % | $ | (25,067 | ) | 27.9 | % | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
Income tax benefit in fiscal 2013 was $(97.5) million compared with income tax benefit of $(25.1) million in fiscal 2012. The Company’s effective tax rate increased to 38.2% in fiscal 2013 compared with 27.9% in fiscal 2012. The higher effective tax rate in fiscal 2013 was due primarily to a significant increase in R&D tax credits and a significant decrease in the impact of non-deductible compensation partly offset by an increase in tax reserves and a reduction in the state tax rate.
The Company evaluates the realizability of the deferred tax assets on a quarterly basis. As part of this evaluation the Company reviews all evidence both positive and negative to determine if a valuation allowance is needed. At the end of the year, the Company was in a cumulative loss position but
F-15
this negative evidence was outweighed by the positive evidence available and no valuation allowance, other than those previously recorded against particular deferred assets, is recorded. The Company’s review of positive evidence included the review of feasible tax planning strategies that may be implemented and the reversal of temporary items. The Company monitors the need for the additional valuation allowance at each quarter in the future and if the negative evidence outweighs the positive evidence an allowance will be recorded.
Net Earnings (Loss)
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 27, 2013 |
Diluted EPS |
April 28, 2012 |
Diluted EPS |
||||||||||||
| Net Loss |
$ | (157,806 | ) | $ | (3.02 | ) | $ | (64,840 | ) | $ | (1.34 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
As a result of the factors discussed above, the Company reported a consolidated net loss of $(157.8) million (or $3.02 per diluted share) during fiscal 2013, compared with consolidated net loss of $(64.8) million (or $1.34 per diluted share) during fiscal 2012.
52 Weeks Ended April 28, 2012 Compared with 52 Weeks Ended April 30, 2011
Sales
The following table summarizes the Company’s sales for the 52 weeks ended April 28, 2012 and April 30, 2011:
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 28, 2012 |
% Total | April 30, 2011 |
% Total | ||||||||||||
| B&N Retail |
$ | 4,852,913 | 68.1 | % | $ | 4,926,834 | 70.4 | % | ||||||||
| B&N College |
1,743,662 | 24.4 | % | 1,778,159 | 25.4 | % | ||||||||||
| NOOK |
933,471 | 13.1 | % | 695,182 | 9.9 | % | ||||||||||
| Elimination |
(400,847 | ) | (5.6 | )% | (401,610 | ) | (5.7 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Sales |
$ | 7,129,199 | 100.0 | % | $ | 6,998,565 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Company’s sales increased $130.6 million, or 1.9%, during fiscal 2012 to $7.13 billion from $7.00 billion during fiscal 2011. The increase or (decrease) by segment is as follows:
| • | B&N Retail sales for fiscal 2012 decreased $73.9 million, or 1.5%, to $4.85 billion from $4.92 billion during fiscal 2011, and accounted for 68.1% of total Company sales. During fiscal 2012 comparable store sales increased 1.4%, which increased sales by $58.1 million, offset by closed stores that decreased sales by $59.2 million. Comparable physical book sales, including trade, juvenile and bargain, were essentially flat as the Company benefited from the Borders liquidation. The increase in comparable store sales was primarily attributable to the strategic expansion of non-book categories, such as NOOK® devices and accessories, Toys & Games and Gift products. B&N Retail also includes its eCommerce business and third-party sales of Sterling Publishing Co., Inc. |
F-16
| • | B&N College sales decreased $34.5 million, or 1.9%, to $1.74 billion during fiscal 2012 from $1.78 billion during fiscal 2011. The decrease in sales was primarily due to a higher mix of textbook rentals, which have a lower price than new or used textbooks. During fiscal 2012 comparable store sales decreased 0.3%, primarily due to lower textbook sales and partially offset by higher general merchandise sales. Closed stores decreased sales by $38.6 million offset by new B&N College stores contributing to an increase in sales of $49.9 million. |
| • | NOOK sales increased $238.3 million, or 34.3%, to $933.5 million during fiscal 2012 from $695.2 million during fiscal 2011. Comparable sales for NOOK increased 45.0% in fiscal 2012. This increase in sales was primarily due to higher sales of digital content and hardware. |
| • | The elimination represents sales from NOOK to B&N Retail and B&N College on a sell through basis. |
In fiscal 2012, the Company closed 14 Barnes & Noble stores, bringing its total number of Barnes & Noble stores to 691 with 18.0 million square feet. In fiscal 2012, the Company added 32 B&N College stores and closed 21, ending the period with 647 B&N College stores. As of April 28, 2012, the Company operated 1,338 stores in the fifty states and the District of Columbia.
Cost of Sales and Occupancy
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 28, 2012 |
% Sales | April 30, 2011 |
% Sales | ||||||||||||
| B&N Retail |
$ | 3,398,773 | 70.0 | % | $ | 3,491,365 | 70.9 | % | ||||||||
| B&N College |
1,348,351 | 77.3 | % | 1,394,690 | 78.4 | % | ||||||||||
| NOOK |
865,406 | 92.7 | % | 712,807 | 102.5 | % | ||||||||||
| Elimination |
(400,847 | ) | (42.9 | )% | (401,610 | ) | (57.8 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Cost of Sales and Occupancy |
$ | 5,211,683 | 73.1 | % | $ | 5,197,252 | 74.3 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Company’s cost of sales and occupancy includes costs such as merchandise costs, distribution center costs (including payroll, freight, supplies, depreciation and other operating expenses), rental expense, management service agreement costs with schools, common area maintenance and real estate taxes, partially offset by landlord tenant allowances amortized over the life of the lease.
Cost of sales and occupancy increased $14.4 million, or 0.3%, to $5.21 billion, in fiscal 2012 from $5.20 billion in fiscal 2011. Cost of sales and occupancy decreased as a percentage of sales to 73.1% in fiscal 2012 from 74.3% in fiscal 2011. The decrease by segment is as follows:
| • | B&N Retail cost of sales and occupancy decreased as a percentage of sales to 70.0% in fiscal 2012 from 70.9% in fiscal 2011. This decrease was primarily attributable to sales mix, higher product margins and lower occupancy costs. |
| • | B&N College cost of sales and occupancy decreased as a percentage of sales to 77.3% in fiscal 2012 from 78.4% in fiscal 2011. This decrease was primarily driven by a larger mix of higher margin textbook rentals. |
| • | NOOK cost of sales and occupancy decreased as a percentage of sales to 92.7% in fiscal 2012 from 102.5% in fiscal 2011. This decrease was primarily attributable to higher device margins and a heavier mix of higher margin digital content. |
F-17
Gross Margin
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 28, 2012 |
% Sales | April 30, 2011 | % Sales | ||||||||||||
| B&N Retail |
$ | 1,454,140 | 30.0 | % | $ | 1,435,469 | 29.1 | % | ||||||||
| B&N College |
395,311 | 22.7 | % | 383,469 | 21.6 | % | ||||||||||
| NOOK |
68,065 | 12.8 | % | (17,625 | ) | (6.0 | )% | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Gross Margin |
$ | 1,917,516 | 26.9 | % | $ | 1,801,313 | 25.7 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Company’s consolidated gross margin increased $116.2 million, or 6.5%, to $1.92 billion, in fiscal 2012 from $1.80 billion in fiscal 2011. This increase was due to the matters discussed above.
Selling and Administrative Expenses
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 28, 2012 |
% Sales | April 30, 2011 |
% Sales | ||||||||||||
| B&N Retail |
$ | 1,130,311 | 23.3 | % | $ | 1,167,944 | 23.7 | % | ||||||||
| B&N College |
279,364 | 16.0 | % | 270,022 | 15.2 | % | ||||||||||
| NOOK |
329,777 | 61.9 | % | 191,499 | 65.2 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Selling and Administrative Expenses |
$ | 1,739,452 | 24.4 | % | $ | 1,629,465 | 23.3 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Selling and administrative expenses increased $110.0 million, or 6.7%, to $1.74 billion in fiscal 2012 from $1.63 billion in fiscal 2011. Selling and administrative expenses increased as a percentage of sales to 24.4% in fiscal 2012 from 23.3% in fiscal 2011. The increase or (decrease) by segment is as follows:
| • | B&N Retail selling and administrative expenses decreased slightly as a percentage of sales to 23.3% in fiscal 2012 from 23.7% in fiscal 2011. This decrease was primarily attributable to increased store productivity. |
| • | B&N College selling and administrative expenses increased as a percentage of sales to 16.0% in fiscal 2012 from 15.2% in fiscal 2011. This increase was primarily attributable to deleveraging against the increase in textbook rentals, which have a lower price than new or used textbooks. |
| • | NOOK selling and administrative expenses decreased as a percentage of sales to 61.9% in fiscal 2012 from 65.2% in fiscal 2011. This decrease was primarily attributable to the leveraging of expenses on the increased sales. |
F-18
Depreciation and Amortization
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 28, 2012 |
% Sales | April 30, 2011 |
% Sales | ||||||||||||
| B&N Retail |
$ | 162,693 | 3.4 | % | $ | 164,934 | 3.3 | % | ||||||||
| B&N College |
45,343 | 2.6 | % | 43,148 | 2.4 | % | ||||||||||
| NOOK |
24,631 | 4.6 | % | 20,565 | 7.0 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Depreciation and Amortization |
$ | 232,667 | 3.3 | % | $ | 228,647 | 3.3 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Depreciation and amortization increased $4.0 million, or 1.8%, to $232.7 million in fiscal 2012 from $228.6 million in fiscal 2011. This increase was primarily attributable to amortization of intellectual property assets purchased from Borders and additional capital expenditures.
Operating Profit (Loss)
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 28, 2012 |
% Sales | April 30, 2011 |
% Sales | ||||||||||||
| B&N Retail |
$ | 161,136 | 3.3 | % | $ | 102,592 | 2.1 | % | ||||||||
| B&N College |
70,604 | 4.0 | % | 70,298 | 4.0 | % | ||||||||||
| NOOK |
(286,343 | ) | (53.8 | )% | (229,689 | ) | (78.2 | )% | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Operating Loss |
$ | (54,603 | ) | (0.8 | )% | $ | (56,799 | ) | (0.8 | )% | ||||||
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The Company’s consolidated operating loss decreased $2.2 million, or 3.9%, to an operating loss of $54.6 million in fiscal 2012 from an operating loss of $56.8 million in fiscal 2011. This decrease was due to the matters discussed above.
Interest Expense, Net and Amortization of Deferred Financing Fees
| 52 weeks ended | ||||||||||||
| Dollars in thousands |
April 28, 2012 |
April 30, 2011 |
% of Change | |||||||||
| Interest Expense, Net and Amortization of Deferred Financing Fees |
$ | 35,304 | $ | 57,350 | (38.4 | )% | ||||||
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Net interest expense and amortization of deferred financing fees decreased $22.0 million, to $35.3 million in fiscal 2012 from $57.3 million in fiscal 2011. This decrease was primarily due to more favorable rates on the 2011 Amended Credit Facility under the Company’s credit facility, lower borrowings driven by the Liberty investment, payment of a short-term note in December 2010 and a $6.6 million write-off of deferred financing fees in the prior fiscal year related to the amendment of the Company’s credit facility.
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Income Taxes
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 28, 2012 |
Effective Rate | April 30, 2011 |
Effective Rate | ||||||||||||
| Income Taxes |
$ | (25,067 | ) | 27.9 | % | $ | (45,276 | ) | 39.7 | % | ||||||
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Income tax benefit in fiscal 2012 was $25.1 million compared with income tax benefit of $45.3 million in fiscal 2011. The Company’s effective tax rate decreased to 27.9% in fiscal 2012 compared with 39.7% in fiscal 2011. The lower effective tax rate in fiscal 2012 was due primarily to additions to the tax reserve and a permanent tax charge related to current and prior year compensation.
Net Loss Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests was $0.04 million in fiscal 2011 and relates to the 50% outside interest in Begin Smart LLC (Begin Smart).
During fiscal 2011, the Company purchased the remaining 50% outside interest in Begin Smart for $0.3 million. 100% of Begin Smart results of operations for the period subsequent to the Begin Smart acquisition date were included in the consolidated financial statements.
Net Earnings (Loss) Attributable to Barnes & Noble, Inc.
| 52 weeks ended | ||||||||||||||||
| Dollars in thousands |
April 28, 2012 |
Diluted EPS | April 30, 2011 |
Diluted EPS | ||||||||||||
| Net Loss Attributable to Barnes & Noble, Inc. |
$ | (64,840 | ) | $ | (1.34 | ) | $ | (68,836 | ) | $ | (1.22 | ) | ||||
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As a result of the factors discussed above, the Company reported a consolidated net loss of $64.8 million (or $1.34 per diluted share) during fiscal 2012, compared with consolidated net loss of $68.8 million (or $1.22 per diluted share) during fiscal 2011.
Seasonality
The B&N Retail business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during its third fiscal quarter, which includes the holiday selling season.
The B&N College business is highly seasonal, with the major portion of sales and operating profit realized during the second and third fiscal quarters, when college students generally purchase and rent textbooks for the upcoming semesters. Revenues from textbook rentals, which primarily occur at the beginning of the semester, are recognized over the rental period.
The NOOK business, like that of many technology companies, is impacted by the launch of new products and the promotional efforts to support those new products, as well as the traditional retail holiday selling seasonality.
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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, cash received and committed in the formation of NOOK Media, cash received from the Pearson strategic investment in NOOK Media and short-term vendor financing.
The Company’s cash and cash equivalents were $160.5 million as of April 27, 2013, compared with $54.1 million as of April 28, 2012.
The Company has arrangements with third-party manufacturers to produce its NOOK® products. These manufacturers procure and assemble unfinished parts and components from third-party suppliers based on forecasts provided by the Company. Given production lead times, commitments are generally made far in advance of finished product delivery. The holiday sales shortfall resulted in higher than anticipated levels of unfinished goods. As a result, the Company is in negotiations with certain vendors for purchase commitments totaling approximately $55.0 million. Based on current negotiations and product development plans, the Company has recorded a provision of $13.8 million for commitments which it estimates as the most likely outcome. Future charges may be required based on the final result of these negotiations as well as changes in forecasted sales. The adjustment in NOOK’s hardware strategy is expected to result in the rationalization of its cost structure. The Company expects to incur restructuring charges as a result of this adjustment. These amounts are currently not estimable.
Merchandise inventories decreased $151.1 million, or 9.7%, to $1.411 billion as of April 27, 2013, compared with $1.562 billion as of April 28, 2012. This decrease included lower trade book inventory at B&N Retail, on higher than anticipated core sales trends and improved core inventory management, lower NOOK inventory due to lower net realizable value, partially offset by an increase in inventory at B&N College related primarily to higher general merchandise inventory to support increased sales and new store growth. Receivables, net decreased $20.6 million or 12.1% to $149.4 million as of April 27, 2013, compared to $169.9 million as of April 28, 2012. This decrease was due to lower channel partner receivables. Prepaid expenses and other current assets increased $105.2 million or 47.5% to $326.5 million as of April 27, 2013, compared to $221.3 million as of April 28, 2012. This increase was primarily due to higher short-term deferred taxes and an increase in the textbook rental business. Accounts payable decreased $58.0 million or 6.7% to $805.2 million as of April 27, 2013, compared to $863.2 million as of April 28, 2012. Accounts payable was 57% and 55% of merchandise inventory as of April 27, 2013 and April 28, 2012, respectively. Accrued liabilities decreased $42.9 million or 7.0% to $569.2 million as of April 27, 2013, compared to $612.1 million as of April 28, 2012. This decrease was due to higher reserves for commitments for unfinished goods and promotional allowances partially offset by lower income taxes. Gift card liabilities of the B&N Retail segment increased $19.7 million or 6.1% to $341.0 million as of April 27, 2013, compared to $321.4 million as of April 28, 2012 due to additional gift card sales.
Cash Flow
Cash flows provided by (used in) operating activities were $117.4 million, $(24.1) million and $199.1 million, during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The increase in cash flows from operating activities in fiscal 2013 from fiscal 2012 was primarily attributable to lower inventory levels.
Capital Structure
On April 27, 2012, the Company entered into an investment agreement among the Company,
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Morrison and Microsoft pursuant to which the Company would form NOOK Media, and transfer to NOOK Media the Company’s digital device, digital content and college bookstore businesses and NOOK Media would sell to Morrison, and Morrison would purchase, 300,000 convertible preferred membership interests in NOOK Media for an aggregate purchase price of $300.0 million. On October 4, 2012, NOOK Media was formed and the Company sold to Morrison 300,000 convertible preferred membership interests in NOOK Media for an aggregate purchase price of $300.0 million. The convertible preferred membership interests have a liquidation preference equal to Microsoft’s original investment. Concurrently with its entry into this agreement, the Company has also entered into a commercial agreement with Microsoft, whereby, among other things, NOOK Media has developed and distributed a Windows 8 application for e-reading and digital content purchases, and has entered into an intellectual property license and settlement agreement with Microsoft and Microsoft Licensing GP. As part of the commercial agreement, for each of the first three years since the launch of the application for Windows 8, NOOK Media received and will continue to receive advance payments of $60.0 million per year from Microsoft. These advance payments are subject to deferral under certain circumstances. Under its partnership agreements with Microsoft, the Company previously disclosed that it expected to be selling content in 10 international markets by June 30, 2013. While substantial progress has been made towards meeting the target expansion requirement, the Company now expects expansion into these 10 markets to be accomplished by the end of 2013. This delay may entitle Microsoft to defer a portion of advance payments until the target expansion requirement is met. Microsoft has paid and is obligated to continue to pay to NOOK Media $25.0 million each year for the first five years of the term for purposes of assisting NOOK Media in acquiring local digital reading content and technology development in the performance of NOOK Media’s obligations under the commercial agreement. Under the terms of this transaction, NOOK Media was debt-free at inception, except for trade accounts payable and other working capital requirements. Under the limited liability company agreement of NOOK Media, no distributions may be made by NOOK Media without Morrison’s approval.
On December 21, 2012, NOOK Media entered into an agreement with a subsidiary of Pearson to make a strategic investment in NOOK Media. That transaction closed on January 22, 2013, and Pearson invested approximately $89.5 million of cash in NOOK Media at a post-money valuation of approximately $1.789 billion in exchange for convertible preferred membership interests representing a 5% equity stake in NOOK Media. Following the closing of the transaction, the Company owns approximately 78.2% of NOOK Media and Microsoft, which holds convertible preferred membership interests, owns approximately 16.8%. The convertible preferred membership interests have a liquidation preference equal to the original investment. In addition, NOOK Media granted warrants to Pearson to purchase up to an additional 5% of NOOK Media under certain conditions at a pre-money valuation of NOOK Media of approximately $1.789 billion.
At closing, NOOK Media and Pearson entered into a commercial agreement with respect to distributing Pearson content in connection with this strategic investment.
On August 18, 2011, the Company entered into an investment agreement between the Company and Liberty pursuant to which the Company issued and sold to Liberty, and Liberty purchased, 204,000 shares of the Company’s Series J Preferred Stock, par value $0.001 per share (Preferred Stock), for an aggregate purchase price of $204.0 million in a private placement exempt from the registration requirements of the 1933 Act. The shares of Preferred Stock will be convertible, at the option of the holders, into shares of Common Stock, based on the initial conversion rate. The initial conversion rate reflects an initial conversion price of $17.00 and is subject to adjustment in certain circumstances. The initial dividend rate for the Preferred Stock is equal to 7.75% per annum of the initial liquidation preference of the Preferred Stock to be paid quarterly and subject to adjustment in certain circumstances.
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On September 30, 2009, in connection with the closing of the acquisition of B&N College (the Acquisition), the Company issued the sellers (i) a senior subordinated note (the Senior Seller Note) in the principal amount of $100.0 million, with interest of 8% per annum payable on the unpaid principal amount, which was paid on December 15, 2010 in accordance to its scheduled date, and (ii) a junior subordinated note (the Junior Seller Note) in the principal amount of $150.0 million, payable in full on the fifth anniversary of the closing of the Acquisition, with interest of 10% per annum payable on the unpaid principal amount. Pursuant to a settlement agreed to on June 13, 2012, the sellers have agreed to waive their right to receive $22.8 million in principal amount (and interest on such principal amount) of the Junior Seller Note.
On April 29, 2011, the Company entered into an amended and restated credit agreement (the 2011 Amended Credit Agreement) with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders, which amended and restated the credit agreement (the 2009 Credit Agreement) entered into on September 30, 2009 with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders. Under the 2011 Amended Credit Agreement, Lenders are providing up to $1.0 billion in aggregate commitments under a five-year asset-backed revolving credit facility (the 2011 Amended Credit Facility), which is secured by eligible inventory with the ability to include eligible real estate and accounts receivable and related assets. Borrowings under the 2011 Amended Credit Agreement are limited to a specified percentage of eligible inventories with the ability to include eligible real estate, accounts receivable and accrued interest, at the election of the Company, at Base Rate or LIBO Rate, plus, in each case, an Applicable Margin (each term as defined in the 2011 Amended Credit Agreement). In addition, the Company has the option to request an increase in commitments under the 2011 Amended Credit Agreement by up to $300.0 million, subject to certain restrictions.
The 2011 Amended Credit Agreement requires Availability (as defined in the 2011 Amended Credit Agreement) to be greater than the greater of (i) 10% of the Loan Cap (as defined in the 2011 Amended Credit Agreement) and (ii) $50.0 million. In addition, the 2011 Amended Credit Agreement contains covenants that limit, among other things, the Company’s ability to incur indebtedness, create liens, make investments, make restricted payments, merge or acquire assets, dispose of assets, and contains default provisions that are typical for this type of financing, among other things. Proceeds from the 2011 Amended Credit Agreement are used for general corporate purposes, including seasonal working capital needs.
As a result of the 2011 Amended Credit Agreement, $6.6 million of deferred financing fees related to the 2009 Credit Agreement were written off in fiscal 2011, and included in net interest expenses. The remaining unamortized deferred costs of $16.3 million and new charges of $10.2 million relating to the Company’s 2011 Amended Credit Facility were deferred and are being amortized over the five-year term of the 2011 Amended Credit Facility.
On April 27, 2012, the Company entered into an amendment to the 2011 Amended Credit Agreement in order to permit the transactions contemplated by the investment agreement among the Company, Morrison and Microsoft and to make certain other changes to the Company’s 2011 Amended Credit Agreement in connection therewith. On December 21, 2012, the Company entered into an amendment to the 2011 Amended Credit Agreement to permit the transactions contemplated by the investment agreement between NOOK Media and a subsidiary of Pearson and make certain other changes to the Company’s 2011 Amended Credit Agreement in connection therewith. On April 26, 2013, the Company entered into a letter amendment to the 2011 Amended Credit Agreement in order to amend the definition of Consolidated EBITDA contained therein to exclude the impact of inventory
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charges in the fiscal quarter ended January 26, 2013 from the calculation of Consolidated EBITDA. The 2011 Amended Credit Agreement, as amended and modified to date, is hereinafter referred to as the 2013 Amended Credit Facility.
On June 24, 2013, the Company entered into an amendment to its existing credit agreement with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders party thereto in order to amend the restricted payments covenant contained therein.
Selected information related to the Company’s credit facilities (in thousands):
| Fiscal 2013 | Fiscal 2012 |
Fiscal 2011 | ||||||||||
| Credit facility at period end |
$ | 77,000 | 324,200 | 313,100 | ||||||||
| Average balance outstanding during the period |
$ | 214,702 | 306,038 | 338,971 | ||||||||
| Maximum borrowings outstanding during the period |
$ | 462,900 | 582,000 | 622,800 | ||||||||
| Weighted average interest rate during the period (a) |
5.56 | % | 4.71 | % | 6.23 | % | ||||||
| Interest rate at end of period |
4.93 | % | 3.32 | % | 5.13 | % | ||||||
| (a) | Includes commitment fees. |
Fees expensed with respect to the unused portion of the credit facilities were $3.8 million, $3.3 million and $5.5 million during fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
The Company had $33.9 million of outstanding letters of credit under the 2013 Amended Credit Facility as of April 27, 2013 compared with $37.4 million as of April 28, 2012.
The Company has no agreements to maintain compensating balances.
Capital Investment
Capital expenditures were $165.8 million, $163.6 million and $110.5 million during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. Capital expenditures planned for fiscal 2014 primarily relate to the Company’s digital initiatives, build-out of its Palo Alto facilities, new stores, eCommerce improvements, maintenance of existing stores and system enhancements for the retail and college stores. Fiscal 2014 capital expenditure levels are expected to be comparable to fiscal 2013, although commitment to many of such expenditures has not yet been made.
Based upon the Company’s current operating levels and capital expenditures for fiscal 2014, management believes cash and cash equivalents on hand, net cash flows from operating activities, cash received and committed in the formation of NOOK Media, short-term vendor financing and the borrowing capacity under the 2013 Amended 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 regularly evaluates its capital structure and conditions in the financing markets to ensure it maintains adequate flexibility to successfully execute its business plan.
On May 15, 2007, the Company announced that its Board of Directors authorized a stock repurchase program for the purchase of up to $400.0 million of the Company’s common stock. The maximum dollar value of common stock that may yet be purchased under the current program is approximately $2.5 million as of April 27, 2013.
F-24
Stock repurchases under this program may be made through open market and privately negotiated transactions from time to time and in such amounts as management deems appropriate. As of April 27, 2013, the Company has repurchased 34,078,089 shares at a cost of approximately $1.1 billion under its stock repurchase programs. The repurchased shares are held in treasury.
On December 29, 2011, the Company sold its distribution facility located in South Brunswick, New Jersey for $18.0 million, which resulted in a loss of $2.2 million.
Contractual Obligations
The following table sets forth the Company’s contractual obligations as of April 27, 2013 (in millions):
| Contractual Obligations |
Payments Due by Period | |||||||||||||||||||
| Total | Less Than 1 Year |
1-3 Years |
3-5 Years |
More Than 5 Years |
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| Long-term debt |
$ | 77.0 | $ | — | $ | — | $ | 77.0 | $ | — | ||||||||||
| Capital lease obligations |
2.0 | 1.0 | 1.0 | — | — | |||||||||||||||
| Operating lease obligations (a) |
1,837.0 | 413.8 | 642.6 | 436.7 | 343.9 | |||||||||||||||
| Purchase obligations (b) |
133.0 | 99.0 | 31.6 | 2.4 | — | |||||||||||||||
| Interest obligations (c) |
33.3 | 17.9 | 15.4 | — | — | |||||||||||||||
| Other long-term liabilities reflected on the Company’s balance sheet under GAAP (d) |
127.3 | — | 127.3 | — | — | |||||||||||||||
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| Total |
$ | 2,209.6 | $ | 531.7 | $ | 817.9 | $ | 516.1 | $ | 343.9 | ||||||||||
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| (a) | Excludes obligations under store leases for insurance, taxes and other maintenance costs, which obligations totaled approximately 16% of the minimum rent payments under those leases. |
| (b) | Includes hardware and software maintenance contracts and inventory purchase commitments. |
| (c) | Represents commitment fees related to the Company’s 2013 Amended Credit Facility and interest obligations on the Seller Notes issued in connection with the Acquisition. |
| (d) | Excludes $31.5 million of unrecognized tax benefits for which the Company cannot make a reasonably reliable estimate of the amount and period of payment. See Note 10 to the Notes to Consolidated Financial Statements. |
See also Note 9 to the Notes to Consolidated Financial Statements for information concerning the Company’s Pension and Postretirement Plans.
Off-Balance Sheet Arrangements
As of April 27, 2013, the Company had no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
Impact of Inflation
The Company does not believe that inflation has had a material effect on its net sales or results of operations.
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Certain Relationships and Related Transactions
See Note 21 to the Notes to Consolidated Financial Statements.
Critical Accounting Policies
The “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this report discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments with respect to certain amounts included in the financial statements, giving due consideration to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
Revenue Recognition
Revenue from sales of the Company’s products is recognized at the time of sale or shipment, other than those with multiple elements and FOB destination point shipping terms. Certain of the Company sales agreements with these distribution partners contain rights of inspection or acceptance provisions as is standard in the Company’s industry. The Company accrues for estimated sales returns in the period in which the related revenue is recognized based on historical experience and industry standards. ECommerce revenue from sales of products ordered through the Company’s internet site is recognized upon delivery and receipt of the shipment by its customers. Sales taxes collected from retail customers are excluded from reported revenues. All of the Company’s sales are recognized as revenue on a “net” basis, including sales in connection with any periodic promotions offered to customers. The Company does not treat any promotional offers as expenses.
In accordance with ASC 605-25, Revenue Recognition, Multiple Element Arrangements and Accounting Standards Updates (ASU) 2009-13 and 2009-14, for multiple-element arrangements that involve tangible products that contain software that is essential to the tangible product’s functionality, undelivered software elements that relate to the tangible product’s essential software and other separable elements, the Company allocates revenue to all deliverables using the relative selling-price method. Under this method, revenue is allocated at the time of sale to all deliverables based on their relative selling price using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence, third-party evidence of selling price, or best estimate of selling price. NOOK® device revenue is recognized at the segment point of sale.
The Company includes post-service customer support (PCS) in the form of software updates and potential increased functionality on a when-and-if-available basis, as well as wireless access and wireless connectivity with the purchase of NOOK® from the Company. Using the relative selling price described above, the Company allocates revenue based on the best estimate of selling price for the deliverables as no vendor-specific objective evidence or third-party evidence exists for any of the elements. Revenue allocated to NOOK® and the software essential to its functionality is recognized at the time of sale, provided all other conditions for revenue recognition are met. Revenue allocated to the PCS and the wireless access is deferred and recognized on a straight-line basis over the 2-year estimated life of NOOK®.
F-26
The average percentage of a NOOK®’s sales price that is deferred for undelivered items and recognized over its 2-year estimated life ranges between 2% and 6%, depending on the type of device sold. The amount of NOOK®-related deferred revenue as of April 27, 2013 and April 28, 2012 was $15.3 million and $19.8 million, respectively. These amounts are classified on the Company’s balance sheet in accrued liabilities for the portion that is subject to deferral for one year or less and other long-term liabilities for the portion that is subject to deferral for more than one year.
The Company also pays certain vendors who distribute NOOK® a commission on the content sales sold through that device. The Company accounts for these transactions as a reduction in the sales price of the NOOK® based on historical trends of content sales and a liability is established for the estimated commission expected to be paid over the life of the product. The Company recognizes revenue of the content at the point of sale of the content. The Company records revenue from sales of digital content, sales of third-party extended warranties, service contracts and other products, for which the Company is not obligated to perform, and for which the Company does not meet the criteria for gross revenue recognition under ASC 605-45-45, Reporting Revenue Gross as a Principal versus Net as an Agent, on a net basis. All other revenue is recognized on a gross basis.
The Company rents both physical and digital textbooks. Revenue from physical textbooks is deferred and recognized over the rental period commencing at point of sale. Revenue for digital textbooks is deferred and recognized over the rental period commencing the earlier of when the textbook has been downloaded or one year from point of sale.
NOOK acquires the rights to distribute digital content from publishers and distributes the content on barnesandnoble.com, NOOK® devices and other eBookstore platforms. Certain digital content is distributed under an agency pricing model in which the publishers set fixed prices for eBooks and NOOK receives a fixed commission on content sold through the eBookstore. The majority of the Company’s eBook sales are sold under the agency model.
The Barnes & Noble Member Program offers members greater discounts and other benefits for products and services, as well as exclusive offers and promotions via e-mail or direct mail for an annual fee of $25.00, which is non-refundable after the first 30 days. Revenue is recognized over the twelve-month period based upon historical spending patterns for Barnes & Noble Members.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost is determined primarily by the retail inventory method under both the first-in, first-out (FIFO) basis and the last-in, first-out (LIFO) basis. B&N College’s textbook and trade book inventories are valued using the LIFO method, where the related reserve was not material to the recorded amount of the Company’s inventories or results of operations at April 27, 2013. NOOK merchandise inventories are recorded based on the average cost method.
Market is determined based on the estimated net realizable value, which is generally the selling price. Reserves for non-returnable inventory are based on the Company’s history of liquidating non-returnable inventory. The Company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the non-returnable inventory
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reserve. However, if assumptions based on the Company’s history of liquidating non-returnable inventory are incorrect, it may be exposed to losses or gains that could be material. A 10% change in actual non-returnable inventory would have affected net earnings by approximately $1.0 million in fiscal 2013.
The Company also estimates and accrues shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends. The Company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate shortage rates. However, if the Company’s estimates regarding shortage rates are incorrect, it may be exposed to losses or gains that could be material. A 10% change in actual shortage rates would have affected net earnings by approximately $0.5 million in fiscal 2013.
Research and Development Costs for Software Products
The Company follows the guidance in ASC 985-20, Cost of Software to be Sold, Leased or Marketed, regarding software development costs to be sold, leased, or otherwise marketed. Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. The Company’s products reach technological feasibility shortly before the products are released and therefore research and development costs are generally expensed as incurred.
Stock-Based Compensation
The calculation of stock-based employee compensation expense involves estimates that require management’s judgment. These estimates include the fair value of each of the stock option awards granted, which is estimated on the date of grant using a Black-Scholes option pricing model. There are two significant inputs into the Black-Scholes option pricing model: expected volatility and expected term. The Company estimates expected volatility based on traded option volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. See Note 4 to the Consolidated Financial Statements for a further discussion on stock-based compensation.
The Company does not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions used to determine stock-based compensation expense. However, if actual results are not consistent with the Company’s estimates or assumptions, the Company may be exposed to changes in stock-based compensation expense that could be material. If actual results are not consistent with the assumptions used, the stock-based compensation expense reported in the Company’s financial statements may not be representative of the actual economic cost of the stock-based
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compensation. A 10% change in the Company’s stock-based compensation expense for the year ended April 27, 2013 would not have had a material impact on the Company’s results of operations in fiscal 2013.
Other Long-Lived Assets
The Company’s other long-lived assets include property and equipment and amortizable intangibles. At April 27, 2013, the Company had $584.9 million of property and equipment, net of accumulated depreciation, and $233.2 million of amortizable intangible assets, net of amortization, accounting for approximately 21.9% of the Company’s total assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and considers market participants in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company evaluates long-lived assets for impairment at the individual Barnes & Noble store level, except for B&N College long-lived assets, which are evaluated for impairment at the school contract combined store level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, the Company will first compare the carrying amount of the assets to the individual store’s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying amount of the assets, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the assets to the individual store’s fair value based on its estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value. Impairment losses included in selling and administrative expenses totaled $4.2 million, $11.7 million and $2.9 million during fiscal 2013, fiscal 2012 and fiscal 2011, respectively, and are related to individual store locations. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate long-lived asset impairment losses. However, if actual results are not consistent with estimates and assumptions used in estimating future cash flows and asset fair values, the Company may be exposed to losses that could be material. A 10% decrease in the Company’s estimated discounted cash flows would not have had a material impact on the Company’s results of operations in fiscal 2013.
Goodwill and Unamortizable Intangible Assets
The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance sheets.
At April 27, 2013, the Company had $495.5 million of goodwill and $314.7 million of unamortizable intangible assets (those with an indefinite useful life), accounting for approximately 21.7% of the Company’s total assets. ASC 350-30, Goodwill and Other Intangible Assets (ASC 350-30), requires that goodwill and other unamortizable intangible assets no longer be amortized, but instead be tested for impairment at least annually or earlier if there are impairment indicators. The Company performs a two-step process for impairment testing of goodwill as required by ASC 350-30. The first step of this test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount. The second step (if necessary) measures the amount of the impairment. The Company completed its annual goodwill impairment test as of the first day of the third quarter. In performing the valuations, the Company used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions. Based on the results of the Company’s step one testing, the fair values of the B&N Retail, B&N College and NOOK reporting units, as of that date, exceeded their carrying values; therefore, the second step of the impairment test was not required to be performed and no goodwill impairment was recognized. The Company tests unamortizable
F-29
intangible assets by comparing the fair value and the carrying value of such assets. The Company also completed its annual impairment tests for its other unamortizable intangible assets by comparing the estimated fair value to the carrying value of such assets and determined that no impairment was necessary. Changes in market conditions, among other factors, could have a material impact on these estimates. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate goodwill and unamortizable intangible asset impairment losses. However, if actual results are not consistent with estimates and assumptions used in estimating future cash flows and asset fair values, the Company may be exposed to losses that could be material. A 10% decrease in the Company’s estimated discounted cash flows would have no impact on the Company’s evaluation of goodwill and unamortizable intangible assets, except for the Company’s publishing contracts.
During the fourth quarter of 2013, the Company has determined that goodwill impairment indicators arose in its NOOK reporting unit as recurring losses have led to revisions in its strategic plans. As a result, during the fourth quarter of fiscal 2013, the Company recorded a non-cash goodwill impairment charge of $18.3 million in selling and administrative expenses, which represented all the goodwill in the NOOK reporting unit.
Publishing contracts include the value of long-standing relationships with authors, agents and publishers established upon the Company’s acquisition of Sterling in 2003. Given Sterling’s strong history of maintaining such relationships, the Company believes they produce value indefinitely without an identifiable remaining useful life. However, given recent declines in the physical book business, these contracts were at risk of impairment as of its most recent impairment testing date and may be at risk in the future if declines in sales continue. A 10% decrease in Sterling sales trends would have resulted in a $0.7 million impairment charge on the Company’s results of operations in fiscal 2013.
In fiscal 2013, the Company decided to shut down the operations of Tikatok. Tikatok was an online platform where parents and their children and others can write, illustrate and publish stories into hardcover and paperback books. This decision resulted in an impairment charge of $2.0 million, including the write-off of goodwill of $1.9 million and intangible assets of $0.03 million during the second quarter of fiscal 2013. The effect of Tikatok operations is not material to the overall results of the Company.
Gift Cards
The Company sells gift cards which can be used in its stores or on barnesandnoble.com. The Company does not charge administrative or dormancy fees on gift cards, and gift cards have no expiration dates. Upon the purchase of a gift card, a liability is established for its cash value. Revenue associated with gift cards is deferred until redemption of the gift card. Over time, some portion of the gift cards issued is not redeemed. The Company estimates the portion of the gift card liability for which the likelihood of redemption is remote based upon the Company’s historical redemption patterns. The Company records this amount in income on a straight-line basis over a 12-month period beginning in the 13th month after the month the gift card was originally sold. If actual redemption patterns vary from the Company’s estimates, actual gift card breakage may differ from the amounts recorded. The Company recognized gift card breakage of $23.9 million, $29.3 million and $25.9 million during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The Company had gift card liabilities of $341.0 million and $321.4 million as of April 27, 2013 and April 28, 2012, respectively. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to recognize revenue associated with gift cards. However, if estimates regarding the Company’s history of
F-30
gift card breakage are incorrect, it may be exposed to losses or gains that could be material. A 10% change in the Company’s gift card breakage rate at April 27, 2013 would have affected net earnings by approximately $1.5 million in fiscal 2013.
