<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- --------------
Commission File Number: 1-12302
BARNES & NOBLE, INC.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1196501
--------------------------------------- --------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
122 Fifth Avenue, New York, NY 10011
-------------------------------------------- --------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 633-3300
--------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
--------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares of $.001 par value common stock outstanding as of November 30,
2000: 64,528,915.
<PAGE> 2
BARNES & NOBLE, INC. AND SUBSIDIARIES
October 28, 2000
Index to Form 10-Q
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - For the 13 weeks and the 39 weeks
ended October 28, 2000 and October 30, 1999.............................. 3
Consolidated Balance Sheets - October 28, 2000, October 30, 1999 and January
29, 2000................................................................. 4
Consolidated Statement of Changes in Shareholders' Equity - October 28,
2000..................................................................... 6
Consolidated Statements of Cash Flows - For the 39 weeks ended October 28,
2000 and October 30, 1999................................................ 7
Notes to Consolidated Financial Statements................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk N/A
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 22
Item 5. Other Information............................................................ 22
Item 6. Exhibits and Reports on Form 8-K............................................. 22
Signatures................................................................... 23
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(thousands of dollars, except per share data)
(unaudited)
<TABLE>
<CAPTION>
13 weeks ended 39 weeks ended
------------------------------- -------------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 951,834 715,903 2,770,420 2,161,404
Cost of sales and occupancy 692,963 515,413 2,023,393 1,569,268
------------ ------------ ------------ ------------
Gross profit 258,871 200,490 747,027 592,136
------------ ------------ ------------ ------------
Selling and administrative expenses 190,882 149,366 562,873 449,971
Depreciation and amortization 37,032 27,751 104,599 80,144
Pre-opening expenses 2,755 2,137 6,086 4,463
------------ ------------ ------------ ------------
Operating profit 28,202 21,236 73,469 57,558
Interest (net of interest income of $496, $190, $872
and $1,195, respectively) and amortization of
deferred financing fees (15,008) (5,605) (38,064) (15,352)
Equity in net loss of Barnes & Noble.com (18,901) (8,736) (54,439) (26,812)
Gain on formation of Barnes & Noble.com -- -- -- 25,000
Other income (expense), net (3,143) (1,154) (11,679) 2,803
------------ ------------ ------------ ------------
Earnings (loss) before income taxes and
cumulative effect of a change in accounting
principle (8,850) 5,741 (30,713) 43,197
Income tax provision (benefit) (3,673) 2,354 (12,746) 17,711
------------ ------------ ------------ ------------
Earnings (loss) before cumulative effect of a
change in accounting principle (5,177) 3,387 (17,967) 25,486
Cumulative effect of a change in accounting
principle, net of tax benefits of $3,125 -- -- -- (4,500)
------------ ------------ ------------ ------------
Net earnings (loss) $ (5,177) 3,387 (17,967) 20,986
============ ============ ============ ============
Earnings (loss) per common share:
Basic
Earnings (loss) before cumulative effect of a
change in accounting principle $ (0.08) 0.05 (0.28) 0.37
Cumulative effect of a change in accounting
principle, net of tax benefits $ - -- -- (0.07)
Net earnings (loss) $ (0.08) 0.05 (0.28) 0.30
Diluted
Earnings (loss) before cumulative effect of a
change in accounting principle $ (0.08) 0.05 (0.28) 0.35
Cumulative effect of a change in accounting
principle, net of tax benefits $ - -- -- (0.06)
Net earnings (loss) $ (0.08) 0.05 (0.28) 0.29
Weighted average common shares outstanding
Basic 64,226,000 69,417,000 64,185,000 69,235,000
Diluted 64,226,000 71,461,000 64,185,000 71,772,000
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars, except per share data)
<TABLE>
<CAPTION>
October 28, October 30, January 29,
2000 1999 2000
---------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 36,609 19,234 24,247
Receivables, net 88,294 76,470 58,240
Merchandise inventories 1,454,945 1,275,167 1,102,453
Prepaid expenses and other current assets 72,575 59,118 56,579
---------- ---------- ----------
Total current assets 1,652,423 1,429,989 1,241,519
---------- ---------- ----------
Property and equipment:
Land and land improvements 3,247 3,247 3,247
Buildings and leasehold improvements 438,114 402,581 417,535
Fixtures and equipment 658,887 549,403 565,345
---------- ---------- ----------
1,100,248 955,231 986,127
Less accumulated depreciation and amortization 522,387 398,029 418,078
---------- ---------- ----------
Net property and equipment 577,861 557,202 568,049
---------- ---------- ----------
Intangible assets, net 420,136 287,447 298,011
Investment in Barnes & Noble.com 186,092 255,767 240,531
Other noncurrent assets 63,322 45,049 65,681
---------- ---------- ----------
Total assets $2,899,834 2,575,454 2,413,791
========== ========== ==========
