<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number: 1-12302
BARNES & NOBLE, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1196501
- --------------------------------- -------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
122 Fifth Avenue, New York, NY 10011
- --------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 633-3300
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- -----
Number of shares of $.001 par value common stock outstanding as of
May 30, 1997: 33,317,786
----------
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BARNES & NOBLE, INC. AND SUBSIDIARIES
May 3, 1997
Index to Form 10-Q
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statements of Operations - For the 13 weeks ended
May 3, 1997 and April 27, 1996............................... 3
Consolidated Balance Sheets - May 3, 1997, April 27, 1996 and
February 1, 1997............................................. 4
Consolidated Statements of Cash Flows - For the 13 weeks
ended May 3, 1997 and April 27, 1996......................... 6
Notes to Consolidated Financial Statements..................... 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8
PART II - OTHER INFORMATION.............................................. 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(thousands of dollars, except per share data)
(unaudited)
- --------------------------------------------------------------------------------
13 weeks ended
-----------------------
May 3, April 27,
1997 1996
------ ---------
Revenues $ 595,731 508,755
Cost of sales, buying and occupancy 388,624 333,476
----------- ---------
Gross profit 207,107 175,279
----------- ---------
Selling and administrative expenses 120,240 104,227
Rental expense 62,164 53,115
Depreciation and amortization 17,747 13,589
Pre-opening expenses 3,854 4,489
----------- ---------
Operating profit (loss) 3,102 (141)
Interest (net of interest income of $112 and $191,
respectively) and amortization of deferred
financing fees 9,648 8,344
----------- ---------
Loss before benefit for income taxes (6,546) (8,485)
Benefit for income taxes (2,685) (3,092)
----------- ---------
Net loss $ (3,861) (5,393)
=========== =========
Net loss per common share $ (0.12) (0.16)
Weighted average common shares outstanding 33,220,000 32,968,000
See accompanying notes to consolidated financial statements.
3
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BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars)
- --------------------------------------------------------------------------------
May 3, April 27, February 1,
1997 1996 1997
------ --------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,347 9,256 12,447
Receivables, net 40,433 42,024 45,558
Merchandise inventories 731,483 705,600 732,203
Prepaid expenses and other current assets 76,654 45,653 76,747
---------- --------- ---------
Total current assets 858,917 802,533 866,955
---------- --------- ---------
Property and equipment:
Land and land improvements 681 681 681
Buildings and leasehold improvements 333,867 281,770 326,392
Fixtures and equipment 307,575 222,845 289,684
---------- --------- ---------
642,123 505,296 616,757
Less accumulated depreciation and
amortization 198,151 146,559 181,983
---------- --------- ---------
Net property and equipment 443,972 358,737 434,774
---------- --------- ---------
Intangible assets, net 92,680 95,985 93,494
Other noncurrent assets 51,601 59,147 51,424
---------- --------- ---------
Total assets $1,447,170 1,316,402 1,446,647
========== ========= =========
(Continued)
4
<PAGE>
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars)
- --------------------------------------------------------------------------------
May 3, April 27, February 1,
1997 1996 1997
------ --------- -----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit facility $ 79,300 67,500 40,000
Accounts payable 364,166 347,967 373,340
Accrued liabilities 209,160 180,050 240,923
---------- --------- ----------
Total current liabilities 652,626 595,517 654,263
---------- --------- ----------
Long-term debt 290,000 290,000 290,000
Other long-term liabilities 50,570 35,341 46,395
Shareholders' equity:
Common stock; $.001 par value;
100,000,000 shares authorized;
33,253,337, 32,989,785 and
33,188,125 shares issued and
outstanding, respectively 33 33 33
Additional paid-in capital 448,144 442,471 446,298
Retained earnings (deficit) 5,797 (46,960) 9,658
---------- --------- ----------
Total shareholders' equity 453,974 395,544 455,989
---------- --------- ----------
Commitments and contingencies
---------- --------- ----------
Total liabilities and
shareholders' equity $1,447,170 1,316,402 1,446,647
========== ========= =========
See accompanying notes to consolidated financial statements.