Income Taxes
Judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, tax issues may arise where the ultimate outcome is uncertain. Additionally, the Company’s tax returns are subject to audit by various tax authorities. Consequently, changes in the Company’s estimates for contingent tax liabilities may materially impact the Company’s results of operations or financial position. A 1% variance in the Company’s effective tax rate would not have had a material impact to the Company’s results of operations in fiscal 2013.
Disclosure Regarding Forward-Looking Statements
This report contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and information relating to Barnes & Noble that are based on the beliefs of the management of Barnes & Noble as well as assumptions made by and information currently available to the management of Barnes & Noble. When used in this communication, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will,” “forecasts,” “projections,” and similar expressions, as they relate to Barnes & Noble or the management of Barnes & Noble, identify forward-looking statements.
Such statements reflect the current views of Barnes & Noble with respect to future events, the outcome of which is subject to certain risks, including, among others, the general economic environment and consumer spending patterns, decreased consumer demand for Barnes & Noble’s products, low growth or declining sales and net income due to various factors, risk that international expansion will not be successfully achieved or may be achieved later than expected, possible disruptions in Barnes & Noble’s computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible risks that inventory in channels of distribution may be larger than able to be sold, possible risks associated with reducing the extent of internal manufacturing and design of devices, including possible reduction in sales of content, accessories and other merchandise and other adverse financial impacts, possible risk that component parts will be rendered obsolete or otherwise not be able to be effectively utilized in devices to be sold, possible risk that financial and operational forecasts and projections are not achieved, possible risk that returns from consumers or channels of distribution may be greater than estimated, the risk that the expected sales lift from Borders’ store closures is not achieved in whole or part, the risk that digital sales growth is less than expectations and the risk that it does not exceed the rate of investment spend, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of Barnes & Noble’s online, digital and other initiatives, the performance and successful integration of acquired businesses, the success of Barnes & Noble’s strategic investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, product and component shortages, the potential adverse impact on the business resulting from the review of a potential separation of the NOOK digital business, the risk that the transactions with Microsoft and Pearson do not achieve the expected benefits for the parties including the risk that NOOK Media’s applications are not commercially successful or that the expected distribution of those applications is not achieved, the risk that any subsequent spin-off, split-off or other disposition by Barnes
F-31
& Noble of its interest in NOOK Media or other separation of Barnes & Noble’s businesses results in adverse impacts on Barnes & Noble or NOOK Media (including as a result of termination of agreements and other adverse impacts), the potential impact on Barnes & Noble’s retail business of any separation, the potential tax consequences for Barnes & Noble and its shareholders of a subsequent spin-off, split-off or other disposition by Barnes & Noble of its interest in NOOK Media or other separation of Barnes & Noble’s businesses, the risk that the international expansion contemplated by the relationship with Microsoft or otherwise is not successful or is delayed, the risk that NOOK Media is not able to perform its obligations under the Microsoft commercial agreement, including with respect to the development of applications and international expansion, and the consequences thereof, the costs and disruptions arising out of any such separation of the NOOK digital and College businesses or other separation of Barnes & Noble’s businesses, the risk that Barnes & Noble may not recoup its investments in the NOOK digital business as part of any separation transaction, the risks, difficulties, and uncertainties that may result from the separation of businesses that were previously co-mingled including necessary ongoing relationships, and potential for adverse customer impacts and other factors which may be outside of Barnes & Noble’s control, including those factors discussed in detail in Item 1A, “Risk Factors,” in Barnes & Noble’s Annual Report on Form 10-K, and in Barnes & Noble’s other filings made hereafter from time to time with the SEC. Our forward looking statements relating to international expansion are also subject to the following risks, among others that may affect the introduction, success and timing of the NOOK eReader and content in countries outside the United States: we may not be successful in reaching agreements with international companies, the terms of agreements that we reach may not be advantageous to us, our NOOK device may require technological changes to comply with applicable laws, and marketplace acceptance and other companies have already entered the marketplace with products that have achieved some customer acceptance.
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 Barnes & Noble or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Barnes & Noble undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Annual Report.
F-32
CONSOLIDATED STATEMENTS OF OPERATIONS
| (In thousands, except per share data) |
Fiscal 2013 | Fiscal 2012 | Fiscal 2011 | |||||||||
| Restated, |
Restated, Note 2 |
|||||||||||
| Sales |
$ | 6,839,005 | 7,129,199 | 6,998,565 | ||||||||
| Cost of sales and occupancy |
5,156,499 | 5,211,683 | 5,197,252 | |||||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
1,682,506 | 1,917,516 | 1,801,313 | |||||||||
|
|
|
|
|
|
|
|||||||
| Selling and administrative expenses |
1,675,376 | 1,739,452 | 1,629,465 | |||||||||
| Depreciation and amortization |
227,134 | 232,667 | 228,647 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating loss |
(220,004 | ) | (54,603 | ) | (56,799 | ) | ||||||
| Interest expense, net and amortization of deferred financing fees |
(35,345 | ) | (35,304 | ) | (57,350 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Loss before income taxes |
(255,349 | ) | (89,907 | ) | (114,149 | ) | ||||||
| Income taxes (benefit) |
(97,543 | ) | (25,067 | ) | (45,276 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net loss |
(157,806 | ) | (64,840 | ) | (68,873 | ) | ||||||
| Net loss attributable to noncontrolling interests |
— | — | 37 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to Barnes & Noble, Inc. |
$ | (157,806 | ) | (64,840 | ) | (68,836 | ) | |||||
|
|
|
|
|
|
|
|||||||
| Loss attributable to Barnes & Noble, Inc. |
||||||||||||
| Loss |
$ | (157,806 | ) | (64,840 | ) | (68,873 | ) | |||||
| Less loss attributable to noncontrolling interests |
— | — | 37 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to Barnes & Noble, Inc. |
$ | (157,806 | ) | (64,840 | ) | (68,836 | ) | |||||
|
|
|
|
|
|
|
|||||||
| Basic loss per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to Barnes & Noble, Inc. |
$ | (3.02 | ) | (1.34 | ) | (1.22 | ) | |||||
|
|
|
|
|
|
|
|||||||
| Diluted loss per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to Barnes & Noble, Inc. |
$ | (3.02 | ) | (1.34 | ) | (1.22 | ) | |||||
|
|
|
|
|
|
|
|||||||
| Weighted average common shares outstanding |
||||||||||||
| Basic |
58,247 | 57,337 | 56,588 | |||||||||
| Diluted |
58,247 | 57,337 | 56,588 | |||||||||
See accompanying notes to consolidated financial statements.
F-33
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| (In thousands) |
Fiscal 2013 | Fiscal 2012 | Fiscal 2011 | |||||||||
| Restated, Note 2 |
Restated, Note 2 |
|||||||||||
| Net loss |
$ | (157,806 | ) | (64,840 | ) | (68,873 | ) | |||||
| Other comprehensive earnings (loss), net of tax: |
||||||||||||
| (Increase) decrease in minimum pension liability (net of deferred tax benefit (expense) of $38, $3,336 and ($1,055) respectively) |
(57 | ) | (5,005 | ) | 1,582 | |||||||
|
|
|
|
|
|
|
|||||||
| Total comprehensive loss |
(157,863 | ) | (69,845 | ) | (67,291 | ) | ||||||
| Comprehensive loss attributable to noncontrolling interest |
— | — | 37 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total comprehensive loss attributable to Barnes & Noble, Inc. |
$ | (157,863 | ) | (69,845 | ) | (67,254 | ) | |||||
|
|
|
|
|
|
|
|||||||
See accompanying notes to consolidated financial statements.
F-34
CONSOLIDATED BALANCE SHEETS
| (In thousands, except per share data) |
April 27, 2013 | April 28, 2012 | ||||||
| Restated, |
||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 160,470 | 54,131 | |||||
| Receivables, net |
149,369 | 169,947 | ||||||
| Merchandise inventories, net |
1,410,769 | 1,561,841 | ||||||
| Prepaid expenses and other current assets |
326,527 | 221,324 | ||||||
|
|
|
|
|
|||||
| Total current assets |
$ | 2,047,135 | 2,007,243 | |||||
|
|
|
|
|
|||||
| Property and equipment: |
||||||||
| Land and land improvements |
2,541 | 2,541 | ||||||
| Buildings and leasehold improvements |
1,224,384 | 1,196,764 | ||||||
| Fixtures and equipment |
1,883,504 | 1,784,492 | ||||||
|
|
|
|
|
|||||
| 3,110,429 | 2,983,797 | |||||||
| Less accumulated depreciation and amortization |
2,525,520 | 2,361,142 | ||||||
|
|
|
|
|
|||||
| Net property and equipment |
584,909 | 622,655 | ||||||
|
|
|
|
|
|||||
| Goodwill |
495,496 | 519,685 | ||||||
| Intangible assets, net |
547,931 | 564,054 | ||||||
| Other noncurrent assets |
57,065 | 61,062 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 3,732,536 | 3,774,699 | |||||
|
|
|
|
|
|||||
| Liabilities and Shareholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 805,194 | 863,223 | |||||
| Accrued liabilities |
569,240 | 612,119 | ||||||
| Gift card liabilities |
341,036 | 321,362 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
1,715,470 | 1,796,704 | ||||||
|
|
|
|
|
|||||
| Long-term debt |
77,000 | 324,200 | ||||||
| Deferred taxes |
231,215 | 242,748 | ||||||
| Other long-term liabilities |
419,946 | 366,503 | ||||||
| Redeemable Preferred Shares; $.001 par value; 5,000 shares authorized; 204 and 204 shares issued, respectively |
193,535 | 192,273 | ||||||
| Preferred Membership Interests in NOOK Media, LLC |
381,627 | — | ||||||
| Shareholders’ equity: |
||||||||
| Common stock; $.001 par value; 300,000 shares authorized; 92,784 and 91,376 shares issued, respectively |
93 | 91 | ||||||
| Additional paid-in capital |
1,383,848 | 1,340,909 | ||||||
| Accumulated other comprehensive loss |
(16,692 | ) | (16,635 | ) | ||||
| Retained earnings |
410,349 | 586,188 | ||||||
| Treasury stock, at cost, 34,078 and 33,722 shares, respectively |
(1,063,855 | ) | (1,058,282 | ) | ||||
|
|
|
|
|
|||||
| Total shareholders’ equity |
713,743 | 852,271 | ||||||
|
|
|
|
|
|||||
| Commitments and contingencies |
— | — | ||||||
|
|
|
|
|
|||||
| Total liabilities and shareholders’ equity |
$ | 3,732,536 | 3,774,699 | |||||
|
|
|
|
|
|||||
See accompanying notes to consolidated financial statements.
F-35
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| (In thousands) |
Barnes & Noble, Inc. Shareholders’ Equity | |||||||||||||||||||||||||||
| Noncontrolling Interest |
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Gains (Losses) |
Retained Earnings |
Treasury Stock at Cost |
Total | ||||||||||||||||||||||
| Balance at May 1, 2010 as previously reported |
$ | 1,550 | 89 | 1,286,215 | (13,212 | ) | 681,082 | (1,052,356 | ) | $ | 903,368 | |||||||||||||||||
| Revision to prior period financial statements (see Note 2) |
— | — | — | — | 95,503 | — | 95,503 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at May 1, 2010 as restated |
1,550 | 89 | 1,286,215 | (13,212 | ) | 776,585 | (1,052,356 | ) | 998,871 | |||||||||||||||||||
| Net loss as restated, Note 2 |
(37 | ) | — | — | — | (68,836 | ) | — | (68,873 | ) | ||||||||||||||||||
| Minimum pension liability, net of tax |
— | — | — | 1,582 | — | — | 1,582 | |||||||||||||||||||||
| Purchase of noncontrolling interest |
(1,513 | ) | — | 1,213 | — | — | — | (300 | ) | |||||||||||||||||||
| Exercise of 1,024 common stock options |
— | 1 | 17,232 | — | — | — | 17,233 | |||||||||||||||||||||
| Stock options and restricted stock tax benefits |
— | — | (2,375 | ) | — | — | — | (2,375 | ) | |||||||||||||||||||
| Stock-based compensation expense |
— | — | 20,978 | — | — | — | 20,978 | |||||||||||||||||||||
| Cash dividend paid to stockholders |
— | — | — | — | (44,783 | ) | — | (44,783 | ) | |||||||||||||||||||
| Treasury stock acquired, 125 shares |
— | — | — | — | — | (1,836 | ) | (1,836 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at April 30, 2011 |
— | 90 | 1,323,263 | (11,630 | ) | 662,966 | (1,054,192 | ) | 920,497 | |||||||||||||||||||
| Net loss as restated, Note 2 |
— | — | — | — | (64,840 | ) | — | (64,840 | ) | |||||||||||||||||||
| Minimum pension liability, net of tax |
— | — | — | (5,005 | ) | — | — | (5,005 | ) | |||||||||||||||||||
| Exercise of 92 common stock options |
— | 1 | 1,096 | — | — | — | 1,097 | |||||||||||||||||||||
| Stock options and restricted stock tax benefits |
— | — | (4,225 | ) | — | — | — | (4,225 | ) | |||||||||||||||||||
| Stock-based compensation expense |
— | — | 20,775 | — | — | — | 20,775 | |||||||||||||||||||||
| Accretive dividend on preferred stockholders |
— | — | — | — | (894 | ) | — | (894 | ) | |||||||||||||||||||
| Accrued/paid dividends for preferred stockholders |
— | — | — | — | (11,044 | ) | — | (11,044 | ) | |||||||||||||||||||
| Treasury stock acquired, 313 shares |
— | — | — | — | — | (4,090 | ) | (4,090 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at April 28, 2012 |
$ | — | 91 | 1,340,909 | (16,635 | ) | 586,188 | (1,058,282 | ) | $ | 852,271 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
See accompanying notes to consolidated financial statements.
F-36
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)
| (In thousands) |
Barnes & Noble, Inc. Shareholders’ Equity | |||||||||||||||||||||||
| Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Gains (Losses) |
Retained Earnings |
Treasury Stock at Cost |
Total | |||||||||||||||||||
| Balance at April 28, 2012 |
$ | 91 | 1,340,909 | (16,635 | ) | 586,188 | (1,058,282 | ) | $ | 852,271 | ||||||||||||||
| Net loss as restated, Note 2 |
— | — | — | (157,806 | ) | — | (157,806 | ) | ||||||||||||||||
| Minimum pension liability, net of tax |
— | — | (57 | ) | — | — | (57 | ) | ||||||||||||||||
| Reduction of junior note |
— | 24,292 | — | — | — | 24,292 | ||||||||||||||||||
| Deferred tax adjustment |
— | 1,270 | — | — | — | 1,270 | ||||||||||||||||||
| Exercise of 279 common stock options |
2 | 3,398 | — | — | — | 3,400 | ||||||||||||||||||
| Stock options and restricted stock tax benefits |
— | (6,208 | ) | — | — | — | (6,208 | ) | ||||||||||||||||
| Stock-based compensation expense |
— | 20,187 | — | — | — | 20,187 | ||||||||||||||||||
| Accretive dividend on preferred stockholders |
— | — | — | (2,266 | ) | — | (2,266 | ) | ||||||||||||||||
| Accrued/paid dividends for preferred stockholders |
— | — | — | (15,767 | ) | — | (15,767 | ) | ||||||||||||||||
| Treasury stock acquired, 356 shares |
— | — | — | — | (5,573 | ) | (5,573 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance at April 27, 2013 |
$ | 93 | 1,383,848 | (16,692 | ) | 410,349 | (1,063,855 | ) | $ | 713,743 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
See accompanying notes to consolidated financial statements.
F-37
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Fiscal Year (In thousands) |
Fiscal 2013 |
Fiscal 2012 |
Fiscal 2011 |
|||||||||
| Restated, |
Restated, |
|||||||||||
| Cash flows from operating activities: |
||||||||||||
| Net loss |
$ | (157,806 | ) | (64,840 | ) | (68,873 | ) | |||||
| Adjustments to reconcile net loss to net cash flows from operating activities: |
||||||||||||
| Depreciation and amortization (including amortization of deferred financing fees) |
232,604 | 238,048 | 244,734 | |||||||||
| Stock-based compensation expense |
20,187 | 20,775 | 20,978 | |||||||||
| Non-cash impairment charges |
24,473 | 11,747 | 2,857 | |||||||||
| Deferred taxes |
(118,893 | ) | (37,570 | ) | 1,614 | |||||||
| (Gain) loss on disposal of property and equipment |
(750 | ) | 2,590 | 893 | ||||||||
| Increase (decrease) in other long-term liabilities |
24,985 | (30,072 | ) | (55,143 | ) | |||||||
| Changes in operating assets and liabilities, net |
92,591 | (164,790 | ) | 52,012 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net cash flows provided by (used in) operating activities |
117,391 | (24,112 | ) | 199,072 | ||||||||
|
|
|
|
|
|
|
|||||||
| Cash flows from investing activities: |
||||||||||||
| Purchases of property and equipment |
(165,835 | ) | (163,552 | ) | (110,502 | ) | ||||||
| Net increase in other noncurrent assets |
(5,745 | ) | (13,326 | ) | (1,466 | ) | ||||||
| Other investing activities, net |
(4,100 | ) | — | — | ||||||||
| Proceeds from sale of distribution center |
— | 18,000 | — | |||||||||
| Purchase of Borders Group, Inc. intellectual property |
— | (14,528 | ) | — | ||||||||
| Fictionwise earn-out payments |
— | — | (7,508 | ) | ||||||||
| Purchase of non-controlling interest |
— | — | (300 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net cash flows used in investing activities |
(175,680 | ) | (173,406 | ) | (119,776 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Cash flows from financing activities: |
||||||||||||
| Net proceeds from issuance of Preferred Membership interests |
380,623 | — | — | |||||||||
| Net proceeds from Microsoft Commercial Agreement financing arrangement |
48,706 | — | — | |||||||||
| Net (decrease) increase in credit facility |
(247,200 | ) | 11,100 | 52,700 | ||||||||
| Proceeds from exercise of common stock options |
3,400 | 1,097 | 17,233 | |||||||||
| Purchase of treasury stock |
(5,573 | ) | (4,090 | ) | (1,836 | ) | ||||||
| Excess tax benefit from stock-based compensation |
439 | 193 | 34 | |||||||||
| Cash dividends paid to shareholders |
(15,767 | ) | (7,081 | ) | (44,783 | ) | ||||||
| Net proceeds from issuance of Series J preferred stock |
— | 191,379 | — | |||||||||
| Payment of new deferred financing fees |
— | (378 | ) | (10,180 | ) | |||||||
| Payment of short term note payable |
— | — | (100,000 | ) | ||||||||
| Payment received for Calendar Club note receivable |
— | — | 6,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash flows provided by (used in) financing activities |
164,628 | 192,220 | (80,832 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net decrease in cash and cash equivalents |
106,339 | (5,298 | ) | (1,536 | ) | |||||||
| Cash and cash equivalents at beginning of year |
54,131 | 59,429 | 60,965 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash and cash equivalents at end of year |
$ | 160,470 | 54,131 | 59,429 | ||||||||
|
|
|
|
|
|
|
|||||||
| Changes in operating assets and liabilities, net: |
||||||||||||
| Receivables, net |
$ | 20,578 | (19,653 | ) | (43,718 | ) | ||||||
| Merchandise inventories |
151,072 | (186,479 | ) | (5,251 | ) | |||||||
| Prepaid expenses and other current assets |
(105,203 | ) | (59,388 | ) | 19,889 | |||||||
| Accounts payable and accrued liabilities |
26,144 | 100,730 | 81,092 | |||||||||
|
|
|
|
|
|
|
|||||||
| Changes in operating assets and liabilities, net |
$ | 92,591 | (164,790 | ) | 52,012 | |||||||
|
|
|
|
|
|
|
|||||||
See accompanying notes to consolidated financial statements.
F-38
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
| Fiscal Year | Fiscal 2013 |
Fiscal 2012 |
Fiscal 2011 |
|||||||||
| (In thousands) |
||||||||||||
| Supplemental cash flow information: |
||||||||||||
| Cash paid (received) during the period for: |
||||||||||||
| Interest paid |
$ | 24,925 | 28,298 | 45,604 | ||||||||
| Income taxes (net of refunds) |
$ | 3,822 | 1,613 | (41,681 | ) | |||||||
| Supplemental disclosure of subsidiaries acquired: |
||||||||||||
| Assets acquired (net of cash acquired) |
$ | — | — | 1,513 | ||||||||
| Liabilities assumed |
— | — | 1,213 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash paid |
$ | — | — | 300 | ||||||||
|
|
|
|
|
|
|
|||||||
| Non-cash financing activity: |
||||||||||||
| Accrued dividend on redeemable preferred shares |
$ | 3,942 | 3,963 | — | ||||||||
See accompanying notes to consolidated financial statements.
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars, except per share data)
For the 52 weeks ended April 27, 2013 (fiscal 2013), April 28, 2012 (fiscal 2012) and April 30, 2011 (fiscal 2011).
| 1. | Summary of Significant Accounting Policies |
Business
Barnes & Noble, one of the nation’s largest booksellers,3 is a leading content, commerce and technology company providing customers easy and convenient access to books, magazines, newspapers and other content across its multi-channel distribution platform. As of April 27, 2013, the Company operated 1,361 bookstores in 50 states, including 686 bookstores on college campuses, one of the Web’s largest eCommerce sites and develops digital content products and software. Given the dynamic nature of the book industry, the challenges faced by traditional booksellers, and the robust innovation pipeline fueling new opportunities in hardware, software and content creation and delivery, Barnes & Noble is utilizing the strength of its retail footprint to bolster its leadership and fuel sales growth across multiple channels.
Of the 1,361 bookstores, 675 operate primarily under the Barnes & Noble Booksellers® trade name. Barnes & Noble College Booksellers, LLC (B&N College) operates 686 college bookstores at colleges and universities across the United States. Barnes & Noble Retail (B&N Retail) operates the 675 retail bookstores. B&N Retail also includes the Company’s eCommerce site, and Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), a leader in general trade book publishing. The NOOK segment includes the Company’s digital business, including the development and support of the Company’s NOOK® product offerings. The digital business includes digital content such as eBooks, digital newsstand, apps, movies and sales of NOOK® devices and accessories to third party distribution partners, B&N Retail and B&N College.
The Company’s principal business is the sale of trade books (generally hardcover and paperback consumer titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, eBooks and other digital content, textbooks and course-related materials, NOOK®4 and related accessories, bargain books, magazines, gifts, emblematic apparel and gifts, school and dorm supplies, café products and services, educational toys & games, music and movies direct to customers through its bookstores or on barnesandnoble.com. The Company also offers a textbook rental option to its customers, electronic textbooks and other course materials through a proprietary digital platform (NOOK Study™). The Company offers its customers a full suite of textbook options – new, used, digital and rental.
The Company identifies its operating segments based on the way the business is managed (focusing on the financial information distributed) and the manner in which the chief operating decision maker interacts with other members of management. The Company has three operating segments: B&N Retail, B&N College and NOOK.
| 3 | Based upon sales reported in trade publications and public filings. |
| 4 | Any reference to NOOK® include the Company’s NOOK 1st Edition™, NOOK Wi-Fi 1st Edition™, NOOK Color™, NOOK Simple Touch™, NOOK Tablet™, NOOK Simple Touch with GlowLight™, NOOK® HD and NOOK® HD+ eReader devices, and each of which include the trademark symbol (® or ™, as applicable) even if a trademark symbol is not included. |
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidation
The consolidated financial statements include the accounts of Barnes & Noble, Inc. and its wholly and majority-owned subsidiaries. Investments in affiliates in which ownership interests range from 20% to 50%, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost is determined primarily by the retail inventory method under both the first-in, first-out (FIFO) basis and the last-in, first-out (LIFO) basis. B&N College’s textbook and trade book inventories are valued using the LIFO method, where the related reserve was not material to the recorded amount of the Company’s inventories or results of operations at April 27, 2013. NOOK merchandise inventories are recorded based on the average cost method.
Market is determined based on the estimated net realizable value, which is generally the selling price. Reserves for non-returnable inventory are based on the Company’s history of liquidating non-returnable inventory.
The Company also estimates and accrues shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends.
During fiscal 2013, the Company recorded $222,235 of additional inventory related charges, of which $175,872 was charged against inventory, $13,800 against purchase commitments and the remainder related to sales allowances, as the holiday sales shortfall resulted in higher than anticipated levels of finished and unfinished goods. Additional provisions may be required if the Company adopts more aggressive short-term promotional strategies, units turn at slower than historical paces, or permanent price markdowns accelerate.
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation and amortization. For financial reporting purposes, depreciation is computed using the straight-line method over estimated useful lives. For tax purposes, different methods are used. Maintenance and repairs are expensed as incurred, while major maintenance and remodeling costs are capitalized. Leasehold improvements are capitalized and amortized over the shorter of their estimated useful lives or the terms of the respective
F-41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
leases. Capitalized lease acquisition costs are being amortized over the lease terms of the underlying leases. Costs incurred in purchasing management information systems are capitalized and included in property and equipment. These costs are amortized over their estimated useful lives from the date the systems become operational.
Other Long-Lived Assets
The Company’s other long-lived assets include property and equipment and amortizable intangibles. At April 27, 2013, the Company had $584,909 of property and equipment, net of accumulated depreciation, and $233,195 of amortizable intangible assets, net of amortization, accounting for approximately 21.9% of the Company’s total assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and considers market participants in accordance with Accounting Standards Codification (ASC) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets (ASC 360-10). The Company evaluates long-lived assets for impairment at the individual Barnes & Noble store level, except for B&N College long-lived assets, which are evaluated for impairment at the school contract combined store level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, the Company will first compare the carrying amount of the assets to the individual store’s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying amount of the assets, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the assets to the individual store’s fair value based on its estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value. Impairment losses included in selling and administrative expenses totaled $4,168, $11,747 and $2,857 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively, and are related to individual store locations.
Goodwill and Unamortizable Intangible Assets
The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance sheets.
At April 27, 2013, the Company had $495,496 of goodwill and $314,736 of unamortizable intangible assets (those with an indefinite useful life), accounting for approximately 21.7% of the Company’s total assets. ASC 350-30, Goodwill and Other Intangible Assets, requires that goodwill and other unamortizable intangible assets no longer be amortized, but instead be tested for impairment at least annually or earlier if there are impairment indicators. The Company performs a two-step process for impairment testing of goodwill as required by ASC 350-30. The first step of this test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount. The second step (if necessary) measures the amount of the impairment. The Company completed its annual goodwill impairment test as of the first day of the third quarter of fiscal 2013. In performing the valuations, the Company used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions. Based on the results of the Company’s step one testing, the fair values of the B&N Retail, B&N College and NOOK reporting units as of that date exceeded their carrying values; therefore, the second step of the impairment test was not required to be performed and no goodwill impairment was recognized.
The Company tests unamortizable intangible assets by comparing the fair value and the carrying value of such assets. The Company also completed its annual impairment tests for its other unamortizable intangible assets by comparing the estimated fair value to the carrying value of such assets and determined that no impairment was necessary. Changes in market conditions, among other factors, could have a material impact on these estimates, except for the Company’s publishing contracts.
F-42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the fourth quarter of 2013, the Company has determined that goodwill impairment indicators arose in its NOOK reporting unit as recurring losses have led to revisions in its strategic plans. As a result, during the fourth quarter of fiscal 2013, the Company recorded a non-cash goodwill impairment charge of $18,332 in selling and administrative expenses, which represented all the goodwill in the NOOK reporting unit.
Publishing contracts include the value of long-standing relationships with authors, agents and publishers established upon the Company’s acquisition of Sterling in 2003. Given Sterling’s strong history of maintaining such relationships, the Company believes they produce value indefinitely without an identifiable remaining useful life. However, given recent declines in the physical book business, these contracts were at risk of impairment as of its most recent impairment testing date and may be at risk in the future if declines in sales continue.
In fiscal 2013, the Company decided to shut down the operations of Tikatok. Tikatok was an online platform where parents and their children and others can write, illustrate and publish stories into hardcover and paperback books. This decision resulted in an impairment charge of $1,973, including the write-off of goodwill of $1,947 and intangible assets of $26 during the second quarter of fiscal 2013. The effect of Tikatok operations is not material to the overall results of the Company.
Deferred Charges
Costs incurred to obtain long-term financing are amortized over the terms of the respective debt agreements using the straight-line method, which approximates the interest method. Unamortized costs included in other noncurrent assets as of April 27, 2013 and April 28, 2012 were $16,297 and $21,522, respectively. Amortization expense included in interest and amortization of deferred financing fees was $5,470, $5,381 and $16,087 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
Revenue Recognition
Revenue from sales of the Company’s products is recognized at the time of sale or shipment, other than those with multiple elements and FOB destination point shipping terms. The Company’s shipping terms are FOB destination point. Certain of the Company sales agreements with these distribution partners contain rights of inspection or acceptance provisions as is standard in the Company’s industry. The Company accrues for estimated sales returns in the period in which the related revenue is recognized based on historical experience and industry standards. ECommerce revenue from sales of products ordered through the Company’s internet site is recognized upon delivery and receipt of the shipment by its customers. Sales taxes collected from retail customers are excluded from reported revenues. All of the Company’s sales are recognized as revenue on a “net” basis, including sales in connection with any periodic promotions offered to customers. The Company does not treat any promotional offers as expenses.
In accordance with ASC 605-25, Revenue Recognition, Multiple Element Arrangements and Accounting Standards Updates (ASU) 2009-13 and 2009-14, for multiple-element arrangements that involve tangible products that contain software that is essential to the tangible product’s functionality, undelivered software elements that relate to the tangible product’s essential software and other separable elements, the Company allocates revenue to all deliverables using the relative selling-price method. Under this method, revenue is allocated at the time of sale to all deliverables based on their relative selling price using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence, third-party evidence of selling price, or best estimate of selling price. NOOK® device revenue is recognized at the segment point of sale.
F-43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company includes post-service customer support (PCS) in the form of software updates and potential increased functionality on a when-and-if-available basis, as well as wireless access and wireless connectivity with the purchase of NOOK® from the Company. Using the relative selling price described above, the Company allocates revenue based on the best estimate of selling price for the deliverables as no vendor-specific objective evidence or third-party evidence exists for any of the elements. Revenue allocated to NOOK® and the software essential to its functionality is recognized at the time of sale, provided all other conditions for revenue recognition are met. Revenue allocated to the PCS and the wireless access is deferred and recognized on a straight-line basis over the 2-year estimated life of NOOK®.
The average percentage of a NOOK®’s sales price that is deferred for undelivered items and recognized over its 2-year estimated life ranges between 2% and 6%, depending on the type of device sold. The amount of NOOK®-related deferred revenue as of April 27, 2013 and April 28, 2012 was $15,331 and $19,785, respectively. These amounts are classified on the Company’s balance sheet in accrued liabilities for the portion that is subject to deferral for one year or less and other long-term liabilities for the portion that is subject to deferral for more than one year.
The Company also pays certain vendors who distribute NOOK® a commission on the content sales sold through that device. The Company accounts for these transactions as a reduction in the sales price of the NOOK® based on historical trends of content sales and a liability is established for the estimated commission expected to be paid over the life of the product. The Company recognizes revenue of the content at the point of sale of the content. The Company records revenue from sales of digital content, sales of third-party extended warranties, service contracts and other products, for which the Company is not obligated to perform, and for which the Company does not meet the criteria for gross revenue recognition under ASC 605-45-45, Reporting Revenue Gross as a Principal versus Net as an Agent, on a net basis. All other revenue is recognized on a gross basis.
The Company rents both physical and digital textbooks. Revenue from physical textbooks is deferred and recognized over the rental period commencing at point of sale. Revenue for digital textbooks is deferred and recognized over the rental period commencing the earlier of when the textbook has been downloaded or one year from point of sale.
NOOK acquires the rights to distribute digital content from publishers and distributes the content on barnesandnoble.com, NOOK® devices and other eBookstore platforms. Certain digital content is distributed under an agency pricing model in which the publishers set fixed prices for eBooks and NOOK receives a fixed commission on content sold through the eBookstore. The majority of the Company’s eBook sales are sold under the agency model.
The Barnes & Noble Member Program offers members greater discounts and other benefits for products and services, as well as exclusive offers and promotions via e-mail or direct mail for an annual fee of $25.00, which is non-refundable after the first 30 days. Revenue is recognized over the twelve-month period based upon historical spending patterns for Barnes & Noble Members.
Research and Development Costs for Software Products
The Company follows the guidance in ASC 985-20, Cost of Software to Be Sold, Leased or Marketed, regarding software development costs to be sold, leased, or otherwise marketed. Capitalization
F-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. The Company’s products reach technological feasibility shortly before the products are released and therefore research and development costs are generally expensed as incurred.
Advertising Costs
The costs of advertising are expensed as incurred during the year pursuant to ASC 720-35, Advertising Costs. Advertising costs charged to selling and administrative expenses were $110,878, $116,388 and $73,417 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
The Company receives payments and credits from vendors pursuant to co-operative advertising and other programs, including payments for product placement in stores, catalogs and online. In accordance with ASC 605-50-25-10, Customer’s Accounting for Certain Consideration Received from a Vendor, the Company classifies certain co-op advertising received as a reduction in costs of sales and occupancy. The gross co-op advertising expenses noted above were completely offset by allowances received from vendors and the excess allowances received were recorded as a reduction of cost of goods sold or inventory, as appropriate.
Closed Store Expenses
When the Company closes or relocates a store, the Company charges unrecoverable costs to expense. Such costs include the net book value of abandoned fixtures and leasehold improvements and, when a store is closed prior to the expiration of the lease, a provision for future lease obligations, net of expected sublease recoveries. Costs associated with store closings of $5,006, $551 and $3,899 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively, are included in selling and administrative expenses in the accompanying consolidated statements of operations.
Net Earnings (Loss) Per Common Share
Basic earnings per share represent net earnings (loss) attributable to common shareholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of the Company’s outstanding stock options. The Company’s unvested restricted shares, unvested restricted stock units and common shares issuable under the Company’s deferred compensation plan are deemed participating securities and are excluded from the dilutive impact of common equivalent shares outstanding under the two-class method since these shares are entitled to participate in dividends declared on common shares. Under the two-class method, earnings (loss) attributable to unvested restricted shares, unvested restricted stock units and common shares issuable under the Company’s deferred compensation plan are excluded from net earnings (loss) attributable to common shareholders for purposes of calculating basic and diluted earnings (loss) per common share. See Note 8 for further information regarding the calculation of basic and diluted earnings (loss) per common share.
Income Taxes
The provision for income taxes includes federal, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. The deferred tax assets and liabilities are measured using the enacted tax rates and
F-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
laws that are expected to be in effect when the differences reverse. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance, if determined to be necessary.
Stock-Based Compensation
The calculation of stock-based employee compensation expense involves estimates that require management’s judgment. These estimates include the fair value of each of the stock option awards granted, which is estimated on the date of grant using a Black-Scholes option pricing model. There are two significant inputs into the Black-Scholes option pricing model: expected volatility and expected term. The Company estimates expected volatility based on traded option volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. See Note 4 to the Consolidated Financial Statements for a further discussion on stock-based compensation.
Gift Cards
The Company sells gift cards which can be used in its stores or on barnesandnoble.com. The Company does not charge administrative or dormancy fees on gift cards and gift cards have no expiration dates. Upon the purchase of a gift card, a liability is established for its cash value. Revenue associated with gift cards is deferred until redemption of the gift card. Over time, some portion of the gift cards issued is not redeemed. The Company estimates the portion of the gift card liability for which the likelihood of redemption is remote based upon the Company’s historical redemption patterns. The Company records this amount in income on a straight-line basis over a 12-month period beginning in the 13th month after the month the gift card was originally sold. If actual redemption patterns vary from the Company’s estimates, actual gift card breakage may differ from the amounts recorded. The Company recognized gift card breakage of $23,929, $29,284 and $25,904 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The Company had gift card liabilities of $341,036 and $321,362 as of April 27, 2013 and April 28, 2012, respectively.
Reclassifications
Certain prior-period amounts have been reclassified for comparative purposes to conform with the fiscal 2013 presentation.
The Company reclassified $47,026 from other long-term liabilities to accrued liabilities related to the current portion of deferred rent and tenant allowances on the April 28, 2012 balance sheet for comparative purposes to conform with the fiscal 2013 presentation.
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reporting Period
The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. The reporting periods ended April 27, 2013, April 28, 2012 and April 30, 2011 all contained 52 weeks.
| 2. | Restatement of Prior Period Financial Statements |
The Company has restated its previously reported consolidated financial statements for the years ended April 28, 2012 and April 30, 2011, including the opening stockholders’ equity balance, in order to correct certain previously reported amounts.
In fiscal 2013, management determined that the Company had incorrectly overstated certain accruals for the periods prior to April 27, 2013, as a result of inadequate controls over its Distribution Center accrual reconciliation process. In accordance with ASC 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (ASC 250), the Company recorded an adjustment to decrease cost of sales by $6,700 ($4,027 after tax) and $8,460 ($5,084 after tax) to correctly present the statement of operations for fiscal 2012 and 2011, respectively. The Company also decreased accounts payable by $89,500 and $96,200 at April 30, 2011 and April 28, 2012, respectively; increased income taxes payable included in Accrued Liabilities in the consolidated Balance Sheets by $14,939 and $18,598 at April 30, 2011 and April 28, 2012, respectively; and increased retained earnings by $74,561 and $78,588, net of tax at April 30, 2011 and April 28, 2012, respectively.
In addition, in reviewing the Company’s components of deferred income tax assets and liabilities, management determined that deferred income tax liability in the amount of $26,026, net, was related to a transaction in which gain was reported for both accounting and tax purposes prior to 2010. Accordingly, management concluded that this deferred income tax liability should be reversed. In accordance with ASC 250, the Company recorded an adjustment to decrease deferred tax liability and increase retained earnings by $26,026 at May 1, 2010. The cumulative effect of these adjustments increased previously reported retained earnings by $95,503 at May 1, 2010.
In fiscal 2013, management determined that the Company had not accrued a tenant allowance related to one of its properties in fiscal 2012. The Company recorded an adjustment to increase receivable, net and other long-term liabilities by $9,450 in fiscal 2012.
The following tables set forth the correction to each of the individual affected line items in the consolidated balance sheets as of April 30, 2011 and April 28, 2012 and the consolidated statement of operations for fiscal 2011 and 2012. The restated amounts presented below reflect the impact of these corrections, as well as adjustments of $52,072 and $47,026 related to the current portion of deferred rent and tenant allowances on the April 30, 2011 and April 28, 2012 balance sheet, respectively. The Company did not present tables for the adjustments within the consolidated cash flow statement since all of the adjustments were within the operating section of the consolidated cash flow statement. The above corrections and adjustments did not effect total cash flows from operating activities, financing activities or investing activities for any period presented.