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars, except per share data)
<TABLE>
<CAPTION>
October 28, October 30, January 29,
2000 1999 2000
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 865,203 756,928 599,376
Accrued liabilities 196,631 210,534 323,475
----------- ----------- -----------
Total current liabilities 1,061,834 967,462 922,851
----------- ----------- -----------
Long-term debt 820,300 575,000 431,600
Deferred income taxes 123,491 117,552 125,006
Other long-term liabilities 94,776 84,779 87,974
Shareholders' equity:
Common stock; $.001 par value; 300,000,000 shares authorized; 69,814,985,
69,442,074 and 69,553,839 shares issued, respectively 70 69 70
Additional paid-in capital 658,340 653,037 654,584
Accumulated other comprehensive earnings (loss) (3,334) 1,366 (1,198)
Retained earnings 261,734 176,189 279,701
Treasury stock, at cost, 5,504,700, 0 and 4,025,900 shares,
respectively (117,377) -- (86,797)
----------- ----------- -----------
Total shareholders' equity 799,433 830,661 846,360
----------- ----------- -----------
Commitments and contingencies -- -- --
----------- ----------- -----------
Total liabilities and shareholders' equity $ 2,899,834 2,575,454 2,413,791
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Treasury
Common Paid-In Comprehensive Retained Stock at
Stock Capital Loss Earnings Cost Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 29, 2000 $ 70 $ 654,584 $ (1,198) $ 279,701 $ (86,797) $ 846,360
--------- --------- --------- --------- --------- ---------
Net loss -- -- -- (17,967) -- (17,967)
Other comprehensive loss (net of
deferred income tax benefit of
$1,515) -- -- (2,136) -- -- (2,136)
Exercise of 261,146 common stock
options -- 3,756 -- -- -- 3,756
Treasury stock acquired,
1,478,800 shares -- -- -- -- (30,580) (30,580)
--------- --------- --------- --------- --------- ---------
Balance at October 28, 2000 $ 70 $ 658,340 $ (3,334) $ 261,734 $(117,377) $ 799,433
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
39 weeks ended
--------------
October 28, October 30,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (17,967) 20,986
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Depreciation and amortization 105,387 80,426
Loss on disposal of property and equipment 1,977 4,078
Increase in other long-term liabilities for scheduled rent increases in long-term leases 7,422 10,043
Cumulative effect of a change in accounting principle, net of taxes -- 4,500
Other (income) expense, net 11,679 (2,803)
Gain on the formation of Barnes & Noble.com -- (25,000)
Equity in net loss of Barnes & Noble.com 54,439 26,812
Changes in operating assets and liabilities, net (254,441) (216,099)
--------- ---------
Net cash flows from operating activities (91,504) (97,057)
--------- ---------
Cash flows from investing activities:
Acquisition of consolidated subsidiaries, net of cash received (148,492) (175,760)
Purchases of property and equipment (94,573) (104,484)
Investment in iUniverse.com (8,000) (10,142)
Proceeds from the partial sale of Chapters Inc. -- 21,558
Proceeds from the partial sale of iUniverse.com 2,962 --
Proceeds from the formation of Barnes & Noble.com -- 25,000
Net increase in other noncurrent assets (9,907) (10,224)
--------- ---------
Net cash flows from investing activities (258,010) (254,052)
--------- ---------
Cash flows from financing activities:
Net increase in revolving credit facility 388,700 325,900
Proceeds from exercise of common stock options, including related tax benefits 3,756 13,362
Purchase of treasury stock through repurchase program (30,580) --
--------- ---------
Net cash flows from financing activities 361,876 339,262
--------- ---------
Net increase (decrease) in cash and cash equivalents 12,362 (11,847)
Cash and cash equivalents at beginning of period 24,247 31,081
--------- ---------
Cash and cash equivalents at end of period $ 36,609 19,234
========= =========
Changes in operating assets and liabilities, net:
Receivables, net $ (33,788) (14,435)
Merchandise inventories (323,830) (241,773)
Prepaid expenses and other current assets (3,538) (10,487)
Accounts payable and accrued liabilities 106,715 50,596
--------- ---------
Changes in operating assets and liabilities, net $(254,441) (216,099)
========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 31,756 15,127
Income taxes $ 72,396 69,645
Supplemental disclosure of subsidiaries acquired:
Assets acquired $ 180,140 201,910
Liabilities assumed 31,648 26,150
--------- ---------
Cash paid $ 148,492 175,760
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 39 weeks ended October 28, 2000 and October 30, 1999
(thousands of dollars, except per share data)
(unaudited)
The unaudited consolidated financial statements include the accounts of
Barnes & Noble, Inc. and its wholly owned subsidiaries (collectively, the
Company).
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly its consolidated
financial position as of October 28, 2000 and the results of its operations and
its cash flows for the 39 weeks then ended. These consolidated financial
statements are condensed and therefore do not include all of the information and
footnotes required by generally accepted accounting principles. The consolidated
financial statements should be read in conjunction with the Company's annual
report on Form 10-K for the 52 weeks ended January 29, 2000 (fiscal 1999). The
Company follows the same accounting policies in preparation of interim reports.