5
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BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(thousands of dollars)
(unaudited)
13 weeks ended
--------------------
May 3, April 27,
1997 1996
------- ---------
Cash flows from operating activities:
Net loss $ (3,861) (5,393)
Adjustments to reconcile net loss
to net cash flows from operating
activities:
Depreciation and amortization 18,243 13,946
Loss on disposal of property and
equipment 54 223
Increase in other long-term liabilities
for scheduled rent increases in long-term
leases 4,123 4,322
Changes in operating assets and
liabilities, net (34,941) (48,036)
--------- --------
Net cash flows from operating activities (16,382) (34,938)
--------- --------
Cash flows from investing activities:
Purchases of property and equipment (26,191) (51,855)
Net increase in other noncurrent assets (673) (9,029)
--------- --------
Net cash flows from investing activities (26,864) (60,884)
--------- --------
Cash flows from financing activities:
Net increase (decrease) in revolving
credit facility 39,300 (4,900)
Proceeds from issuance of long-term debt -- 100,000
Proceeds from exercise of common stock options 1,846 702
--------- --------
Net cash flows from financing activities 41,146 95,802
--------- --------
Net decrease in cash and cash equivalents (2,100) (20)
Cash and cash equivalents at beginning of period 12,447 9,276
--------- --------
Cash and cash equivalents at end of period 10,347 9,256
========= ========
Changes in operating assets and liabilities, net:
Receivables, net $ 5,125 6,995
Merchandise inventories 720 34,751
Prepaid expenses and other current assets 93 3,889
Accounts payable and accrued liabilities (40,879) (93,671)
--------- --------
Changes in operating assets and liabilities, net $ (34,941) (48,036)
========= ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 3,673 2,636
Income taxes $ 13,331 11,134
See accompanying notes to consolidated financial statements.
6
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BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 13 weeks ended May 3, 1997 and April 27, 1996
(thousands of dollars)
(unaudited)
The unaudited consolidated financial statements include the accounts of
Barnes & Noble, Inc. and its wholly-owned subsidiaries (collectively, the
Company).
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly its consolidated
financial position as of May 3, 1997 and the results of its operations and its
cash flows for the 13 weeks then ended. These consolidated financial statements
are condensed and therefore do not include all of the information and footnotes
required by generally accepted accounting principles. The consolidated financial
statements should be read in conjunction with the Company's annual report on
Form 10-K for the 53 weeks ended February 1, 1997. The Company follows the same
accounting policies in preparation of interim reports.
Due to the seasonal nature of the business, the results of operations
for the 13 weeks ended May 3, 1997 are not indicative of the results to be
expected for the 52 weeks ending January 31, 1998.
(1) Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost
is determined using the retail inventory method on the first-in, first-out
(FIFO) basis for 79%, 77% and 79% of the Company's merchandise inventories as of
May 3, 1997, April 27, 1996 and February 1, 1997, respectively. The remaining
merchandise inventories are valued on the last-in, first-out (LIFO) method.
If substantially all of the merchandise inventories currently valued at
LIFO costs were valued at current costs, merchandise inventories would increase
approximately $8,800, $7,826 and $8,800 as of May 3, 1997, April 27, 1996 and
February 1, 1997, respectively.
(2) Income Taxes
The tax provisions for the 13 weeks ended May 3, 1997 and April 27,
1996 are based upon management's estimate of its annualized effective tax rates.
Permanent differences include amortization of goodwill which decreases the
benefit for income taxes.
(3) Earnings Per Common Share
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). Under SFAS No. 128, the presentation of Primary and Fully Diluted
Earnings per Share will be replaced by Basic and Diluted Earnings per Share. The
presentation of Basic Earnings per Share includes no potential common shares and
thus no dilution. In accordance with SFAS 128, the Company will adopt the
provisions of SFAS No. 128 effective January 31, 1998 and restate all prior
periods to conform to this new pronouncement. Adoption is not expected to have
any material effect on the Company's reported Earnings per Share.
7
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Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The primary sources of the Company's cash for seasonal working
capital requirements and capital investments are net cash
flows from operating activities, funds available under its
revolving credit facility and vendor financing.
Cash and cash equivalents were $10.3 million as of May 3, 1997
in comparison to $9.3 million as of April 27, 1996. Cash flows
from operating activities improved significantly during the 13
weeks ended May 3, 1997 to ($16.4) million from ($34.9)
million during the same period of the prior fiscal year. This
improvement was primarily due to improved earnings before
interest, taxes, depreciation and amortization ("EBITDA") as
well as improvements in inventory management. EBITDA increased
$7.4 million to $20.8 million for the 13 weeks ended May 3,
1997 from $13.4 million in the same period last year.
Merchandise inventories increased 3.7% to $731.5 million as of
May 3, 1997, from $705.6 million as of April 27, 1996. The
controlled growth in consolidated inventory levels was
achieved during a period of 17.1% revenue growth and 19.7%
square footage growth.