The financial information included in the accompanying financial statements and notes thereto reflect the affects of the corrections and other adjustments described in the preceding discussion and tables.
F-47
| Balance Sheet Data: | As of April 30, 2011 | |||||||||||||||
| (In thousands, except per share data) | As Previously Reported |
Corrections | Other Adjustments |
Restated | ||||||||||||
| Assets |
||||||||||||||||
| Current assets: |
||||||||||||||||
| Cash and cash equivalents |
$ | 59,429 | — | — | $ | 59,429 | ||||||||||
| Receivables, net |
150,294 | — | — | 150,294 | ||||||||||||
| Merchandise inventories, net |
1,375,362 | — | — | 1,375,362 | ||||||||||||
| Prepaid expenses and other current assets |
161,936 | — | — | 161,936 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current assets |
$ | 1,747,021 | — | — | $ | 1,747,021 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Property and equipment: |
||||||||||||||||
| Land and land improvements |
8,617 | — | — | 8,617 | ||||||||||||
| Buildings and leasehold improvements |
1,204,108 | — | — | 1,204,108 | ||||||||||||
| Fixtures and equipment |
1,670,488 | — | — | 1,670,488 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 2,883,213 | — | — | 2,883,213 | |||||||||||||
| Less accumulated depreciation and amortization |
2,178,562 | — | — | 2,178,562 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net property and equipment |
704,651 | — | — | 704,651 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Goodwill |
524,113 | — | — | 524,113 | ||||||||||||
| Intangible assets, net |
566,578 | — | — | 566,578 | ||||||||||||
| Other noncurrent assets |
54,103 | — | — | 54,103 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 3,596,466 | — | — | $ | 3,596,466 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities and Shareholders’ Equity |
||||||||||||||||
| Current liabilities: |
||||||||||||||||
| Accounts payable |
$ | 949,010 | (89,500 | ) | — | $ | 859,510 | |||||||||
| Accrued liabilities |
474,575 | 14,939 | 52,072 | 541,586 | ||||||||||||
| Gift card liabilities |
311,092 | — | — | 311,092 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current liabilities |
1,734,677 | (74,561 | ) | 52,072 | 1,712,188 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Long-term debt |
313,100 | — | — | 313,100 | ||||||||||||
| Deferred taxes |
280,132 | (26,026 | ) | — | 254,106 | |||||||||||
| Other long-term liabilities |
448,647 | — | (52,072 | ) | 396,575 | |||||||||||
| Shareholders’ equity: |
||||||||||||||||
| Common stock; $.001 par value; 300,000 shares authorized; 90,465 shares issued |
90 | — | — | 90 | ||||||||||||
| Additional paid-in capital |
1,323,263 | — | — | 1,323,263 | ||||||||||||
| Accumulated other comprehensive loss |
(11,630 | ) | — | — | (11,630 | ) | ||||||||||
| Retained earnings |
562,379 | 100,587 | — | 662,966 | ||||||||||||
| Treasury stock, at cost, 33,410 shares |
(1,054,192 | ) | — | — | (1,054,192 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Shareholders’ equity |
819,910 | 100,587 | — | 920,497 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Commitments and contingencies |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities and shareholders’ equity |
$ | 3,596,466 | — | — | $ | 3,596,466 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-48
| Balance Sheet Data: | As of April 28, 2012 | |||||||||||||||
| (In thousands, except per share data) | As Previously Reported |
Corrections | Other Adjustments |
Restated | ||||||||||||
| Assets |
||||||||||||||||
| Current assets: |
||||||||||||||||
| Cash and cash equivalents |
$ | 54,131 | — | — | $ | 54,131 | ||||||||||
| Receivables, net |
160,497 | 9,450 | — | 169,947 | ||||||||||||
| Merchandise inventories, net |
1,561,841 | — | — | 1,561,841 | ||||||||||||
| Prepaid expenses and other current assets |
221,324 | — | — | 221,324 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current assets |
$ | 1,997,793 | 9,450 | — | $ | 2,007,243 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Property and equipment: |
||||||||||||||||
| Land and land improvements |
2,541 | — | — | 2,541 | ||||||||||||
| Buildings and leasehold improvements |
1,196,764 | — | — | 1,196,764 | ||||||||||||
| Fixtures and equipment |
1,784,492 | — | — | 1,784,492 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 2,983,797 | — | — | 2,983,797 | |||||||||||||
| Less accumulated depreciation and amortization |
2,361,142 | — | — | 2,361,142 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net property and equipment |
622,655 | — | — | 622,655 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Goodwill |
519,685 | — | — | 519,685 | ||||||||||||
| Intangible assets, net |
564,054 | — | — | 564,054 | ||||||||||||
| Other noncurrent assets |
61,062 | — | — | 61,062 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 3,765,249 | 9,450 | — | $ | 3,774,699 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities and Shareholders’ Equity |
||||||||||||||||
| Current liabilities: |
||||||||||||||||
| Accounts payable |
$ | 959,423 | (96,200 | ) | — | $ | 863,223 | |||||||||
| Accrued liabilities |
546,495 | 18,598 | 47,026 | 612,119 | ||||||||||||
| Gift card liabilities |
321,362 | — | — | 321,362 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current liabilities |
1,827,280 | (77,602 | ) | 47,026 | 1,796,704 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Long-term debt |
324,200 | — | — | 324,200 | ||||||||||||
| Deferred taxes |
268,774 | (26,026 | ) | — | 242,748 | |||||||||||
| Other long-term liabilities |
405,065 | 8,464 | (47,026 | ) | 366,503 | |||||||||||
| Redeemable Preferred Shares; $.001 par value; 5,000 shares authorized; 204 shares issued |
192,273 | — | — | 192,273 | ||||||||||||
| Shareholders’ equity: |
||||||||||||||||
| Common stock; $.001 par value; 300,000 shares authorized; 91,376 shares issued |
91 | — | — | 91 | ||||||||||||
| Additional paid-in capital |
1,340,909 | — | — | 1,340,909 | ||||||||||||
| Accumulated other comprehensive loss |
(16,635 | ) | — | — | (16,635 | ) | ||||||||||
| Retained earnings |
481,574 | 104,614 | — | 586,188 | ||||||||||||
| Treasury stock, at cost, 33,722 shares |
(1,058,282 | ) | — | — | (1,058,282 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Shareholders’ equity |
747,657 | 104,614 | — | 852,271 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Commitments and contingencies |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities and shareholders’ equity |
$ | 3,765,249 | 9,450 | — | $ | 3,774,699 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Statement of Operations Data: | Fiscal 2011 | |||||||||||
| As Previously Reported |
Corrections | Restated | ||||||||||
| (In thousands, except per share data) |
||||||||||||
| Sales |
$ | 6,998,565 | — | $ | 6,998,565 | |||||||
| Cost of sales and occupancy |
5,205,712 | (8,460 | ) | 5,197,252 | ||||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
1,792,853 | 8,460 | 1,801,313 | |||||||||
|
|
|
|
|
|
|
|||||||
| Selling and administrative expenses |
1,629,465 | — | 1,629,465 | |||||||||
| Depreciation and amortization |
228,647 | — | 228,647 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating income (loss) |
(65,259 | ) | 8,460 | (56,799 | ) | |||||||
| Interest expense, net and amortization of deferred financing fees |
(57,350 | ) | — | (57,350 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Income (loss) before income taxes (benefit) |
(122,609 | ) | 8,460 | (114,149 | ) | |||||||
| Income taxes (benefit) |
(48,652 | ) | 3,376 | (45,276 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
(73,957 | ) | 5,084 | (68,873 | ) | |||||||
| Net loss attributable to noncontrolling interests |
37 | — | 37 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) attributable to Barnes & Noble, Inc. |
$ | (73,920 | ) | 5,084 | $ | (68,836 | ) | |||||
|
|
|
|
|
|
|
|||||||
| Diluted income (loss) per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) attributable to Barnes & Noble, Inc. |
$ | (1.31 | ) | 0.09 | $ | (1.22 | ) | |||||
|
|
|
|
|
|
|
|||||||
| Statement of Operations Data: | Fiscal 2012 | |||||||||||
| As Previously Reported |
Corrections | Restated | ||||||||||
| (In thousands, except per share data) |
||||||||||||
| Sales |
$ | 7,129,199 | — | $ | 7,129,199 | |||||||
| Cost of sales and occupancy |
5,218,383 | (6,700 | ) | 5,211,683 | ||||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
1,910,816 | 6,700 | 1,917,516 | |||||||||
|
|
|
|
|
|
|
|||||||
| Selling and administrative expenses |
1,739,452 | — | 1,739,452 | |||||||||
| Depreciation and amortization |
232,667 | — | 232,667 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating income (loss) |
(61,303 | ) | 6,700 | (54,603 | ) | |||||||
| Interest expense, net and amortization of deferred financing fees |
(35,304 | ) | — | (35,304 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Income (loss) before income taxes (benefit) |
(96,607 | ) | 6,700 | (89,907 | ) | |||||||
| Income taxes (benefit) |
(27,740 | ) | 2,673 | (25,067 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (68,867 | ) | 4,027 | $ | (64,840 | ) | |||||
|
|
|
|
|
|
|
|||||||
| Diluted income (loss) per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (1.41 | ) | 0.07 | $ | (1.34 | ) | |||||
|
|
|
|
|
|
|
|||||||
| 3. | Credit Facility |
On April 29, 2011, the Company entered into an amended and restated credit agreement (the 2011 Amended Credit Agreement) with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders, which amended and restated the credit agreement (the 2009 Credit Agreement) entered into on September 30, 2009 with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders. Under the 2011 Amended Credit Agreement, Lenders are providing up to $1,000,000 in aggregate commitments under a five-year asset-backed revolving credit facility, which is secured by eligible inventory with the ability to include eligible real estate and accounts receivable and related assets. Borrowings under the 2011 Amended Credit Agreement are limited to a specified percentage of eligible inventories and accounts receivable and accrued interest, at the election of the Company, at Base Rate or LIBO Rate, plus, in each case, an Applicable Margin (each term as defined in the 2011 Amended Credit Agreement). In addition, the Company has the option to request an increase in commitments under the 2011 Amended Credit Agreement by up to $300,000, subject to certain restrictions.
The 2011 Amended Credit Agreement requires Availability (as defined in the 2011 Amended Credit Agreement) to be greater than the greater of (i) 10% of the Loan Cap (as defined in the 2011 Amended Credit Agreement) and (ii) $50,000. In addition, the 2011 Amended Credit Agreement contains covenants that limit, among other things, the Company’s ability to incur indebtedness, create liens, make investments, make restricted payments, merge or acquire assets, and contains default provisions that are typical for this type of financing, among other things. Proceeds from the 2011 Amended Credit Facility are used for general corporate purposes, including seasonal working capital needs.
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As a result of the 2011 Amended Credit Agreement, $6,580 of deferred financing fees related to the 2009 Credit Agreement were written off in fiscal 2011, and included in net interest expenses. The remaining unamortized deferred costs of $16,341 and new charges of $10,180 relating to the Company’s 2011 Amended Credit Facility were deferred and are being amortized over the five-year term of the 2011 Amended Credit Facility.
On April 27, 2012, the Company entered into an amendment the 2011 Amended Credit Agreement in order to permit the transactions contemplated by the investment agreement among the Company, Morrison Investment Holdings, Inc. (Morrison), and Microsoft Corporation (Microsoft) and to make certain other changes to the Company’s 2011 Amended Credit Agreement in connection therewith. On December 21, 2012, the Company entered into an amendment the 2011 Amended Credit Agreement in order to permit the transactions contemplated by the investment agreement between NOOK Media LLC (NOOK Media) and a subsidiary of Pearson plc (Pearson) and make certain other changes to the Company’s 2011 Amended Credit Agreement in connection therewith. On April 26, 2013, the Company entered into a letter amendment to the 2011 Amended Credit Agreement in order to amend the definition of Consolidated EBITDA contained therein to exclude the impact of inventory charges in the fiscal quarter ended January 26, 2013 from the calculation of Consolidated EBITDA. The 2011 Amended Credit Agreement, as amended and modified to date, is hereinafter referred to as the 2013 Amended Credit Facility.
On June 24, 2013, the Company entered into an amendment to its existing credit agreement with Bank of America, N.A., as administrative agent, collateral agent and swing line lender, and other lenders party thereto in order to amend the restricted payments covenant contained therein.
Selected information related to the Company’s credit facilities:
| Fiscal 2013 |
Fiscal 2012 |
Fiscal 2011 |
||||||||||
| Credit facility at period end |
$ | 77,000 | 324,200 | 313,100 | ||||||||
| Average balance outstanding during the period |
$ | 214,702 | 306,038 | 338,971 | ||||||||
| Maximum borrowings outstanding during the period |
$ | 462,900 | 582,000 | 622,800 | ||||||||
| Weighted average interest rate during the period (a) |
5.56 | % | 4.71 | % | 6.23 | % | ||||||
| Interest rate at end of period |
4.93 | % | 3.32 | % | 5.13 | % | ||||||
| (a) | Includes commitment fees. |
Fees expensed with respect to the unused portion of the credit facilities were $3,794, $3,343 and $5,466 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The Company had $33,904 of outstanding letters of credit under the 2013 Amended Credit Facility as of April 27, 2013 compared with $37,399 as of April 28, 2012.
The Company has no agreements to maintain compensating balances.
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| 4. | Stock-Based Compensation |
The Company maintains four share-based incentive plans: the 1996 Incentive Plan, the 2004 Incentive Plan, the 2009 Incentive Plan and the Amended and Restated 2009 Incentive Plan. Prior to June 2, 2009, the Company issued restricted stock and stock options under the 1996 and 2004 Incentive Plans. On June 2, 2009, the Company’s shareholders approved the 2009 Incentive Plan. Under the 2009 Incentive Plan, the Company has issued restricted stock units, restricted stock and stock options. On September 11, 2012, the Company’s shareholders approved the Amended and Restated 2009 Incentive Plan. Under the Amended and Restated 2009 Incentive Plan, the Company has issued restricted stock units, restricted stock and stock options. The maximum number of shares issuable under the Amended and Restated 2009 Incentive Plan is 1,700,000, plus shares that remain available under the Company’s shareholder-approved 2009 and 2004 Incentive Plan. At April 27, 2013, there were approximately 2,567,842 shares of common stock available for future grants under the Amended and Restated 2009 Incentive Plan.
A restricted stock award is an award of common stock that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of unvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. The Company’s restricted stock awards vest over a period of one to four years. The Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’s common stock on the grant date.
A restricted stock unit is a grant valued in terms of the Company’s common stock, but no stock is issued at the time of grant. The restricted stock units may be redeemed for one share of common stock each once vested. Restricted stock units are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the units except in very limited circumstances and with the consent of the compensation committee. Shares of unvested restricted stock units have no voting rights but are entitled to receive dividends and other distributions thereon. The Company’s restricted stock units vest over a period of one to four years. The Company expenses the cost of the restricted stock units, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock unit is determined based on the closing price of the Company’s common stock on the grant date.
The Company uses the Black-Scholes option-pricing model to value the Company’s stock options for each stock option award. Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company’s stock option awards, which are generally subject to pro-rata vesting annually over four years, is expensed on a straight-line basis over the vesting period of the stock options. The expected volatility assumption is based on traded options volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The expected term assumption incorporates the contractual term of an option grant, which is ten years, as well as the vesting period of an award, which is generally pro-rata vesting annually over four years. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the option granted.
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recognizes stock-based compensation costs, net of estimated forfeitures, for only those shares expected to vest on a straight-line basis over the requisite service period of the award. The Company estimates the forfeiture rates based on its historical experience.
The weighted average assumptions relating to the valuation of the Company’s stock options for fiscal years 2013 and 2012 are shown below. No stock options were granted during fiscal 2011.
| Fiscal Year |
2013 | 2012 | ||||||
| Weighted average fair value of grants |
$ | 7.80 | $ | 9.85 | ||||
| Volatility |
86.13 | % | 78.52 | % | ||||
| Risk-free interest rate |
0.67 | % | 0.92 | % | ||||
| Expected life |
5 years | 5 years | ||||||
| Expected dividend yield |
0.00 | % | 0.00 | % | ||||
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock-Based Compensation Activity
The following table presents a summary of the Company’s stock option activity:
| Number of Shares (in thousands) |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||
| Balance, May 1, 2010 |
5,498 | $ | 20.19 | 3.49 years | $ | 13,782 | ||||||||||
| Exercised |
(1,024 | ) | 16.83 | |||||||||||||
| Forfeited |
(598 | ) | 20.57 | |||||||||||||
|
|
|
|||||||||||||||
| Balance, April 30, 2011 |
3,876 | 21.02 | 3.40 years | — | ||||||||||||
| Granted |
1,563 | 15.70 | ||||||||||||||
| Exercised |
(92 | ) | 11.89 | |||||||||||||
| Forfeited |
(1,487 | ) | 21.86 | |||||||||||||
|
|
|
|||||||||||||||
| Balance, April 28, 2012 |
3,860 | 18.76 | 5.70 years | $ | 574 | |||||||||||
| Granted |
515 | 11.64 | ||||||||||||||
| Exercised |
(279 | ) | 12.20 | |||||||||||||
| Forfeited |
(720 | ) | 20.19 | |||||||||||||
|
|
|
|||||||||||||||
| Balance, April 27, 2013 |
3,376 | $ | 17.91 | 6.24 years | $ | 7,331 | ||||||||||
|
|
|
|||||||||||||||
| Vested and expected to vest in the future at April 27, 2013 |
3,295 | $ | 17.96 | 6.19 years | $ | 7,139 | ||||||||||
| Exercisable at April 27, 2013 |
1,304 | $ | 22.19 | 2.42 years | $ | 580 | ||||||||||
| Available for grant at April 27, 2013 |
2,568 | |||||||||||||||
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the related fiscal year and the exercise price, multiplied by the related in-the-money options) that would have been received by the option holders had they exercised their options at the end of the fiscal year. This amount changes based on the market value of the Company’s common stock. Total intrinsic value of options exercised for fiscal 2013, fiscal 2012 and fiscal 2011 (based on the difference between the Company’s stock price on the exercise date and the respective exercise price, multiplied by the number of options exercised) was $1,206, $521 and $124, respectively.
As of April 27, 2013, there was $14,738 of total unrecognized compensation expense related to unvested stock options granted under the Company’s share-based compensation plans. That expense is expected to be recognized over a weighted average period of 2.6 years.
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents a summary of the Company’s restricted stock activity:
| Number of Shares (in thousands) |
Weighted Average Grant Date Fair Value |
|||||||
| Balance, May 1, 2010 |
2,330 | $ | 24.15 | |||||
| Granted |
684 | 16.65 | ||||||
| Vested |
(435 | ) | 27.99 | |||||
| Forfeited |
(154 | ) | 24.76 | |||||
|
|
|
|||||||
| Balance, April 30, 2011 |
2,425 | 21.31 | ||||||
| Granted |
83 | 13.23 | ||||||
| Vested |
(1,073 | ) | 22.78 | |||||
| Forfeited |
(51 | ) | 21.52 | |||||
|
|
|
|||||||
| Balance, April 28, 2012 |
1,384 | 19.68 | ||||||
| Granted |
60 | 11.52 | ||||||
| Vested |
(866 | ) | 20.49 | |||||
| Forfeited |
(293 | ) | 19.24 | |||||
|
|
|
|||||||
| Balance, April 27, 2013 |
285 | $ | 15.91 | |||||
|
|
|
|||||||
Total fair value of shares of restricted stock that vested during fiscal 2013, fiscal 2012 and fiscal 2011 was $13,447, $14,067 and $6,163, respectively. As of April 27, 2013, there was $2,359 of unrecognized stock-based compensation expense related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted average period of 1.1 years.
The following table presents a summary of the Company’s restricted stock unit activity:
| Number of Shares (in thousands) |
Weighted Average Grant Date Fair Value |
|||||||
| Balance, April 30, 2011 |
— | $ | — | |||||
| Granted |
969 | 16.64 | ||||||
| Forfeited |
(5 | ) | 18.59 | |||||
|
|
|
|||||||
| Balance, April 28, 2012 |
964 | 16.63 | ||||||
| Granted |
1,029 | 16.29 | ||||||
| Vested |
(13 | ) | 15.31 | |||||
| Forfeited |
(102 | ) | 18.01 | |||||
|
|
|
|||||||
| Balance, April 27, 2013 |
1,878 | $ | 16.38 | |||||
|
|
|
|||||||
Total fair value of shares of restricted stock units that vested during fiscal 2013 was $205. No restricted stock units were granted prior to fiscal 2012 and there were no vestings during fiscal 2012. As of April 27, 2013, there was $26,236 of unrecognized stock-based compensation expense related to nonvested restricted stock units. That cost is expected to be recognized over a weighted average period of 3.1 years.
F-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For fiscal 2013, fiscal 2012 and fiscal 2011, stock-based compensation expense of $20,187, $20,775 and $20,978, respectively, is included in selling and administrative expenses.
| 5. | Receivables, Net |
Receivables represent customer, private and public institutional and government billings, credit/debit card, advertising, landlord and other receivables due within one year as follows:
| April 27, 2013 |
April 28, 2012 |
|||||||
| Trade accounts |
$ | 69,627 | 91,476 | |||||
| Credit/debit card receivables |
33,776 | 36,042 | ||||||
| Other receivables |
45,966 | 42,429 | ||||||
|
|
|
|
|
|||||
| Total receivables, net |
$ | 149,369 | 169,947 | |||||
|
|
|
|
|
|||||
| 6. | Other Long-Term Liabilities |
Other long-term liabilities consist primarily of deferred rent, obligations under a junior seller note related to the acquisition of B&N College and the Microsoft Commercial Agreement financing transaction (see Note 21 and 12, respectively). The Company provides for minimum rent expense over the lease terms (including the build-out period) on a straight-line basis. The excess of such rent expense over actual lease payments (net of tenant allowances) is classified as deferred rent. Other long-term liabilities also include accrued pension liabilities, store closing expenses and long-term deferred revenues. The Company had the following long-term liabilities at April 27, 2013 and April 28, 2012:
| April 27, 2013 |
April 28, 2012 |
|||||||
| Deferred rent |
$ | 149,934 | 182,313 | |||||
| Junior Seller Note (see Note 21) |
127,250 | 150,000 | ||||||
| Microsoft Commercial Agreement financing transaction (see Note 12) |
52,642 | — | ||||||
| Tax liabilities and reserves |
54,068 | — | ||||||
| Other |
36,052 | 34,190 | ||||||
|
|
|
|
|
|||||
| Total long-term liabilities |
$ | 419,946 | 366,503 | |||||
|
|
|
|
|
|||||
| 7. | Fair Values of Financial Instruments |
In accordance with ASC 820, Fair Value Measurements and Disclosures, the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
| Level 1 – | Observable inputs that reflect quoted prices in active markets | |
| Level 2 – | Inputs other than quoted prices in active markets that are either directly or indirectly observable | |
| Level 3 – | Unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own assumptions | |
F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the changes in Level 3 contingent consideration liability:
| Acquisition of Fictionwise |
||||
| Beginning balance, May 1, 2010 |
$ | 7,265 | ||
| Payments |
(7,508 | ) | ||
| Losses |
243 | |||
|
|
|
|||
| Balance, April 30, 2011, April 28, 2012 and April 27, 2013 |
$ | — | ||
|
|
|
|||
The Company’s financial instruments include cash, receivables, gift cards, accrued liabilities, accounts payable and preferred membership interests warrants. The fair values of cash, receivables and accounts payable approximates carrying values because of the short-term nature of these instruments. The Company believes that its credit facility approximates fair value since interest rates are adjusted to reflect current rates. The Company believes that the terms and conditions of the junior seller note are consistent with comparable market debt issues. The fair value of the preferred membership interests warrants was determined using the Monte Carlo simulation method (see Note 13).
| 8. | Net Earnings (Loss) Per Share |
In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class Method, the Company’s unvested restricted shares, unvested restricted stock units and shares issuable under the Company’s deferred compensation plan are considered participating securities. During periods of net income, the calculation of earnings per share for common stock are reclassified to exclude the income attributable to the unvested restricted shares, unvested restricted stock units and shares issuable under the Company’s deferred compensation plan from the numerator and exclude the dilutive impact of those shares from the denominator. Diluted earnings per share for fiscal year 2013 was calculated using the two-class method for stock options, restricted stock and restricted stock units and the if-converted method for the preferred stock.
During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. Due to the net loss during fiscal 2013 and 2012, participating securities in the amounts of 2,859,084 and 3,462,508, respectively, were excluded in the calculation of loss per share using the two-class method because the effect would be antidilutive. The Company’s outstanding stock options and accretion/payments of dividends on preferred shares were also excluded from the calculation of loss per share using the two-class method because the effect would be antidilutive.
F-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a reconciliation of the Company’s basic and diluted earnings per share calculation:
| Fiscal 2013 |
Fiscal 2012 |
Fiscal 2011 |
||||||||||
| Numerator for basic loss per share: |
||||||||||||
| Loss attributable to Barnes & Noble, Inc. |
$ | (157,806 | ) | (64,840 | ) | (68,873 | ) | |||||
| Preferred stock dividends |
(15,767 | ) | (11,044 | ) | — | |||||||
| Accretion of dividends on preferred stock |
(2,266 | ) | (894 | ) | — | |||||||
|
|
|
|
|
|
|
|||||||
| Net loss available to common shareholders |
$ | (175,839 | ) | (76,778 | ) | (68,873 | ) | |||||
| Numerator for diluted loss per share: |
||||||||||||
| Net loss available to common shareholders |
$ | (175,839 | ) | (76,778 | ) | (68,873 | ) | |||||
| Denominator for basic and diluted loss per share: |
||||||||||||
| Basic weighted average common shares |
58,247 | 57,337 | 56,588 | |||||||||
| Basic loss per common share |
||||||||||||
| Net loss attributable to Barnes & Noble, Inc. available for common shareholders |
$ | (3.02 | ) | (1.34 | ) | (1.22 | ) | |||||
| Diluted loss per common share |
||||||||||||
| Net loss attributable to Barnes & Noble, Inc. available for common shareholders |
$ | (3.02 | ) | (1.34 | ) | (1.22 | ) | |||||
| 9. | Employees’ Retirement and Defined Contribution Plans |
As of December 31, 1999, substantially all employees of the Company were covered under a noncontributory defined benefit pension plan (the Pension Plan). As of January 1, 2000, the Pension Plan was amended so that employees no longer earn benefits for subsequent service. Effective December 31, 2004, the Barnes & Noble.com Employees’ Retirement Plan (the B&N.com Retirement Plan) was merged with the Pension Plan. Substantially all employees of Barnes & Noble.com were covered under the B&N.com Retirement Plan. As of July 1, 2000, the B&N.com Retirement Plan was amended so that employees no longer earn benefits for subsequent service. Subsequent service continues to be the basis for vesting of benefits not yet vested at December 31, 1999 and June 30, 2000 for the Pension Plan and the B&N.com Retirement Plan, respectively, and the Pension Plan will continue to hold assets and pay benefits. The actuarial assumptions used to calculate pension costs are reviewed annually. Pension expense was $2,836, $1,970 and $2,558 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
The Company maintains a defined contribution plan (the Savings Plan) for the benefit of substantially all employees. Total Company contributions charged to employee benefit expenses for the Savings Plan were $15,902, $15,273 and $14,212 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. In addition, the Company provides certain health care and life insurance benefits (the Postretirement Plan) to retired employees, limited to those receiving benefits or retired as of April 1, 1993. Total Company contributions charged to employee benefit expenses for the Postretirement Plan were $0, $150 and $150 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
F-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| 10. | Income Taxes |
The Company files a consolidated federal return with all subsidiaries owned 80% or more. Income tax provisions (benefits) for fiscal 2013, fiscal 2012 and fiscal 2011 are as follows:
| Fiscal 2013 | Fiscal 2012 | Fiscal 2011 | ||||||||||
| Current: |
||||||||||||
| Federal |
$ | 18,270 | 8,574 | (44,859 | ) | |||||||
| State |
2,594 | 3,929 | (2,031 | ) | ||||||||
| Foreign |
486 | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current |
21,350 | 12,503 | (46,890 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Deferred: |
||||||||||||
| Federal |
(93,684 | ) | (28,504 | ) | 8,057 | |||||||
| State |
(25,209 | ) | (9,066 | ) | (6,443 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total deferred |
(118,893 | ) | (37,570 | ) | 1,614 | |||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | (97,543 | ) | (25,067 | ) | (45,276 | ) | |||||
|
|
|
|
|
|
|
|||||||
Reconciliation between the effective income tax rate and the federal statutory income tax rate is as follows:
| Fiscal 2013 | Fiscal 2012 | Fiscal 2011 | ||||||||||
| Federal statutory income tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
| State income taxes, net of federal income tax benefit |
3.9 | 4.4 | 4.8 | |||||||||
| Changes to unrecognized tax benefits |
(5.7 | ) | (0.3 | ) | (1.2 | ) | ||||||
| Excess 162(m) limitation |
(1.8 | ) | (9.8 | ) | — | |||||||
| Research Tax Credits |
7.4 | — | — | |||||||||
| Other, net |
(0.6 | ) | (1.4 | ) | 1.1 | |||||||
|
|
|
|
|
|
|
|||||||
| Effective income tax rate |
38.2 | % | 27.9 | % | 39.7 | % | ||||||
|
|
|
|
|
|
|
|||||||
F-58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant components of the Company’s deferred tax assets and liabilities as of April 27, 2013 and April 28, 2012 are as follows:
| April 27, 2013 | April 28, 2012 | |||||||
| Deferred tax assets: |
||||||||
| Current deferred tax assets: |
||||||||
| Estimated accrued liabilities |
$ | 129,408 | 88,823 | |||||
| Inventory |
82,785 | 19,674 | ||||||
| Insurance liability |
9,642 | 11,105 | ||||||
| Valuation allowances – current |
(4,926 | ) | — | |||||
|
|
|
|
|
|||||
| Total current deferred tax assets |
216,909 | 119,602 | ||||||
|
|
|
|
|
|||||
| Non-current deferred tax assets: |
||||||||
| Loss and credit carryovers |
59,493 | 75,817 | ||||||
| Lease transactions |
33,427 | 30,043 | ||||||
| Pension |
12,330 | 11,953 | ||||||
| Stock-based compensation |
8,740 | 9,946 | ||||||
| Investments in equity securities |
1,590 | 1,282 | ||||||
| Other |
1,817 | — | ||||||
| Valuation allowances – non-current |
(2,607 | ) | — | |||||
|
|
|
|
|
|||||
| Total non-current deferred tax assets |
114,790 | 129,041 | ||||||
|
|
|
|
|
|||||
| Total deferred tax assets |
331,699 | 248,643 | ||||||
|
|
|
|
|
|||||
| Deferred tax liabilities: |
||||||||
| Current deferred tax liabilities: |
||||||||
| Prepaid expenses |
(7,015 | ) | (7,827 | ) | ||||
|
|
|
|
|
|||||
| Total current deferred tax liabilities |
(7,015 | ) | (7,827 | ) | ||||
|
|
|
|
|
|||||
| Non-current deferred tax liabilities: |
||||||||
| Goodwill and intangible asset amortization |
(216,182 | ) | (233,322 | ) | ||||
| Investment in Barnes & Noble.com |
(79,034 | ) | (69,025 | ) | ||||
| Depreciation |
(50,790 | ) | (63,216 | ) | ||||
| Other |
— | (6,226 | ) | |||||
|
|
|
|
|
|||||
| Total non-current deferred tax liabilities |
(346,006 | ) | (371,789 | ) | ||||
|
|
|
|
|
|||||
| Total deferred tax liabilities |
(353,021 | ) | (379,616 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax liabilities |
$ | (21,322 | ) | (130,973 | ) | |||
|
|
|
|
|
|||||
| Balance sheet caption reported in: |
||||||||
| Prepaid expenses and other current assets |
$ | 209,893 | 111,775 | |||||
| Deferred tax liabilities |
(231,215 | ) | (242,748 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax liabilities |
$ | (21,322 | ) | (130,973 | ) | |||
|
|
|
|
|
|||||
F-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At April 27, 2013, and based on its tax year ended January 2013, the Company had federal and state net operating loss carryforwards (NOLs) of approximately $67,000 that are available to offset taxable income beginning in the current period and that expire beginning in 2018 through 2022, the utilization of which is limited to approximately $6,700 on an annual basis. NOLs not used during a particular period may be carried forward to future years, though not beyond the expiration years. Additionally, the Company had approximately $132,000 of state NOLs that have no annual limitation and expire beginning in 2030 through 2031. The Company had net federal and state tax credits totaling $18,000, of which $11,000 has an indefinite life.
As of April 27, 2013, the Company had $31,460 of unrecognized tax benefits, all of which, if recognized, would affect the Company’s effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal 2013, fiscal 2012 and fiscal 2011 is as follows:
| Balance at May 1, 2010 |
$ | 15,268 | ||
| Additions for tax positions of the current period |
1,809 | |||
| Additions for tax positions of prior periods |
1,199 | |||
| Reductions due to settlements |
(508 | ) | ||
| Other reductions for tax positions of prior periods |
(1,053 | ) | ||
|
|
|
|||
| Balance at April 30, 2011 |
$ | 16,715 | ||
|
|
|
|||
| Additions for tax positions of prior periods |
993 | |||
| Reductions due to settlements |
(228 | ) | ||
| Other reductions for tax positions of prior periods |
(448 | ) | ||
|
|
|
|||
| Balance at April 28, 2012 |
$ | 17,032 | ||
|
|
|
|||
| Additions for tax positions of the current period |
3,189 | |||
| Additions for tax positions of prior periods |
16,931 | |||
| Reductions due to settlements |
(924 | ) | ||
| Other reductions for tax positions of prior periods |
(4,768 | ) | ||
|
|
|
|||
| Balance at April 27, 2013 |
$ | 31,460 | ||
|
|
|
The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. As of April 27, 2013 and April 28, 2012, the Company had accrued $6,593 and $3,919, respectively, for net interest and penalties, which is included in the $31,460 and $17,032 of unrecognized tax benefits noted above. The change in the amount accrued for net interest and penalties includes $5,665 in additions for net interest and penalties recognized in income tax expense in the Company’s fiscal 2013 statement of operations.
As of April 27, 2013, the Company has not provided for deferred taxes on the excess of financial reporting over the tax basis of investments in certain foreign subsidiaries because we plan to reinvest such earnings indefinitely outside the United States. If these earnings were repatriated in the future, additional income and withholding tax expense would be incurred. Due to complexities in the laws of the foreign jurisdictions and the assumptions that would have to be made, it is not practicable to estimate the total amount of income taxes that would have to be provided on such earnings.
F-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company is subject to U.S. federal income tax as well as income tax in jurisdictions of each state having an income tax. The tax years that remain subject to examination are primarily from fiscal 2007 and forward. Some earlier years remain open for a small minority of states.
| 11. | Intangible Assets and Goodwill |
| As of April 28, 2012 | ||||||||||||||||
| Amortizable intangible assets |
Useful Life |
Gross Carrying Amount |
Accumulated Amortization |
Total | ||||||||||||
| Customer relationships |
5-25 | $ | 271,938 | $ | (32,398 | ) | $ | 239,540 | ||||||||
| Author contracts |
10 | 18,461 | (17,049 | ) | 1,412 | |||||||||||
| Technology |
5-10 | 5,850 | (2,427 | ) | 3,423 | |||||||||||
| Distribution contracts |
10 | 8,325 | (4,932 | ) | 3,393 | |||||||||||
| Other |
3-10 | 6,178 | (4,628 | ) | 1,550 | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| $ | 310,752 | $ | (61,434 | ) | $ | 249,318 | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Unamortizable intangible assets |
||||||||||||||||
| Trade name |
$ | 293,400 | ||||||||||||||
| Publishing contracts |
21,336 | |||||||||||||||
|
|
|
|||||||||||||||
| $ | 314,736 | |||||||||||||||
|
|
|
|||||||||||||||
| Total amortizable and unamortizable intangible assets |
$ | 564,054 | ||||||||||||||
|
|
|
|||||||||||||||
| As of April 27, 2013 | ||||||||||||||||
| Amortizable intangible assets |
Useful Life |
Gross Carrying Amount |
Accumulated Amortization |
Total | ||||||||||||
| Customer relationships |
5-25 | $ | 271,938 | $ | (48,040 | ) | $ | 223,898 | ||||||||
| Technology |
5-10 | 10,710 | (4,456 | ) | 6,254 | |||||||||||
| Distribution contracts |
10 | 8,325 | (6,370 | ) | 1,955 | |||||||||||
| Other |
3-10 | 6,338 | (5,250 | ) | 1,088 | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| $ | 297,311 | $ | (64,116 | ) | $ | 233,195 | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Unamortizable intangible assets |
||||||||||||||||
| Trade name |
$ | 293,400 | ||||||||||||||
| Publishing contracts |
21,336 | |||||||||||||||
|
|
|
|||||||||||||||
| $ | 314,736 | |||||||||||||||
|
|
|
|||||||||||||||
| Total amortizable and unamortizable intangible assets |
$ | 547,931 | ||||||||||||||
|
|
|
|||||||||||||||
All amortizable intangible assets are being amortized over their useful life on a straight-line basis, with the exception of certain items such as customer relationships and other acquired intangibles, which are amortized on an accelerated basis.
| Aggregate Amortization Expense: |
||||
| For the 52 weeks ended April 27, 2013 |
$ | 21,426 | ||
| For the 52 weeks ended April 28, 2012 |
$ | 18,415 | ||
| For the 52 weeks ended April 30, 2011 |
$ | 14,512 | ||
F-61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Estimated Amortization Expense: |
||||
| (12 months ending on or about April 30) |
||||
| 2014 |
$ | 17,356 | ||
| 2015 |
$ | 14,861 | ||
| 2016 |
$ | 11,334 | ||
| 2017 |
$ | 11,060 | ||
| 2018 |
$ | 10,790 | ||
On October 17, 2011, the Company finalized the purchase of certain intellectual property assets from the Borders Group, Inc. Chapter 11 Bankruptcy for $14,528 including acquisition related fees. These intellectual property assets include a customer list, trade names and URLs. The Company accounted for the transaction as an asset purchase, and these assets are included on its consolidated balance sheet as Intangible Assets. The intangible assets are being amortized on an accelerated basis over a three year period, commencing October 17, 2011. Amortization expense related to the acquisition of these assets for fiscal 2013 was $5,145.