Due to the seasonal nature of the business, the results of operations
for the 39 weeks ended October 28, 2000 are not indicative of the results to be
expected for the 53 weeks ending February 3, 2001.
(1) Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost
is determined using the retail inventory method on the first-in, first-out
(FIFO) basis for 79%, 81% and 83% of the Company's merchandise inventories as of
October 28, 2000, October 30, 1999 and January 29, 2000, respectively.
Merchandise inventories of Babbage's Etc. LLC (Babbage's Etc.) and Funco, Inc.,
which represent approximately 11% of merchandise inventories as of October 28,
2000, are recorded based on the average cost method. The remaining merchandise
inventories are valued on the last-in, first-out (LIFO) method.
If substantially all of the merchandise inventories currently valued at
LIFO costs were valued at current costs, merchandise inventories would remain
unchanged as of October 28, 2000, October 30, 1999 and January 29, 2000.
(2) Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
(3) Income Taxes
The tax provisions for the 39 weeks ended October 28, 2000 and October
30, 1999 are based upon management's estimate of the Company's annualized
effective tax rate.
8
<PAGE> 9
BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 39 weeks ended October 28, 2000 and October 30, 1999
(thousands of dollars, except per share data)
(unaudited)
(4) Comprehensive Earnings
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", establishes standards for the reporting and display of
comprehensive earnings and its components in the financial statements.
Comprehensive earnings are net earnings, plus certain other items that are
recorded directly to shareholders' equity. The only such items currently
applicable to the Company are the unrealized gains (losses) on
available-for-sale securities, as follows:
<TABLE>
<CAPTION>
13 weeks ended 39 weeks ended
----------------------------- ------------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss) $ (5,177) $ 3,387 $(17,967) $ 20,986
Other comprehensive earnings
(loss):
Unrealized gain (loss) on
available-for-sale securities,
net of deferred income tax
provision (benefit) of $1,271,
($2,346), ($1,402) and $989,
respectively 1,792 (3,239) (2,136) 1,366
-------- -------- -------- --------
Comprehensive earnings (loss) $ (3,385) $ 148 $(20,103) $ 22,352
======== ======== ======== ========
</TABLE>
9
<PAGE> 10
BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 39 weeks ended October 28, 2000 and October 30, 1999
(thousands of dollars, except per share data)
(unaudited)
(5) Other Income (Expense)
The following table sets forth the components of other income (expense), in
thousands of dollars:
<TABLE>
<CAPTION>
13 weeks ended 39 weeks ended
--------------------------- ---------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Gain on partial sale of Chapters Inc.(a) $ - -- -- 10,975
Equity in net losses of Chapters Inc.(a) -- -- -- (100)
Equity in net losses of iUniverse.com(b) (2,041) -- (7,575) --
Gain on partial sale of iUniverse.com(b) 326 -- 326 --
Equity in net losses of Calendar Club LLC(c) (1,428) (1,154) (4,430) (3,072)
Termination of planned acquisition of Ingram
Book Group(d) -- -- -- (5,000)
------- ------- ------- -------
Total other income (expense) $(3,143) (1,154) (11,679) 2,803
======= ======= ======= =======
</TABLE>
(a) During fiscal 1999, the Company sold a portion of its investment in
Chapters Inc. (Chapters) resulting in a pre-tax gain of $10,975. Prior
to this transaction, the Company accounted for its investment in
Chapters under the equity method.
(b) During 1999, the Company acquired a 41 percent interest in
iUniverse.com for $20,000. In the first quarter of fiscal 2000, the
Company invested an additional $8,000 in iUniverse.com thereby
increasing its percentage ownership interest to 49 percent. In the
third quarter of fiscal 2000, the Company sold a portion of its
investment in iUniverse.com thereby decreasing its percentage ownership
interest to 29 percent. This transaction resulted in a pre-tax gain of
$326. This investment is being accounted for under the equity method
and is reflected as a component of other noncurrent assets.
(c) The Company's interest in Calendar Club LLC is being accounted for
under the equity method and is reflected as a component of other
noncurrent assets.
(d) In 1999, the Company and Ingram Book Group (Ingram) announced their
agreement to terminate the Company's planned acquisition of Ingram. As
a result, other income reflects a one-time charge of $5,000 for
acquisition related costs.
(6) Acquisition of Funco, Inc.
In the second quarter of fiscal 2000, the Company acquired all of the
outstanding shares of Funco, Inc., a Minneapolis-based electronic games
retailer, through a successful tender offer and follow-up merger for $24.75 per
share or approximately $159.2 million (excluding acquisition related costs). The
acquisition was accounted for by the purchase method of accounting and
accordingly, the Company's consolidated balance sheet reflects the acquisition.