During the 13 weeks ended May 3, 1997, cash flows were used
primarily for capital expenditures related to the Company's
Barnes & Noble store expansion and, to a lesser extent, for
increases in working capital related to such expansion.
Capital expenditures totaled $26.2 million and $51.9 million
during the 13 weeks ended May 3, 1997 and April 27, 1996,
respectively. These expenditures were primarily for new Barnes
& Noble stores, the Company's new online business and
enhancements to the Company's management information and
in-store systems.
Total debt as of May 3, 1997 and April 27, 1996 was $369.3
million and $357.5 million, respectively. Borrowings under the
Company's credit facility averaged $165.2 million and $122.5
million during the 13 weeks ended May 3, 1997 and April 27,
1996, respectively, and peaked at $190.2 million and $180.3
million during the same periods, respectively.
As of May 3, 1997, the Company's senior credit facility
includes a $325,000 revolving credit facility and a $100,000
term loan facility and provides for an additional commitment
of $125,000 which became available to the Company in May,
1997. Based upon current operating levels and the planned
store expansion, management believes cash flows generated from
operations, short-term vendor financing and its borrowing
capacity under its credit facility will be sufficient to meet
the Company's working capital and debt service requirements,
fund restructuring reserves and support the continued rollout
of Barnes & Noble stores for at least the next twelve moths.
The Company did not declare or pay any cash dividends during
the 13-week periods ended May 3, 1997 and April 27, 1996.
8
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Results of Operations
13 weeks ended May 3, 1997 and April 27, 1996
Revenues
Revenues increased 17.1%, or $86.9 million, to $595.7 million
during the 13 weeks ended May 3, 1997 from $508.8 million
during the 13 weeks ended April 27, 1996. Barnes & Noble store
revenues grew 26.3% to $481.6 million during the 13 weeks
ended May 3, 1997, an increase of $100.1 million from $381.5
million during the 13 weeks ended April 27, 1996. With the
Company's continued "super" store expansion, Barnes & Noble
store revenues, as a percentage of total revenues, rose to
80.8% during the 13 weeks ended May 3, 1997, up from 75.0%
during the same period in the prior year. The increase in
revenues during the 13 weeks ended May 3, 1997 was primarily
attributable to an increase in comparable Barnes & Noble store
sales of 9.3% and revenues from the 87 new Barnes & Noble
stores opened since April 27, 1996. B. Dalton stores generated
18.2% of total revenues during the 13 weeks ended May 3, 1997
in comparison to 24.0% of total revenues during the same
period one year ago. B. Dalton comparable store sales
decreased (4.8%) for the period.
During the 13 weeks ended May 3, 1997, the Company opened 16
Barnes & Noble stores and closed one, bringing its total
number of Barnes & Noble stores to 446. The Company closed ten
B. Dalton stores during the quarter and ended the period with
567 stores. As of May 3, 1997 the Company operated 1,013
stores in 50 states and the District of Columbia.
Cost of Sales, Buying and Occupancy
During the 13 weeks ended May 3, 1997, cost of sales, buying
and occupancy increased $55.1 million, or 16.5%, to $388.6
million from $333.5 million for the same period one year ago.
As a percentage of revenues, cost of sales, buying and
occupancy decreased to 65.2% during the 13 weeks ended May 3,
1997 from 65.5% during the 13 weeks ended April 27, 1996. The
decrease in cost of sales, buying and occupancy as a
percentage of revenues was primarily due to improvements in
merchandise mix and increased direct purchasing through the
Company's distribution center.
Selling and Administrative Expenses
Selling and administrative expenses increased $16.0 million,
or 15.4%, to $120.2 million during the 13 weeks ended May 3,
1997 from $104.2 million during the 13 weeks ended April 27,
1996. Selling and administrative expenses decreased as a
percentage of revenues to 20.2% during the 13 weeks ended May
3, 1997 from 20.5% during the prior year period primarily due
to the Company's focus on expense controls and the continued
improvement in the Company's operating leverage resulting from
the maturation of the Company's Barnes & Noble stores.
9
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Rental Expense, Depreciation and Amortization
Rental expense increased $9.1 million, or 17.0%, to $62.2
million during the 13 weeks ended May 3, 1997 from $53.1
million during the 13 weeks ended April 27, 1996. As a
percentage of revenues, rental expense was 10.4% for each of
the 13 weeks ended May 3, 1997 and April 27, 1996.