The changes in the carrying amount of goodwill by segment for fiscal 2013 are as follows:
| B&N Retail Segment |
B&N College Segment |
B&N.com Segment |
NOOK Segment |
Total Company |
||||||||||||||||
| Balance as of April 30, 2011 |
$ | 225,336 | 274,070 | 24,707 | — | $ | 524,113 | |||||||||||||
| Benefit of excess tax amortization (a) |
— | — | (4,428 | ) | — | (4,428 | ) | |||||||||||||
| Re-allocation of Goodwill (b) |
— | — | (20,279 | ) | 20,279 | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance as of April 28, 2012 |
$ | 225,336 | 274,070 | — | 20,279 | $ | 519,685 | |||||||||||||
| Benefit of excess tax amortization (a) |
(3,910 | ) | — | — | — | (3,910 | ) | |||||||||||||
| Tikatok impairment (see Note 14) |
— | — | — | (1,947 | ) | (1,947 | ) | |||||||||||||
| NOOK impairment (c) |
— | — | — | (18,332 | ) | (18,332 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance as of April 27, 2013 |
$ | 221,426 | 274,070 | — | — | $ | 495,496 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (a) | The tax basis of goodwill arising from an acquisition during the 52 weeks ended January 29, 2005 exceeded the related basis for financial reporting purposes by approximately $96,576. In accordance with ASC 740-10-30, Accounting for Income Taxes, the Company is recognizing the tax benefits of amortizing such excess as a reduction of goodwill as it is realized on the Company’s income tax return. |
| (b) | Prior to April 28, 2012, the Company reported an operating segment titled B&N.com, which included both its NOOK digital business and eCommerce operations. Due to the increased focus on the digital business and the Company’s ability to review the digital business separate from its eCommerce business, the Company performed an evaluation on the effect of its impact on the identification of operating segments. The assessment considered the way the business is managed (focusing on the financial information distributed) and the manner in which the chief operating decision maker interacts with other members of management. As a result of this assessment, during the fourth quarter of fiscal 2012, the Company created a new segment titled NOOK to report upon its digital business, moving the eCommerce business into the B&N Retail segment. The Company’s three operating segments are: B&N Retail, B&N College and NOOK. As a result of this evaluation, $20,279 of goodwill was re-allocated between B&N.com and NOOK segments. |
| (c) | During the fourth quarter of 2013, the Company has determined that goodwill impairment indicators arose in its NOOK reporting unit as recurring losses have led to revisions in its strategic plans. As a result, during the fourth quarter of fiscal 2013, the Company recorded a non-cash goodwill impairment charge of $18,332 in selling and administrative expenses, which represented all the goodwill in the NOOK reporting unit. |
F-62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| 12. | Microsoft Investment |
On April 27, 2012, the Company entered into an investment agreement between the Company, Morrison, and Microsoft pursuant to which the Company would form a Delaware limited liability company (NOOK Media), and transfer to NOOK Media the Company’s digital device, digital content and college bookstore businesses and NOOK Media would sell to Morrison, and Morrison would purchase, 300,000 convertible preferred membership interests in NOOK Media (Series A Preferred) for an aggregate purchase price of $300,000.
Concurrently with its entry into this agreement, the Company also entered into a commercial agreement with Microsoft, pursuant to which, among other things, NOOK Media would develop and distribute a Windows 8 application for e-reading and digital content purchases, and an intellectual property license and settlement agreement with Microsoft and Microsoft Licensing GP.
The parties closed Morrison’s investment in NOOK Media and the commercial agreement became effective on October 4, 2012.
Investment Agreement
Pursuant to the agreement, Microsoft invested $300,000 in NOOK Media in exchange for 300,000 Series A Preferred interests, representing approximately 17.6% of the common membership interest in NOOK Media on an as-converted basis as of closing. Following Microsoft’s investment, the Company retained the common membership interest in NOOK Media, representing approximately 82.4% of the common membership interests in NOOK Media (after giving effect to the conversion of the Series A Preferred interests into common membership interests) as of closing. The investment agreement is classified as temporary equity in the mezzanine section of the balance sheet between liabilities and permanent equity, net of investment fees. The temporary equity designation is due to a potential put feature after five years on the preferred membership interests. The preferred membership interests have a liquidation preference equal to the original investment.
Commercial Agreement
Under the commercial agreement, NOOK Media has developed and will continue to develop certain applications for Windows 8 for purchasing and consumption of digital reading content. The commercial agreement also requires NOOK Media to use its good faith efforts to undertake an international expansion of the digital business.
As part of the commercial agreement, NOOK Media and Microsoft share in the revenues, net of certain items, from digital content purchased from NOOK Media by customers using the NOOK Media Windows 8 applications or through certain Microsoft products and services that may be developed in the future and are designed to interact with the NOOK Media online bookstore. Microsoft has made and will continue to make certain guaranteed advance payments to NOOK Media in connection with such revenue sharing. For each of the first three years after the launch of such application for Windows 8, these advance payments are equal to $60,000 per year. These advance payments are subject to deferral under certain circumstances. Microsoft also has paid and will continue to pay to NOOK Media $25,000 each year for the first five years of the term for purposes of assisting NOOK Media in acquiring local digital reading content and technology development in the performance of NOOK Media’s obligations under the commercial agreement.
The guaranteed advance payments in connection with revenue sharing as well as the amounts received for purposes of assisting NOOK Media in acquiring local digital reading content and technology development received from Microsoft are treated as debt in accordance with ASC 470-10-25-2, Sales of
F-63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future Revenues or Various Other Measures of Income. The Company has estimated the cash flows associated with the commercial agreement and is amortizing the discount on the debt to interest expense over the term of the agreement in accordance with ASC 835-30-35-2, The Interest Method.
Settlement and License Agreement
The patent agreement provides for Microsoft and its subsidiaries to license to the Company and its affiliates certain intellectual property in exchange for royalty payments based on sales of certain devices. Additionally, the Company and Microsoft dismissed certain outstanding patent litigation between the Company, Microsoft and their respective affiliates in accordance with the settlement and license agreement. The Company records the royalty expense upon future NOOK sales in the statement of operations in selling and administrative expenses with no expense or liability for the sale of prior devices.
| 13. | Pearson |
On December 21, 2012, NOOK Media entered into an agreement with a subsidiary of Pearson to make a strategic investment in NOOK Media. That transaction closed on January 22, 2013, and Pearson invested approximately $89,500 of cash in NOOK Media at a post-money valuation of approximately $1,789,000 in exchange for preferred membership interests representing a 5% equity stake in NOOK Media. Following the closing of the transaction, the Company owns approximately 78.2% of the NOOK Media subsidiary and Microsoft, which also holds preferred membership interests, owns approximately 16.8%. The preferred membership interests have a liquidation preference equal to the original investment. In addition, NOOK Media granted warrants to Pearson to purchase up to an additional 5% of NOOK Media under certain conditions at a pre-money valuation of NOOK Media of approximately $1,789,000. The fair value of the preferred membership interests warrant liability was calculated using the Monte Carlo simulation approach.
This methodology values financial instruments whose value is dependent on an underlying total equity value by sampling random paths for the total equity value. The assumptions that are analyzed and incorporated into the model include closing date, valuation date, sales price of the preferred membership interests and warrants, warrant expiration date, time to liquidity event, risk-free rate, volatility, various correlations and the probability of meeting the net sales target. Based on the Company’s analysis, the total fair value of preferred membership interest warrants as of the valuation date was $1,700 and was recorded as a noncurrent asset and a long term liability. The noncurrent asset is being amortized over the vesting period in line with its net sales target.
At closing, NOOK Media and Pearson entered into a commercial agreement with respect to distributing Pearson content in connection with this strategic investment.
| 14. | Tikatok Impairment Charge |
During fiscal 2013, the Company decided to shut down the operations of Tikatok. Tikatok was an online platform where parents and their children and others can write, illustrate and publish stories into hardcover and paperback books. This decision resulted in an impairment charge of $1,973, including the write-off of goodwill of $1,947 and intangible assets of $26 during the second quarter of fiscal 2013. The effect of Tikatok operations is not material to the overall results of the Company.
| 15. | Liberty Investment |
On August 18, 2011, the Company entered into an investment agreement between the Company and Liberty GIC, Inc. (Liberty), a subsidiary of Liberty Media Corporation, pursuant to which the
F-64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company issued and sold to Liberty, and Liberty purchased, 204,000 shares of the Company’s Series J Preferred Stock, par value $0.001 per share (Preferred Stock), for an aggregate purchase price of $204,000, in a private placement exempt from the registration requirements of the 1933 Act. The shares of Preferred Stock will be convertible, at the option of the holders, into shares of Common Stock representing 16.6% of the Common Stock outstanding as of August 29, 2011, (after giving pro forma effect to the issuance of the Preferred Stock), based on the initial conversion rate. The initial conversion rate reflects an initial conversion price of $17.00 and is subject to adjustment in certain circumstances. The initial dividend rate for the Preferred Stock is equal to 7.75% per annum of the initial liquidation preference of the Preferred Stock, to be paid quarterly and subject to adjustment in certain circumstances. The Preferred Stock is mandatorily redeemable on August 18, 2021 and may be redeemed at the discretion of the Company anytime after August 17, 2016. Starting August 18, 2013, if the closing price of the Common Stock exceeds 150% of the then-applicable conversion price of the Preferred Stock for 20 consecutive trading days, the Company may require conversion of all the Preferred Stock to Common Stock.
The holders of the Preferred Stock have the same voting rights as holders of the Company Common Stock and are entitled to elect one or two directors to the board of directors of the Company as long as certain Preferred Share ownership requirements are met.
The Preferred Stock does not meet the categories of ASC 480-10, Distinguishing Liabilities from Equity, and is therefore reported as temporary equity for classification purposes. The related issuance costs, which include advisory, legal and accounting fees, of $12,621 were recorded in temporary equity as a reduction of the proceeds from the Liberty investment. The Company will be required to accrete these fees on a straight-line basis as dividends over the ten year term. This is in line with ASC 480-10-S99 for SEC registrants, which requires shares to be classified outside of permanent equity as temporary equity or mezzanine equity when there are events not solely within the control of the issuer that could trigger redemption. The Company has determined that the various embedded options did not require bifurcation from the Preferred Stock. Additionally, the Company concluded that a beneficial conversion feature did not exist as the effective conversion price was greater than the Company’s share price on the commitment date.
| 16. | Acquisition of Noncontrolling Interest |
Sterling Publishing had a 50% joint venture interest in Begin Smart LLC (Begin Smart), to develop, sell, and distribute books for infants, toddlers, and children under the brand name BEGIN SMART®. During fiscal 2011, the Company purchased the remaining 50% outside interest in Begin Smart for $300. 100% of Begin Smart results of operations for the period subsequent to the Begin Smart acquisition date are included in the consolidated financial statements.
| 17. | Shareholders’ Equity |
On November 17, 2009, the Board of Directors of the Company declared a dividend, payable to stockholders of record on November 27, 2009 of one right (a Right) per each share of outstanding Common Stock of the Company, par value $0.001 per share (Common Stock), to purchase 1/1000th of a share of Series I Preferred Stock, par value $0.001 per share, of the Company (the Preferred Stock), at a price of $100.00 per share (such amount, as may be adjusted from time to time as provided in the Rights Agreement). In connection therewith, on November 17, 2009, the Company entered into a Rights Agreement, dated November 17, 2009 (as amended February 17, 2010, June 23, 2010, October 29, 2010 and August 18, 2011, the Rights Agreement) with Mellon Investor Services LLC, as Rights Agent. The Rights expired on November 17, 2012.
F-65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On May 15, 2007, the Company’s Board of Directors authorized a stock repurchase program for the purchase of up to $400,000 of the Company’s common stock. The maximum dollar value of common stock that may yet be purchased under the current program is approximately $2,471 as of April 27, 2013. Stock repurchases under this program may be made through open market and privately negotiated transactions from time to time and in such amounts as management deems appropriate. As of April 27, 2013 the Company has repurchased 34,078,089 shares at a cost of approximately $1,063,854 under its stock repurchase programs. The repurchased shares are held in treasury.
| 18. | Commitments and Contingencies |
The Company leases retail stores, warehouse facilities, office space and equipment. Substantially all of the B&N Retail stores are leased under noncancelable agreements which expire at various dates through 2036 with various renewal options for additional periods. The agreements, which have been classified as operating leases, generally provide for both minimum and percentage rentals and require the Company to pay insurance, taxes and other maintenance costs. Percentage rentals are based on sales performance in excess of specified minimums at various stores.
B&N College’s contracts are typically for five to ten years, although some extend beyond ten years. Many contracts have a 90 to 120 day cancellation right by B&N College, or by the college or university, without penalty.
The Company leases office space in New York, New York and Palo Alto, California for its NOOK operations.
Rental expense under operating leases is as follows:
| Fiscal 2013 | Fiscal 2012 | Fiscal 2011 | ||||||||||
| Minimum rentals |
$ | 413,751 | 382,386 | 394,199 | ||||||||
| Percentage rentals |
101,960 | 107,127 | 102,735 | |||||||||
|
|
|
|
|
|
|
|||||||
| $ | 515,711 | 489,513 | 496,934 | |||||||||
|
|
|
|
|
|
|
|||||||
F-66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum annual rentals, excluding percentage rentals, required under B&N Retail leases that had initial, noncancelable lease terms greater than one year, under B&N College and NOOK leases as of April 27, 2013 are:
| Fiscal Year |
(a) | |||
| 2014 |
$ | 414,765 | ||
| 2015 |
346,215 | |||
| 2016 |
297,408 | |||
| 2017 |
250,765 | |||
| 2018 |
186,016 | |||
| After 2018 |
343,873 | |||
|
|
|
|||
| $ | 1,839,042 | |||
|
|
|
|||
| (a) | Includes B&N College capital lease obligations of $997, $742, $232, $39, $0 and $0 for 2014, 2015, 2016, 2017, 2018 and after 2018, respectively. |
The Company provides for minimum rent expense over the lease terms (including the build-out period) on a straight-line basis. The excess of such rent expense over actual lease payments (net of tenant allowances) is reflected in other long-term liabilities and accrued liabilities in the accompanying balance sheets.
On June 26, 2008, the Company exercised its purchase option under a lease on one of its distribution facilities located in South Brunswick, New Jersey from the New Jersey Economic Development Authority. Under the terms of the lease expiring in June 2011, the Company purchased the distribution facility and equipment for approximately $21,000. Subsequently, on December 29, 2011, the Company sold the distribution facility in South Brunswick, New Jersey for $18,000, which resulted in a loss of $2,178.
| 19. | Segment Reporting |
The Company’s three operating segments are: B&N Retail, B&N College and NOOK.
B&N Retail
This segment includes 675 bookstores as of April 27, 2013, primarily under the Barnes & Noble Booksellers trade name. The 675 Barnes & Noble stores generally offer a dedicated NOOK® area, a comprehensive trade book title base, a café, and departments dedicated to Juvenile, Toys & Games, DVDs, Music, Gift, Magazine and Bargain products. The stores also offer a calendar of ongoing events, including author appearances and children’s activities. The B&N Retail segment also includes the Company’s e-Commerce website, barnesandnoble.com, and its publishing operation, Sterling Publishing.
B&N College
This segment includes 686 stores as of April 27, 2013, that are primarily school-owned stores operated under contracts by B&N College and include sales of digital content within the higher education marketplace through NOOK Study™. The 686 B&N College stores generally offer new, used, rental and digital textbooks, course-related materials, emblematic apparel and gifts, trade books, computer products, NOOK® products and related accessories, school and dorm supplies, and convenience and café items.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOOK
This segment includes the Company’s digital business, including the development and support of the Company’s NOOK® product offerings. The digital business includes digital content such as eBooks, digital newsstand, apps and sales of NOOK® devices and accessories to third party distribution partners, B&N Retail and B&N College.
Summarized financial information concerning the Company’s reportable segments is presented below:
| Sales by Segment |
52
weeks ended April 27, 2013 |
52
weeks ended April 28, 2012 |
52 weeks ended April 30, 2011 |
|||||||||
| B&N Retail |
$ | 4,568,243 | $ | 4,852,913 | $ | 4,926,834 | ||||||
| B&N College |
1,763,248 | 1,743,662 | 1,778,159 | |||||||||
| NOOK |
780,433 | 933,471 | 695,182 | |||||||||
| Elimination |
(272,919 | ) | (400,847 | ) | (401,610 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | 6,839,005 | $ | 7,129,199 | $ | 6,998,565 | ||||||
|
|
|
|
|
|
|
|||||||
| Sales by Product Line |
52 weeks ended April 27, 2013 |
52 weeks ended April 28, 2012 |
52 weeks ended April 30, 2011 |
|||||||||
| Media (a) |
67 | % | 66 | % | 70 | % | ||||||
| Digital (b) |
12 | % | 15 | % | 11 | % | ||||||
| Other (c) |
21 | % | 19 | % | 19 | % | ||||||
|
|
|
|
|
|
|
|||||||
| Total |
100 | % | 100 | % | 100 | % | ||||||
|
|
|
|
|
|
|
|||||||
| Depreciation and Amortization |
52 weeks ended April 27, 2013 |
52 weeks ended April 28, 2012 |
52 weeks ended April 30, 2011 |
|||||||||
| B&N Retail |
$ | 148,855 | $ | 162,693 | $ | 164,934 | ||||||
| B&N College |
46,849 | 45,343 | 43,148 | |||||||||
| NOOK |
31,430 | 24,631 | 20,565 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | 227,134 | $ | 232,667 | $ | 228,647 | ||||||
|
|
|
|
|
|
|
|||||||
| Operating Profit/(Loss) |
52 weeks ended April 27, 2013 |
52 weeks ended April 28, 2012 |
52 weeks ended April 30, 2011 |
|||||||||
| B&N Retail |
$ | 227,235 | $ | 161,136 | $ | 102,592 | ||||||
| B&N College |
64,609 | 70,604 | 70,298 | |||||||||
| NOOK |
(511,848 | ) | (286,343 | ) | (229,689 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | (220,004 | ) | $ | (54,603 | ) | $ | (56,799 | ) | |||
|
|
|
|
|
|
|
|||||||
F-68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Capital Expenditures |
52 weeks ended April 27, 2013 |
52 weeks ended April 28, 2012 |
52 weeks ended April 30, 2011 |
|||||||||
| B&N Retail |
$ | 51,401 | $ | 87,596 | $ | 62,299 | ||||||
| B&N College |
38,760 | 40,479 | 35,004 | |||||||||
| NOOK |
75,674 | 35,477 | 13,199 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | 165,835 | $ | 163,552 | $ | 110,502 | ||||||
|
|
|
|
|
|
|
|||||||
| Total Assets (d) |
As of April 27, 2013 |
As of April 28, 2012 |
||||||
| B&N Retail |
$ | 2,169,678 | $ | 2,416,318 | ||||
| B&N College |
989,748 | 972,860 | ||||||
| NOOK |
573,110 | 385,521 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 3,732,536 | $ | 3,774,699 | ||||
|
|
|
|
|
|||||
| (a) | Includes tangible books, music, movies, rentals and newsstand. |
| (b) | Includes NOOK, related accessories, eContent and warranties. |
| (c) | Includes Toys & Games, café products, gifts and miscellaneous other. |
| (d) | Excludes intercompany balances. |
A reconciliation of operating profit from reportable segments to income (loss) from continuing operations before taxes in the consolidated financial statements is as follows:
| 52 weeks ended April 27, 2013 |
52 weeks ended April 28, 2012 |
52
weeks ended April 30, 2011 |
||||||||||
| Reportable segments operating loss |
$ | (220,004 | ) | $ | (54,603 | ) | $ | (56,799 | ) | |||
| Interest expense, net and amortization of deferred financing costs |
(35,345 | ) | (35,304 | ) | (57,350 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Consolidated loss before taxes |
$ | (255,349 | ) | $ | (89,907 | ) | $ | (114,149 | ) | |||
|
|
|
|
|
|
|
|||||||
| 20. | Legal Proceedings |
The Company is involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of its business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, securities, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.
The Company records a liability when it believes that it is both probable that a liability will be incurred, and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate. Significant judgment is required to determine both
F-69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
probability and the estimated amount of a loss or potential loss. The Company may be unable to reasonably estimate the reasonably possible loss or range of loss for a particular legal contingency for various reasons, including, among others: (i) if the damages sought are indeterminate; (ii) if proceedings are in the early stages; (iii) if there is uncertainty as to the outcome of pending proceedings (including motions and appeals); (iv) if there is uncertainty as to the likelihood of settlement and the outcome of any negotiations with respect thereto; (v) if there are significant factual issues to be determined or resolved; (vi) if the proceedings involve a large number of parties; (vii) if relevant law is unsettled or novel or untested legal theories are presented; or (viii) if the proceedings are taking place in jurisdictions where the laws are complex or unclear. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. With respect to the legal matters described below, the Company has determined, based on its current knowledge, that the amount of loss or range of loss, that is reasonably possible including any reasonably possible losses in excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control. As such, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, results of operations, or cash flows.
The following is a discussion of the material legal matters involving the Company.
PATENT LITIGATION
Barnes & Noble, Inc. and its subsidiaries are subject to allegations of patent infringement by various patent holders, including non-practicing entities (NPEs), sometimes referred to as “patent trolls,” who may seek monetary settlements from us, our competitors, suppliers and resellers. In some of these cases, the Company is the sole defendant. In others, the Company is one of a number of defendants. The Company is actively defending a number of patent infringement suits, and several pending claims are in various stages of evaluation. The following cases are among the patent infringement cases pending against the Company:
Barnes & Noble, Inc. and Barnesandnoble.com llc v. LSI Corporation and Agere Systems, Inc.
On June 6, 2011, Barnes & Noble, Inc. filed a complaint against LSI Corporation (LSI) in the United States District Court for the Northern District of California. The complaint sought a declaratory judgment that Barnes & Noble, Inc. does not infringe U.S. Patent Nos. 5,546,420; 5,670,730; 5,862,182; 5,920,552; 6,044,073; 6,119,091; 6,404,732; 6,452,958; 6,707,867 and 7,583,582. Barnes & Noble, Inc. amended the complaint on August 10, 2011 to add barnesandnoble.com llc as a plaintiff, to add Agere Systems, Inc. (Agere) as a defendant, to add a cause of action seeking a declaratory judgment that neither Barnes & Noble, Inc. nor barnesandnoble.com llc infringes U.S. Patent No. 7,477,633, and to add causes of action seeking a declaratory judgment that each of the eleven patents-in-suit is invalid. On November 1, 2011, LSI and Agere answered the amended complaint and asserted counterclaims against Barnes & Noble, Inc. and barnesandnoble.com llc, alleging infringement of the eleven patents-in-suit. On November 28, 2011, Barnes & Noble, Inc. and barnesandnoble.com llc answered the counterclaims and asserted several affirmative defenses, including the defense that seven of the patents-in-suit are unenforceable as a result of standard-setting misconduct. As required by the District Court’s Local Patent Rules, LSI and Agere served their Disclosure of Asserted Claims and Infringement Contentions on July 2, 2012. In that disclosure, LSI and Agere asserted infringement of only six of the eleven patents they had previously accused Barnes & Noble, Inc. and barnesandnoble.com llc of infringing. On January 18, 2013, LSI and Agere notified Barnes & Noble that they were dropping another asserted patent. On May 20, 2013, LSI and Agere filed amended counterclaims, alleging infringement of five additional patents—U.S. Patent Nos. 8,041,394; 5,870,087; 5,568,167; 6,982,663 and 5,452,006. Barnes & Noble, Inc. and barnesandnoble.com llc responded to these amended counterclaims and asserted several affirmative defenses on June 21, 2013. The District Court has set certain pretrial dates in the case, including a claim construction hearing beginning on March 24, 2014. The District Court has not yet set a trial date in the case.
F-70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deep9 Corporation v. Barnes & Noble, Inc. and barnesandnoble.com llc
On January 1, 2011, Deep9 Corporation (Deep9) filed a complaint against Barnes & Noble, Inc. and barnesandnoble.com llc in the United States District Court for the Western District of Washington. The complaint alleges that Barnes & Noble, Inc. and barnesandnoble.com llc infringe U.S. Patent Nos. 5,937,405 and 6,377,951. On February 1, 2011, Barnes & Noble, Inc. and barnesandnoble.com llc filed an answer denying infringement and asserting several affirmative defenses. At the same time, Barnes & Noble, Inc. and barnesandnoble.com llc filed counterclaims seeking a declaratory judgment that neither Barnes & Noble, Inc. nor barnesandnoble.com llc infringes the patents-in-suit and that each of the two patents-in-suit is invalid. The District Court issued an order regarding claim construction on January 10, 2012 and amended that order on January 24, 2012. On September 21, 2012, the District Court granted Barnes & Noble, Inc. and barnesandnoble.com llc’s motion for summary judgment of non-infringement as to both of Deep9’s patents-in-suit, and entered judgment in favor of Barnes & Noble, Inc. and barnesandnoble.com llc. On October 16, 2012, Deep9 filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. After the parties briefed the issues raised in Deep9’s appeal, the Federal Circuit heard oral argument on May 8, 2013. On May 13, 2013, the Federal Circuit issued a summary affirmance in which it affirmed the District Court’s judgment in favor of Barnes & Noble, Inc. and barnesandnoble.com llc.
Technology Properties Limited et al. v. Barnes & Noble Inc., et al.
On July 24, 2012, Technology Properties Limited, LLC, Phoenix Digital Solutions, LLC, and Patriot Scientific Corporation (collectively, TPL) submitted a complaint to the U.S. International Trade Commission (ITC), captioned Certain Wireless Consumer Electronics Devices and Components thereof, Inv. No. 337-TA-853, requesting that the ITC institute an investigation pursuant to Section 337 of the Tariff Act of 1930, as amended. The complaint alleges that the sale for importation into the United States, the importation, and/or the sale within the United States after importation of Barnes & Noble, Inc.’s NOOKTM products infringe certain claims of U.S. Patent No. 5,809,336. The complaint also asserts similar claims against the products of 23 other Respondents. The complaint requests that the ITC issue a permanent exclusion order and a permanent cease-and-desist order with respect to these products. On August 21, 2012, the ITC issued a Notice of Institution of Investigation and delegated authority for factfinding on the public interest to the Administrative Law Judge (ALJ) hearing the case. On September 24, 2012, Barnes & Noble filed a response to the complaint, denying that its products infringe the ‘336 patent and denying that it has engaged in any action that would constitute unlawful sale for importation into the United States, importation, or sale within the United States after importation. Barnes & Noble also asserted ten affirmative defenses. On February 12, 2013, TPL entered into a stipulation in which it agreed that the NOOK Simple Touch, NOOK Simple Touch with GlowLight, NOOK HD, and NOOK HD+ are the only Barnes & Noble products accused of infringement in the investigation; therefore, the NOOK 1st Edition, NOOK Color, and NOOK Tablet products are no longer accused of infringement in the investigation. Fact discovery ended on February 22, 2013. Initial expert reports were submitted on March 27, 2013. Following a Markman hearing on March 5, 2013, the ALJ issued a claim construction order on April 18, 2013. Expert discovery ended on May 1, 2013. On June 3-7, 2013 and June 10-11, 2013, the Administrative Law Judge conducted a hearing in the action. The parties filed their opening post-hearing briefs on June 28, 2013, and filed their reply post-hearing briefs on July 10, 2013. The Administrative Law Judge is scheduled to issue his final initial determination on September 6, 2013. The target date for ITC resolution of the investigation is January 6, 2014.
F-71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Also on July 24, 2012, TPL filed a complaint against Barnes & Noble, Inc. in the United States District Court for the Northern District of California. The complaint similarly alleges that Barnes & Noble is infringing the ‘336 patent through the importation and sale in the United States of NOOKTM products. The complaint also alleges that Barnes & Noble is infringing two other patents in the same patent family: U.S. Patent No. 5,440,749 and U.S. Patent No. 5,530,890. On September 21, 2012, TPL and Barnes & Noble filed a stipulation agreeing to stay the action pending final resolution of the ITC action. On September 26, 2012, the District Court granted the motion to stay.
Adrea LLC v. Barnes & Noble, Inc., barnesandnoble.com LLC and Nook Media LLC
On June 14, 2013, Adrea LLC filed a complaint against Barnes & Noble, Inc., barnesandnoble.com LLC and Nook Media LLC in the United States District Court for the Southern District of New York alleging that various B&N Nook products and related online services infringe U.S. Patent 7,298,851, U.S. Patent 7,299,501, and U.S. Patent 7,620,703. The current deadline to answer or to otherwise respond is August 9, 2013.
OTHER LITIGATION
Kevin Khoa Nguyen, an individual, on behalf of himself and all others similarly situated v. Barnes & Noble, Inc.
On April 17, 2012, a complaint was filed in the Superior Court for the State of California against the Company. The complaint is styled as a nationwide class action and includes a California state-wide subclass based on alleged cancellations of orders for HP TouchPad Tablets placed on the Company’s website in August 2011. The lawsuit alleges claims for unfair business practices and false advertising under both New York and California state law, violation of the Consumer Legal Remedies Act under California law, and breach of contract. The complaint demands specific performance of the alleged contracts to sell HP TouchPad Tablets at a specified price, injunctive relief, and monetary relief, but does not specify an amount. The Company submitted its initial response to the complaint on May 18, 2012, and moved to compel plaintiff to arbitrate his claims on an individual basis pursuant to a contractual arbitration provision on May 25, 2012. The court denied the Company’s motion to compel arbitration, and the Company appealed that denial to the Ninth Circuit Court of Appeals. The Company filed its opening brief on the appeal on February 11, 2013. The answering brief was filed on April 13, 2013, and the Company’s reply brief was filed on May 23, 2013. The Company has also moved to dismiss the complaint and moved to transfer the action to New York. The court granted the Company’s motion to stay on November 26, 2012, and the action has been stayed pending resolution of the Company’s appeal from the court’s denial of its motion to compel arbitration.
F-72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PIN Pad Litigation
As previously disclosed, the Company discovered that PIN pads in certain of its stores had been tampered with to allow criminal access to card data and PIN numbers on credit and debit cards swiped through the terminals. Following public disclosure of this matter on October 24, 2012, the Company was served with four putative class action complaints (three in federal district court in the Northern District of Illinois and one in the Northern District of California), each of which alleged on behalf of national and other classes of customers who swiped credit and debit cards in Barnes & Noble Retail stores common law claims such as negligence, breach of contract and invasion of privacy, as well as statutory claims such as violations of the Fair Credit Reporting Act, state data breach notification statutes, and state unfair and deceptive practices statutes. The actions sought various forms of relief including damages, injunctive or equitable relief, multiple or punitive damages, attorneys’ fees, costs, and interest. All four cases have now been transferred and/or assigned to a single Judge in the United States District Court for the Northern District of Illinois, and a single consolidated amended complaint has been filed. The Company has filed a motion to dismiss the consolidated amended complaint in its entirety. It is uncertain when the Court will render a decision on that motion. It is possible that additional litigation arising out of this matter may be commenced on behalf of customers, banks or other card issuers, payment card companies or stockholders seeking damages allegedly arising out of this incident and other related relief.
The Company also has received inquiries related to this matter from the Federal Trade Commission and eight state attorneys general, all of which have either been closed or have not had any recent activity, and the Company intends to cooperate with them if further activity arises. In addition, payment card companies and associations may impose fines by reason of the tampering and federal or state enforcement authorities may impose penalties or other remedies against the Company.
At this point the Company is unable to predict the developments in, outcome of, and economic and other consequences of pending or future litigation or state and federal inquiries related to this matter.
Dustin Torrez, an individual, on behalf of himself and all others similarly situated v. Barnes & Noble, Inc.
On October 11, 2011, a complaint was filed in the Superior Court for the State of California against the Company. The complaint is styled as a California state-wide class action. It alleges violations of California Civil Code section 1747.08 (the Song-Beverly Credit Card Act of 1971) due to the Company’s alleged improper requesting and recording of zip codes from California customers who used credit cards as payment. The complaint was re-filed in the Superior Court for the State of California on December 23, 2011 as a separate action. The Summons and Complaint have not been served on the Company for either action. On February 10, 2012, the plaintiff filed a request that the action filed in December be dismissed with prejudice.
F-73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Lina v. Barnes & Noble, Inc., and Barnes & Noble Booksellers, Inc. et al.
On August 5, 2011, a purported class action complaint was filed against Barnes & Noble, Inc. and Barnes & Noble Booksellers, Inc. in the Superior Court for the State of California making the following allegations against defendants with respect to salaried Store Managers at Barnes & Noble stores located in the State of California from the period of August 5, 2007 to present: (1) failure to pay wages and overtime; (2) failure to pay for missed meal and/or rest breaks; (3) waiting time penalties; (4) failure to pay minimum wage; (5) failure to provide reimbursement for business expenses; and (6) failure to provide itemized wage statements. The claims are generally derivative of the allegation that these salaried managers were improperly classified as exempt from California’s wage and hour laws. The complaint contains no allegations concerning the number of any such alleged violations or the amount of recovery sought on behalf of the purported class. The Company was served with the complaint on August 11, 2011. The parties are currently engaged in pre-certification discovery. The state court has set the following certification motion schedule: Lina’s motion for class certification is due August 12, 2013, Barnes & Noble’s opposition is due October 11, 2013, and plaintiff’s reply is due November 25, 2013. The hearing date for the certification motion is December 11, 2013. No trial date has been set.
Jones et al v. Barnes & Noble, Inc., and Barnes & Noble Booksellers, Inc. et al.
On April 23, 2013, Kenneth Jones (Jones) filed a purported Private Attorney General Act (PAGA) action complaint against Barnes & Noble, Inc. and Barnes & Noble Booksellers, Inc. in the Superior Court for the State of California making the following allegations against defendants with respect to salaried Store Managers at Barnes & Noble stores located in the State of California: (1) failure to pay wages and overtime; (2) failure to pay for missed meal and/or rest breaks; (3) waiting time penalties; (4) failure to pay minimum wage; (5) failure to provide reimbursement for business expenses; and (6) failure to provide itemized wage statements. The claims are generally derivative of the allegation that Jones and other “aggrieved employees” were improperly classified as exempt from California’s wage and hour laws. The complaint contains no allegations concerning the number of any such alleged violations or the amount of recovery sought on behalf of the plaintiff or the purported aggrieved employees. The case was initially assigned to the Honorable Barbara Scheper. Because the underlying factual claims in the Jones complaint are almost identical to the claims in the Lina v. Barnes & Noble action, Barnes & Noble filed a Notice of Related Case on May 1, 2013. On May 7, 2013, Judge Michael Johnson (before whom the Lina action is pending) ordered the Jones action related to the Lina action and assigned the Jones action to himself. The Company was served with the complaint on May 16, 2013, and filed an answer on June 10, 2013.
Trimmer v. Barnes & Noble
On January 25, 2013, Steven Trimmer (Trimmer), a former Assistant Store Manager (ASM) of the Company, filed a complaint in the United States District Court for the Southern District of New York alleging violations of the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL). Specifically, Trimmer alleges that he and other similarly situated ASMs were improperly classified as exempt from overtime and denied overtime wages prior to July 1, 2010, when the Company reclassified them as non-exempt. The complaint seeks to certify a collective action under the FLSA comprised of ASMs throughout the country employed from January 25, 2010 until July 1, 2010, and a class action under the NYLL comprised of ASMs employed in New York from January 25, 2007 until July 1, 2010. The parties are currently engaged in discovery with respect to the individual claims asserted by Trimmer and one opt-in plaintiff only. The Court has stayed all class-wide discovery at this point. The parties have until August 30, 2013 to complete this first phase of discovery.
| 21. | Certain Relationships and Related Transactions |
The Company believes that the transactions and agreements discussed below (including renewals of any existing agreements) between the Company and related third parties are at least as favorable to the Company as could have been obtained from unrelated parties at the time they were entered into. The Audit Committee of the Board of Directors utilizes procedures in evaluating the terms and provisions of proposed related party transactions or agreements in accordance with the fiduciary duties of directors under Delaware law. The Company’s related party transaction procedures contemplate Audit Committee review and approval of all new agreements, transactions or courses of dealing with related parties, including any modifications, waivers or amendments to existing related party transactions. The Company tests to ensure that the terms of related party transactions are at least as favorable to the Company as could have been obtained from unrelated parties at the time of the transaction. The Audit Committee considers, at a minimum, the nature of the relationship between the Company and the related party, the history of the transaction (in the case of modifications, waivers or amendments), the terms of the proposed transaction, the Company’s rationale for entering the transaction and the terms of comparable transactions with unrelated third parties. In addition, management and internal audit annually analyzes all existing related party agreements and transactions and reviews them with the Audit Committee.
The Company completed the acquisition (the Acquisition) of B&N College from Leonard Riggio and Louise Riggio (the Sellers) on September 30, 2009. In connection with the closing of the
F-74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Acquisition, the Company issued the Sellers (i) a senior subordinated note in the principal amount of $100,000, with interest of 8% per annum payable on the unpaid principal amount, which was paid on December 15, 2010 in accordance with its scheduled due date, and (ii) a junior subordinated note in the principal amount of $150,000 (the Junior Seller Note), payable in full on the fifth anniversary of the closing of the Acquisition, with interest of 10% per annum payable on the unpaid principal amount. The Junior Seller Note was and is unsecured and subordinated to the obligations under the 2009 Credit Facility, the 2011 Amended Credit Facility and the 2013 Amended Credit Facility, as applicable, as well as certain other senior obligations. The Company may prepay the Junior Seller Note at any time without premium or penalty to the extent not prohibited by the 2013 Amended Credit Facility and senior debt documents. Pursuant to a settlement agreed to on June 13, 2012, the Sellers agreed to waive $22,750 of the purchase price by waiving a corresponding principal amount (and interest on such principal amount) of the Junior Seller Note.