The excess of purchase price over the net assets acquired, in the amount of
approximately $127 million, has been recorded as goodwill and is being amortized
using the straight-line method over an estimated
10
<PAGE> 11
BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 39 weeks ended October 28, 2000 and October 30, 1999
(thousands of dollars, except per share data)
(unaudited)
useful life of 30 years. The acquisition is included in the results of
operations as of June 15, 2000. The pro forma effect assuming the acquisition of
Funco, Inc. at the beginning of fiscal 1999 and fiscal 2000 is not material.
(7) Segment Information
Historically, the Company operated as a single segment. As a result of
the acquisitions of Babbage's Etc. in 1999 and Funco, Inc. in 2000, the Company
is currently operating under two segments and accordingly, is required to
disclose information in accordance with Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). The Company's reportable segments are strategic groups
that offer different products. These groups have been aggregated into two
segments: bookstores and video game and entertainment software stores.
Bookstores
This segment includes 559 book "super" stores operated under the Barnes
& Noble Booksellers, Bookstop and Bookstar names and 378 small format mall-based
stores operated under the B. Dalton Bookseller, Doubleday Book Shops and
Scribner's Bookstore names.
Video Game and Entertainment Software Stores
This segment includes 562 video game and entertainment software stores
operated under the Babbage's, Software Etc. and GameStop names, 404 stores under
the FuncoLand name, Web sites (gamestop.com and funcoland.com) and Game Informer
magazine (collectively, Video Game & Entertainment Software).
The accounting policies of the segments are the same as those for the
Company as a whole. Segment operating profit includes corporate expenses in each
operating segment. Barnes & Noble evaluates the performance of its segments and
allocates resources to them based on operating profit.
11
<PAGE> 12
BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 39 weeks ended October 28, 2000 and October 30, 1999
(thousands of dollars, except per share data)
(unaudited)
Segment information for the 13 weeks and 39 weeks ended October 28,
2000 and October 30, 1999 follows:
<TABLE>
<CAPTION>
13 weeks ended 39 weeks ended
------------------------------------- --------------------------- --------------------------
October 28, October 30, October 28, October 30,
Sales 2000 1999 2000 1999
------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Bookstores $ 768,650 715,903 2,339,911 2,161,404
Video game and entertainment software
stores 183,184 -- 430,509 --
--------- --------- --------- ---------
Total $ 951,834 715,903 2,770,420 2,161,404
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
13 weeks ended 39 weeks ended
------------------------------------- --------------------------- --------------------------
October 28, October 30, October 28, October 30,
Operating profit (loss) 2000 1999 2000 1999
------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Bookstores $ 29,656 21,236 81,705 57,558
Video game and entertainment software
stores (1,454) -- (8,236) --
--------- --------- --------- ---------
Total $ 28,202 21,236 73,469 57,558
========= ========= ========= =========
</TABLE>
A reconciliation of operating profit reported by reportable segments to
earnings before income taxes and cumulative effect of a change in accounting
principle in the consolidated financial statements for the 13 weeks and 39 weeks
ended October 28, 2000 and October 30, 1999 is as follows:
<TABLE>
<CAPTION>
13 weeks ended 39 weeks ended
---------------------------- ----------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Reportable segments operating profit $ 28,202 21,236 73,469 57,558
Interest, net (15,008) (5,605) (38,064) (15,352)
Equity in net loss of Barnes & Noble.com (18,901) (8,736) (54,439) (26,812)
Gain on formation of Barnes & Noble.com -- -- -- 25,000
Other income (expense) (3,143) (1,154) (11,679) 2,803
-------- -------- -------- --------
Consolidated earnings (loss) before income taxes and
cumulative effect of a change in accounting
principle $ (8,850) 5,741 (30,713) 43,197
======== ======== ======== ========
</TABLE>
12
<PAGE> 13
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Recent Events
Funco, Inc.
In the second quarter of fiscal 2000, the Company acquired all of the
outstanding shares of Funco, Inc., a Minneapolis-based electronic games
retailer, through a successful tender offer and follow-up merger for $24.75 per
share or approximately $159.2 million (excluding acquisition related costs). The
acquisition was accounted for by the purchase method of accounting and
accordingly, the Company's consolidated balance sheet reflects the acquisition.
The excess of purchase price over the net assets acquired, in the amount of
approximately $127 million, has been recorded as goodwill and is being amortized
using the straight-line method over an estimated useful life of 30 years. The
acquisition is included in the results of operations as of June 15, 2000. The
pro forma effect assuming the acquisition of Funco, Inc. at the beginning of
fiscal 1999 and fiscal 2000 is not material.
Liquidity and Capital Resources
The primary sources of the Company's cash are net cash flows from operating
activities, funds available under its $850.0 million senior credit facility and
short-term vendor financing.