Depreciation and amortization increased $4.1 million, or
30.6%, to $17.7 million during the 13 weeks ended May 3, 1997
from $13.6 million during the 13 weeks ended April 27, 1996.
The increase was primarily a result of the 87 new Barnes &
Noble stores opened since April 27, 1996.
Pre-opening Expenses
Pre-opening expenses decreased $0.6 million, or 14.1%, to $3.9
million during the 13 weeks ended May 3, 1997 from $4.5
million during the 13 weeks ended April 27, 1996 primarily as
a result of fewer Barnes & Noble stores opened in the twelve
month period ended May 3, 1997 as compared to the
corresponding period of the prior year.
Operating Profit
As a result of the factors discussed above, the Company's
operating profit improved to $3.1 million during the 13 weeks
ended May 3, 1997 from a ($0.1) million operating loss during
the 13 weeks ended April 27, 1996. This marks the first time
the Company posted a first-quarter operating profit since it
began its "super" store expansion. As a percentage of
revenues, operating profit increased to 0.5% for the 13 weeks
ended May 3, 1997 from virtually break even for the 13 weeks
ended April 27, 1996 reflecting strong Barnes & Noble
comparable store sales, expanding gross margins and improving
operating leverage.
Interest Expense, Net and Amortization of Deferred Financing
Fees
Interest expense, net of interest income, and amortization of
deferred financing fees increased to $9.6 million during the
13 weeks ended May 3, 1997 from $8.3 million during the 13
weeks ended April 27, 1996. The increase in net interest
expense reflects an increase in average borrowings during the
13 weeks ended May 3, 1997 in comparison to the prior year
period related to the funding of capital expenditures and
working capital for the Company's Barnes & Noble store
expansion program.
Benefit For Income Taxes
The benefit for income taxes during the 13 weeks ended May 3,
1997 was $2.7 million compared to $3.1 million during the 13
weeks ended April 27, 1996. The tax benefits were based upon
management's estimate of the Company's annualized effective
tax rates.
10
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Net Loss
As a result of the factors discussed above, the Company's
results of operations were a net loss of ($3.9) million during
the 13 weeks ended May 3, 1997 compared to a net loss of
($5.4) million during the 13 weeks ended April 27, 1996.
During the 13 weeks ended May 3, 1997, the net loss per common
share improved to ($0.12) per share from ($0.16) per share for
the same period in the prior year.
Forward-Looking Statements
This report contains certain forward-looking statements (as
such term is defined in the Private Securities Litigation
Reform Act of 1995) and information relating to the Company
that are based on the beliefs of the management of the Company
as well as assumptions made by and information currently
available to the management of the Company. When used in this
report, the words "anticipate," believe," "estimate,"
"expect," "intend," "plan" and similar expressions, as they
relate to the Company or the management of the Company,
identify forward-looking statements. Such statements reflect
the current views of the Company with respect to future
events, the outcome of which is subject to certain risks,
including among others general economic and market conditions,
possible disruptions in the Company's computer or telephone
systems, possible increases in shipping rates or interruptions
in shipping service, effects of competition, possible
disruptions or delays in the opening of new stores, the level
and volatility of interest rates, and other factors which may
be outside of the Company's control. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may
vary materially from those described herein as anticipated,
believed, estimated, expected, intended or planned. Subsequent
written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements in
this paragraph.
11
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PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit filed with this Form 10-Q: None.
(b) No report on Form 8-K was filed by the registrant
during the fiscal quarter for which this report is
filed.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARNES & NOBLE, INC.
--------------------
(Registrant)
Date: __________, 1997 By: /s/ William F. Duffy
--------------------
William F. Duffy
Vice President, Finance and Chief
Accounting Officer
13
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-2-1997
<PERIOD-END> MAY-3-1997
<CASH> 10,347
<SECURITIES> 0
<RECEIVABLES> 40,433
<ALLOWANCES> 0
<INVENTORY> 731,483
<CURRENT-ASSETS> 858,917
<PP&E> 642,123
<DEPRECIATION> 198,151
<TOTAL-ASSETS> 1,447,170
<CURRENT-LIABILITIES> 656,626
<BONDS> 290,000
0
0
<COMMON> 33
<OTHER-SE> 453,974
<TOTAL-LIABILITY-AND-EQUITY> 1,447,170
<SALES> 595,731
<TOTAL-REVENUES> 595,731
<CGS> 388,624
<TOTAL-COSTS> 388,624
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,648
<INCOME-PRETAX> (6,546)
<INCOME-TAX> (2,685)
<INCOME-CONTINUING> (3,861)
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