B&N College has a long-term supply agreement (Supply Agreement) with MBS Textbook Exchange, Inc. (MBS), which is majority owned by Leonard Riggio, Stephen Riggio (formerly the Company’s Vice Chairman and Chief Executive Officer) and other members of the Riggio family. MBS is a new and used textbook wholesaler, which also sells textbooks online and provides bookstore systems and distant learning distribution services. Pursuant to the Supply Agreement, which has a term of ten years, and subject to availability and competitive terms and conditions, B&N College will continue to purchase new and used printed textbooks for a given academic term from MBS prior to buying them from other suppliers, other than in connection with student buy-back programs. Additionally, the Supply Agreement provides for B&N College to sell to MBS certain textbooks that B&N College cannot return to suppliers or use in its stores. MBS pays B&N College commissions based on the volume of these textbooks sold to MBS each year and with respect to the textbook requirements of certain distance learning programs that MBS fulfills on B&N College’s behalf. MBS paid B&N College $8,106, $10,941 and $13,031 related to these commissions in fiscal 2013, fiscal 2012 and fiscal 2011, respectively. In addition, the Supply Agreement contains restrictive covenants that limit the ability of B&N College and the Company to become a used textbook wholesaler and that place certain limitations on MBS’s business activities. B&N College and Barnes & Noble.com also entered into an agreement with MBS in fiscal 2011 pursuant to which MBS agrees to purchase at the end of a given semester certain agreed upon textbooks which B&N College and Barnes & Noble.com shall have rented to students during such semester. Total sales to MBS under this program were $772, $13,339 and $506 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively. In addition, B&N College entered into an agreement with MBS in fiscal 2011 pursuant to which MBS purchases books from B&N College, which have no resale value for a flat rate per box. Total sales to MBS under this program were $503, $364 and $427 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
The Company purchases new and used textbooks directly from MBS. Total purchases were $93,514, $101,980 and $102,573 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively. MBS sells used books through the Barnes & Noble.com dealer network. Barnes & Noble.com earned a commission of $3,441, $4,661 and $5,474 on the MBS used book sales in fiscal 2013, fiscal 2012 and fiscal 2011, respectively. In addition, Barnes & Noble.com hosts pages on its website through which Barnes & Noble.com customers are able to sell used books directly to MBS. Barnes & Noble.com is paid a fixed commission on the price paid by MBS to the customer. Total commissions paid to Barnes & Noble.com were $104, $160 and $184 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively. In fiscal 2013, Barnes & Noble Booksellers entered into an agreement with MBS Direct, a division of MBS, pursuant to which the marketplace program on the Barnes & Noble.com website was made available on the MBS Direct website. The Company receives a fee from third party sellers for sales of marketplace items sold on the MBS Direct website and, upon receipt of such fee, remits a separate fee to MBS Direct for those sales. There have been no commissions paid to MBS Direct during fiscal 2013. Total outstanding amounts payable to MBS and MBS Direct for all arrangements net of any amounts due were $24,860 and $24,025 for fiscal 2013 and fiscal 2012, respectively.
F-75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In fiscal 2010, the Company’s wholly owned subsidiary Barnes & Noble Bookquest LLC (Bookquest) entered into an agreement with TXTB.com LLC (TXTB), a subsidiary of MBS, pursuant to which the marketplace program on the Barnes & Noble.com website was made available on the TXTB website. In fiscal 2012, Bookquest was merged into Barnes & Noble.com. Barnes & Noble.com receives a fee from third party sellers for sales of marketplace items and, upon receipt of such fee, Barnes & Noble.com remits a separate fee to TXTB for any marketplace items sold on the TXTB website. Total commissions paid to TXTB were $302, $559 and $775 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. Outstanding amounts payable to TXTB were $3, $6 and $8 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively. In fiscal 2011, Barnes & Noble.com entered into an agreement with TXTB pursuant to which Barnes & Noble.com became the exclusive provider of trade books to TXTB customers through www.textbooks.com. TXTB receives a commission from Barnes & Noble.com on each purchase by a TXTB customer. Total commissions paid to TXTB were $78, $148 and $0 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. Outstanding amounts payable to TXTB under this agreement were $1, $1 and $4 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
In fiscal 2010, the Company entered into an Aircraft Time Sharing Agreement with LR Enterprises Management LLC (LR Enterprises), which is owned by Leonard Riggio and Louise Riggio, pursuant to which LR Enterprises granted the Company the right to use a jet aircraft owned by it on a time-sharing basis in accordance with, and subject to the reimbursement of certain operating costs and expenses as provided in, the Federal Aviation Regulations (FAR). Such operating costs were $159, $1,015 and $932 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. LR Enterprises is solely responsible for the physical and technical operation of the aircraft, aircraft maintenance and the cost of maintaining aircraft liability insurance, other than insurance obtained for the specific flight as requested by the Company, as provided in the FAR.
The Company has leases for two locations for its corporate offices with related parties: the first location is leased from an entity in which Leonard Riggio has a majority interest and expires in 2013; the second location is leased from an entity in which Leonard Riggio has a minority interest and expires in 2016. The space was rented at an aggregate annual rent including real estate taxes of approximately $5,098, $4,843 and $4,868 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The Company leases one of its B&N College stores from a partnership owned by Leonard and Stephen Riggio, pursuant to a lease expiring in 2014. Rent of $862, $862 and $862 was paid during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The Company leases an office/warehouse from a partnership in which Leonard Riggio has a 50% interest, pursuant to a lease expiring in 2023. The space was rented at an annual rent of $707, $759 and $763 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. Net of subtenant income, the Company paid $275, $376 and $246 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
GameStop Corp. (GameStop), a company in which Leonard Riggio was a five percent beneficial shareholder until October 14, 2010 and a member of the Board of Directors until 2011, operates departments within some of the Company’s bookstores. GameStop pays a license fee to the Company in an amount equal to 7% of the gross sales of such departments, which totaled $989 during fiscal 2011. GameStop sold new and used video games and consoles on the Barnes & Noble.com website up until May 1, 2011, when the agreement between GameStop and Barnes & Noble.com terminated. Barnes & Noble.com received a commission on sales made by GameStop. For fiscal 2011, the commission earned by Barnes & Noble.com was $356. Until June 2005, GameStop participated in the Company’s workers’ compensation, property and general liability insurance programs. The costs incurred by the Company under these programs were allocated to GameStop based upon GameStop’s total payroll expense, property and equipment, and insurance claim history. GameStop reimbursed the Company for these services for $51 during fiscal 2011. Although GameStop secured its own insurance coverage, costs are
F-76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
continuing to be incurred by the Company on insurance claims which were made under its programs prior to June 2005 and any such costs applicable to insurance claims against GameStop will be charged to GameStop at the time incurred.
The Company is provided with national freight distribution, including trucking services by Argix Direct Inc. (Argix), a company in which a brother of Leonard and Stephen Riggio owns a 20% interest, pursuant to a transportation agreement expiring in 2014 (following an automatic renewal of the agreement by its terms in 2012 for an additional two-year term, although at all times the agreement requires a two-year notice to terminate). The Company paid Argix $54,768, $49,437 and $53,909 for such services during fiscal 2013, fiscal 2012 and fiscal 2011, respectively, of which approximately 74%, 73% and 72% were remitted by Argix to its subcontractors for fiscal 2013, fiscal 2012 and fiscal 2011, respectively, which subcontractors are not related to the Company. At the time of the agreement, the cost of freight delivered to the stores by Argix was comparable to the prices charged by publishers and the Company’s other third party freight distributors. However, due to higher contracted fuel surcharge and transportation costs, Argix’s rates were higher than the Company’s other third party freight distributors. As a result, the Company amended its existing agreement with Argix effective January 1, 2009. The amendment provides the Company with a $3,000 annual credit to its freight and transportation costs for the remaining life of the existing agreement. The $3,000 annual credit expired with the April 1, 2012 renewal of the agreement. While the terms are currently unfavorable due to the higher fuel surcharges, the Company’s management believes these additional charges are mitigated by the additional delivery services that Argix provides. These additional services are beneficial to store productivity which is not consistently met by other third party freight distributors. Argix provides B&N College with transportation services under a separate agreement that expired and was renewed in 2011. The renewed agreement expires in 2013. The Company believes that the transportation costs that B&N College paid to Argix are comparable to the transportation costs charged by third party distributors. B&N College paid Argix $1,069, $1,294 and $1,477 for such services during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. Argix also leased office and warehouse space from the Company in Jamesburg, New Jersey, pursuant to a lease expiring in 2011. This lease was renewed for additional space in 2011. However, the Company subsequently sold the warehouse on December 29, 2011. The Company charged Argix $1,514 and $2,719 for such leased space and other operating costs incurred on its behalf prior to the sale of the warehouse during fiscal 2012 and fiscal 2011, respectively.
The Company uses Digital on Demand as its provider of music and video database equipment and services. Leonard Riggio owns a minority interest in Digital on Demand. The agreement with Digital on Demand was terminated on May 31, 2011. The Company paid Digital on Demand $185 and $1,932 for music and video database equipment and services during fiscal 2012 through the date of termination and fiscal 2011, respectively.
On August 18, 2011, the Company entered into an investment agreement between the Company and Liberty GIC, Inc. (Liberty), a subsidiary of Liberty Media Corporation (Liberty Media), pursuant to which the Company issued and sold to Liberty, and Liberty purchased, 204,000 shares of the Company’s Series J Preferred Stock, par value $0.001 per share, for an aggregate purchase price of $204,000 in a private placement exempt from the registration requirements of the 1933 Act (see Note 15).
The Company purchases trade books, primarily craft and hobby books, from Leisure Arts, Inc. (Leisure Arts), a subsidiary of Liberty Media. Total purchases from Leisure Arts following the date of the Liberty investment were $45 and $59 during fiscal 2013 and fiscal 2012. In fiscal 2013, the Company entered into agreements with Starz Entertainment LLC (Starz Entertainment), then a subsidiary of Liberty Media, pursuant to which Starz Entertainment registered for the NOOK developer program whereby Starz applications were made available for consumer download on NOOK® devices. Separately, the Company entered into a License Agreement with Starz Media, LLC (Starz Media and, together with Starz Entertainment, Starz) in fiscal 2013, pursuant to which Starz granted certain video resale rights to the Company in exchange for royalty payments to Starz Media on such sales. Starz was spun-off from Liberty Media on January 11, 2013. Total payments to Starz during fiscal 2013 prior to
F-77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 11, 2013 were $17. In fiscal 2013, the Company entered into an agreement with Sirius XM Radio, Inc. (Sirius), a subsidiary of Liberty Media, pursuant to which Sirius registered for the NOOK developer program whereby Sirius applications were made available for consumer download on NOOK® devices. Total commissions received from Sirius during fiscal 2013 were $0.
In fiscal 2012, the Company entered into agreements with third parties who sell Barnes & Noble products through QVC and Home Shopping Network (HSN), which were at such time affiliates of Liberty Media. The entity that indirectly holds the Barnes & Noble investment (Liberty Media) is currently a separate public company from the entity that owns QVC and HSN (Liberty Interactive). Liberty Media was split-off (the Split-Off) from Liberty Interactive on September 28, 2011. No products were sold to the third parties from August 18, 2011, the date of the investment through the date of the Split-Off. The Company also purchased Halloween costumes from BuySeasons Inc. (BuySeasons), a subsidiary of Liberty Interactive. Total purchases from BuySeasons following the date of the Liberty investment and prior to the date of the Split-Off were $33. On July 19, 2011, the Company renewed a one-year contract with Commerce Technologies, Inc. (Commerce Hub), a subsidiary of Liberty Interactive, who provides services to help facilitate and integrate sales with drop-ship vendors. Total fees paid to Commerce Hub following the date of the Liberty investment and prior to the date of the Split-Off were $22. The Company purchases textbooks from AI2, Inc. (AI2), a subsidiary of Liberty Interactive. There were no purchases from AI2 following the date of the Liberty investment and prior to the date of the Split-Off. The Company paid commissions to Liberty Interactive Advertising (LIA), a subsidiary of Liberty Interactive, who serves as the exclusive premium advertising sales agency for the Company. Total commissions paid to LIA following the date of the Liberty investment and prior to the date of the Split-Off were $5.
| 22. | Dividends |
The Company paid a dividend to preferred shareholders in the amount of $15,767 and $7,081 in fiscal 2013 and fiscal 2012, respectively.
The Company paid no dividends to common stockholders during fiscal 2013 and 2012. During fiscal 2011, the Company paid a dividend of $0.25 per share on June 30, 2010 to stockholders of record at the close of business on June 11, 2010, on September 30, 2010 to stockholders of record at the close of business on September 9, 2010 and on December 31, 2010 to stockholders of record at the close of business on December 10, 2010. On February 22, 2011, the Company announced that its Board of Directors was suspending its quarterly dividend payment of $0.25 per share. This provided the Company the financial flexibility to continue investing into its high growth digital strategies.
| 23. | Subsequent Events (Unaudited) |
On July 8, 2013, the Company announced that William J. Lynch, Jr. resigned from the Company’s Board of Directors, effective immediately. On July 8, 2013, the Company also announced that Mr. Lynch has resigned as Chief Executive Officer of the Company, effective immediately. In connection with his termination of employment on July 8, 2013, Mr. Lynch received cash severance of $3,650 and full vesting in respect of 275,846 restricted stock units granted by the Company to Mr. Lynch, which had an aggregate value of $4,871 based on the closing price of the Company’s common stock on July 8, 2013 of $17.66.
Additionally, on July 8, 2013, the Company announced the promotion of Chief Financial Officer Michael P. Huseby to Chief Executive Officer of NOOK Media LLC and President of the Company; Vice President, Corporate Controller Allen W. Lindstrom to Chief Financial Officer of the Company; and Vice President, Corporate Development Kanuj Malhotra to Chief Financial Officer of NOOK Media LLC.
F-78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| 24. | Selected Quarterly Financial Information (Unaudited) |
A summary of quarterly financial information for fiscal 2013 and fiscal 2012 is as follows:
| Fiscal 2013 Quarterly Period Ended On or About |
July 28, 2012 Restated |
October 27, 2012 Restated |
January 26, 2013 Restated |
April 27, 2013 |
Fiscal Year 2013 |
|||||||||||||||
| Sales |
$ | 1,453,507 | 1,884,532 | 2,223,945 | 1,277,021 | 6,839,005 | ||||||||||||||
| Gross profit |
$ | 415,805 | 482,289 | 553,512 | 230,900 | 1,682,506 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) |
$ | (39,828 | ) | 501 | (3,683 | ) | (114,796 | ) | (157,806 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Basic loss per common share: |
||||||||||||||||||||
| Net loss |
$ | (0.76 | ) | (0.07 | ) | (0.14 | ) | (2.04 | ) | (3.02 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Diluted loss per common share: |
||||||||||||||||||||
| Net loss |
$ | (0.76 | ) | (0.07 | ) | (0.14 | ) | (2.04 | ) | (3.02 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Fiscal 2012 Quarterly Period Ended On or About |
July 30, 2011 Restated |
October 29, 2011 Restated |
January 28, 2012 Restated |
April 28, 2012 Restated |
Fiscal Year 2012 Restated |
|||||||||||||||
| Sales |
$ | 1,418,404 | 1,891,961 | 2,439,124 | 1,379,710 | 7,129,199 | ||||||||||||||
| Gross profit |
$ | 390,231 | 472,415 | 654,243 | 400,627 | 1,917,516 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) |
$ | (55,000 | ) | (6,111 | ) | 52,889 | (56,618 | ) | (64,840 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Basic income (loss) per common share: |
||||||||||||||||||||
| Net income (loss) |
$ | (0.96 | ) | (0.17 | ) | 0.80 | (1.06 | ) | (1.34 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Diluted income (loss) per common share: |
||||||||||||||||||||
| Net income (loss) |
$ | (0.96 | ) | (0.17 | ) | 0.72 | (1.06 | ) | (1.34 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
The following tables present the effects of the corrections and other adjustments made to the Company’s previously reported unaudited quarterly financial information for the quarters ended July 29, 2012, October 27, 2012 and January 26, 2013, and each of the quarters in the year ended April 28, 2012. See Note 2 for further information regarding these adjustments.
| Statement of Operations Data: | 13 weeks ended July 28, 2012 | |||||||||||
| As Previously Reported |
Corrections | Restated | ||||||||||
| (In thousands, except per share data) |
||||||||||||
| Sales |
$ | 1,453,507 | — | $ | 1,453,507 | |||||||
| Cost of sales and occupancy |
1,039,619 | (1,917 | ) | 1,037,702 | ||||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
413,888 | 1,917 | 415,805 | |||||||||
|
|
|
|
|
|
|
|||||||
| Selling and administrative expenses |
410,055 | — | 410,055 | |||||||||
| Depreciation and amortization |
58,035 | — | 58,035 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating income (loss) |
(54,202 | ) | 1,917 | (52,285 | ) | |||||||
| Interest expense, net and amortization of deferred financing fees |
8,941 | — | 8,941 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income (loss) before income taxes (benefit) |
(63,143 | ) | 1,917 | (61,226 | ) | |||||||
| Income taxes (benefit) |
(22,163 | ) | 765 | (21,398 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (40,980 | ) | 1,152 | $ | (39,828 | ) | |||||
|
|
|
|
|
|
|
|||||||
| Diluted income (loss) per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (0.78 | ) | 0.02 | $ | (0.76 | ) | |||||
|
|
|
|
|
|
|
|||||||
| Statement of Operations Data: | 13 weeks ended October 27, 2012 | |||||||||||
| As Previously Reported |
Corrections | Restated | ||||||||||
| (In thousands, except per share data) |
||||||||||||
| Sales |
$ | 1,884,532 | — | $ | 1,884,532 | |||||||
| Cost of sales and occupancy |
1,404,034 | (1,791 | ) | 1,402,243 | ||||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
480,498 | 1,791 | 482,289 | |||||||||
|
|
|
|
|
|
|
|||||||
| Selling and administrative expenses |
415,747 | — | 415,747 | |||||||||
| Depreciation and amortization |
57,613 | — | 57,613 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating income |
7,138 | 1,791 | 8,929 | |||||||||
| Interest expense, net and amortization of deferred financing fees |
8,122 | — | 8,122 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income (loss) before income taxes (benefit) |
(984 | ) | 1,791 | 807 | ||||||||
| Income taxes (benefit) |
(409 | ) | 715 | 306 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (575 | ) | 1,076 | $ | 501 | ||||||
|
|
|
|
|
|
|
|||||||
| Diluted income (loss) per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (0.09 | ) | 0.02 | $ | (0.07 | ) | |||||
|
|
|
|
|
|
|
|||||||
F-79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Statement of Operations Data: | 13 weeks ended January 26, 2013 | |||||||||||
| As Previously Reported |
Corrections | Restated | ||||||||||
| (In thousands, except per share data) |
||||||||||||
| Sales |
$ | 2,223,945 | — | $ | 2,223,945 | |||||||
| Cost of sales and occupancy |
1,674,384 | (3,951 | ) | 1,670,433 | ||||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
549,561 | 3,951 | 553,512 | |||||||||
|
|
|
|
|
|
|
|||||||
| Selling and administrative expenses |
494,094 | — | 494,094 | |||||||||
| Depreciation and amortization |
55,761 | — | 55,761 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating income (loss) |
(294 | ) | 3,951 | 3,657 | ||||||||
| Interest expense, net and amortization of deferred financing fees |
8,772 | — | 8,772 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income (loss) before income taxes (benefit) |
(9,066 | ) | 3,951 | (5,115 | ) | |||||||
| Income taxes (benefit) |
(3,008 | ) | 1,576 | (1,432 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (6,058 | ) | 2,375 | $ | (3,683 | ) | |||||
| Diluted income (loss) per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (0.18 | ) | 0.04 | $ | (0.14 | ) | |||||
|
|
|
|
|
|
|
|||||||
F-80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Statement of Operations Data: | 13 weeks ended July 30, 2011 | |||||||||||
| As Previously Reported |
Corrections | Restated | ||||||||||
| (In thousands, except per share data) |
||||||||||||
| Sales |
$ | 1,418,404 | — | $ | 1,418,404 | |||||||
| Cost of sales and occupancy |
1,030,846 | (2,673 | ) | 1,028,173 | ||||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
387,558 | 2,673 | 390,231 | |||||||||
|
|
|
|
|
|
|
|||||||
| Selling and administrative expenses |
411,118 | — | 411,118 | |||||||||
| Depreciation and amortization |
55,671 | — | 55,671 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating income (loss) |
(79,231 | ) | 2,673 | (76,558 | ) | |||||||
| Interest expense, net and amortization of deferred financing fees |
(9,442 | ) | — | (9,442 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Income (loss) before income taxes (benefit) |
(88,673 | ) | 2,673 | (86,000 | ) | |||||||
| Income taxes (benefit) |
(32,067 | ) | 1,067 | (31,000 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (56,606 | ) | 1,606 | $ | (55,000 | ) | |||||
| Diluted income (loss) per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (0.99 | ) | 0.03 | $ | (0.96 | ) | |||||
|
|
|
|
|
|
|
|||||||
| Statement of Operations Data: | 13 weeks ended October 29, 2011 | |||||||||||
| As Previously Reported |
Corrections | Restated | ||||||||||
| (In thousands, except per share data) |
||||||||||||
| Sales |
$ | 1,891,961 | — | $ | 1,891,961 | |||||||
| Cost of sales and occupancy |
1,420,297 | (751 | ) | 1,419,546 | ||||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
471,664 | 751 | 472,415 | |||||||||
|
|
|
|
|
|
|
|||||||
| Selling and administrative expenses |
415,632 | — | 415,632 | |||||||||
| Depreciation and amortization |
57,755 | — | 57,755 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating income (loss) |
(1,723 | ) | 751 | (972 | ) | |||||||
| Interest expense, net and amortization of deferred financing fees |
(8,460 | ) | — | (8,460 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Income (loss) before income taxes (benefit) |
(10,183 | ) | 751 | (9,432 | ) | |||||||
| Income taxes (benefit) |
(3,620 | ) | 299 | (3,321 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (6,563 | ) | 452 | $ | (6,111 | ) | |||||
| Diluted income (loss) per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (0.17 | ) | 0.00 | $ | (0.17 | ) | |||||
|
|
|
|
|
|
|
|||||||
F-81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Statement of Operations Data: | 13 weeks ended January 28, 2012 | |||||||||||
| As Previously Reported |
Corrections | Restated | ||||||||||
| (In thousands, except per share data) |
||||||||||||
| Sales |
$ | 2,439,124 | — | $ | 2,439,124 | |||||||
| Cost of sales and occupancy |
1,786,308 | (1,427 | ) | 1,784,881 | ||||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
652,816 | 1,427 | 654,243 | |||||||||
|
|
|
|
|
|
|
|||||||
| Selling and administrative expenses |
502,870 | — | 502,870 | |||||||||
| Depreciation and amortization |
60,273 | — | 60,273 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating income |
89,673 | 1,427 | 91,100 | |||||||||
| Interest expense, net and amortization of deferred financing fees |
(8,773 | ) | — | (8,773 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Income before income taxes |
80,900 | 1,427 | 82,327 | |||||||||
| Income taxes (benefit) |
28,869 | 569 | 29,438 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net income |
$ | 52,031 | 858 | $ | 52,889 | |||||||
| Diluted earnings per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net income |
$ | 0.71 | 0.01 | $ | 0.72 | |||||||
|
|
|
|
|
|
|
|||||||
| Statement of Operations Data: | 13 weeks ended April 28, 2012 | |||||||||||
| As Previously Reported |
Corrections | Restated | ||||||||||
| (In thousands, except per share data) |
||||||||||||
| Sales |
$ | 1,379,710 | — | $ | 1,379,710 | |||||||
| Cost of sales and occupancy |
980,932 | (1,849 | ) | 979,083 | ||||||||
|
|
|
|
|
|
|
|||||||
| Gross profit |
398,778 | 1,849 | 400,627 | |||||||||
|
|
|
|
|
|
|
|||||||
| Selling and administrative expenses |
409,832 | — | 409,832 | |||||||||
| Depreciation and amortization |
58,968 | — | 58,968 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating income (loss) |
(70,022 | ) | 1,849 | (68,173 | ) | |||||||
| Interest expense, net and amortization of deferred financing fees |
(8,629 | ) | — | (8,629 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Income (loss) before income taxes |
(78,651 | ) | 1,849 | (76,802 | ) | |||||||
| Income taxes (benefit) |
(20,922 | ) | 738 | (20,184 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (57,729 | ) | 1,111 | $ | (56,618 | ) | |||||
| Diluted income (loss) per common share |
||||||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | (1.08 | ) | 0.02 | $ | (1.06 | ) | |||||
|
|
|
|
|
|
|
|||||||
F-82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Balance Sheet Data: | As of July 28, 2012 | |||||||||||||||
| As Previously Reported |
Corrections | Other Adjustments |
Restated | |||||||||||||
| (In thousands, except per share data) |
||||||||||||||||
| Assets |
||||||||||||||||
| Current assets: |
||||||||||||||||
| Cash and cash equivalents |
$ | 20,221 | — | — | $ | 20,221 | ||||||||||
| Receivables, net |
144,297 | 9,203 | — | 153,500 | ||||||||||||
| Merchandise inventories, net |
1,947,422 | — | — | 1,947,422 | ||||||||||||
| Prepaid expenses and other current assets |
192,316 | — | — | 192,316 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current assets |
2,304,256 | 9,203 | — | 2,313,459 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Property and equipment: |
||||||||||||||||
| Land and land improvements |
2,541 | — | — | 2,541 | ||||||||||||
| Buildings and leasehold improvements |
1,200,928 | — | — | 1,200,928 | ||||||||||||
| Fixtures and equipment |
1,804,193 | — | — | 1,804,193 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 3,007,662 | — | — | 3,007,662 | |||||||||||||
| Less accumulated depreciation and amortization |
2,410,984 | — | — | 2,410,984 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net property and equipment |
596,678 | — | — | 596,678 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Goodwill |
518,578 | — | — | 518,578 | ||||||||||||
| Intangible assets, net |
562,522 | — | — | 562,522 | ||||||||||||
| Other noncurrent assets |
62,650 | — | — | 62,650 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 4,044,684 | 9,203 | — | $ | 4,053,887 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities and Shareholders’ Equity |
||||||||||||||||
| Current liabilities: |
||||||||||||||||
| Accounts payable |
$ | 1,387,004 | (98,117 | ) | — | $ | 1,288,887 | |||||||||
| Accrued liabilities |
474,467 | 19,363 | 46,275 | 540,105 | ||||||||||||
| Gift card liabilities |
312,855 | — | — | 312,855 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current liabilities |
2,174,326 | (78,754 | ) | 46,275 | 2,141,847 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Long-term debt |
302,800 | — | — | 302,800 | ||||||||||||
| Deferred taxes |
268,410 | (26,026 | ) | — | 242,384 | |||||||||||
| Other long-term liabilities |
397,415 | 8,217 | (46,275 | ) | 359,357 | |||||||||||
| Redeemable Preferred Shares; $.001 par value; 5,000 shares authorized; 204 shares issued |
192,589 | — | — | 192,589 | ||||||||||||
| Shareholders’ equity: |
||||||||||||||||
| Common stock; $.001 par value; 300,000 shares authorized; 91,376 shares issued |
92 | — | — | 92 | ||||||||||||
| Additional paid-in capital |
1,347,990 | — | — | 1,347,990 | ||||||||||||
| Accumulated other comprehensive loss |
(16,635 | ) | — | — | (16,635 | ) | ||||||||||
| Retained earnings |
436,336 | 105,766 | — | 542,102 | ||||||||||||
| Treasury stock, at cost, 33,722 shares |
(1,058,639 | ) | — | — | (1,058,639 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Shareholders’ equity |
709,144 | 105,766 | — | 814,910 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Commitments and contingencies |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities and shareholders’ equity |
$ | 4,044,684 | 9,203 | — | $ | 4,053,887 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Balance Sheet Data: | As of October 27, 2012 | |||||||||||||||
| As Previously Reported |
Corrections | Other Adjustments |
Restated | |||||||||||||
| (In thousands, except per share data) |
||||||||||||||||
| Assets |
||||||||||||||||
| Current assets: |
||||||||||||||||
| Cash and cash equivalents |
$ | 470,994 | — | — | $ | 470,994 | ||||||||||
| Receivables, net |
224,545 | 8,957 | — | 233,502 | ||||||||||||
| Merchandise inventories, net |
1,796,208 | — | — | 1,796,208 | ||||||||||||
| Prepaid expenses and other current assets |
223,325 | — | — | 223,325 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current assets |
2,715,072 | 8,957 | — | 2,724,029 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Property and equipment: |
||||||||||||||||
| Land and land improvements |
2,541 | — | — | 2,541 | ||||||||||||
| Buildings and leasehold improvements |
1,211,156 | — | — | 1,211,156 | ||||||||||||
| Fixtures and equipment |
1,833,667 | — | — | 1,833,667 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 3,047,364 | — | — | 3,047,364 | |||||||||||||
| Less accumulated depreciation and amortization |
2,462,310 | — | — | 2,462,310 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net property and equipment |
585,054 | — | — | 585,054 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Goodwill |
515,524 | — | — | 515,524 | ||||||||||||
| Intangible assets, net |
558,157 | — | — | 558,157 | ||||||||||||
| Other noncurrent assets |
57,218 | — | — | 57,218 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 4,431,025 | 8,957 | — | $ | 4,439,982 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities and Shareholders’ Equity |
||||||||||||||||
| Current liabilities: |
||||||||||||||||
| Accounts payable |
$ | 1,448,397 | (99,908 | ) | — | $ | 1,348,489 | |||||||||
| Accrued liabilities |
470,975 | 20,078 | 44,908 | 535,961 | ||||||||||||
| Gift card liabilities |
297,191 | — | — | 297,191 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current liabilities |
2,216,563 | (79,830 | ) | 44,908 | 2,181,641 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Long-term debt |
338,400 | — | — | 338,400 | ||||||||||||
| Deferred taxes |
292,879 | (26,026 | ) | — | 266,853 | |||||||||||
| Other long-term liabilities |
364,966 | 7,971 | (44,908 | ) | 328,029 | |||||||||||
| Redeemable Preferred Shares; $.001 par value; 5,000 shares authorized; 204 shares issued |
192,904 | — | — | 192,904 | ||||||||||||
| Preferred Membership Interests in NOOK Media, LLC |
289,054 | — | — | 289,054 | ||||||||||||
| Shareholders’ equity: |
||||||||||||||||
| Common stock; $.001 par value; 300,000 shares authorized; 91,376 shares issued |
92 | — | — | 92 | ||||||||||||
| Additional paid-in capital |
1,377,992 | — | — | 1,377,992 | ||||||||||||
| Accumulated other comprehensive loss |
(16,635 | ) | — | — | (16,635 | ) | ||||||||||
| Retained earnings |
434,174 | 106,842 | — | 541,016 | ||||||||||||
| Treasury stock, at cost, 33,722 shares |
(1,059,364 | ) | — | — | (1,059,364 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Shareholders’ equity |
736,259 | 106,842 | — | 843,101 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Commitments and contingencies |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities and shareholders’ equity |
$ | 4,431,025 | 8,957 | — | $ | 4,439,982 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Balance Sheet Data: | As of January 26, 2013 | |||||||||||||||
| As Previously Reported |
Corrections | Other Adjustments |
Restated | |||||||||||||
| (In thousands, except per share data) |
||||||||||||||||
| Assets |
||||||||||||||||
| Current assets: |
||||||||||||||||
| Cash and cash equivalents |
$ | 213,643 | — | — | $ | 213,643 | ||||||||||
| Receivables, net |
387,459 | 8,710 | — | 396,169 | ||||||||||||
| Merchandise inventories, net |
1,784,949 | — | — | 1,784,949 | ||||||||||||
| Prepaid expenses and other current assets |
186,324 | — | — | 186,324 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current assets |
2,572,375 | 8,710 | — | 2,581,085 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Property and equipment: |
||||||||||||||||
| Land and land improvements |
2,541 | — | — | 2,541 | ||||||||||||
| Buildings and leasehold improvements |
1,208,770 | — | — | 1,208,770 | ||||||||||||
| Fixtures and equipment |
1,845,100 | — | — | 1,845,100 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 3,056,411 | — | — | 3,056,411 | |||||||||||||
| Less accumulated depreciation and amortization |
2,483,042 | — | — | 2,483,042 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net property and equipment |
573,369 | — | — | 573,369 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Goodwill |
514,417 | — | — | 514,417 | ||||||||||||
| Intangible assets, net |
553,099 | — | — | 553,099 | ||||||||||||
| Other noncurrent assets |
63,001 | — | — | 63,001 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 4,276,261 | 8,710 | — | $ | 4,284,971 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities and Shareholders’ Equity |
||||||||||||||||
| Current liabilities: |
||||||||||||||||
| Accounts payable |
$ | 1,360,613 | (103,859 | ) | — | $ | 1,256,754 | |||||||||
| Accrued liabilities |
563,028 | 21,654 | 43,300 | 627,982 | ||||||||||||
| Gift card liabilities |
386,704 | — | — | 386,704 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current liabilities |
2,310,345 | (82,205 | ) | 43,300 | 2,271,440 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Long-term debt |
— | — | — | — | ||||||||||||
| Deferred taxes |
273,475 | (26,026 | ) | — | 247,449 | |||||||||||
| Other long-term liabilities |
390,025 | 7,724 | (43,300 | ) | 354,449 | |||||||||||
| Redeemable Preferred Shares; $.001 par value; 5,000 shares authorized; 204 shares issued |
193,220 | — | — | 193,220 | ||||||||||||
| Preferred Membership Interests in NOOK Media, LLC |
381,184 | — | — | 381,184 | ||||||||||||
| Shareholders’ equity: |
||||||||||||||||
| Common stock; $.001 par value; 300,000 shares authorized; 91,376 shares issued |
92 | — | — | 92 | ||||||||||||
| Additional paid-in capital |
1,383,430 | — | — | 1,383,430 | ||||||||||||
| Accumulated other comprehensive loss |
(16,635 | ) | — | — | (16,635 | ) | ||||||||||
| Retained earnings |
420,627 | 109,217 | — | 529,844 | ||||||||||||
| Treasury stock, at cost, 33,722 shares |
(1,059,502 | ) | — | — | (1,059,502 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Shareholders’ equity |
728,012 | 109,217 | — | 837,229 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Commitments and contingencies |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities and shareholders’ equity |
$ | 4,276,261 | 8,710 | — | $ | 4,284,971 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Balance Sheet Data: | As of July 30, 2011 | |||||||||||||||
| As Previously Reported |
Corrections | Other Adjustments |
Restated | |||||||||||||
| (In thousands, except per share data) |
||||||||||||||||
| Assets |
||||||||||||||||
| Current assets: |
||||||||||||||||
| Cash and cash equivalents |
$ | 22,353 | — | — | $ | 22,353 | ||||||||||
| Receivables, net |
156,543 | — | — | 156,543 | ||||||||||||
| Merchandise inventories, net |
1,814,436 | — | — | 1,814,436 | ||||||||||||
| Prepaid expenses and other current assets |
156,632 | — | — | 156,632 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current assets |
2,149,964 | — | — | 2,149,964 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Property and equipment: |
||||||||||||||||
| Land and land improvements |
8,617 | — | — | 8,617 | ||||||||||||
| Buildings and leasehold improvements |
1,208,454 | — | — | 1,208,454 | ||||||||||||
| Fixtures and equipment |
1,690,529 | — | — | 1,690,529 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 2,907,600 | — | — | 2,907,600 | |||||||||||||
| Less accumulated depreciation and amortization |
2,228,562 | — | — | 2,228,562 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net property and equipment |
679,038 | — | — | 679,038 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Goodwill |
523,006 | — | — | 523,006 | ||||||||||||
| Intangible assets, net |
563,034 | — | — | 563,034 | ||||||||||||
| Other noncurrent assets |
56,615 | — | — | 56,615 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 3,971,657 | — | — | $ | 3,971,657 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities and Shareholders’ Equity |
||||||||||||||||
| Current liabilities: |
||||||||||||||||
| Accounts payable |
$ | 1,275,708 | (92,173 | ) | — | $ | 1,183,535 | |||||||||
| Accrued liabilities |
403,667 | 16,006 | 52,071 | 471,744 | ||||||||||||
| Gift card liabilities |
301,249 | — | — | 301,249 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current liabilities |
1,980,624 | (76,167 | ) | 52,071 | 1,956,528 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Long-term debt |
509,600 | — | — | 509,600 | ||||||||||||
| Deferred taxes |
279,716 | (26,026 | ) | — | 253,690 | |||||||||||
| Other long-term liabilities |
434,334 | — | (52,071 | ) | 382,263 | |||||||||||
| Shareholders’ equity: |
||||||||||||||||
| Common stock; $.001 par value; 300,000 shares authorized; 90,641 shares issued |
91 | — | — | 91 | ||||||||||||
| Additional paid-in capital |
1,327,948 | — | — | 1,327,948 | ||||||||||||
| Accumulated other comprehensive loss |
(11,630 | ) | — | — | (11,630 | ) | ||||||||||
| Retained earnings |
505,773 | 102,193 | — | 607,966 | ||||||||||||
| Treasury stock, at cost, 33,453 shares |
(1,054,799 | ) | — | — | (1,054,799 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Shareholders’ equity |
767,383 | 102,193 | — | 869,576 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Commitments and contingencies |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities and shareholders’ equity |
$ | 3,971,657 | — | — | $ | 3,971,657 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Balance Sheet Data: | As of October 29, 2011 | |||||||||||||||
| As Previously Reported |
Corrections | Other Adjustments |
Restated | |||||||||||||
| (In thousands, except per share data) |
||||||||||||||||
| Assets |
||||||||||||||||
| Current assets: |
||||||||||||||||
| Cash and cash equivalents |
$ | 23,633 | — | — | $ | 23,633 | ||||||||||
| Receivables, net |
240,600 | — | — | 240,600 | ||||||||||||
| Merchandise inventories, net |
1,836,740 | — | — | 1,836,740 | ||||||||||||
| Prepaid expenses and other current assets |
180,352 | — | — | 180,352 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current assets |
2,281,325 | — | — | 2,281,325 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Property and equipment: |
||||||||||||||||
| Land and land improvements |
8,617 | — | — | 8,617 | ||||||||||||
| Buildings and leasehold improvements |
1,220,869 | — | — | 1,220,869 | ||||||||||||
| Fixtures and equipment |
1,725,135 | — | — | 1,725,135 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 2,954,621 | — | — | 2,954,621 | |||||||||||||
| Less accumulated depreciation and amortization |
2,280,551 | — | — | 2,280,551 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net property and equipment |
674,070 | — | — | 674,070 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Goodwill |
521,899 | — | — | 521,899 | ||||||||||||
| Intangible assets, net |
574,964 | — | — | 574,964 | ||||||||||||
| Other noncurrent assets |
55,794 | — | — | 55,794 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 4,108,052 | — | — | $ | 4,108,052 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities and Shareholders’ Equity |
||||||||||||||||
| Current liabilities: |
||||||||||||||||
| Accounts payable |
$ | 1,461,981 | (92,924 | ) | — | $ | 1,369,057 | |||||||||
| Accrued liabilities |
436,868 | 16,305 | 50,691 | 503,864 | ||||||||||||
| Gift card liabilities |
287,268 | — | — | 287,268 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current liabilities |
2,186,117 | (76,619 | ) | 50,691 | 2,160,189 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Long-term debt |
274,900 | — | — | 274,900 | ||||||||||||
| Deferred taxes |
275,868 | (26,026 | ) | — | 249,842 | |||||||||||
| Other long-term liabilities |
418,923 | — | (50,691 | ) | 368,232 | |||||||||||
| Redeemable Preferred Shares; $.001 par value; 5,000 shares authorized; 204 shares issued |
191,681 | — | — | 191,681 | ||||||||||||
| Shareholders’ equity: |
||||||||||||||||
| Common stock; $.001 par value; 300,000 shares authorized; 90,856 shares issued |
91 | — | — | 91 | ||||||||||||
| Additional paid-in capital |
1,331,983 | — | — | 1,331,983 | ||||||||||||
| Accumulated other comprehensive loss |
(11,630 | ) | — | — | (11,630 | ) | ||||||||||
| Retained earnings |
495,830 | 102,645 | — | 598,475 | ||||||||||||
| Treasury stock, at cost, 33,527 shares |
(1,055,711 | ) | — | — | (1,055,711 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Shareholders’ equity |
760,563 | 102,645 | — | 863,208 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Commitments and contingencies |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities and shareholders’ equity |
$ | 4,108,052 | — | — | $ | 4,108,052 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| Balance Sheet Data: | As of January 28, 2012 | |||||||||||||||
| As Previously Reported |
Corrections | Other Adjustments |
Restated | |||||||||||||
| (In thousands, except per share data) |
||||||||||||||||
| Assets |
||||||||||||||||
| Current assets: |
||||||||||||||||
| Cash and cash equivalents |
$ | 27,397 | — | — | $ | 27,397 | ||||||||||
| Receivables, net |
396,854 | — | — | 396,854 | ||||||||||||
| Merchandise inventories, net |
1,814,898 | — | — | 1,814,898 | ||||||||||||
| Prepaid expenses and other current assets |
169,535 | — | — | 169,535 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current assets |
2,408,684 | — | — | 2,408,684 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Property and equipment: |
||||||||||||||||
| Land and land improvements |
2,541 | — | — | 2,541 | ||||||||||||
| Buildings and leasehold improvements |
1,191,224 | — | — | 1,191,224 | ||||||||||||
| Fixtures and equipment |
1,752,333 | — | — | 1,752,333 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 2,946,098 | — | — | 2,946,098 | |||||||||||||
| Less accumulated depreciation and amortization |
2,309,607 | — | — | 2,309,607 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net property and equipment |
636,491 | — | — | 636,491 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Goodwill |
520,792 | — | — | 520,792 | ||||||||||||
| Intangible assets, net |
569,488 | — | — | 569,488 | ||||||||||||
| Other noncurrent assets |
54,418 | — | — | 54,418 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 4,189,873 | — | — | $ | 4,189,873 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities and Shareholders’ Equity |
||||||||||||||||
| Current liabilities: |
||||||||||||||||
| Accounts payable |
$ | 1,488,552 | (94,351 | ) | — | $ | 1,394,201 | |||||||||
| Accrued liabilities |
542,503 | 16,874 | 48,826 | 608,203 | ||||||||||||
| Gift card liabilities |
367,555 | — | — | 367,555 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current liabilities |
2,398,610 | (77,477 | ) | 48,826 | 2,369,959 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Long-term debt |
101,600 | — | — | 101,600 | ||||||||||||
| Deferred taxes |
275,436 | (26,026 | ) | — | 249,410 | |||||||||||
| Other long-term liabilities |
408,291 | — | (48,826 | ) | 359,465 | |||||||||||
| Redeemable Preferred Shares; $.001 par value; 5,000 shares authorized; 204 shares issued |
191,958 | — | — | 191,958 | ||||||||||||
| Preferred Membership Interests in NOOK Media, LLC |
— | — | — | — | ||||||||||||
| Shareholders’ equity: |
||||||||||||||||
| Common stock; $.001 par value; 300,000 shares authorized; 90,928 shares issued |
91 | — | — | 91 | ||||||||||||
| Additional paid-in capital |
1,337,777 | — | — | 1,337,777 | ||||||||||||
| Accumulated other comprehensive loss |
(11,630 | ) | — | — | (11,630 | ) | ||||||||||
| Retained earnings |
543,582 | 103,503 | — | 647,085 | ||||||||||||
| Treasury stock, at cost, 33,537 shares |
(1,055,842 | ) | — | — | (1,055,842 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Shareholders’ equity |
813,978 | 103,503 | — | 917,481 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Commitments and contingencies |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities and shareholders’ equity |
$ | 4,189,873 | — | — | $ | 4,189,873 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-88
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Barnes & Noble, Inc.