During the quarter, the Company obtained an additional $100.0 million senior
unsecured seasonal credit facility (seasonal credit facility) with a syndicate
of banks led by The Chase Manhattan Bank. The seasonal credit facility, which
matures on January 31, 2001, permits for borrowings at London Interbank Offer
Rate plus 2.00 percent. In addition, the agreement requires the Company to pay a
commitment fee of 0.375 percent of the unused portion. The seasonal credit
facility is guaranteed by all restricted subsidiaries of Barnes & Noble. At the
end of the quarter, the Company had no outstanding borrowings under the seasonal
credit facility.
The Company's cash and cash equivalents as of October 28, 2000 were $36.6
million as compared with $19.2 million as of October 30, 1999. During the 39
weeks ended October 28, 2000, retail earnings before interest, taxes,
depreciation and amortization (EBITDA) increased 29.3% or $40.4 million to
$178.1 million from $137.7 million during the comparable prior year period,
reflecting higher sales levels and improving expense leverage.
Merchandise inventories increased to $1,454.9 million as of October 28, 2000,
from $1,275.2 million as of October 30, 1999, primarily due to the increase of
Babbage's Etc. and Funco, Inc. (Video Game & Entertainment Software) inventory.
The increase in book inventory supported the Company's 8.3% book sales growth,
the opening of 34 Barnes & Noble stores over the last twelve months and the
strategic increase in the distribution center standing inventory to over 750,000
in-stock titles available for shipping within 24 hours to both online customers
and the retail store network.
The Company's investing activities consist principally of business acquisitions,
capital expenditures for new store construction, system enhancements and store
relocations/remodels. Business acquisitions totaled $148.5 million and $175.8
million and capital expenditures totaled $94.6 million and $104.5 million during
the 39 weeks ended October 28, 2000 and October 30, 1999, respectively.
13
<PAGE> 14
Total debt increased 42.7% to $820.3 million as of October 28, 2000 from $575.0
million as of October 30, 1999. Average borrowings under the Company's senior
credit facility were $680.1 million and $348.4 million during the 39 weeks ended
October 28, 2000 and October 30, 1999, respectively, and peaked at $843.5
million and $575.0 million during the same periods. The increase in the senior
credit facility and average borrowings were primarily attributable to the
funding of the Video Game & Entertainment Software acquisitions as well as the
execution of the common stock repurchase program. As of October 28, 2000, the
Company repurchased 5,504,700 shares at a cost of approximately $117.4 million
under this program. The repurchased shares are held in treasury. As a result of
the above transactions, the ratio of debt to equity increased to 1.03:1.00 as of
October 28, 2000, compared with 0.69:1.00 as of October 30, 1999.
Based upon the Company's current operating levels, management believes net cash
flows from operating activities and the capacity under its existing senior
credit facility and seasonal credit facility will be sufficient to meet the
Company's normal working capital and debt service requirements for at least the
next twelve months.
The Company did not declare or pay any cash dividends during the 39-week periods
ended October 28, 2000 and October 30, 1999.
Results of Operations
13 weeks ended October 28, 2000 and October 30, 1999
Sales
During the 13 weeks ended October 28, 2000, Barnes & Noble "super" store sales
rose 10.8% to $689.9 million from $622.3 million during the same period a year
ago and accounted for 72.5% of total Company sales or 89.8% of total bookstore
sales. Video Game & Entertainment Software sales were $183.2 million for the
third quarter of 2000. The Company's consolidated sales grew 33.0% to $951.8
million from $715.9 million during the third quarter of 2000 as compared with
the same period a year ago.
During the third quarter, the 10.8% increase in Barnes & Noble bookstore sales
was primarily attributable to a same store sales gain of 5.6% coupled with 34
new stores opened since October 30, 1999 which contributed a 6.5% increase in
square footage. Sales were strong across all book categories, particularly
children's books, fiction, non-fiction and educational books (teaching aids and
workbooks for the growing home school market), as well as music and cafes. In
addition, the number of stores included in the comparable store sales base
increased to 94.8% as of October 28, 2000 compared with 91.7% as of October 30,
1999.
B. Dalton sales declined 14.1% during the third quarter and represented 7.9% of
total Company sales. The decrease was primarily a result of 66 store closings
and a 13.7% reduction in its square footage since October 30, 1999. B. Dalton's
same store sales declined 2.2% during the third quarter.
During the 13 weeks ended October 28, 2000, the Company opened nine Barnes &
Noble stores and closed one, bringing its total number of Barnes & Noble
bookstores to 559 with 13.1 million square feet. The Company closed one B.
Dalton store, ending the period with 378 B. Dalton stores and 1.5 million square
feet. The Company opened 17 Babbage's Etc. stores, bringing its total number of
Babbage's Etc. stores to 562. The Company closed
14
<PAGE> 15
three FuncoLand stores, ending the quarter with 404 FuncoLand stores. As of
October 28, 2000, the Company operated 1,903 stores in all fifty states, the
District of Columbia and Puerto Rico.