We have audited the accompanying consolidated balance sheet of Barnes & Noble, Inc. (the Company) as of April 27, 2013 and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for the year then ended. Our audit also included the financial statement schedule for the 52 week period ended April 27, 2013 listed in the Index at Item15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Barnes & Noble, Inc. at April 27, 2013 and the consolidated results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the 52 week period ended April 27, 2013, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Barnes & Noble, Inc.’s internal control over financial reporting as of April 27, 2013, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated July 26, 2013 expressed an adverse opinion thereon.
| /s/ Ernst & Young LLP |
| New York, New York |
| July 26, 2013 |
F-89
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Barnes & Noble, Inc.
We have audited Barnes & Noble, Inc.’s internal control over financial reporting as of April 27, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the COSO criteria). Barnes & Noble, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in controls related to the Company’s review and reconciliation of distribution center accruals. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Barnes & Noble, Inc. as of April 27, 2013, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for the year then ended. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2013 consolidated financial statements, and this report does not affect our report dated July 26, 2013, which expressed an unqualified opinion on those financial statements.
In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Barnes & Noble, Inc. has not maintained effective internal control over financial reporting as of April 27, 2013, based on the COSO criteria.
| /s/ Ernst & Young LLP |
| New York, New York |
| July 26, 2013 |
F-90
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Barnes & Noble, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Barnes & Noble, Inc., as of April 28, 2012 and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the two fiscal years ended April 28, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barnes & Noble, Inc. as of April 28, 2012 and the results of its operations and its cash flows for each of the two fiscal years ended April 28, 2012, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2, certain restatements have been made to the previously issued consolidated financial statements for each of two fiscal years ended April 28, 2012.
| /s/ BDO USA, LLP |
| BDO USA, LLP |
| New York, New York |
| June 27, 2012, except for Note 2, as to which the date is July 26, 2013 |
F-91
MANAGEMENT’S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
The management of Barnes & Noble, Inc. is responsible for the contents of the Consolidated Financial Statements, which are prepared in conformity with accounting principles generally accepted in the United States of America. The Consolidated Financial Statements necessarily include amounts based on judgments and estimates. Financial information elsewhere in the Annual Report is consistent with that in the Consolidated Financial Statements.
The Company maintains a comprehensive accounting system which includes controls designed to provide reasonable assurance as to the integrity and reliability of the financial records and the protection of assets. An internal audit staff is employed to regularly test and evaluate both internal accounting controls and operating procedures, including compliance with the Company’s statement of policy regarding ethical and lawful conduct. The Audit Committee of the Board of Directors composed of directors who are not members of management, meets regularly with management, the independent registered public accountants and the internal auditors to ensure that their respective responsibilities are properly discharged. Ernst & Young, LLP and the Internal Audit Department of the Company have full and free independent access to the Audit Committee. The role of Ernst & Young, LLP, an independent registered public accounting firm, is to provide an objective examination of the Consolidated Financial Statements and the underlying transactions in accordance with the standards of the Public Company Accounting Oversight Board. The report of Ernst & Young, LLP accompanies the Consolidated Financial Statements.
OTHER INFORMATION
The Company has included the Section 302 certifications of the Chief Executive Officer and the Chief Financial Officer of the Company as Exhibits 31.1 and 31.2 to its Annual Report on Form 10-K for fiscal 2013 filed with the Securities and Exchange Commission, and the Company will submit to the New York Stock Exchange a certificate of the Chief Executive Officer of NOOK Media LLC and President of the Company certifying that he is not aware of any violation by the Company of New York Stock Exchange corporate governance listing standards.
F-92
Exhibit 21.1
Significant Subsidiaries of Barnes & Noble, Inc.
| 1. | Barnes & Noble Booksellers, Inc., a Delaware corporation. |
| 2. | Barnes & Noble College Booksellers, LLC, a Delaware limited liability company. |
| 3. | Barnes & Noble International LLC, a Delaware limited liability company. |
| 4. | Barnes & Noble Marketing Services Corp., a Florida corporation. |
| 5. | Barnes & Noble Marketing Services LLC, a Virginia limited liability company. |
| 6. | Barnes & Noble Purchasing, Inc., a New York corporation. |
| 7. | Barnes & Noble Services, Inc., a New York corporation. |
| 8. | barnesandnoble.com llc, a Delaware limited liability company. |
| 9. | Sterling Publishing Co., Inc., a Delaware corporation. |
| 10. | NOOK Media Inc., a Delaware corporation. |
| 11. | NOOK Media LLC, a Delaware limited liability company. |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements (1) Form S-3 (No. 333-23855, No. 333-69731, No. 33-84826 and No. 33-89258) and (2) Form S-8 (No. 333-27033, No. 33-89260, No. 333-90538, No. 333-116382, No. 333-59111, No. 333-160560 and No. 333-183869) pertaining to the Employees’ Savings Plan of Barnes & Noble, Inc. of our reports dated July 26, 2013, with respect to the consolidated financial statements and schedule of Barnes & Noble, Inc. and the effectiveness of internal control over financial reporting of Barnes & Noble, Inc., included in this Annual Report (Form 10-K) for the year ended April 27, 2013.
| /s/ ERNST & YOUNG LLP |
| New York, New York |
| July 26, 2013 |
Exhibit 23.2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Barnes & Noble, Inc.
The audits referred to in our report dated July 26, 2013 relating to the consolidated financial statements of Barnes & Noble, Inc., which is incorporated in Item 8 of this Form 10-K by reference to the annual report to stockholders for the year ended April 27, 2013 also included the audit of the financial statement schedule listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
| /s/ ERNST & YOUNG LLP |
| New York, New York |
| July 26, 2013 |
Exhibit 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Barnes & Noble, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-23855, No. 333-69731, No. 33-84826 and No. 33-89258) and Form S-8 (No. 333-27033, No. 33-89260, No. 333-90538, No. 333-116382, No. 333-59111, No. 333-160560 and No. 333-183689) of Barnes & Noble, Inc. of our report dated June 27, 2012, except for the adjustments described in Note 2, as to which the date is July 26, 2013, relating to the consolidated financial statements, which appear in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated June 27, 2012 relating to the financial statement schedule, which appears in this Form 10-K.
| /s/ BDO USA, LLP |
| New York, New York |
| July 26, 2013 |
Exhibit 23.4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Barnes & Noble, Inc.
The audits referred to in our report dated June 27, 2012, except for the adjustments described in Note 2, as to which the date is July 26, 2013, relating to the consolidated financial statements of Barnes & Noble, Inc., which is incorporated in Item 8 of this Form 10-K by reference to the annual report to stockholders for the year ended April 27, 2013 also included the audits of the financial statement schedule for the years ended April 30, 2011 and April 28, 2012, listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
| /s/ BDO USA, LLP |
| New York, New York |
| July 26, 2013 |
Exhibit 31.1
CERTIFICATION BY THE
CHIEF EXECUTIVE OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael P. Huseby, certify that:
| 1. | I have reviewed this report on Form 10-K of Barnes & Noble, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 26, 2013
| By: | /s/ Michael P. Huseby | |
| Michael P. Huseby President of Barnes & Noble, Inc. and Chief Executive Officer of NOOK Media LLC |
Exhibit 31.2
CERTIFICATION BY THE
CHIEF FINANCIAL OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Allen W. Lindstrom, certify that:
| 1. | I have reviewed this report on Form 10-K of Barnes & Noble, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 26, 2013
| By: | /s/ Allen W. Lindstrom | |
| Allen W. Lindstrom Chief Financial Officer Barnes & Noble, Inc. |
Exhibit 32.1
CERTIFICATION PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Barnes & Noble, Inc. (the “Company”) on Form 10-K for the period ended April 27, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael P. Huseby, President of the Company and Chief Executive Officer of NOOK Media LLC certify, to the best of my knowledge, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Michael P. Huseby |
| Michael P. Huseby |
| President of Barnes & Noble, Inc. and Chief Executive Officer of NOOK Media LLC |
| July 26, 2013 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Barnes & Noble, Inc. (the “Company”) on Form 10-K for the period ended April 27, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Allen W. Lindstrom, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Allen W. Lindstrom |
| Allen W. Lindstrom |
| Chief Financial Officer |
| Barnes & Noble, Inc. |
| July 26, 2013 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
|
Segment Reporting - Additional Information (Detail)
|
12 Months Ended | |
|---|---|---|
|
Apr. 27, 2013
Segment
Store
|
Apr. 28, 2012
Segment
|
|
| Segment Reporting Information [Line Items] | ||
| Number of operating segments | 3 | 3 |
| Number of stores | 1,361 | |
|
B&N Retail
|
||
| Segment Reporting Information [Line Items] | ||
| Number of stores | 675 | |
|
B&N College
|
||
| Segment Reporting Information [Line Items] | ||
| Number of stores | 686 | |
|
Microsoft Investment - Additional Information (Detail) (USD $)
In Thousands, except Share data, unless otherwise specified |
12 Months Ended | 1 Months Ended | ||||
|---|---|---|---|---|---|---|
|
Apr. 27, 2013
Microsoft
Commitment
|
Apr. 27, 2013
Microsoft
Other Commitment
|
Apr. 27, 2012
NewCo
|
Apr. 27, 2012
NewCo
Morrison
Series A Preferred
|
Apr. 27, 2012
NewCo
Microsoft
|
Apr. 27, 2012
NewCo
Microsoft
Series A Preferred
|
|
| Subsidiary, Sale of Stock [Line Items] | ||||||
| Preferred stock issued | 300,000 | 300,000 | ||||
| Preferred stock issued, aggregate purchase price | $ 300,000 | $ 300,000 | ||||
| Percentage of common membership interest | 17.60% | |||||
| Percentage of common membership interest owned by Nook media | 82.40% | |||||
| Advance payments term | 3 years | 5 years | ||||
| Advance payments | $ 60,000 | $ 25,000 | ||||
|
Tikatok Impairment Charge - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
|
Oct. 27, 2012
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
|
| Impairment Costs [Line Items] | ||||
| Impairment charges | $ 1,973 | $ 4,168 | $ 11,747 | $ 2,857 |
| Goodwill written off | 1,947 | |||
| Intangible write0ff | $ 26 | |||
|
Subsequent Events - Additional Information (Detail) (USD $)
In Thousands, except Share data, unless otherwise specified |
12 Months Ended | 1 Months Ended | |||
|---|---|---|---|---|---|
|
Apr. 27, 2013
Restricted Stock Units (RSUs)
|
Apr. 28, 2012
Restricted Stock Units (RSUs)
|
Apr. 30, 2011
Restricted Stock Units (RSUs)
|
Jul. 08, 2013
Subsequent Event
Chief Executive Officer
Termination Benefits
|
Jul. 08, 2013
Subsequent Event
Chief Executive Officer
Termination Benefits
Restricted Stock Units (RSUs)
|
|
| Subsequent Event [Line Items] | |||||
| Cash Severance | $ 3,650 | ||||
| Restricted stock units vested | 13,000 | 0 | 0 | 275,846 | |
| Restricted stock units vested, aggregate value | $ 205 | $ 4,871 | |||
| Closing price of the Company's common stock | $ 17.66 | ||||
|
Net Earnings (Loss) Per Share
|
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
Apr. 27, 2013
|
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| Net Earnings (Loss) Per Share |
In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class Method, the Company’s unvested restricted shares, unvested restricted stock units and shares issuable under the Company’s deferred compensation plan are considered participating securities. During periods of net income, the calculation of earnings per share for common stock are reclassified to exclude the income attributable to the unvested restricted shares, unvested restricted stock units and shares issuable under the Company’s deferred compensation plan from the numerator and exclude the dilutive impact of those shares from the denominator. Diluted earnings per share for fiscal year 2013 was calculated using the two-class method for stock options, restricted stock and restricted stock units and the if-converted method for the preferred stock. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. Due to the net loss during fiscal 2013 and 2012, participating securities in the amounts of 2,859,084 and 3,462,508, respectively, were excluded in the calculation of loss per share using the two-class method because the effect would be antidilutive. The Company’s outstanding stock options and accretion/payments of dividends on preferred shares were also excluded from the calculation of loss per share using the two-class method because the effect would be antidilutive.
The following is a reconciliation of the Company’s basic and diluted earnings per share calculation:
|
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|
Credit Facility (Detail) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
||||||
| Line of Credit Facility [Line Items] | ||||||||
| Credit facility at period end | $ 77,000 | $ 324,200 | $ 313,100 | |||||
| Average balance outstanding during the period | 214,702 | 306,038 | 338,971 | |||||
| Maximum borrowings outstanding during the period | $ 462,900 | $ 582,000 | $ 622,800 | |||||
| Weighted average interest rate during the period | 5.56% | [1] | 4.71% | [1] | 6.23% | [1] | ||
| Interest rate at end of period | 4.93% | 3.32% | 5.13% | |||||
|
||||||||
|
Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | ||
|---|---|---|---|
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
|
| (Increase) decrease in minimum pension liability deferred tax benefit (expense) | $ 38 | $ 3,336 | $ (1,055) |
|
Summary of Significant Accounting Policies
|
12 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
|
Apr. 27, 2013
|
||||||||
| Summary of Significant Accounting Policies |
Business Barnes & Noble, one of the nation’s largest booksellers,3 is a leading content, commerce and technology company providing customers easy and convenient access to books, magazines, newspapers and other content across its multi-channel distribution platform. As of April 27, 2013, the Company operated 1,361 bookstores in 50 states, including 686 bookstores on college campuses, one of the Web’s largest eCommerce sites and develops digital content products and software. Given the dynamic nature of the book industry, the challenges faced by traditional booksellers, and the robust innovation pipeline fueling new opportunities in hardware, software and content creation and delivery, Barnes & Noble is utilizing the strength of its retail footprint to bolster its leadership and fuel sales growth across multiple channels. Of the 1,361 bookstores, 675 operate primarily under the Barnes & Noble Booksellers® trade name. Barnes & Noble College Booksellers, LLC (B&N College) operates 686 college bookstores at colleges and universities across the United States. Barnes & Noble Retail (B&N Retail) operates the 675 retail bookstores. B&N Retail also includes the Company’s eCommerce site, and Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), a leader in general trade book publishing. The NOOK segment includes the Company’s digital business, including the development and support of the Company’s NOOK® product offerings. The digital business includes digital content such as eBooks, digital newsstand, apps, movies and sales of NOOK® devices and accessories to third party distribution partners, B&N Retail and B&N College. The Company’s principal business is the sale of trade books (generally hardcover and paperback consumer titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, eBooks and other digital content, textbooks and course-related materials, NOOK®4 and related accessories, bargain books, magazines, gifts, emblematic apparel and gifts, school and dorm supplies, café products and services, educational toys & games, music and movies direct to customers through its bookstores or on barnesandnoble.com. The Company also offers a textbook rental option to its customers, electronic textbooks and other course materials through a proprietary digital platform (NOOK Study™). The Company offers its customers a full suite of textbook options – new, used, digital and rental. The Company identifies its operating segments based on the way the business is managed (focusing on the financial information distributed) and the manner in which the chief operating decision maker interacts with other members of management. The Company has three operating segments: B&N Retail, B&N College and NOOK.
Consolidation The consolidated financial statements include the accounts of Barnes & Noble, Inc. and its wholly and majority-owned subsidiaries. Investments in affiliates in which ownership interests range from 20% to 50%, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Merchandise Inventories Merchandise inventories are stated at the lower of cost or market. Cost is determined primarily by the retail inventory method under both the first-in, first-out (FIFO) basis and the last-in, first-out (LIFO) basis. B&N College’s textbook and trade book inventories are valued using the LIFO method, where the related reserve was not material to the recorded amount of the Company’s inventories or results of operations at April 27, 2013. NOOK merchandise inventories are recorded based on the average cost method. Market is determined based on the estimated net realizable value, which is generally the selling price. Reserves for non-returnable inventory are based on the Company’s history of liquidating non-returnable inventory. The Company also estimates and accrues shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends. During fiscal 2013, the Company recorded $222,235 of additional inventory related charges, of which $175,872 was charged against inventory, $13,800 against purchase commitments and the remainder related to sales allowances, as the holiday sales shortfall resulted in higher than anticipated levels of finished and unfinished goods. Additional provisions may be required if the Company adopts more aggressive short-term promotional strategies, units turn at slower than historical paces, or permanent price markdowns accelerate. Property and Equipment Property and equipment are carried at cost, less accumulated depreciation and amortization. For financial reporting purposes, depreciation is computed using the straight-line method over estimated useful lives. For tax purposes, different methods are used. Maintenance and repairs are expensed as incurred, while major maintenance and remodeling costs are capitalized. Leasehold improvements are capitalized and amortized over the shorter of their estimated useful lives or the terms of the respective leases. Capitalized lease acquisition costs are being amortized over the lease terms of the underlying leases. Costs incurred in purchasing management information systems are capitalized and included in property and equipment. These costs are amortized over their estimated useful lives from the date the systems become operational. Other Long-Lived Assets The Company’s other long-lived assets include property and equipment and amortizable intangibles. At April 27, 2013, the Company had $584,909 of property and equipment, net of accumulated depreciation, and $233,195 of amortizable intangible assets, net of amortization, accounting for approximately 21.9% of the Company’s total assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and considers market participants in accordance with Accounting Standards Codification (ASC) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets (ASC 360-10). The Company evaluates long-lived assets for impairment at the individual Barnes & Noble store level, except for B&N College long-lived assets, which are evaluated for impairment at the school contract combined store level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, the Company will first compare the carrying amount of the assets to the individual store’s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying amount of the assets, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the assets to the individual store’s fair value based on its estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value. Impairment losses included in selling and administrative expenses totaled $4,168, $11,747 and $2,857 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively, and are related to individual store locations. Goodwill and Unamortizable Intangible Assets The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance sheets. At April 27, 2013, the Company had $495,496 of goodwill and $314,736 of unamortizable intangible assets (those with an indefinite useful life), accounting for approximately 21.7% of the Company’s total assets. ASC 350-30, Goodwill and Other Intangible Assets, requires that goodwill and other unamortizable intangible assets no longer be amortized, but instead be tested for impairment at least annually or earlier if there are impairment indicators. The Company performs a two-step process for impairment testing of goodwill as required by ASC 350-30. The first step of this test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount. The second step (if necessary) measures the amount of the impairment. The Company completed its annual goodwill impairment test as of the first day of the third quarter of fiscal 2013. In performing the valuations, the Company used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions. Based on the results of the Company’s step one testing, the fair values of the B&N Retail, B&N College and NOOK reporting units as of that date exceeded their carrying values; therefore, the second step of the impairment test was not required to be performed and no goodwill impairment was recognized. The Company tests unamortizable intangible assets by comparing the fair value and the carrying value of such assets. The Company also completed its annual impairment tests for its other unamortizable intangible assets by comparing the estimated fair value to the carrying value of such assets and determined that no impairment was necessary. Changes in market conditions, among other factors, could have a material impact on these estimates, except for the Company’s publishing contracts.
During the fourth quarter of 2013, the Company has determined that goodwill impairment indicators arose in its NOOK reporting unit as recurring losses have led to revisions in its strategic plans. As a result, during the fourth quarter of fiscal 2013, the Company recorded a non-cash goodwill impairment charge of $18,332 in selling and administrative expenses, which represented all the goodwill in the NOOK reporting unit. Publishing contracts include the value of long-standing relationships with authors, agents and publishers established upon the Company’s acquisition of Sterling in 2003. Given Sterling’s strong history of maintaining such relationships, the Company believes they produce value indefinitely without an identifiable remaining useful life. However, given recent declines in the physical book business, these contracts were at risk of impairment as of its most recent impairment testing date and may be at risk in the future if declines in sales continue. In fiscal 2013, the Company decided to shut down the operations of Tikatok. Tikatok was an online platform where parents and their children and others can write, illustrate and publish stories into hardcover and paperback books. This decision resulted in an impairment charge of $1,973, including the write-off of goodwill of $1,947 and intangible assets of $26 during the second quarter of fiscal 2013. The effect of Tikatok operations is not material to the overall results of the Company. Deferred Charges Costs incurred to obtain long-term financing are amortized over the terms of the respective debt agreements using the straight-line method, which approximates the interest method. Unamortized costs included in other noncurrent assets as of April 27, 2013 and April 28, 2012 were $16,297 and $21,522, respectively. Amortization expense included in interest and amortization of deferred financing fees was $5,470, $5,381 and $16,087 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. Revenue Recognition Revenue from sales of the Company’s products is recognized at the time of sale or shipment, other than those with multiple elements and FOB destination point shipping terms. The Company’s shipping terms are FOB destination point. Certain of the Company sales agreements with these distribution partners contain rights of inspection or acceptance provisions as is standard in the Company’s industry. The Company accrues for estimated sales returns in the period in which the related revenue is recognized based on historical experience and industry standards. ECommerce revenue from sales of products ordered through the Company’s internet site is recognized upon delivery and receipt of the shipment by its customers. Sales taxes collected from retail customers are excluded from reported revenues. All of the Company’s sales are recognized as revenue on a “net” basis, including sales in connection with any periodic promotions offered to customers. The Company does not treat any promotional offers as expenses. In accordance with ASC 605-25, Revenue Recognition, Multiple Element Arrangements and Accounting Standards Updates (ASU) 2009-13 and 2009-14, for multiple-element arrangements that involve tangible products that contain software that is essential to the tangible product’s functionality, undelivered software elements that relate to the tangible product’s essential software and other separable elements, the Company allocates revenue to all deliverables using the relative selling-price method. Under this method, revenue is allocated at the time of sale to all deliverables based on their relative selling price using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence, third-party evidence of selling price, or best estimate of selling price. NOOK® device revenue is recognized at the segment point of sale. The Company includes post-service customer support (PCS) in the form of software updates and potential increased functionality on a when-and-if-available basis, as well as wireless access and wireless connectivity with the purchase of NOOK® from the Company. Using the relative selling price described above, the Company allocates revenue based on the best estimate of selling price for the deliverables as no vendor-specific objective evidence or third-party evidence exists for any of the elements. Revenue allocated to NOOK® and the software essential to its functionality is recognized at the time of sale, provided all other conditions for revenue recognition are met. Revenue allocated to the PCS and the wireless access is deferred and recognized on a straight-line basis over the 2-year estimated life of NOOK®. The average percentage of a NOOK®’s sales price that is deferred for undelivered items and recognized over its 2-year estimated life ranges between 2% and 6%, depending on the type of device sold. The amount of NOOK®-related deferred revenue as of April 27, 2013 and April 28, 2012 was $15,331 and $19,785, respectively. These amounts are classified on the Company’s balance sheet in accrued liabilities for the portion that is subject to deferral for one year or less and other long-term liabilities for the portion that is subject to deferral for more than one year. The Company also pays certain vendors who distribute NOOK® a commission on the content sales sold through that device. The Company accounts for these transactions as a reduction in the sales price of the NOOK® based on historical trends of content sales and a liability is established for the estimated commission expected to be paid over the life of the product. The Company recognizes revenue of the content at the point of sale of the content. The Company records revenue from sales of digital content, sales of third-party extended warranties, service contracts and other products, for which the Company is not obligated to perform, and for which the Company does not meet the criteria for gross revenue recognition under ASC 605-45-45, Reporting Revenue Gross as a Principal versus Net as an Agent, on a net basis. All other revenue is recognized on a gross basis. The Company rents both physical and digital textbooks. Revenue from physical textbooks is deferred and recognized over the rental period commencing at point of sale. Revenue for digital textbooks is deferred and recognized over the rental period commencing the earlier of when the textbook has been downloaded or one year from point of sale. NOOK acquires the rights to distribute digital content from publishers and distributes the content on barnesandnoble.com, NOOK® devices and other eBookstore platforms. Certain digital content is distributed under an agency pricing model in which the publishers set fixed prices for eBooks and NOOK receives a fixed commission on content sold through the eBookstore. The majority of the Company’s eBook sales are sold under the agency model. The Barnes & Noble Member Program offers members greater discounts and other benefits for products and services, as well as exclusive offers and promotions via e-mail or direct mail for an annual fee of $25.00, which is non-refundable after the first 30 days. Revenue is recognized over the twelve-month period based upon historical spending patterns for Barnes & Noble Members. Research and Development Costs for Software Products The Company follows the guidance in ASC 985-20, Cost of Software to Be Sold, Leased or Marketed, regarding software development costs to be sold, leased, or otherwise marketed. Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. The Company’s products reach technological feasibility shortly before the products are released and therefore research and development costs are generally expensed as incurred. Advertising Costs The costs of advertising are expensed as incurred during the year pursuant to ASC 720-35, Advertising Costs. Advertising costs charged to selling and administrative expenses were $110,878, $116,388 and $73,417 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The Company receives payments and credits from vendors pursuant to co-operative advertising and other programs, including payments for product placement in stores, catalogs and online. In accordance with ASC 605-50-25-10, Customer’s Accounting for Certain Consideration Received from a Vendor, the Company classifies certain co-op advertising received as a reduction in costs of sales and occupancy. The gross co-op advertising expenses noted above were completely offset by allowances received from vendors and the excess allowances received were recorded as a reduction of cost of goods sold or inventory, as appropriate. Closed Store Expenses When the Company closes or relocates a store, the Company charges unrecoverable costs to expense. Such costs include the net book value of abandoned fixtures and leasehold improvements and, when a store is closed prior to the expiration of the lease, a provision for future lease obligations, net of expected sublease recoveries. Costs associated with store closings of $5,006, $551 and $3,899 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively, are included in selling and administrative expenses in the accompanying consolidated statements of operations. Net Earnings (Loss) Per Common Share Basic earnings per share represent net earnings (loss) attributable to common shareholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of the Company’s outstanding stock options. The Company’s unvested restricted shares, unvested restricted stock units and common shares issuable under the Company’s deferred compensation plan are deemed participating securities and are excluded from the dilutive impact of common equivalent shares outstanding under the two-class method since these shares are entitled to participate in dividends declared on common shares. Under the two-class method, earnings (loss) attributable to unvested restricted shares, unvested restricted stock units and common shares issuable under the Company’s deferred compensation plan are excluded from net earnings (loss) attributable to common shareholders for purposes of calculating basic and diluted earnings (loss) per common share. See Note 8 for further information regarding the calculation of basic and diluted earnings (loss) per common share. Income Taxes The provision for income taxes includes federal, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. The deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance, if determined to be necessary. Stock-Based Compensation The calculation of stock-based employee compensation expense involves estimates that require management’s judgment. These estimates include the fair value of each of the stock option awards granted, which is estimated on the date of grant using a Black-Scholes option pricing model. There are two significant inputs into the Black-Scholes option pricing model: expected volatility and expected term. The Company estimates expected volatility based on traded option volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. See Note 4 to the Consolidated Financial Statements for a further discussion on stock-based compensation. Gift Cards The Company sells gift cards which can be used in its stores or on barnesandnoble.com. The Company does not charge administrative or dormancy fees on gift cards and gift cards have no expiration dates. Upon the purchase of a gift card, a liability is established for its cash value. Revenue associated with gift cards is deferred until redemption of the gift card. Over time, some portion of the gift cards issued is not redeemed. The Company estimates the portion of the gift card liability for which the likelihood of redemption is remote based upon the Company’s historical redemption patterns. The Company records this amount in income on a straight-line basis over a 12-month period beginning in the 13th month after the month the gift card was originally sold. If actual redemption patterns vary from the Company’s estimates, actual gift card breakage may differ from the amounts recorded. The Company recognized gift card breakage of $23,929, $29,284 and $25,904 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The Company had gift card liabilities of $341,036 and $321,362 as of April 27, 2013 and April 28, 2012, respectively. Reclassifications Certain prior-period amounts have been reclassified for comparative purposes to conform with the fiscal 2013 presentation. The Company reclassified $47,026 from other long-term liabilities to accrued liabilities related to the current portion of deferred rent and tenant allowances on the April 28, 2012 balance sheet for comparative purposes to conform with the fiscal 2013 presentation.