Cost of Sales and Occupancy
During the 13 weeks ended October 28, 2000, cost of sales and occupancy
increased $177.6 million, or 34.5%, to $693.0 million from $515.4 million during
the 13 weeks ended October 30, 1999. As a percentage of sales, cost of sales and
occupancy increased to 72.8% during fiscal 2000's third quarter from 72.0%
during the same period one year ago. This increase is primarily due to the
inclusion of Video Game & Entertainment Software cost of sales and occupancy
partially offset by improved leverage in the bookstore business.
Selling and Administrative Expenses
Selling and administrative expenses increased $41.5 million to $190.9 million
during the 13 weeks ended October 28, 2000 from $149.4 million during the 13
weeks ended October 30, 1999 primarily due to the inclusion of Video Game &
Entertainment Software selling and administrative expenses in the third quarter
of fiscal 2000. During the third quarter, selling and administrative expenses
decreased as a percentage of sales to 20.1% from 20.9% during the same period
one year ago. This improvement is primarily attributable to lower selling and
administrative expenses as a percentage of sales in the Video Game &
Entertainment Software segment.
Depreciation and Amortization
During the third quarter, depreciation and amortization increased $9.2 million,
or 33.1%, to $37.0 million from $27.8 million during the same period last year.
The increase was primarily the result of the inclusion of Video Game &
Entertainment Software store depreciation, amortization expense associated with
the $329.7 million of goodwill recorded in connection with the Video Game &
Entertainment Software acquisitions and depreciation on the 34 new Barnes &
Noble stores opened since October 30, 1999.
Pre-opening Expenses
Pre-opening expenses increased $0.7 million, or 33.3%, to $2.8 million during
the 13 weeks ended October 28, 2000 from $2.1 million for the 13 weeks ended
October 30, 1999 partially attributable to the inclusion of Video Game &
Entertainment Software store pre-opening expenses in the third quarter of fiscal
2000.
Operating Profit
The Company's consolidated operating profit increased to $28.2 million during
the 13 weeks ended October 28, 2000 from $21.2 million during the 13 weeks ended
October 30, 1999, primarily due to the 39.7% increase in bookstore operating
profit to $29.7 million as a result of increased sales and higher operating
margins. This increase was partially offset by operating losses of $1.5 million
from Video Game & Entertainment Software stores.
15
<PAGE> 16
Interest Expense, Net and Amortization of Deferred Financing Fees
Net interest expense and amortization of deferred financing fees increased to
$15.0 million during the 13 weeks ended October 28, 2000 from $5.6 million
during the 13 weeks ended October 30, 1999. This increase was primarily the
result of an increase in the interest rate, as well as increased borrowings
under the Company's revolving credit facility used to fund the common stock
repurchase program and the Company's Video Game & Entertainment Software
acquisitions, partially offset by the Company's strong cash flows from the
bookstore business.
Other Income (Expense)
Other expense of ($3.1) million for the third quarter of 2000 resulted from
equity losses from the Company's investments, partially offset by a one-time
gain on the partial sale of iUniverse.com. Other expense of ($1.2) million for
the third quarter of 1999 resulted from equity losses from the Company's
investments.
Income Taxes
The benefit for income taxes during the 13 weeks ended October 28, 2000 was
($3.7) million as compared with a provision for income taxes of $2.4 million
during the 13 weeks ended October 30, 1999. Tax effects were based upon
management's estimate of the Company's annualized effective tax rates. The
Company's effective tax rate was 41.5% for the third quarter of 2000, as
compared with 41.0% for the third quarter of 1999.
16
<PAGE> 17
Net Earnings (Loss)
As a result of the factors discussed above, the Company reported a consolidated
net loss of ($5.2) million (or ($0.08) per diluted share) during the 13 weeks
ended October 28, 2000, compared with net earnings of $3.4 million (or $0.05 per
diluted share) during the 13 weeks ended October 30, 1999. Components of
earnings per share are as follows:
<TABLE>
<CAPTION>
13 weeks ended
-----------------------------
October 28, October 30,
2000 1999
---- ----
<S> <C> <C>
Retail Earnings Per Share
Bookstores $ 0.20 0.13
Video game and entertainment software stores (0.08) --
--------- ---------
Retail EPS $ 0.12 0.13
EPS Impact of Investing Activities
Non-Cash:
Share of net losses of Barnes & Noble.com $ (0.17) (0.07)
Share of net losses from other equity investments (0.03) (0.01)
--------- ---------
Total Investing Activities $ (0.20) (0.08)
--------- ---------
Consolidated EPS $ (0.08) 0.05
========= =========
</TABLE>
Results of Operations
39 weeks ended October 28, 2000 and October 30, 1999
Sales
During the 39 weeks ended October 28, 2000, Barnes & Noble "super" store sales
rose 11.7% to $2.096 billion from $1.877 billion during the same period a year
ago and accounted for 75.7% of total Company sales or 89.6% of total bookstore
sales. Video Game & Entertainment Software sales for the 39 weeks ended October
28, 2000 were $430.5 million. The Company's consolidated sales totaled $2.770
billion during the 39 weeks ended October 28, 2000, a 28.2% increase over sales
of $2.161 billion during the 39 weeks ended October 30, 1999.