Reporting Period The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. The reporting periods ended April 27, 2013, April 28, 2012 and April 30, 2011 all contained 52 weeks. |
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Liberty Investment
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12 Months Ended | |||
|---|---|---|---|---|
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Apr. 27, 2013
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| Liberty Investment |
On August 18, 2011, the Company entered into an investment agreement between the Company and Liberty GIC, Inc. (Liberty), a subsidiary of Liberty Media Corporation, pursuant to which the Company issued and sold to Liberty, and Liberty purchased, 204,000 shares of the Company’s Series J Preferred Stock, par value $0.001 per share (Preferred Stock), for an aggregate purchase price of $204,000, in a private placement exempt from the registration requirements of the 1933 Act. The shares of Preferred Stock will be convertible, at the option of the holders, into shares of Common Stock representing 16.6% of the Common Stock outstanding as of August 29, 2011, (after giving pro forma effect to the issuance of the Preferred Stock), based on the initial conversion rate. The initial conversion rate reflects an initial conversion price of $17.00 and is subject to adjustment in certain circumstances. The initial dividend rate for the Preferred Stock is equal to 7.75% per annum of the initial liquidation preference of the Preferred Stock, to be paid quarterly and subject to adjustment in certain circumstances. The Preferred Stock is mandatorily redeemable on August 18, 2021 and may be redeemed at the discretion of the Company anytime after August 17, 2016. Starting August 18, 2013, if the closing price of the Common Stock exceeds 150% of the then-applicable conversion price of the Preferred Stock for 20 consecutive trading days, the Company may require conversion of all the Preferred Stock to Common Stock. The holders of the Preferred Stock have the same voting rights as holders of the Company Common Stock and are entitled to elect one or two directors to the board of directors of the Company as long as certain Preferred Share ownership requirements are met. The Preferred Stock does not meet the categories of ASC 480-10, Distinguishing Liabilities from Equity, and is therefore reported as temporary equity for classification purposes. The related issuance costs, which include advisory, legal and accounting fees, of $12,621 were recorded in temporary equity as a reduction of the proceeds from the Liberty investment. The Company will be required to accrete these fees on a straight-line basis as dividends over the ten year term. This is in line with ASC 480-10-S99 for SEC registrants, which requires shares to be classified outside of permanent equity as temporary equity or mezzanine equity when there are events not solely within the control of the issuer that could trigger redemption. The Company has determined that the various embedded options did not require bifurcation from the Preferred Stock. Additionally, the Company concluded that a beneficial conversion feature did not exist as the effective conversion price was greater than the Company’s share price on the commitment date. |
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Employees' Retirement and Defined Contribution Plans
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12 Months Ended | |||
|---|---|---|---|---|
|
Apr. 27, 2013
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| Employees' Retirement and Defined Contribution Plans |
As of December 31, 1999, substantially all employees of the Company were covered under a noncontributory defined benefit pension plan (the Pension Plan). As of January 1, 2000, the Pension Plan was amended so that employees no longer earn benefits for subsequent service. Effective December 31, 2004, the Barnes & Noble.com Employees’ Retirement Plan (the B&N.com Retirement Plan) was merged with the Pension Plan. Substantially all employees of Barnes & Noble.com were covered under the B&N.com Retirement Plan. As of July 1, 2000, the B&N.com Retirement Plan was amended so that employees no longer earn benefits for subsequent service. Subsequent service continues to be the basis for vesting of benefits not yet vested at December 31, 1999 and June 30, 2000 for the Pension Plan and the B&N.com Retirement Plan, respectively, and the Pension Plan will continue to hold assets and pay benefits. The actuarial assumptions used to calculate pension costs are reviewed annually. Pension expense was $2,836, $1,970 and $2,558 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The Company maintains a defined contribution plan (the Savings Plan) for the benefit of substantially all employees. Total Company contributions charged to employee benefit expenses for the Savings Plan were $15,902, $15,273 and $14,212 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. In addition, the Company provides certain health care and life insurance benefits (the Postretirement Plan) to retired employees, limited to those receiving benefits or retired as of April 1, 1993. Total Company contributions charged to employee benefit expenses for the Postretirement Plan were $0, $150 and $150 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. |
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Summarized Financial Information Reportable Segments (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 12 Months Ended | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Apr. 27, 2013
|
Jan. 26, 2013
|
Oct. 27, 2012
|
Jul. 28, 2012
|
Apr. 28, 2012
|
Jan. 28, 2012
|
Oct. 29, 2011
|
Jul. 30, 2011
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
||||||||||||||
| Segment Reporting Information [Line Items] | ||||||||||||||||||||||||
| Sales | $ 1,277,021 | $ 2,223,945 | $ 1,884,532 | $ 1,453,507 | $ 1,379,710 | $ 2,439,124 | $ 1,891,961 | $ 1,418,404 | $ 6,839,005 | $ 7,129,199 | $ 6,998,565 | |||||||||||||
| Depreciation and amortization | 55,761 | 57,613 | 58,035 | 58,968 | 60,273 | 57,755 | 55,671 | 227,134 | 232,667 | 228,647 | ||||||||||||||
| Sales by Product Line | 100.00% | 100.00% | 100.00% | |||||||||||||||||||||
| Operating Profit/(Loss) | 3,657 | 8,929 | (52,285) | (68,173) | 91,100 | (972) | (76,558) | (220,004) | (54,603) | (56,799) | ||||||||||||||
| Capital Expenditures | 165,835 | 163,552 | 110,502 | |||||||||||||||||||||
| Total assets | 3,732,536 | [1] | 4,284,971 | 4,439,982 | 4,053,887 | 3,774,699 | [1] | 4,189,873 | 4,108,052 | 3,971,657 | 3,732,536 | [1] | 3,774,699 | [1] | 3,596,466 | |||||||||
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Media
|
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| Segment Reporting Information [Line Items] | ||||||||||||||||||||||||
| Sales by Product Line | 67.00% | [2] | 66.00% | [2] | 70.00% | [2] | ||||||||||||||||||
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Digital
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||||||||||||||||||||||||
| Segment Reporting Information [Line Items] | ||||||||||||||||||||||||
| Sales by Product Line | 12.00% | [3] | 15.00% | [3] | 11.00% | [3] | ||||||||||||||||||
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Other
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||||||||||||||||||||||||
| Segment Reporting Information [Line Items] | ||||||||||||||||||||||||
| Sales by Product Line | 21.00% | [4] | 19.00% | [4] | 19.00% | [4] | ||||||||||||||||||
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B&N Retail
|
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| Segment Reporting Information [Line Items] | ||||||||||||||||||||||||
| Sales | 4,568,243 | 4,852,913 | 4,926,834 | |||||||||||||||||||||
| Depreciation and amortization | 148,855 | 162,693 | 164,934 | |||||||||||||||||||||
| Operating Profit/(Loss) | 227,235 | 161,136 | 102,592 | |||||||||||||||||||||
| Capital Expenditures | 51,401 | 87,596 | 62,299 | |||||||||||||||||||||
| Total assets | 2,169,678 | [1] | 2,416,318 | [1] | 2,169,678 | [1] | 2,416,318 | [1] | ||||||||||||||||
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Nook
|
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| Segment Reporting Information [Line Items] | ||||||||||||||||||||||||
| Sales | 780,433 | 933,471 | 695,182 | |||||||||||||||||||||
| Depreciation and amortization | 31,430 | 24,631 | 20,565 | |||||||||||||||||||||
| Operating Profit/(Loss) | (511,848) | (286,343) | (229,689) | |||||||||||||||||||||
| Capital Expenditures | 75,674 | 35,477 | 13,199 | |||||||||||||||||||||
| Total assets | 573,110 | [1] | 385,521 | [1] | 573,110 | [1] | 385,521 | [1] | ||||||||||||||||
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Elimination
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||||||||||||||||||||||||
| Segment Reporting Information [Line Items] | ||||||||||||||||||||||||
| Sales | (272,919) | (400,847) | (401,610) | |||||||||||||||||||||
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B&N College
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| Segment Reporting Information [Line Items] | ||||||||||||||||||||||||
| Sales | 1,763,248 | 1,743,662 | 1,778,159 | |||||||||||||||||||||
| Depreciation and amortization | 46,849 | 45,343 | 43,148 | |||||||||||||||||||||
| Operating Profit/(Loss) | 64,609 | 70,604 | 70,298 | |||||||||||||||||||||
| Capital Expenditures | 38,760 | 40,479 | 35,004 | |||||||||||||||||||||
| Total assets | $ 989,748 | [1] | $ 972,860 | [1] | $ 989,748 | [1] | $ 972,860 | [1] | ||||||||||||||||
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|
Restatement of Prior Period Financial Statements - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 12 Months Ended | 3 Months Ended | 12 Months Ended | |||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jan. 26, 2013
|
Oct. 27, 2012
|
Jul. 28, 2012
|
Apr. 28, 2012
|
Jan. 28, 2012
|
Oct. 29, 2011
|
Jul. 30, 2011
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
Jan. 26, 2013
Correction
|
Oct. 27, 2012
Correction
|
Jul. 28, 2012
Correction
|
Apr. 28, 2012
Correction
|
Jan. 28, 2012
Correction
|
Oct. 29, 2011
Correction
|
Jul. 30, 2011
Correction
|
Apr. 28, 2012
Correction
|
Apr. 30, 2011
Correction
|
May 01, 2010
Correction
|
May 01, 2010
Correction
Deferred Tax Liability
|
Apr. 28, 2012
Correction
Accounts Payable and Accrued Liabilities
|
Apr. 30, 2011
Correction
Accounts Payable and Accrued Liabilities
|
Jan. 26, 2013
Other Adjustments
|
Oct. 27, 2012
Other Adjustments
|
Jul. 28, 2012
Other Adjustments
|
Apr. 28, 2012
Other Adjustments
|
Jan. 28, 2012
Other Adjustments
|
Oct. 29, 2011
Other Adjustments
|
Jul. 30, 2011
Other Adjustments
|
Apr. 30, 2011
Other Adjustments
|
|
| Cost of sales and occupancy | $ 1,670,433 | $ 1,402,243 | $ 1,037,702 | $ 979,083 | $ 1,784,881 | $ 1,419,546 | $ 1,028,173 | $ 5,156,499 | $ 5,211,683 | $ 5,197,252 | $ (3,951) | $ (1,791) | $ (1,917) | $ (1,849) | $ (1,427) | $ (751) | $ (2,673) | $ (6,700) | $ (8,460) | ||||||||||||
| Cost of sales and occupancy, net of tax | (4,027) | (5,084) | |||||||||||||||||||||||||||||
| Accounts payable | 1,256,754 | 1,348,489 | 1,288,887 | 863,223 | 1,394,201 | 1,369,057 | 1,183,535 | 805,194 | 863,223 | 859,510 | (103,859) | (99,908) | (98,117) | (96,200) | (94,351) | (92,924) | (92,173) | (96,200) | (89,500) | ||||||||||||
| Income taxes payable | 18,598 | 18,598 | 14,939 | ||||||||||||||||||||||||||||
| Retained earnings | 529,844 | 541,016 | 542,102 | 586,188 | 647,085 | 598,475 | 607,966 | 410,349 | 586,188 | 662,966 | 109,217 | 106,842 | 105,766 | 104,614 | 103,503 | 102,645 | 102,193 | 104,614 | 100,587 | 95,503 | 26,026 | 78,588 | 74,561 | ||||||||
| Deferred income tax liability | 247,449 | 266,853 | 242,384 | 242,748 | 249,410 | 249,842 | 253,690 | 231,215 | 242,748 | 254,106 | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | |||||||||||
| Receivable, net | 396,169 | 233,502 | 153,500 | 169,947 | 396,854 | 240,600 | 156,543 | 149,369 | 169,947 | 150,294 | 8,710 | 8,957 | 9,203 | 9,450 | 9,450 | ||||||||||||||||
| Accrued liabilities | 627,982 | 535,961 | 540,105 | 612,119 | 608,203 | 503,864 | 471,744 | 569,240 | 612,119 | 541,586 | 21,654 | 20,078 | 19,363 | 18,598 | 16,874 | 16,305 | 16,006 | 18,598 | 14,939 | 43,300 | 44,908 | 46,275 | 47,026 | 48,826 | 50,691 | 52,071 | 52,072 | ||||
| Other long-term liabilities | $ 354,449 | $ 328,029 | $ 359,357 | $ 366,503 | $ 359,465 | $ 368,232 | $ 382,263 | $ 419,946 | $ 366,503 | $ 396,575 | $ 7,724 | $ 7,971 | $ 8,217 | $ 8,464 | $ 8,464 | $ (43,300) | $ (44,908) | $ (46,275) | $ (47,026) | $ (48,826) | $ (50,691) | $ (52,071) | $ (52,072) | ||||||||
|
Acquisition of Noncontrolling Interest - Additional Information (Detail) (Begin Smart LLC, USD $)
In Thousands, unless otherwise specified |
12 Months Ended | |
|---|---|---|
|
Apr. 27, 2013
|
Apr. 30, 2011
|
|
|
Begin Smart LLC
|
||
| Noncontrolling Interest [Line Items] | ||
| Prior joint venture interest ownership percentage | 50.00% | |
| Increase in ownership percentage | 50.00% | |
| Purchase price for remaining interest | $ 300 | |
| Ownership percentage, post acquisition | 100.00% | |
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Summary of Restricted Stock Activity (Detail) (Restricted Stock, USD $)
|
12 Months Ended | ||
|---|---|---|---|
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
|
|
Restricted Stock
|
|||
| Number of Shares | |||
| Beginning Balance | 1,384,000 | 2,425,000 | 2,330,000 |
| Granted | 60,000 | 83,000 | 684,000 |
| Vested | (866,000) | (1,073,000) | (435,000) |
| Forfeited | (293,000) | (51,000) | (154,000) |
| Ending Balance | 285,000 | 1,384,000 | 2,425,000 |
| Weighted Average Grant Date Fair Value | |||
| Beginning Balance | $ 19.68 | $ 21.31 | $ 24.15 |
| Granted | $ 11.52 | $ 13.23 | $ 16.65 |
| Vested | $ 20.49 | $ 22.78 | $ 27.99 |
| Forfeited | $ 19.24 | $ 21.52 | $ 24.76 |
| Ending Balance | $ 15.91 | $ 19.68 | $ 21.31 |
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Receivables, Net (Tables)
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
Apr. 27, 2013
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| Receivables | Receivables represent customer, private and public institutional and government billings, credit/debit card, advertising, landlord and other receivables due within one year as follows:
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Commitments and Contingencies
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
Apr. 27, 2013
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| Commitments and Contingencies |
The Company leases retail stores, warehouse facilities, office space and equipment. Substantially all of the B&N Retail stores are leased under noncancelable agreements which expire at various dates through 2036 with various renewal options for additional periods. The agreements, which have been classified as operating leases, generally provide for both minimum and percentage rentals and require the Company to pay insurance, taxes and other maintenance costs. Percentage rentals are based on sales performance in excess of specified minimums at various stores. B&N College’s contracts are typically for five to ten years, although some extend beyond ten years. Many contracts have a 90 to 120 day cancellation right by B&N College, or by the college or university, without penalty. The Company leases office space in New York, New York and Palo Alto, California for its NOOK operations. Rental expense under operating leases is as follows:
Future minimum annual rentals, excluding percentage rentals, required under B&N Retail leases that had initial, noncancelable lease terms greater than one year, under B&N College and NOOK leases as of April 27, 2013 are:
The Company provides for minimum rent expense over the lease terms (including the build-out period) on a straight-line basis. The excess of such rent expense over actual lease payments (net of tenant allowances) is reflected in other long-term liabilities and accrued liabilities in the accompanying balance sheets. On June 26, 2008, the Company exercised its purchase option under a lease on one of its distribution facilities located in South Brunswick, New Jersey from the New Jersey Economic Development Authority. Under the terms of the lease expiring in June 2011, the Company purchased the distribution facility and equipment for approximately $21,000. Subsequently, on December 29, 2011, the Company sold the distribution facility in South Brunswick, New Jersey for $18,000, which resulted in a loss of $2,178. |
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Shareholders' Equity
|
12 Months Ended | |||
|---|---|---|---|---|
|
Apr. 27, 2013
|
||||
| Shareholders' Equity |
On November 17, 2009, the Board of Directors of the Company declared a dividend, payable to stockholders of record on November 27, 2009 of one right (a Right) per each share of outstanding Common Stock of the Company, par value $0.001 per share (Common Stock), to purchase 1/1000th of a share of Series I Preferred Stock, par value $0.001 per share, of the Company (the Preferred Stock), at a price of $100.00 per share (such amount, as may be adjusted from time to time as provided in the Rights Agreement). In connection therewith, on November 17, 2009, the Company entered into a Rights Agreement, dated November 17, 2009 (as amended February 17, 2010, June 23, 2010, October 29, 2010 and August 18, 2011, the Rights Agreement) with Mellon Investor Services LLC, as Rights Agent. The Rights expired on November 17, 2012.
On May 15, 2007, the Company’s Board of Directors authorized a stock repurchase program for the purchase of up to $400,000 of the Company’s common stock. The maximum dollar value of common stock that may yet be purchased under the current program is approximately $2,471 as of April 27, 2013. Stock repurchases under this program may be made through open market and privately negotiated transactions from time to time and in such amounts as management deems appropriate. As of April 27, 2013 the Company has repurchased 34,078,089 shares at a cost of approximately $1,063,854 under its stock repurchase programs. The repurchased shares are held in treasury. |
|
Selected Quarterly Financial Information (Tables)
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Apr. 27, 2013
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| Summary of Quarterly Financial Information | A summary of quarterly financial information for fiscal 2013 and fiscal 2012 is as follows:
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| Effects of Corrections and Other Adjustments Previously Reported Unaudited Quarterly Financial Information | The following tables present the effects of the corrections and other adjustments made to the Company’s previously reported unaudited quarterly financial information for the quarters ended July 29, 2012, October 27, 2012 and January 26, 2013, and each of the quarters in the year ended April 28, 2012. See Note 2 for further information regarding these adjustments.
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Summary of Significant Accounting Policies (Policies)
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12 Months Ended |
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Apr. 27, 2013
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| Consolidation | Consolidation The consolidated financial statements include the accounts of Barnes & Noble, Inc. and its wholly and majority-owned subsidiaries. Investments in affiliates in which ownership interests range from 20% to 50%, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. |
| Use of Estimates | Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. |
| Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. |
| Merchandise Inventories | Merchandise Inventories Merchandise inventories are stated at the lower of cost or market. Cost is determined primarily by the retail inventory method under both the first-in, first-out (FIFO) basis and the last-in, first-out (LIFO) basis. B&N College’s textbook and trade book inventories are valued using the LIFO method, where the related reserve was not material to the recorded amount of the Company’s inventories or results of operations at April 27, 2013. NOOK merchandise inventories are recorded based on the average cost method. Market is determined based on the estimated net realizable value, which is generally the selling price. Reserves for non-returnable inventory are based on the Company’s history of liquidating non-returnable inventory. The Company also estimates and accrues shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends. During fiscal 2013, the Company recorded $222,235 of additional inventory related charges, of which $175,872 was charged against inventory, $13,800 against purchase commitments and the remainder related to sales allowances, as the holiday sales shortfall resulted in higher than anticipated levels of finished and unfinished goods. Additional provisions may be required if the Company adopts more aggressive short-term promotional strategies, units turn at slower than historical paces, or permanent price markdowns accelerate. |
| Property and Equipment | Property and Equipment Property and equipment are carried at cost, less accumulated depreciation and amortization. For financial reporting purposes, depreciation is computed using the straight-line method over estimated useful lives. For tax purposes, different methods are used. Maintenance and repairs are expensed as incurred, while major maintenance and remodeling costs are capitalized. Leasehold improvements are capitalized and amortized over the shorter of their estimated useful lives or the terms of the respective leases. Capitalized lease acquisition costs are being amortized over the lease terms of the underlying leases. Costs incurred in purchasing management information systems are capitalized and included in property and equipment. These costs are amortized over their estimated useful lives from the date the systems become operational. |
| Other Long-Lived Assets | Other Long-Lived Assets The Company’s other long-lived assets include property and equipment and amortizable intangibles. At April 27, 2013, the Company had $584,909 of property and equipment, net of accumulated depreciation, and $233,195 of amortizable intangible assets, net of amortization, accounting for approximately 21.9% of the Company’s total assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and considers market participants in accordance with Accounting Standards Codification (ASC) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets (ASC 360-10). The Company evaluates long-lived assets for impairment at the individual Barnes & Noble store level, except for B&N College long-lived assets, which are evaluated for impairment at the school contract combined store level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, the Company will first compare the carrying amount of the assets to the individual store’s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying amount of the assets, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the assets to the individual store’s fair value based on its estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value. Impairment losses included in selling and administrative expenses totaled $4,168, $11,747 and $2,857 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively, and are related to individual store locations. |
| Goodwill and Unamortizable Intangible Assets | Goodwill and Unamortizable Intangible Assets The costs in excess of net assets of businesses acquired are carried as goodwill in the accompanying consolidated balance sheets. At April 27, 2013, the Company had $495,496 of goodwill and $314,736 of unamortizable intangible assets (those with an indefinite useful life), accounting for approximately 21.7% of the Company’s total assets. ASC 350-30, Goodwill and Other Intangible Assets, requires that goodwill and other unamortizable intangible assets no longer be amortized, but instead be tested for impairment at least annually or earlier if there are impairment indicators. The Company performs a two-step process for impairment testing of goodwill as required by ASC 350-30. The first step of this test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount. The second step (if necessary) measures the amount of the impairment. The Company completed its annual goodwill impairment test as of the first day of the third quarter of fiscal 2013. In performing the valuations, the Company used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions. Based on the results of the Company’s step one testing, the fair values of the B&N Retail, B&N College and NOOK reporting units as of that date exceeded their carrying values; therefore, the second step of the impairment test was not required to be performed and no goodwill impairment was recognized. The Company tests unamortizable intangible assets by comparing the fair value and the carrying value of such assets. The Company also completed its annual impairment tests for its other unamortizable intangible assets by comparing the estimated fair value to the carrying value of such assets and determined that no impairment was necessary. Changes in market conditions, among other factors, could have a material impact on these estimates, except for the Company’s publishing contracts.
During the fourth quarter of 2013, the Company has determined that goodwill impairment indicators arose in its NOOK reporting unit as recurring losses have led to revisions in its strategic plans. As a result, during the fourth quarter of fiscal 2013, the Company recorded a non-cash goodwill impairment charge of $18,332 in selling and administrative expenses, which represented all the goodwill in the NOOK reporting unit. Publishing contracts include the value of long-standing relationships with authors, agents and publishers established upon the Company’s acquisition of Sterling in 2003. Given Sterling’s strong history of maintaining such relationships, the Company believes they produce value indefinitely without an identifiable remaining useful life. However, given recent declines in the physical book business, these contracts were at risk of impairment as of its most recent impairment testing date and may be at risk in the future if declines in sales continue. In fiscal 2013, the Company decided to shut down the operations of Tikatok. Tikatok was an online platform where parents and their children and others can write, illustrate and publish stories into hardcover and paperback books. This decision resulted in an impairment charge of $1,973, including the write-off of goodwill of $1,947 and intangible assets of $26 during the second quarter of fiscal 2013. The effect of Tikatok operations is not material to the overall results of the Company. |
| Deferred Charges | Deferred Charges Costs incurred to obtain long-term financing are amortized over the terms of the respective debt agreements using the straight-line method, which approximates the interest method. Unamortized costs included in other noncurrent assets as of April 27, 2013 and April 28, 2012 were $16,297 and $21,522, respectively. Amortization expense included in interest and amortization of deferred financing fees was $5,470, $5,381 and $16,087 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. |
| Revenue Recognition | Revenue Recognition Revenue from sales of the Company’s products is recognized at the time of sale or shipment, other than those with multiple elements and FOB destination point shipping terms. The Company’s shipping terms are FOB destination point. Certain of the Company sales agreements with these distribution partners contain rights of inspection or acceptance provisions as is standard in the Company’s industry. The Company accrues for estimated sales returns in the period in which the related revenue is recognized based on historical experience and industry standards. ECommerce revenue from sales of products ordered through the Company’s internet site is recognized upon delivery and receipt of the shipment by its customers. Sales taxes collected from retail customers are excluded from reported revenues. All of the Company’s sales are recognized as revenue on a “net” basis, including sales in connection with any periodic promotions offered to customers. The Company does not treat any promotional offers as expenses. In accordance with ASC 605-25, Revenue Recognition, Multiple Element Arrangements and Accounting Standards Updates (ASU) 2009-13 and 2009-14, for multiple-element arrangements that involve tangible products that contain software that is essential to the tangible product’s functionality, undelivered software elements that relate to the tangible product’s essential software and other separable elements, the Company allocates revenue to all deliverables using the relative selling-price method. Under this method, revenue is allocated at the time of sale to all deliverables based on their relative selling price using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence, third-party evidence of selling price, or best estimate of selling price. NOOK® device revenue is recognized at the segment point of sale. The Company includes post-service customer support (PCS) in the form of software updates and potential increased functionality on a when-and-if-available basis, as well as wireless access and wireless connectivity with the purchase of NOOK® from the Company. Using the relative selling price described above, the Company allocates revenue based on the best estimate of selling price for the deliverables as no vendor-specific objective evidence or third-party evidence exists for any of the elements. Revenue allocated to NOOK® and the software essential to its functionality is recognized at the time of sale, provided all other conditions for revenue recognition are met. Revenue allocated to the PCS and the wireless access is deferred and recognized on a straight-line basis over the 2-year estimated life of NOOK®. The average percentage of a NOOK®’s sales price that is deferred for undelivered items and recognized over its 2-year estimated life ranges between 2% and 6%, depending on the type of device sold. The amount of NOOK®-related deferred revenue as of April 27, 2013 and April 28, 2012 was $15,331 and $19,785, respectively. These amounts are classified on the Company’s balance sheet in accrued liabilities for the portion that is subject to deferral for one year or less and other long-term liabilities for the portion that is subject to deferral for more than one year. The Company also pays certain vendors who distribute NOOK® a commission on the content sales sold through that device. The Company accounts for these transactions as a reduction in the sales price of the NOOK® based on historical trends of content sales and a liability is established for the estimated commission expected to be paid over the life of the product. The Company recognizes revenue of the content at the point of sale of the content. The Company records revenue from sales of digital content, sales of third-party extended warranties, service contracts and other products, for which the Company is not obligated to perform, and for which the Company does not meet the criteria for gross revenue recognition under ASC 605-45-45, Reporting Revenue Gross as a Principal versus Net as an Agent, on a net basis. All other revenue is recognized on a gross basis. The Company rents both physical and digital textbooks. Revenue from physical textbooks is deferred and recognized over the rental period commencing at point of sale. Revenue for digital textbooks is deferred and recognized over the rental period commencing the earlier of when the textbook has been downloaded or one year from point of sale. NOOK acquires the rights to distribute digital content from publishers and distributes the content on barnesandnoble.com, NOOK® devices and other eBookstore platforms. Certain digital content is distributed under an agency pricing model in which the publishers set fixed prices for eBooks and NOOK receives a fixed commission on content sold through the eBookstore. The majority of the Company’s eBook sales are sold under the agency model. The Barnes & Noble Member Program offers members greater discounts and other benefits for products and services, as well as exclusive offers and promotions via e-mail or direct mail for an annual fee of $25.00, which is non-refundable after the first 30 days. Revenue is recognized over the twelve-month period based upon historical spending patterns for Barnes & Noble Members. |
| Research and Development Costs for Software Products | Research and Development Costs for Software Products The Company follows the guidance in ASC 985-20, Cost of Software to Be Sold, Leased or Marketed, regarding software development costs to be sold, leased, or otherwise marketed. Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. The Company’s products reach technological feasibility shortly before the products are released and therefore research and development costs are generally expensed as incurred. |
| Advertising Costs | Advertising Costs The costs of advertising are expensed as incurred during the year pursuant to ASC 720-35, Advertising Costs. Advertising costs charged to selling and administrative expenses were $110,878, $116,388 and $73,417 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The Company receives payments and credits from vendors pursuant to co-operative advertising and other programs, including payments for product placement in stores, catalogs and online. In accordance with ASC 605-50-25-10, Customer’s Accounting for Certain Consideration Received from a Vendor, the Company classifies certain co-op advertising received as a reduction in costs of sales and occupancy. The gross co-op advertising expenses noted above were completely offset by allowances received from vendors and the excess allowances received were recorded as a reduction of cost of goods sold or inventory, as appropriate. |
| Closed Store Expenses | Closed Store Expenses When the Company closes or relocates a store, the Company charges unrecoverable costs to expense. Such costs include the net book value of abandoned fixtures and leasehold improvements and, when a store is closed prior to the expiration of the lease, a provision for future lease obligations, net of expected sublease recoveries. Costs associated with store closings of $5,006, $551 and $3,899 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively, are included in selling and administrative expenses in the accompanying consolidated statements of operations. |
| Net Earnings (Loss) Per Common Share | Net Earnings (Loss) Per Common Share Basic earnings per share represent net earnings (loss) attributable to common shareholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of the Company’s outstanding stock options. The Company’s unvested restricted shares, unvested restricted stock units and common shares issuable under the Company’s deferred compensation plan are deemed participating securities and are excluded from the dilutive impact of common equivalent shares outstanding under the two-class method since these shares are entitled to participate in dividends declared on common shares. Under the two-class method, earnings (loss) attributable to unvested restricted shares, unvested restricted stock units and common shares issuable under the Company’s deferred compensation plan are excluded from net earnings (loss) attributable to common shareholders for purposes of calculating basic and diluted earnings (loss) per common share. See Note 8 for further information regarding the calculation of basic and diluted earnings (loss) per common share. |
| Income Taxes | Income Taxes The provision for income taxes includes federal, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. The deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance, if determined to be necessary. |
| Stock-Based Compensation | Stock-Based Compensation The calculation of stock-based employee compensation expense involves estimates that require management’s judgment. These estimates include the fair value of each of the stock option awards granted, which is estimated on the date of grant using a Black-Scholes option pricing model. There are two significant inputs into the Black-Scholes option pricing model: expected volatility and expected term. The Company estimates expected volatility based on traded option volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. See Note 4 to the Consolidated Financial Statements for a further discussion on stock-based compensation. |
| Gift Cards | Gift Cards The Company sells gift cards which can be used in its stores or on barnesandnoble.com. The Company does not charge administrative or dormancy fees on gift cards and gift cards have no expiration dates. Upon the purchase of a gift card, a liability is established for its cash value. Revenue associated with gift cards is deferred until redemption of the gift card. Over time, some portion of the gift cards issued is not redeemed. The Company estimates the portion of the gift card liability for which the likelihood of redemption is remote based upon the Company’s historical redemption patterns. The Company records this amount in income on a straight-line basis over a 12-month period beginning in the 13th month after the month the gift card was originally sold. If actual redemption patterns vary from the Company’s estimates, actual gift card breakage may differ from the amounts recorded. The Company recognized gift card breakage of $23,929, $29,284 and $25,904 during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The Company had gift card liabilities of $341,036 and $321,362 as of April 27, 2013 and April 28, 2012, respectively. |
| Reclassifications | Reclassifications Certain prior-period amounts have been reclassified for comparative purposes to conform with the fiscal 2013 presentation. The Company reclassified $47,026 from other long-term liabilities to accrued liabilities related to the current portion of deferred rent and tenant allowances on the April 28, 2012 balance sheet for comparative purposes to conform with the fiscal 2013 presentation. |
| Reporting Period | Reporting Period The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. The reporting periods ended April 27, 2013, April 28, 2012 and April 30, 2011 all contained 52 weeks. |
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Fair Values of Financial Instruments (Tables)
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Apr. 27, 2013
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| Fair Values of Financial Instruments | The following table presents the changes in Level 3 contingent consideration liability:
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Correction to Consolidated Balance (Detail) (USD $)
In Thousands, unless otherwise specified |
Apr. 27, 2013
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Jan. 26, 2013
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Oct. 27, 2012
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Jul. 28, 2012
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Apr. 28, 2012
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Jan. 28, 2012
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Oct. 29, 2011
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Jul. 30, 2011
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Apr. 30, 2011
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May 01, 2010
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| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ 160,470 | $ 213,643 | $ 470,994 | $ 20,221 | $ 54,131 | $ 27,397 | $ 23,633 | $ 22,353 | $ 59,429 | $ 60,965 | ||||
| Receivables, net | 149,369 | 396,169 | 233,502 | 153,500 | 169,947 | 396,854 | 240,600 | 156,543 | 150,294 | |||||
| Merchandise inventories, net | 1,410,769 | 1,784,949 | 1,796,208 | 1,947,422 | 1,561,841 | 1,814,898 | 1,836,740 | 1,814,436 | 1,375,362 | |||||
| Prepaid expenses and other current assets | 326,527 | 186,324 | 223,325 | 192,316 | 221,324 | 169,535 | 180,352 | 156,632 | 161,936 | |||||
| Total current assets | 2,047,135 | 2,581,085 | 2,724,029 | 2,313,459 | 2,007,243 | 2,408,684 | 2,281,325 | 2,149,964 | 1,747,021 | |||||
| Property and equipment: | ||||||||||||||
| Land and land improvements | 2,541 | 2,541 | 2,541 | 2,541 | 2,541 | 2,541 | 8,617 | 8,617 | 8,617 | |||||
| Buildings and leasehold improvements | 1,224,384 | 1,208,770 | 1,211,156 | 1,200,928 | 1,196,764 | 1,191,224 | 1,220,869 | 1,208,454 | 1,204,108 | |||||
| Fixtures and equipment | 1,883,504 | 1,845,100 | 1,833,667 | 1,804,193 | 1,784,492 | 1,752,333 | 1,725,135 | 1,690,529 | 1,670,488 | |||||
| Property and equipment, gross | 3,110,429 | 3,056,411 | 3,047,364 | 3,007,662 | 2,983,797 | 2,946,098 | 2,954,621 | 2,907,600 | 2,883,213 | |||||
| Less accumulated depreciation and amortization | 2,525,520 | 2,483,042 | 2,462,310 | 2,410,984 | 2,361,142 | 2,309,607 | 2,280,551 | 2,228,562 | 2,178,562 | |||||
| Net property and equipment | 584,909 | 573,369 | 585,054 | 596,678 | 622,655 | 636,491 | 674,070 | 679,038 | 704,651 | |||||
| Goodwill | 495,496 | 514,417 | 515,524 | 518,578 | 519,685 | 520,792 | 521,899 | 523,006 | 524,113 | |||||
| Intangible assets, net | 547,931 | 553,099 | 558,157 | 562,522 | 564,054 | 569,488 | 574,964 | 563,034 | 566,578 | |||||
| Other noncurrent assets | 57,065 | 63,001 | 57,218 | 62,650 | 61,062 | 54,418 | 55,794 | 56,615 | 54,103 | |||||
| Total assets | 3,732,536 | [1] | 4,284,971 | 4,439,982 | 4,053,887 | 3,774,699 | [1] | 4,189,873 | 4,108,052 | 3,971,657 | 3,596,466 | |||
| Current liabilities: | ||||||||||||||
| Accounts payable | 805,194 | 1,256,754 | 1,348,489 | 1,288,887 | 863,223 | 1,394,201 | 1,369,057 | 1,183,535 | 859,510 | |||||
| Accrued liabilities | 569,240 | 627,982 | 535,961 | 540,105 | 612,119 | 608,203 | 503,864 | 471,744 | 541,586 | |||||
| Gift card liabilities | 341,036 | 386,704 | 297,191 | 312,855 | 321,362 | 367,555 | 287,268 | 301,249 | 311,092 | |||||
| Total current liabilities | 1,715,470 | 2,271,440 | 2,181,641 | 2,141,847 | 1,796,704 | 2,369,959 | 2,160,189 | 1,956,528 | 1,712,188 | |||||
| Long-term debt | 77,000 | 338,400 | 302,800 | 324,200 | 101,600 | 274,900 | 509,600 | 313,100 | ||||||
| Deferred taxes | 231,215 | 247,449 | 266,853 | 242,384 | 242,748 | 249,410 | 249,842 | 253,690 | 254,106 | |||||
| Other long-term liabilities | 419,946 | 354,449 | 328,029 | 359,357 | 366,503 | 359,465 | 368,232 | 382,263 | 396,575 | |||||
| Redeemable Preferred Shares, value | 193,535 | 193,220 | 192,904 | 192,589 | 192,273 | 191,958 | 191,681 | |||||||
| Shareholders' equity: | ||||||||||||||
| Common stock, value | 93 | 92 | 92 | 92 | 91 | 91 | 91 | 91 | 90 | |||||
| Additional paid-in capital | 1,383,848 | 1,383,430 | 1,377,992 | 1,347,990 | 1,340,909 | 1,337,777 | 1,331,983 | 1,327,948 | 1,323,263 | |||||
| Accumulated other comprehensive loss | (16,692) | (16,635) | (16,635) | (16,635) | (16,635) | (11,630) | (11,630) | (11,630) | (11,630) | |||||
| Retained earnings | 410,349 | 529,844 | 541,016 | 542,102 | 586,188 | 647,085 | 598,475 | 607,966 | 662,966 | |||||
| Treasury stock, at cost | (1,063,855) | (1,059,502) | (1,059,364) | (1,058,639) | (1,058,282) | (1,055,842) | (1,055,711) | (1,054,799) | (1,054,192) | |||||
| Total shareholders' equity | 713,743 | 837,229 | 843,101 | 814,910 | 852,271 | 917,481 | 863,208 | 869,576 | 920,497 | |||||
| Commitments and contingencies | ||||||||||||||
| Total liabilities and shareholders' equity | 3,732,536 | 4,284,971 | 4,439,982 | 4,053,887 | 3,774,699 | 4,189,873 | 4,108,052 | 3,971,657 | 3,596,466 | |||||
|
Previously Reported
|
||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | 213,643 | 470,994 | 20,221 | 54,131 | 27,397 | 23,633 | 22,353 | 59,429 | ||||||
| Receivables, net | 387,459 | 224,545 | 144,297 | 160,497 | 396,854 | 240,600 | 156,543 | 150,294 | ||||||
| Merchandise inventories, net | 1,784,949 | 1,796,208 | 1,947,422 | 1,561,841 | 1,814,898 | 1,836,740 | 1,814,436 | 1,375,362 | ||||||
| Prepaid expenses and other current assets | 186,324 | 223,325 | 192,316 | 221,324 | 169,535 | 180,352 | 156,632 | 161,936 | ||||||
| Total current assets | 2,572,375 | 2,715,072 | 2,304,256 | 1,997,793 | 2,408,684 | 2,281,325 | 2,149,964 | 1,747,021 | ||||||
| Property and equipment: | ||||||||||||||
| Land and land improvements | 2,541 | 2,541 | 2,541 | 2,541 | 2,541 | 8,617 | 8,617 | 8,617 | ||||||
| Buildings and leasehold improvements | 1,208,770 | 1,211,156 | 1,200,928 | 1,196,764 | 1,191,224 | 1,220,869 | 1,208,454 | 1,204,108 | ||||||
| Fixtures and equipment | 1,845,100 | 1,833,667 | 1,804,193 | 1,784,492 | 1,752,333 | 1,725,135 | 1,690,529 | 1,670,488 | ||||||
| Property and equipment, gross | 3,056,411 | 3,047,364 | 3,007,662 | 2,983,797 | 2,946,098 | 2,954,621 | 2,907,600 | 2,883,213 | ||||||
| Less accumulated depreciation and amortization | 2,483,042 | 2,462,310 | 2,410,984 | 2,361,142 | 2,309,607 | 2,280,551 | 2,228,562 | 2,178,562 | ||||||
| Net property and equipment | 573,369 | 585,054 | 596,678 | 622,655 | 636,491 | 674,070 | 679,038 | 704,651 | ||||||
| Goodwill | 514,417 | 515,524 | 518,578 | 519,685 | 520,792 | 521,899 | 523,006 | 524,113 | ||||||
| Intangible assets, net | 553,099 | 558,157 | 562,522 | 564,054 | 569,488 | 574,964 | 563,034 | 566,578 | ||||||
| Other noncurrent assets | 63,001 | 57,218 | 62,650 | 61,062 | 54,418 | 55,794 | 56,615 | 54,103 | ||||||
| Total assets | 4,276,261 | 4,431,025 | 4,044,684 | 3,765,249 | 4,189,873 | 4,108,052 | 3,971,657 | 3,596,466 | ||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | 1,360,613 | 1,448,397 | 1,387,004 | 959,423 | 1,488,552 | 1,461,981 | 1,275,708 | 949,010 | ||||||
| Accrued liabilities | 563,028 | 470,975 | 474,467 | 546,495 | 542,503 | 436,868 | 403,667 | 474,575 | ||||||
| Gift card liabilities | 386,704 | 297,191 | 312,855 | 321,362 | 367,555 | 287,268 | 301,249 | 311,092 | ||||||
| Total current liabilities | 2,310,345 | 2,216,563 | 2,174,326 | 1,827,280 | 2,398,610 | 2,186,117 | 1,980,624 | 1,734,677 | ||||||
| Long-term debt | 338,400 | 302,800 | 324,200 | 101,600 | 274,900 | 509,600 | 313,100 | |||||||
| Deferred taxes | 273,475 | 292,879 | 268,410 | 268,774 | 275,436 | 275,868 | 279,716 | 280,132 | ||||||
| Other long-term liabilities | 390,025 | 364,966 | 397,415 | 405,065 | 408,291 | 418,923 | 434,334 | 448,647 | ||||||
| Redeemable Preferred Shares, value | 193,220 | 192,904 | 192,589 | 192,273 | 191,958 | 191,681 | ||||||||
| Shareholders' equity: | ||||||||||||||
| Common stock, value | 92 | 92 | 92 | 91 | 91 | 91 | 91 | 90 | ||||||
| Additional paid-in capital | 1,383,430 | 1,377,992 | 1,347,990 | 1,340,909 | 1,337,777 | 1,331,983 | 1,327,948 | 1,323,263 | ||||||
| Accumulated other comprehensive loss | (16,635) | (16,635) | (16,635) | (16,635) | (11,630) | (11,630) | (11,630) | (11,630) | ||||||
| Retained earnings | 420,627 | 434,174 | 436,336 | 481,574 | 543,582 | 495,830 | 505,773 | 562,379 | ||||||
| Treasury stock, at cost | (1,059,502) | (1,059,364) | (1,058,639) | (1,058,282) | (1,055,842) | (1,055,711) | (1,054,799) | (1,054,192) | ||||||
| Total shareholders' equity | 728,012 | 736,259 | 709,144 | 747,657 | 813,978 | 760,563 | 767,383 | 819,910 | ||||||
| Commitments and contingencies | ||||||||||||||
| Total liabilities and shareholders' equity | 4,276,261 | 4,431,025 | 4,044,684 | 3,765,249 | 4,189,873 | 4,108,052 | 3,971,657 | 3,596,466 | ||||||
|
Correction
|
||||||||||||||
| Current assets: | ||||||||||||||
| Receivables, net | 8,710 | 8,957 | 9,203 | 9,450 | ||||||||||
| Total current assets | 8,710 | 8,957 | 9,203 | 9,450 | ||||||||||
| Property and equipment: | ||||||||||||||
| Total assets | 8,710 | 8,957 | 9,203 | 9,450 | ||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | (103,859) | (99,908) | (98,117) | (96,200) | (94,351) | (92,924) | (92,173) | (89,500) | ||||||
| Accrued liabilities | 21,654 | 20,078 | 19,363 | 18,598 | 16,874 | 16,305 | 16,006 | 14,939 | ||||||
| Total current liabilities | (82,205) | (79,830) | (78,754) | (77,602) | (77,477) | (76,619) | (76,167) | (74,561) | ||||||
| Deferred taxes | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | |||||
| Other long-term liabilities | 7,724 | 7,971 | 8,217 | 8,464 | ||||||||||
| Shareholders' equity: | ||||||||||||||
| Retained earnings | 109,217 | 106,842 | 105,766 | 104,614 | 103,503 | 102,645 | 102,193 | 100,587 | 95,503 | |||||
| Total shareholders' equity | 109,217 | 106,842 | 105,766 | 104,614 | 103,503 | 102,645 | 102,193 | 100,587 | ||||||
| Commitments and contingencies | ||||||||||||||
| Total liabilities and shareholders' equity | 8,710 | 8,957 | 9,203 | 9,450 | ||||||||||
|
Other Adjustments
|
||||||||||||||
| Current liabilities: | ||||||||||||||
| Accrued liabilities | 43,300 | 44,908 | 46,275 | 47,026 | 48,826 | 50,691 | 52,071 | 52,072 | ||||||
| Total current liabilities | 43,300 | 44,908 | 46,275 | 47,026 | 48,826 | 50,691 | 52,071 | 52,072 | ||||||
| Other long-term liabilities | (43,300) | (44,908) | (46,275) | (47,026) | (48,826) | (50,691) | (52,071) | (52,072) | ||||||
| Shareholders' equity: | ||||||||||||||
| Commitments and contingencies | ||||||||||||||
|
||||||||||||||
|
Dividends
|
12 Months Ended | |||
|---|---|---|---|---|
|
Apr. 27, 2013
|
||||
| Dividends |
The Company paid a dividend to preferred shareholders in the amount of $15,767 and $7,081 in fiscal 2013 and fiscal 2012, respectively. The Company paid no dividends to common stockholders during fiscal 2013 and 2012. During fiscal 2011, the Company paid a dividend of $0.25 per share on June 30, 2010 to stockholders of record at the close of business on June 11, 2010, on September 30, 2010 to stockholders of record at the close of business on September 9, 2010 and on December 31, 2010 to stockholders of record at the close of business on December 10, 2010. On February 22, 2011, the Company announced that its Board of Directors was suspending its quarterly dividend payment of $0.25 per share. This provided the Company the financial flexibility to continue investing into its high growth digital strategies. |
|
Employees' Retirement and Defined Contribution Plans - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | ||
|---|---|---|---|
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
|
| Pension and Other Postretirement Benefit Plans [Line Items] | |||
| Pension expense | $ 2,836 | $ 1,970 | $ 2,558 |
| Company contributions, employee benefit expenses | 15,902 | 15,273 | 14,212 |
| Company contributions for postretirement plan | $ 0 | $ 150 | $ 150 |
|
Estimated Amortization Expense (Detail) (USD $)
In Thousands, unless otherwise specified |
Apr. 27, 2013
|
|---|---|
| Estimated Amortization Expense [Line Items] | |
| 2014 | $ 17,356 |
| 2015 | 14,861 |
| 2016 | 11,334 |
| 2017 | 11,060 |
| 2018 | $ 10,790 |
|
Reconciliation of Basic and Diluted Earnings Per Share (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 12 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Apr. 27, 2013
|
Jan. 26, 2013
|
Oct. 27, 2012
|
Jul. 28, 2012
|
Apr. 28, 2012
|
Jan. 28, 2012
|
Oct. 29, 2011
|
Jul. 30, 2011
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
|
| Numerator for basic loss per share: | |||||||||||
| Loss attributable to Barnes & Noble, Inc. | $ (3,683) | $ 501 | $ (39,828) | $ (56,618) | $ 52,889 | $ (6,111) | $ (55,000) | $ (157,806) | $ (64,840) | $ (68,873) | |
| Preferred stock dividends | (15,767) | (11,044) | |||||||||
| Accretion of dividends on preferred stock | (2,266) | (894) | |||||||||
| Net loss available to common shareholders | (175,839) | (76,778) | (68,873) | ||||||||
| Numerator for diluted loss per share: | |||||||||||
| Net loss available to common shareholders | $ (175,839) | $ (76,778) | $ (68,873) | ||||||||
| Denominator for basic and diluted loss per share: | |||||||||||
| Basic weighted average common shares | 58,247 | 57,337 | 56,588 | ||||||||
| Basic loss per common share | |||||||||||
| Net loss attributable to Barnes & Noble, Inc. available for common shareholders | $ (2.04) | $ (0.14) | $ (0.07) | $ (0.76) | $ (1.06) | $ 0.80 | $ (0.17) | $ (0.96) | $ (3.02) | $ (1.34) | $ (1.22) |
| Diluted loss per common share | |||||||||||
| Net loss attributable to Barnes & Noble, Inc. available for common shareholders | $ (2.04) | $ (0.14) | $ (0.07) | $ (0.76) | $ (1.06) | $ 0.72 | $ (0.17) | $ (0.96) | $ (3.02) | $ (1.34) | $ (1.22) |
|
Intangible Assets and Goodwill (Tables)
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Apr. 27, 2013
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| Amortizable Intangible Assets and Unamortizable Intangible Assets |
|
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| Aggregate Amortization Expense |
|
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| Estimated Amortization Expense |
|
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| Changes in Carrying Amount of Goodwill by Segment | The changes in the carrying amount of goodwill by segment for fiscal 2013 are as follows:
|
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Reconciliation of Beginning and Ending Amount of Unrecognized Tax Benefits (Detail) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | ||
|---|---|---|---|
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
|
| Income Tax Contingency [Line Items] | |||
| Beginning Balance | $ 17,032 | $ 16,715 | $ 15,268 |
| Additions for tax positions of the current period | 3,189 | 1,809 | |
| Additions for tax positions of prior periods | 16,931 | 993 | 1,199 |
| Reductions due to settlements | (924) | (228) | (508) |
| Other reductions for tax positions of prior periods | (4,768) | (448) | (1,053) |
| Ending Balance | $ 31,460 | $ 17,032 | $ 16,715 |
|
Summary of Quarterly Financial Information (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 12 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Apr. 27, 2013
|
Jan. 26, 2013
|
Oct. 27, 2012
|
Jul. 28, 2012
|
Apr. 28, 2012
|
Jan. 28, 2012
|
Oct. 29, 2011
|
Jul. 30, 2011
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
|
| Quarterly Financial Information [Line Items] | |||||||||||
| Sales | $ 1,277,021 | $ 2,223,945 | $ 1,884,532 | $ 1,453,507 | $ 1,379,710 | $ 2,439,124 | $ 1,891,961 | $ 1,418,404 | $ 6,839,005 | $ 7,129,199 | $ 6,998,565 |
| Gross profit | 230,900 | 553,512 | 482,289 | 415,805 | 400,627 | 654,243 | 472,415 | 390,231 | 1,682,506 | 1,917,516 | 1,801,313 |
| Net income (loss) | $ (114,796) | $ (3,683) | $ 501 | $ (39,828) | $ (56,618) | $ 52,889 | $ (6,111) | $ (55,000) | $ (157,806) | $ (64,840) | $ (68,836) |
| Basic income (loss) per common share: | |||||||||||
| Net income (loss) | $ (2.04) | $ (0.14) | $ (0.07) | $ (0.76) | $ (1.06) | $ 0.80 | $ (0.17) | $ (0.96) | $ (3.02) | $ (1.34) | $ (1.22) |
| Diluted income (loss) per common share: | |||||||||||
| Net income (loss) | $ (2.04) | $ (0.14) | $ (0.07) | $ (0.76) | $ (1.06) | $ 0.72 | $ (0.17) | $ (0.96) | $ (3.02) | $ (1.34) | $ (1.22) |
|
Effects of Corrections and Other Adjustments Previously Reported Unaudited Quarterly Financial Information (Statement of Operations Data) (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 12 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Apr. 27, 2013
|
Jan. 26, 2013
|
Oct. 27, 2012
|
Jul. 28, 2012
|
Apr. 28, 2012
|
Jan. 28, 2012
|
Oct. 29, 2011
|
Jul. 30, 2011
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
|
| Quarterly Financial Information [Line Items] | |||||||||||
| Sales | $ 1,277,021 | $ 2,223,945 | $ 1,884,532 | $ 1,453,507 | $ 1,379,710 | $ 2,439,124 | $ 1,891,961 | $ 1,418,404 | $ 6,839,005 | $ 7,129,199 | $ 6,998,565 |
| Cost of sales and occupancy | 1,670,433 | 1,402,243 | 1,037,702 | 979,083 | 1,784,881 | 1,419,546 | 1,028,173 | 5,156,499 | 5,211,683 | 5,197,252 | |
| Gross profit | 230,900 | 553,512 | 482,289 | 415,805 | 400,627 | 654,243 | 472,415 | 390,231 | 1,682,506 | 1,917,516 | 1,801,313 |
| Selling and administrative expenses | 494,094 | 415,747 | 410,055 | 409,832 | 502,870 | 415,632 | 411,118 | 1,675,376 | 1,739,452 | 1,629,465 | |
| Depreciation and amortization | 55,761 | 57,613 | 58,035 | 58,968 | 60,273 | 57,755 | 55,671 | 227,134 | 232,667 | 228,647 | |
| Operating income | 3,657 | 8,929 | (52,285) | (68,173) | 91,100 | (972) | (76,558) | (220,004) | (54,603) | (56,799) | |
| Interest expense, net and amortization of deferred financing fees | 8,772 | 8,122 | 8,941 | (8,629) | (8,773) | (8,460) | (9,442) | (35,345) | (35,304) | (57,350) | |
| Income (loss) before income taxes | (5,115) | 807 | (61,226) | (76,802) | 82,327 | (9,432) | (86,000) | (255,349) | (89,907) | (114,149) | |
| Income taxes (benefit) | (1,432) | 306 | (21,398) | (20,184) | 29,438 | (3,321) | (31,000) | (97,543) | (25,067) | (45,276) | |
| Net income | (3,683) | 501 | (39,828) | (56,618) | 52,889 | (6,111) | (55,000) | (157,806) | (64,840) | (68,873) | |
| Diluted earnings per common share | |||||||||||
| Net income | $ (2.04) | $ (0.14) | $ (0.07) | $ (0.76) | $ (1.06) | $ 0.72 | $ (0.17) | $ (0.96) | $ (3.02) | $ (1.34) | $ (1.22) |
|
Previously Reported
|
|||||||||||
| Quarterly Financial Information [Line Items] | |||||||||||
| Sales | 2,223,945 | 1,884,532 | 1,453,507 | 1,379,710 | 2,439,124 | 1,891,961 | 1,418,404 | 7,129,199 | 6,998,565 | ||
| Cost of sales and occupancy | 1,674,384 | 1,404,034 | 1,039,619 | 980,932 | 1,786,308 | 1,420,297 | 1,030,846 | 5,218,383 | 5,205,712 | ||
| Gross profit | 549,561 | 480,498 | 413,888 | 398,778 | 652,816 | 471,664 | 387,558 | 1,910,816 | 1,792,853 | ||
| Selling and administrative expenses | 494,094 | 415,747 | 410,055 | 409,832 | 502,870 | 415,632 | 411,118 | 1,739,452 | 1,629,465 | ||
| Depreciation and amortization | 55,761 | 57,613 | 58,035 | 58,968 | 60,273 | 57,755 | 55,671 | 232,667 | 228,647 | ||
| Operating income | (294) | 7,138 | (54,202) | (70,022) | 89,673 | (1,723) | (79,231) | (61,303) | (65,259) | ||
| Interest expense, net and amortization of deferred financing fees | 8,772 | 8,122 | 8,941 | (8,629) | (8,773) | (8,460) | (9,442) | (35,304) | (57,350) | ||
| Income (loss) before income taxes | (9,066) | (984) | (63,143) | (78,651) | 80,900 | (10,183) | (88,673) | (96,607) | (122,609) | ||
| Income taxes (benefit) | (3,008) | (409) | (22,163) | (20,922) | 28,869 | (3,620) | (32,067) | (27,740) | (48,652) | ||
| Net income | (6,058) | (575) | (40,980) | (57,729) | 52,031 | (6,563) | (56,606) | (68,867) | (73,957) | ||
| Diluted earnings per common share | |||||||||||
| Net income | $ (0.18) | $ (0.09) | $ (0.78) | $ (1.08) | $ 0.71 | $ (0.17) | $ (0.99) | $ (1.41) | $ (1.31) | ||
|
Correction
|
|||||||||||
| Quarterly Financial Information [Line Items] | |||||||||||
| Cost of sales and occupancy | (3,951) | (1,791) | (1,917) | (1,849) | (1,427) | (751) | (2,673) | (6,700) | (8,460) | ||
| Gross profit | 3,951 | 1,791 | 1,917 | 1,849 | 1,427 | 751 | 2,673 | 6,700 | 8,460 | ||
| Operating income | 3,951 | 1,791 | 1,917 | 1,849 | 1,427 | 751 | 2,673 | 6,700 | 8,460 | ||
| Income (loss) before income taxes | 3,951 | 1,791 | 1,917 | 1,849 | 1,427 | 751 | 2,673 | 6,700 | 8,460 | ||
| Income taxes (benefit) | 1,576 | 715 | 765 | 738 | 569 | 299 | 1,067 | 2,673 | 3,376 | ||
| Net income | $ 2,375 | $ 1,076 | $ 1,152 | $ 1,111 | $ 858 | $ 452 | $ 1,606 | $ 4,027 | $ 5,084 | ||
| Diluted earnings per common share | |||||||||||
| Net income | $ 0.04 | $ 0.02 | $ 0.02 | $ 0.02 | $ 0.01 | $ 0.00 | $ 0.03 | $ 0.07 | $ 0.09 | ||
|
Effects of Corrections and Other Adjustments Previously Reported Unaudited Quarterly Financial Information (Balance Sheet Data) (Parenthetical) (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
Apr. 27, 2013
|
Jan. 26, 2013
|
Oct. 27, 2012
|
Jul. 28, 2012
|
Apr. 28, 2012
|
Jan. 28, 2012
|
Oct. 29, 2011
|
Jul. 30, 2011
|
Apr. 30, 2011
|
|---|---|---|---|---|---|---|---|---|---|
| Quarterly Financial Information [Line Items] | |||||||||
| Redeemable Preferred Shares, par value | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | ||
| Redeemable Preferred Shares, shares authorized | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 | ||
| Redeemable Preferred Shares, shares issued | 204 | 204 | 204 | 204 | 204 | 204 | 204 | ||
| Common stock, par value | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 |
| Common stock, shares issued | 92,784 | 91,376 | 91,376 | 91,376 | 91,376 | 90,928 | 90,856 | 90,641 | 90,465 |
| Treasury stock, Shares | 34,078 | 33,722 | 33,722 | 33,722 | 33,722 | 33,537 | 33,527 | 33,453 | 33,410 |
|
Acquisition of Noncontrolling Interest
|
12 Months Ended | |||
|---|---|---|---|---|
|
Apr. 27, 2013
|
||||
| Acquisition of Noncontrolling Interest |
Sterling Publishing had a 50% joint venture interest in Begin Smart LLC (Begin Smart), to develop, sell, and distribute books for infants, toddlers, and children under the brand name BEGIN SMART®. During fiscal 2011, the Company purchased the remaining 50% outside interest in Begin Smart for $300. 100% of Begin Smart results of operations for the period subsequent to the Begin Smart acquisition date are included in the consolidated financial statements. |
|
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
Apr. 27, 2013
|
Jan. 26, 2013
|
Oct. 27, 2012
|
Jul. 28, 2012
|
Apr. 28, 2012
|
Jan. 28, 2012
|
Oct. 29, 2011
|
Jul. 30, 2011
|
Apr. 30, 2011
|
|---|---|---|---|---|---|---|---|---|---|
| Redeemable Preferred Shares, par value | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | ||
| Redeemable Preferred Shares, shares authorized | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 | ||
| Redeemable Preferred Shares, shares issued | 204 | 204 | 204 | 204 | 204 | 204 | 204 | ||
| Common stock, par value | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 |
| Common stock, shares issued | 92,784 | 91,376 | 91,376 | 91,376 | 91,376 | 90,928 | 90,856 | 90,641 | 90,465 |
| Treasury stock, Shares | 34,078 | 33,722 | 33,722 | 33,722 | 33,722 | 33,537 | 33,527 | 33,453 | 33,410 |
|
Consolidated Statements of Changes in Shareholders' Equity (Parenthetical)
In Thousands, unless otherwise specified |
12 Months Ended | ||
|---|---|---|---|
|
Apr. 27, 2013
|
Apr. 28, 2012
|
Apr. 30, 2011
|
|
| Common stock options exercised, shares | 279 | 92 | 1,024 |
| Treasury stock acquired, shares | 356 | 313 | 125 |
|
Restatement of Prior Period Financial Statements
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 27, 2013
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| Restatement of Prior Period Financial Statements |
The Company has restated its previously reported consolidated financial statements for the years ended April 28, 2012 and April 30, 2011, including the opening stockholders’ equity balance, in order to correct certain previously reported amounts. In fiscal 2013, management determined that the Company had incorrectly overstated certain accruals for the periods prior to April 27, 2013, as a result of inadequate controls over its Distribution Center accrual reconciliation process. In accordance with ASC 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (ASC 250), the Company recorded an adjustment to decrease cost of sales by $6,700 ($4,027 after tax) and $8,460 ($5,084 after tax) to correctly present the statement of operations for fiscal 2012 and 2011, respectively. The Company also decreased accounts payable by $89,500 and $96,200 at April 30, 2011 and April 28, 2012, respectively; increased income taxes payable included in Accrued Liabilities in the consolidated Balance Sheets by $14,939 and $18,598 at April 30, 2011 and April 28, 2012, respectively; and increased retained earnings by $74,561 and $78,588, net of tax at April 30, 2011 and April 28, 2012, respectively. In addition, in reviewing the Company’s components of deferred income tax assets and liabilities, management determined that deferred income tax liability in the amount of $26,026, net, was related to a transaction in which gain was reported for both accounting and tax purposes prior to 2010. Accordingly, management concluded that this deferred income tax liability should be reversed. In accordance with ASC 250, the Company recorded an adjustment to decrease deferred tax liability and increase retained earnings by $26,026 at May 1, 2010. The cumulative effect of these adjustments increased previously reported retained earnings by $95,503 at May 1, 2010. In fiscal 2013, management determined that the Company had not accrued a tenant allowance related to one of its properties in fiscal 2012. The Company recorded an adjustment to increase receivable, net and other long-term liabilities by $9,450 in fiscal 2012. The following tables set forth the correction to each of the individual affected line items in the consolidated balance sheets as of April 30, 2011 and April 28, 2012 and the consolidated statement of operations for fiscal 2011 and 2012. The restated amounts presented below reflect the impact of these corrections, as well as adjustments of $52,072 and $47,026 related to the current portion of deferred rent and tenant allowances on the April 30, 2011 and April 28, 2012 balance sheet, respectively. The Company did not present tables for the adjustments within the consolidated cash flow statement since all of the adjustments were within the operating section of the consolidated cash flow statement. The above corrections and adjustments did not effect total cash flows from operating activities, financing activities or investing activities for any period presented. The financial information included in the accompanying financial statements and notes thereto reflect the affects of the corrections and other adjustments described in the preceding discussion and tables.
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Intangible Assets and Goodwill - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | |
|---|---|---|
|
Apr. 27, 2013
|
Oct. 17, 2011
|
|
| Acquired Finite-Lived Intangible Assets [Line Items] | ||
| Intellectual property assets | $ 14,528 | |
| Intellectual property assets, useful life | 3 years | |
| Amortization expense related to acquisition | $ 5,145 |
|
Net Earnings (Loss) Per Share (Tables)
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 27, 2013
|
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| Reconciliation of Basic and Diluted Loss Per Share | The following is a reconciliation of the Company’s basic and diluted earnings per share calculation:
|
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Segment Reporting
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12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 27, 2013
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| Segment Reporting |
The Company’s three operating segments are: B&N Retail, B&N College and NOOK. B&N Retail This segment includes 675 bookstores as of April 27, 2013, primarily under the Barnes & Noble Booksellers trade name. The 675 Barnes & Noble stores generally offer a dedicated NOOK® area, a comprehensive trade book title base, a café, and departments dedicated to Juvenile, Toys & Games, DVDs, Music, Gift, Magazine and Bargain products. The stores also offer a calendar of ongoing events, including author appearances and children’s activities. The B&N Retail segment also includes the Company’s e-Commerce website, barnesandnoble.com, and its publishing operation, Sterling Publishing. B&N College This segment includes 686 stores as of April 27, 2013, that are primarily school-owned stores operated under contracts by B&N College and include sales of digital content within the higher education marketplace through NOOK Study™. The 686 B&N College stores generally offer new, used, rental and digital textbooks, course-related materials, emblematic apparel and gifts, trade books, computer products, NOOK® products and related accessories, school and dorm supplies, and convenience and café items.
NOOK This segment includes the Company’s digital business, including the development and support of the Company’s NOOK® product offerings. The digital business includes digital content such as eBooks, digital newsstand, apps and sales of NOOK® devices and accessories to third party distribution partners, B&N Retail and B&N College. Summarized financial information concerning the Company’s reportable segments is presented below:
A reconciliation of operating profit from reportable segments to income (loss) from continuing operations before taxes in the consolidated financial statements is as follows:
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Subsequent Events (Unaudited)
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12 Months Ended | |||
|---|---|---|---|---|
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Apr. 27, 2013
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| Subsequent Events (Unaudited) |
On July 8, 2013, the Company announced that William J. Lynch, Jr. resigned from the Company’s Board of Directors, effective immediately. On July 8, 2013, the Company also announced that Mr. Lynch has resigned as Chief Executive Officer of the Company, effective immediately. In connection with his termination of employment on July 8, 2013, Mr. Lynch received cash severance of $3,650 and full vesting in respect of 275,846 restricted stock units granted by the Company to Mr. Lynch, which had an aggregate value of $4,871 based on the closing price of the Company’s common stock on July 8, 2013 of $17.66. Additionally, on July 8, 2013, the Company announced the promotion of Chief Financial Officer Michael P. Huseby to Chief Executive Officer of NOOK Media LLC and President of the Company; Vice President, Corporate Controller Allen W. Lindstrom to Chief Financial Officer of the Company; and Vice President, Corporate Development Kanuj Malhotra to Chief Financial Officer of NOOK Media LLC. |
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Aggregate Amortization Expense (Detail) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | ||
|---|---|---|---|
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Apr. 27, 2013
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Apr. 28, 2012
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Apr. 30, 2011
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| Goodwill and Intangible Assets Disclosure [Line Items] | |||
| Aggregate Amortization Expense | $ 21,426 | $ 18,415 | $ 14,512 |
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Stock-Based Compensation (Tables)
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12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 27, 2013
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| Weighted Average Assumptions Relating to Valuation of Stock Options | The weighted average assumptions relating to the valuation of the Company’s stock options for fiscal years 2013 and 2012 are shown below. No stock options were granted during fiscal 2011.
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| Summary of Stock Option Activity | The following table presents a summary of the Company’s stock option activity:
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Restricted Stock
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| Summary of Other Than Option Award Activity | The following table presents a summary of the Company’s restricted stock activity:
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Restricted Stock Units (RSUs)
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| Summary of Other Than Option Award Activity | The following table presents a summary of the Company’s restricted stock unit activity:
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Amortizable Intangible Assets and Unamortizable Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | 12 Months Ended | 12 Months Ended | 12 Months Ended | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Apr. 27, 2013
|
Jan. 26, 2013
|
Oct. 27, 2012
|
Jul. 28, 2012
|
Apr. 28, 2012
|
Jan. 28, 2012
|
Oct. 29, 2011
|
Jul. 30, 2011
|
Apr. 30, 2011
|
Apr. 27, 2013
Trade Name
|
Apr. 28, 2012
Trade Name
|
Apr. 27, 2013
Publishing Contracts
|
Apr. 28, 2012
Publishing Contracts
|
Apr. 27, 2013
Customer Relationships
|
Apr. 28, 2012
Customer Relationships
|
Apr. 27, 2013
Customer Relationships
Minimum
|
Apr. 28, 2012
Customer Relationships
Minimum
|
Apr. 27, 2013
Customer Relationships
Maximum
|
Apr. 28, 2012
Customer Relationships
Maximum
|
Apr. 28, 2012
Author Contracts
|
Apr. 27, 2013
Technology
|
Apr. 28, 2012
Technology
|
Apr. 27, 2013
Technology
Minimum
|
Apr. 28, 2012
Technology
Minimum
|
Apr. 27, 2013
Technology
Maximum
|
Apr. 28, 2012
Technology
Maximum
|
Apr. 27, 2013
Distribution Contracts
|
Apr. 28, 2012
Distribution Contracts
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Apr. 27, 2013
Other
|
Apr. 28, 2012
Other
|
Apr. 27, 2013
Other
Minimum
|
Apr. 28, 2012
Other
Minimum
|
Apr. 27, 2013
Other
Maximum
|
Apr. 28, 2012
Other
Maximum
|
|
| Intangible Assets by Major Class [Line Items] | ||||||||||||||||||||||||||||||||||
| Useful Life | 3 years | 5 years | 5 years | 25 years | 25 years | 10 years | 5 years | 5 years | 10 years | 10 years | 10 years | 10 years | 3 years | 3 years | 10 years | 10 years | ||||||||||||||||||
| Gross Carrying Amount | $ 297,311 | $ 310,752 | $ 271,938 | $ 271,938 | $ 18,461 | $ 10,710 | $ 5,850 | $ 8,325 | $ 8,325 | $ 6,338 | $ 6,178 | |||||||||||||||||||||||
| Accumulated Amortization | (64,116) | (61,434) | (48,040) | (32,398) | (17,049) | (4,456) | (2,427) | (6,370) | (4,932) | (5,250) | (4,628) | |||||||||||||||||||||||
| Total | 233,195 | 249,318 | 223,898 | 239,540 | 1,412 | 6,254 | 3,423 | 1,955 | 3,393 | 1,088 | 1,550 | |||||||||||||||||||||||
| Unamortizable intangible assets | 314,736 | 314,736 | 293,400 | 293,400 | 21,336 | 21,336 | ||||||||||||||||||||||||||||
| Total amortizable and unamortizable, intangible assets | $ 547,931 | $ 553,099 | $ 558,157 | $ 562,522 | $ 564,054 | $ 569,488 | $ 574,964 | $ 563,034 | $ 566,578 | |||||||||||||||||||||||||
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Effects of Corrections and Other Adjustments Previously Reported Unaudited Quarterly Financial Information (Balance Sheet Data) (Detail) (USD $)
In Thousands, unless otherwise specified |
Apr. 27, 2013
|
Jan. 26, 2013
|
Oct. 27, 2012
|
Jul. 28, 2012
|
Apr. 28, 2012
|
Jan. 28, 2012
|
Oct. 29, 2011
|
Jul. 30, 2011
|
Apr. 30, 2011
|
May 01, 2010
|
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ 160,470 | $ 213,643 | $ 470,994 | $ 20,221 | $ 54,131 | $ 27,397 | $ 23,633 | $ 22,353 | $ 59,429 | $ 60,965 | ||||
| Receivables, net | 149,369 | 396,169 | 233,502 | 153,500 | 169,947 | 396,854 | 240,600 | 156,543 | 150,294 | |||||
| Merchandise inventories, net | 1,410,769 | 1,784,949 | 1,796,208 | 1,947,422 | 1,561,841 | 1,814,898 | 1,836,740 | 1,814,436 | 1,375,362 | |||||
| Prepaid expenses and other current assets | 326,527 | 186,324 | 223,325 | 192,316 | 221,324 | 169,535 | 180,352 | 156,632 | 161,936 | |||||
| Total current assets | 2,047,135 | 2,581,085 | 2,724,029 | 2,313,459 | 2,007,243 | 2,408,684 | 2,281,325 | 2,149,964 | 1,747,021 | |||||
| Property and equipment: | ||||||||||||||
| Land and land improvements | 2,541 | 2,541 | 2,541 | 2,541 | 2,541 | 2,541 | 8,617 | 8,617 | 8,617 | |||||
| Buildings and leasehold improvements | 1,224,384 | 1,208,770 | 1,211,156 | 1,200,928 | 1,196,764 | 1,191,224 | 1,220,869 | 1,208,454 | 1,204,108 | |||||
| Fixtures and equipment | 1,883,504 | 1,845,100 | 1,833,667 | 1,804,193 | 1,784,492 | 1,752,333 | 1,725,135 | 1,690,529 | 1,670,488 | |||||
| Property and equipment, gross | 3,110,429 | 3,056,411 | 3,047,364 | 3,007,662 | 2,983,797 | 2,946,098 | 2,954,621 | 2,907,600 | 2,883,213 | |||||
| Less accumulated depreciation and amortization | 2,525,520 | 2,483,042 | 2,462,310 | 2,410,984 | 2,361,142 | 2,309,607 | 2,280,551 | 2,228,562 | 2,178,562 | |||||
| Net property and equipment | 584,909 | 573,369 | 585,054 | 596,678 | 622,655 | 636,491 | 674,070 | 679,038 | 704,651 | |||||
| Goodwill | 495,496 | 514,417 | 515,524 | 518,578 | 519,685 | 520,792 | 521,899 | 523,006 | 524,113 | |||||
| Intangible assets, net | 547,931 | 553,099 | 558,157 | 562,522 | 564,054 | 569,488 | 574,964 | 563,034 | 566,578 | |||||
| Other noncurrent assets | 57,065 | 63,001 | 57,218 | 62,650 | 61,062 | 54,418 | 55,794 | 56,615 | 54,103 | |||||
| Total assets | 3,732,536 | [1] | 4,284,971 | 4,439,982 | 4,053,887 | 3,774,699 | [1] | 4,189,873 | 4,108,052 | 3,971,657 | 3,596,466 | |||
| Current liabilities: | ||||||||||||||
| Accounts payable | 805,194 | 1,256,754 | 1,348,489 | 1,288,887 | 863,223 | 1,394,201 | 1,369,057 | 1,183,535 | 859,510 | |||||
| Accrued liabilities | 569,240 | 627,982 | 535,961 | 540,105 | 612,119 | 608,203 | 503,864 | 471,744 | 541,586 | |||||
| Gift card liabilities | 341,036 | 386,704 | 297,191 | 312,855 | 321,362 | 367,555 | 287,268 | 301,249 | 311,092 | |||||
| Total current liabilities | 1,715,470 | 2,271,440 | 2,181,641 | 2,141,847 | 1,796,704 | 2,369,959 | 2,160,189 | 1,956,528 | 1,712,188 | |||||
| Long-term debt | 77,000 | 338,400 | 302,800 | 324,200 | 101,600 | 274,900 | 509,600 | 313,100 | ||||||
| Deferred taxes | 231,215 | 247,449 | 266,853 | 242,384 | 242,748 | 249,410 | 249,842 | 253,690 | 254,106 | |||||
| Other long-term liabilities | 419,946 | 354,449 | 328,029 | 359,357 | 366,503 | 359,465 | 368,232 | 382,263 | 396,575 | |||||
| Redeemable Preferred Shares, value | 193,535 | 193,220 | 192,904 | 192,589 | 192,273 | 191,958 | 191,681 | |||||||
| Preferred Membership Interests in NOOK Media, LLC | 381,627 | 381,184 | 289,054 | |||||||||||
| Shareholders' equity: | ||||||||||||||
| Common stock, value | 93 | 92 | 92 | 92 | 91 | 91 | 91 | 91 | 90 | |||||
| Additional paid-in capital | 1,383,848 | 1,383,430 | 1,377,992 | 1,347,990 | 1,340,909 | 1,337,777 | 1,331,983 | 1,327,948 | 1,323,263 | |||||
| Accumulated other comprehensive loss | (16,692) | (16,635) | (16,635) | (16,635) | (16,635) | (11,630) | (11,630) | (11,630) | (11,630) | |||||
| Retained earnings | 410,349 | 529,844 | 541,016 | 542,102 | 586,188 | 647,085 | 598,475 | 607,966 | 662,966 | |||||
| Treasury stock, at cost | (1,063,855) | (1,059,502) | (1,059,364) | (1,058,639) | (1,058,282) | (1,055,842) | (1,055,711) | (1,054,799) | (1,054,192) | |||||
| Total shareholders' equity | 713,743 | 837,229 | 843,101 | 814,910 | 852,271 | 917,481 | 863,208 | 869,576 | 920,497 | |||||
| Commitments and contingencies | ||||||||||||||
| Total liabilities and shareholders' equity | 3,732,536 | 4,284,971 | 4,439,982 | 4,053,887 | 3,774,699 | 4,189,873 | 4,108,052 | 3,971,657 | 3,596,466 | |||||
|
Previously Reported
|
||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | 213,643 | 470,994 | 20,221 | 54,131 | 27,397 | 23,633 | 22,353 | 59,429 | ||||||
| Receivables, net | 387,459 | 224,545 | 144,297 | 160,497 | 396,854 | 240,600 | 156,543 | 150,294 | ||||||
| Merchandise inventories, net | 1,784,949 | 1,796,208 | 1,947,422 | 1,561,841 | 1,814,898 | 1,836,740 | 1,814,436 | 1,375,362 | ||||||
| Prepaid expenses and other current assets | 186,324 | 223,325 | 192,316 | 221,324 | 169,535 | 180,352 | 156,632 | 161,936 | ||||||
| Total current assets | 2,572,375 | 2,715,072 | 2,304,256 | 1,997,793 | 2,408,684 | 2,281,325 | 2,149,964 | 1,747,021 | ||||||
| Property and equipment: | ||||||||||||||
| Land and land improvements | 2,541 | 2,541 | 2,541 | 2,541 | 2,541 | 8,617 | 8,617 | 8,617 | ||||||
| Buildings and leasehold improvements | 1,208,770 | 1,211,156 | 1,200,928 | 1,196,764 | 1,191,224 | 1,220,869 | 1,208,454 | 1,204,108 | ||||||
| Fixtures and equipment | 1,845,100 | 1,833,667 | 1,804,193 | 1,784,492 | 1,752,333 | 1,725,135 | 1,690,529 | 1,670,488 | ||||||
| Property and equipment, gross | 3,056,411 | 3,047,364 | 3,007,662 | 2,983,797 | 2,946,098 | 2,954,621 | 2,907,600 | 2,883,213 | ||||||
| Less accumulated depreciation and amortization | 2,483,042 | 2,462,310 | 2,410,984 | 2,361,142 | 2,309,607 | 2,280,551 | 2,228,562 | 2,178,562 | ||||||
| Net property and equipment | 573,369 | 585,054 | 596,678 | 622,655 | 636,491 | 674,070 | 679,038 | 704,651 | ||||||
| Goodwill | 514,417 | 515,524 | 518,578 | 519,685 | 520,792 | 521,899 | 523,006 | 524,113 | ||||||
| Intangible assets, net | 553,099 | 558,157 | 562,522 | 564,054 | 569,488 | 574,964 | 563,034 | 566,578 | ||||||
| Other noncurrent assets | 63,001 | 57,218 | 62,650 | 61,062 | 54,418 | 55,794 | 56,615 | 54,103 | ||||||
| Total assets | 4,276,261 | 4,431,025 | 4,044,684 | 3,765,249 | 4,189,873 | 4,108,052 | 3,971,657 | 3,596,466 | ||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | 1,360,613 | 1,448,397 | 1,387,004 | 959,423 | 1,488,552 | 1,461,981 | 1,275,708 | 949,010 | ||||||
| Accrued liabilities | 563,028 | 470,975 | 474,467 | 546,495 | 542,503 | 436,868 | 403,667 | 474,575 | ||||||
| Gift card liabilities | 386,704 | 297,191 | 312,855 | 321,362 | 367,555 | 287,268 | 301,249 | 311,092 | ||||||
| Total current liabilities | 2,310,345 | 2,216,563 | 2,174,326 | 1,827,280 | 2,398,610 | 2,186,117 | 1,980,624 | 1,734,677 | ||||||
| Long-term debt | 338,400 | 302,800 | 324,200 | 101,600 | 274,900 | 509,600 | 313,100 | |||||||
| Deferred taxes | 273,475 | 292,879 | 268,410 | 268,774 | 275,436 | 275,868 | 279,716 | 280,132 | ||||||
| Other long-term liabilities | 390,025 | 364,966 | 397,415 | 405,065 | 408,291 | 418,923 | 434,334 | 448,647 | ||||||
| Redeemable Preferred Shares, value | 193,220 | 192,904 | 192,589 | 192,273 | 191,958 | 191,681 | ||||||||
| Preferred Membership Interests in NOOK Media, LLC | 381,184 | 289,054 | ||||||||||||
| Shareholders' equity: | ||||||||||||||
| Common stock, value | 92 | 92 | 92 | 91 | 91 | 91 | 91 | 90 | ||||||
| Additional paid-in capital | 1,383,430 | 1,377,992 | 1,347,990 | 1,340,909 | 1,337,777 | 1,331,983 | 1,327,948 | 1,323,263 | ||||||
| Accumulated other comprehensive loss | (16,635) | (16,635) | (16,635) | (16,635) | (11,630) | (11,630) | (11,630) | (11,630) | ||||||
| Retained earnings | 420,627 | 434,174 | 436,336 | 481,574 | 543,582 | 495,830 | 505,773 | 562,379 | ||||||
| Treasury stock, at cost | (1,059,502) | (1,059,364) | (1,058,639) | (1,058,282) | (1,055,842) | (1,055,711) | (1,054,799) | (1,054,192) | ||||||
| Total shareholders' equity | 728,012 | 736,259 | 709,144 | 747,657 | 813,978 | 760,563 | 767,383 | 819,910 | ||||||
| Commitments and contingencies | ||||||||||||||
| Total liabilities and shareholders' equity | 4,276,261 | 4,431,025 | 4,044,684 | 3,765,249 | 4,189,873 | 4,108,052 | 3,971,657 | 3,596,466 | ||||||
|
Correction
|
||||||||||||||
| Current assets: | ||||||||||||||
| Receivables, net | 8,710 | 8,957 | 9,203 | 9,450 | ||||||||||
| Total current assets | 8,710 | 8,957 | 9,203 | 9,450 | ||||||||||
| Property and equipment: | ||||||||||||||
| Total assets | 8,710 | 8,957 | 9,203 | 9,450 | ||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | (103,859) | (99,908) | (98,117) | (96,200) | (94,351) | (92,924) | (92,173) | (89,500) | ||||||
| Accrued liabilities | 21,654 | 20,078 | 19,363 | 18,598 | 16,874 | 16,305 | 16,006 | 14,939 | ||||||
| Total current liabilities | (82,205) | (79,830) | (78,754) | (77,602) | (77,477) | (76,619) | (76,167) | (74,561) | ||||||
| Deferred taxes | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | (26,026) | |||||
| Other long-term liabilities | 7,724 | 7,971 | 8,217 | 8,464 | ||||||||||
| Shareholders' equity: | ||||||||||||||
| Retained earnings | 109,217 | 106,842 | 105,766 | 104,614 | 103,503 | 102,645 | 102,193 | 100,587 | 95,503 | |||||
| Total shareholders' equity | 109,217 | 106,842 | 105,766 | 104,614 | 103,503 | 102,645 | 102,193 | 100,587 | ||||||
| Commitments and contingencies | ||||||||||||||
| Total liabilities and shareholders' equity | 8,710 | 8,957 | 9,203 | 9,450 | ||||||||||
|
Other Adjustments
|
||||||||||||||
| Current liabilities: | ||||||||||||||
| Accrued liabilities | 43,300 | 44,908 | 46,275 | 47,026 | 48,826 | 50,691 | 52,071 | 52,072 | ||||||
| Total current liabilities | 43,300 | 44,908 | 46,275 | 47,026 | 48,826 | 50,691 | 52,071 | 52,072 | ||||||
| Other long-term liabilities | (43,300) | (44,908) | (46,275) | (47,026) | (48,826) | (50,691) | (52,071) | (52,072) | ||||||
| Shareholders' equity: | ||||||||||||||
| Commitments and contingencies | ||||||||||||||
|
||||||||||||||
|
Weighted Average Assumptions Relating to Valuation of Stock Options (Detail) (USD $)
|
12 Months Ended | |
|---|---|---|
|
Apr. 27, 2013
|
Apr. 28, 2012
|
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Weighted average fair value of grants | $ 7.80 | $ 9.85 |
| Volatility | 86.13% | 78.52% |
| Risk-free interest rate | 0.67% | 0.92% |
| Expected life | 5 years | 5 years |
| Expected dividend yield | 0.00% | 0.00% |