During the 39 weeks ended October 28, 2000, the 11.7% increase in Barnes & Noble
bookstore sales was primarily attributable to a same store sales gain of 6.3%
coupled with 34 new stores opened since October 30, 1999 which contributed a
6.5% increase in square footage. Sales were strong across all book categories,
particularly children's books, fiction, non-fiction and educational books
(teaching aids and workbooks for the growing home school market), as well as
music and cafes. In addition, the number of stores included in the
17
<PAGE> 18
comparable store sales base increased to 94.8% as of October 28, 2000 compared
with 91.7% as of October 30, 1999.
B. Dalton sales during the 39 weeks ended October 28, 2000 declined 13.5% and
represented 8.5% of total Company sales. The decrease was primarily a result of
66 store closings and a 13.7% reduction in its square footage since October 30,
1999. In addition, B. Dalton's same store sales decreased 1.2% during the 39
weeks ended October 28, 2000.
During the 39 weeks ended October 28, 2000, the Company opened 20 Barnes & Noble
stores and closed three, bringing its total number of Barnes & Noble bookstores
to 559 with 13.1 million square feet. The Company closed 22 B. Dalton stores,
ending the period with 378 B. Dalton stores and 1.5 million square feet. The
Company opened 40 Babbage's Etc. stores and closed four, bringing its total
number of Babbage's Etc. stores to 562. The Company closed three FuncoLand
stores, ending the quarter with 404 FuncoLand stores. As of October 28, 2000,
the Company operated 1,903 stores in all fifty states, the District of Columbia
and Puerto Rico.
Cost of Sales and Occupancy
During the 39 weeks ended October 28, 2000, cost of sales and occupancy
increased $454.1 million, or 28.9%, to $2,023.4 million from $1,569.3 million
during the 39 weeks ended October 30, 1999. As a percentage of sales, cost of
sales and occupancy increased to 73.0% during the 39 weeks ended October 28,
2000 from 72.6% during the same period last year. This increase is primarily due
to the inclusion of Video Game & Entertainment Software cost of sales and
occupancy partially offset by improved leverage in the bookstore business.
Selling and Administrative Expenses
Selling and administrative expenses increased $112.9 million, or 25.1%, to
$562.9 million during the 39 weeks ended October 28, 2000 from $450.0 million
during the 39 weeks ended October 30, 1999 primarily due to the inclusion of
Video Game & Entertainment Software selling and administrative expenses. As a
percentage of sales, selling and administrative expenses decreased to 20.3%
during the 39 weeks ended October 28, 2000 from 20.8% during the same period
last year. This improvement is primarily attributable to lower selling and
administrative expenses as a percentage of sales in the Video Game &
Entertainment Software segment.
Depreciation and Amortization
During the 39 weeks ended October 28, 2000, depreciation and amortization
increased $24.5 million, or 30.6%, to $104.6 million from $80.1 million during
the same period last year. The increase was primarily the result of the
inclusion of Video Game & Entertainment Software store depreciation,
amortization expense associated with the $329.7 million of goodwill recorded in
connection with the Video Game & Entertainment Software acquisitions and the
depreciation on the 34 new Barnes & Noble stores opened since October 30, 1999.
Pre-opening Expenses
Pre-opening expenses increased $1.6 million, or 35.6%, to $6.1 million during
the 39 weeks ended October 28, 2000 from $4.5 million for the 39 weeks ended
October 30, 1999 partially due to the inclusion of Video Game & Entertainment
Software store pre-opening expenses in fiscal 2000.
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<PAGE> 19
Operating Profit
The Company's consolidated operating profit increased to $73.5 million during
the 39 weeks ended October 28, 2000 from $57.6 million during the 39 weeks ended
October 30, 1999, primarily due to the 42.0% increase in bookstore operating
profit to $81.7 million as a result of increased sales and higher operating
margins. This increase was partially offset by operating losses of $8.2 million
from Video Game & Entertainment Software stores.
Interest Expense, Net and Amortization of Deferred Financing Fees
Net interest expense and amortization of deferred financing fees increased to
$38.1 million during the 39 weeks ended October 28, 2000 from $15.4 million
during the 39 weeks ended October 30, 1999. This increase was primarily the
result of an increase in the interest rate, as well as increased borrowings
under the Company's revolving credit facility used to fund the common stock
repurchase program and the Company's Video Game & Entertainment Software
acquisitions, partially offset by the Company's strong cash flows from the
bookstore business.
Other Income (Expense)
Other expense of ($11.7) million for the 39 weeks ended October 28, 2000
resulted from equity losses from the Company's investments partially offset by a
one-time gain on the partial sale of iUniverse.com. Other income of $2.8 million
for the 39 weeks ended October 30, 1999 resulted from a one-time gain on the
partial sale of Chapters, partially offset by equity losses from the Company's
investments as well as costs incurred for the termination of the planned Ingram
acquisition.
Income Taxes
The benefit for income taxes during the 39 weeks ended October 28, 2000 was
($12.7) million as compared with a provision for income taxes of $17.7 million
during the 39 weeks ended October 30, 1999. Tax effects were based upon
management's estimate of the Company's annualized effective tax rates. The
Company's effective tax rate is 41.5% for fiscal 2000, as compared with 41.0%
for fiscal 1999.
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<PAGE> 20
Net Earnings (Loss)
As a result of the factors discussed above, the Company reported a consolidated
net loss of ($18.0) million (or ($0.28) per diluted share) during the 39 weeks
ended October 28, 2000, compared with net earnings of $21.0 million (or $0.29
per diluted share) during the 39 weeks ended October 30, 1999. Components of
earnings per share are as follows:
<TABLE>
<CAPTION>
39 weeks ended
----------------------------
October 28, October 30,
2000 1999
---- ----
<S> <C> <C>
Retail Earnings Per Share
Bookstores $ 0.55 0.35
Video game and entertainment software stores (0.22) --
--------- ---------
Retail EPS $ 0.33 0.35
EPS Impact of Investing Activities
Cash:
Gain on Barnes & Noble.com $ -- 0.21
Chapters Gain -- 0.09
Non-Cash:
Share of net losses of Barnes & Noble.com (0.50) (0.22)
Share of net losses from other equity investments (0.11) (0.04)
--------- ---------
Total Investing Activities $ (0.61) 0.04
Other Adjustments
Change in accounting for pre-opening costs $ -- (0.06)
Ingram write-off -- (0.04)
--------- ---------
Total Other Adjustments $ -- (0.10)
--------- ---------
Consolidated EPS $ (0.28) 0.29
========= =========
</TABLE>
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<PAGE> 21
Disclosure Regarding Forward-Looking Statements
This report may contain certain forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) and information
relating to the Company that are based on the beliefs of the management of the
Company as well as assumptions made by and information currently available to
the management of the Company. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend," "plan" and similar expressions, as
they relate to the Company or the management of the Company, identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events, the outcome of which is subject to
certain risks, including among others general economic and market conditions,
decreased consumer demand for the Company's products, possible disruptions in
the Company's computer or telephone systems, possible work stoppages or
increases in labor costs, possible increases in shipping rates or interruptions
in shipping service, effects of competition, possible disruptions or delays in
the opening of new stores or the inability to obtain suitable sites for new
stores, higher than anticipated store closing or relocation costs, higher
interest rates, the performance of the Company's online initiatives such as
Barnes & Noble.com, the performance and successful integration of acquired
businesses, the success of the Company's strategic investments, unanticipated
increases in merchandise or occupancy costs, unanticipated adverse litigation
results or effects, and other factors which may be outside of the Company's
control. In addition, the video game market has historically been cyclical in
nature and dependent upon the introduction of new generation systems and related
interactive software. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those described as anticipated, believed,
estimated, expected, intended or planned. Subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the cautionary statements in
this paragraph.
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<PAGE> 22
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
With respect to the pending lawsuits described in the Company's Form
10-K Annual Report for the fiscal year ended January 29, 2000, the following
material developments have occurred:
In the litigation against the Company and Borders Group, Inc. filed in
the United States District Court for the Northern District of California by the
American Booksellers Association (ABA) and 26 independent bookstores, the
plaintiffs have provided the Company with a report estimating the amount of
damages they believe to be payable by the Company, exclusive of interest. Those
damages, in the aggregate, are $3.6 to $5.5 million (before trebling) with
respect to claims under the Robinson-Patman Act, and $5.0 to $7.4 million with
respect to disgorgement claims under California law. The Company disputes the
plaintiffs' claims of damages and intends to continue to vigorously defend this
action.
Item 5: Other Information
Shareholder Proposals
Any shareholder proposal submitted outside the processes of Rule 14a-8
under the Securities Exchange Act of 1934, as amended (the Exchange Act), for
presentation at the Company's 2001 Annual Meeting will be considered untimely
for purposes of Rules 14a-4 and 14a-5 under the Exchange Act if notice of such
shareholder proposal is received by the Company after January 8, 2001.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Form 10-Q:
Exhibit 10: Credit Agreement, dated as of October 12,
2000, among the Company, its subsidiaries, The Chase
Manhattan Bank (National Association), as
Administrative Agent and the Banks party thereto.
Exhibit 27: Financial Data Schedule
(b) No report on Form 8-K was filed by the registrant during
the fiscal quarter for which this report is filed.
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<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARNES & NOBLE, INC.
--------------------
(Registrant)
By: /s/Maureen O'Connell
--------------------
Maureen O'Connell
Chief Financial Officer
December 11, 2000
23
